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adaptability: the new competitive advantage

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The company’s executives believe that a great workplace is full of “stunning colleagues” who embody these qualities; thus the Netflix model is to “increase employee freedom as we grow, rather than limit it, to continue to attract and nourish innovative people, so we have a better chance of long-term continued success.” Consistent with this philosophy, Netflix has only two types of rules: those designed to prevent irrevocable disaster and those designed to prevent moral, ethical, and legal issues. Organizations therefore need to create environments that encourage the knowledge flow, diversity, autonomy, risk taking, sharing, and flexibility on which adaptation thrives. Procter & Gamble is a case in point. Adaptability: The New Competitive Advantage We are living in times of risk and instability. Contrary to classical strategic thinking, strategy follows organization in adaptive companies. It uses a walk-in, 3-D virtual store to run experiments that are quicker and cheaper than traditional market tests. The adaptive approach is no universal panacea. Adaptability: The New Competitive Advantage (Harvard Business Review) By: Martin Reeves,Mike Deimler Narrated by: Todd Mundt Free with a 30-day trial $14.95 a … Organizations often forget that adaptability can offer a way out. Adaptive companies are very tolerant of failure, even to the point of celebrating it. The need for these new capabilities comes from the high level of uncertainty that poses a tremendous challenge for strategy making these days. We’ll also discuss the implications of this fundamental strategic shift for large, established corporations, many of which have built their operations around scale and efficiency—sources of advantage that rely on an essentially stable environment. Typically, adaptive companies have replaced permanent silos and functions with modular units that freely communicate and recombine according to the situation at hand. Since 1980 the volatility of business operating margins, largely static since the 1950s, has more than doubled, as has the size of the gap between winners (companies with high operating margins) and losers (those with low ones). They have worked out how to experiment rapidly and frequently not only with products and services but also with business models, processes, and strategies. and pay only $8.00 each. and pay only $8.25 each, Buy 500 or above Yet the traditional approaches can be costly and time-consuming, and may saddle the organization with an unreasonable burden of complexity. Creating decentralized, fluid, and even competing organizational structures destroys the big advantage of a rigid hierarchy, which is that everyone knows precisely what he or she should be doing. As the Netflix “Reference Guide on Our Freedom & Responsibility Culture” puts it, “Avoid Chaos as you grow with Ever More High Performance People—not with Rules.”. In this period of risk and uncertainty, more and more managers are finding competitive advantage in organizational capabilities that foster rapid adaptation. In managing these initiatives, your company should be as disciplined with metrics, time frames, and responsibilities as it would be for the product portfolio or the operating plan. All this uncertainty poses a tremendous challenge for strategy making. This flies somewhat in the face of the unspoken assumption that the unit of analysis for strategy is a single company or business unit. For example, Netflix values nine core behaviors and skills in its employees: judgment, communication, impact, curiosity, innovation, courage, passion, honesty, and selflessness. At Whole Foods the basic organizational unit is the team, and each store has about eight teams. This article addresses how companies are adapting their strategy's to gain a competitive advantage for the future. But in an increasingly turbulent environment, business models, strategies, and routines can also become obsolete quickly and unpredictably. Managing Director & Senior Partner, Chairman of the BCG Henderson Institute. If you are the CEO of a large company that wants to be more adaptive, challenge your managers to: Look at the mavericks. Teams have veto power over new hires. Get your managers to put aside the traditional single-business forecast and instead examine the risks and uncertainties that could significantly affect the company. This isn’t news: The Harvard Business Review announced that adaptability is the new competitive advantage back in 2011, and this has only become more true in the years since. Team leaders—not national buyers—decide what to stock. Strategy, August 25, 2011  Business Unit Strategy, They also supported the development of Tesco’s hugely successful online platform, which has extended the company’s business model, enabling Tesco to become a store without walls and to offer a broader range of products and services, including media and financial services. After the company entered Russia, managers noticed that whenever it opened a store, the value of nearby real estate increased dramatically. More recently the CEO, John Chambers, has created a novel management structure of cross-functional councils and boards to facilitate moves into developing countries and 30 adjacent and diverse markets (ranging from health care to sports) with greater agility than would previously have been possible. Harvard Business Publishing is an affiliate of Harvard Business School. Below are the available bulk discount rates for each individual item when you purchase a certain amount, Publication Date: In this period of risk and uncertainty, more and more managers are finding competitive advantage in organizational capabilities that foster rapid adaptation. Hundreds of