Adaptability: The New Competitive Advantage

Adaptation is necessarily local in nature—somebody experiments first at a particular place and time. It is also necessarily global in nature, because if the experiment succeeds, it will be communicated, selected, amplified, and refined. Organizations therefore need to create environments that encourage the knowledge flow, diversity, autonomy, risk taking, sharing, and flexibility on which adaptation thrives. Contrary to classical strategic thinking, strategy follows organization in adaptive companies. 

A flexible structure and the dispersal of decision rights are powerful levers for increasing adaptability. Typically, adaptive companies have replaced permanent silos and functions with modular units that freely communicate and recombine according to the situation at hand. To reinforce this framework, it is helpful to have weak or competing power structures and a culture of constructive conflict and dissent. Cisco is one company that has made this transformation. Early on, it relied on a hierarchical, customer-centric organization to become a leader in the market for network switches and routers. 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. 

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. For example, at Whole Foods the basic organizational unit is the team, and each store has about eight teams. Team leaders—not national buyers—decide what to stock. Teams have veto power over new hires. They are encouraged to buy from local growers that meet the company’s quality and sustainability standards. And they are rewarded for their performance with bonuses based on store profitability over the previous four weeks. 

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. An adaptive organization can’t expect to succeed unless it provides people with some substitute for that certainty. What’s needed is some simple, generative rules to facilitate interaction, help people make trade-offs, and set the boundaries within which they can make decisions. 

For example, Netflix values nine core behaviours and skills in its employees: judgment, communication, impact, curiosity, innovation, courage, passion, honesty, and selflessness. 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. It has no vacation policy and does no tracking of time—the company’s focus is on what needs to get done, not how many hours or days are worked. 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.”