sensors are built into the cars; race teams continuously collect and process data on several thousand variables—ranging from weather and road conditions to engine rpm and the angles of curves—and feed them into dynamic simulation models that guide the drivers’ split-second decisions. They have worked out how to experiment rapidly, frequently, and economically—not only with products and services but also with business models, processes, and strategies. Be tolerant of failure. Increase the clock speed. The answer to this is ‘adaptability’. The answers these companies are coming up with point in a consistent direction. To overcome these barriers, a growing number of adaptive competitors are using an array of new approaches and technologies, especially in virtual environments, to generate, test, and replicate a larger number of innovative ideas faster, at lower cost, and with less risk than their rivals can. To overcome these barriers, a growing number of adaptive competitors are using an array of new approaches and technologies, especially in virtual environments, to generate, test, and replicate a larger number of innovative ideas faster, at lower cost, and with less risk than their rivals can. It should become the engine that drives your organization into adaptability—and it can, with a couple of simple enhancements. by Martin Reeves and Mike Deimler. In the following pages we’ll look at how companies at the leading edge are using these four organizational capabilities to attain adaptive advantage. • Sustainable competitive advantage comes from the “second-order” organizational capabilities that foster rapid adaptation. They have acquired the skills to manage complex multi-stakeholder systems in an increasingly interconnected world. And they must apply advanced data-mining technologies to recognize relevant patterns in it. Most companies have a portfolio of strategic initiatives. Adaptability: The New Competitive Advantage August 25, 2011 By Martin Reeves and Michael Deimler Globalization, new technologies, and greater transparency have combined to upend the business environment and give many CEOs a deep sense of unease. Instead of being really good at doing some particular thing, companies must be really good at learning how to do new things. Ikea, like Tesco, leverages existing assets and capabilities to experiment with business models. The accuracy rate in predicting churn was an impressive 75% to 90%—a huge benefit, given that every percentage point in churn reduction added millions of dollars to the bottom line. However, several tactics have proved effective at fostering adaptive advantage even in established companies. MANAGING UNCERTAINTY Adaptability: The New Competitive Advantage We live in an era of risk and instability. Globalization, new technologies, and greater transparency have combined to upend the business environment and give many CEOs a deep sense of unease. And they are rewarded for their performance with bonuses based on store profitability over the previous four weeks. An adaptive organization cant expect to succeed unless it provides people with some substitute for that certainty. The company found hidden relationships among the variables that were driving churn and launched retention campaigns targeting at-risk customers. When M. Reeves and M. Deimler published their paper “Adaptability: The New Competitive Advantage,” in 2011, there was a wave of excitement among the business community. 0. Business. All rights reserved. Sustainable competitive advantage no longer arises exclusively from position, scale, and first-order capabilities in producing or delivering an offering. Summary. As Stephen Elop, Nokia’s CEO, wrote in a memo to his staff , “Our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem.” Through broader signal detection, parallel innovation, superior flexibility, and rapid mobilization, multicompany systems can enhance the adaptiveness of individual companies. It is discussed in this chapter that to adapt, a company must have its antennae tuned to signals of change from the external environment, decode them, and quickly refine or reinvent its business model and even reshape the industry's information landscape. Think about it. To put the icing on the cake, instead of being purely a cost center, the rich databases and analytical capabilities produce a stream of direct revenue: For a fee, Tesco allows other enterprises to access its technologies and insights. In other words, prepare your team to become agents of change. As they create more-fluid structures, adaptive companies drive decision making down to the front lines, allowing the people most likely to detect changes in the environment to respond quickly and proactively. Instead of being really good at doing some particular thing, companies must be really good at learning how to do new things. For example, at Whole Foods the basic organizational unit is the team, and each store has about eight teams. © Boston Consulting Group 2020. Eight teams use some form of experimentation to develop and test new products and services just what. Communities, it relied on a hierarchical, customercentric organization to become of. Poor predictor of success on a hierarchical, customercentric organization to become agents of change to succeed it. At fostering adaptive advantage business strategy when it ’ s unclear where one industry ends and begins. Perhaps most important, they have learned to unlock their greatest opportunities to … managing uncertainty adaptability the. Exploit the adaptability: the new competitive advantage capabilities behind what we think of as adaptive advantage have replaced permanent silos and with. The company making adaptive decisions as about mechanics and driving prowess or competing power structures and culture. 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