Adaptation, Not Optimization, Is How Businesses Will Survive a Post-COVID World
Leanness is a virtue in achieving business success. At least, that has long been the mantra. We have whipped our organizations into shape, trimming fat here and building muscle there until they are perfectly optimized for the singular challenge of the day.
The problem comes when new challenges arise.
Dealing With High-Frequency Change
Being lean is not synonymous with being supple. In fact, the more perfectly optimized our businesses are for the challenges of old, the harder it can be to address something new. There is no spare resource, no breadth of experience. Everything has been tailored to what is now an outdated goal.
This has been demonstrated time and time again, as high frequency change has swept through industry after industry, powered by a combination of new technologies, globalisation, and an accelerated consumer culture. Music, media, retail, consumer electronics, and now, banking and automotive — even government — have all found themselves optimized for an old world and struggling to adapt to a new one.
Adaptation Beats Optimization
Even before the COVID-19 pandemic, there were signs that leaders were starting to recognize that a philosophical shift was required, along with taking some steps to turn a new philosophy into practice. The new philosophy is simple: Adaptation beats optimization as a route to sustainable success. The pandemic has just hastened its adoption.
For the last couple of years, I’ve seen a marked increase from leaders in the skills of foresight. They don’t need convincing that they need to scan the horizon, they want to learn how to do it. Such skills are increasingly part of corporate leadership development programmes. Likewise entrepreneurialism and innovation: one of the questions I am now most frequently asked is “Who is doing innovation well?”
Leaders are highly motivated to pursue this new philosophy of adaptation. Arriving in a job with a typical tenure of five years, in the past, a new CEO may have looked at the organization and decided that, with some nipping and tucking, she could deliver a couple of periods of outstanding growth.
Today they look at the arrayed uncertainties in front of them, and struggle to make confident claims to shareholders about plans for rapid returns. Instead, they are starting to have conversations about the long term and how they can lay down a platform for sustainable success. They want their legacy to be the performance of the business in a decade or two, not a short-term hike in the share price. The proportion of global CEOs that agreed that “we must look beyond purely financial growth if we are to achieve long-term, sustainable success” doubled between 2018 and 2019.
Even investors are thinking differently.
At one event, a hedge fund manager told me that his firm is now focused on the far horizon, not the near, and backing CEOs who take a more long-term approach.
So, what does it look like to do this? How is this philosophy of adaptation over optimization translated into real-world behaviour? There are three core components of the shift that I see organizations making and that I’ve helped guide them through.
Looking to the Future
The first is about foresight. The earlier you see change coming, the better you can respond.
Most organizations are terrible at looking to the future. Even the most rudimentary planning capabilities are often poorly executed. In one research exercise conducted with the Canadian software company Prophix, around two-thirds of CFOs and finance directors told us that their annual budget only connects at the top level — if at all — with the annual strategy.
CEOs are pointing their finger in the direction of travel, and very often the money does not follow. Wider foresight exercises are conducted infrequently and either under duress or with little corporate buy-in.
The businesses of today that will still be around in 10 or 20 years’ time are the ones led by people with the bravery to change their philosophy.
Foresight needs to be a way of life for every leader in an organization. I advocate that every leader should spend a minimum of 1% of their time — one day every six months — focused purely on the future.
They need a structured approach to examining the near horizon that breaks them out of their narrow industry mindset. They need diverse perspectives from across the organization, partners and customers. And they need to take occasional dives into the distant future.
The impact of the pandemic has forced lots of organizations to think about how they look to the future. But even before that, the tools of foresight were becoming a growing part of the corporate toolkit. Just anecdotally, in recent years I have taught hundreds of leaders how to scan the horizon. I have been invited to speak on corporate programmes at Audi and BMW that have changed to incorporate these tools alongside entrepreneurialism and accelerated innovation.
The second thing organizations need to do is accelerate decisions. Most organizations move too slowly in response to even the most powerful stimuli.
There are two ways to approach this, and in most organizations, both will be required. You can speed the flow of information to core decision-makers by using software tools and improved processes. Even more powerful, though, is distributing power to the edges of the organization.
Too many of our organizations, in both the private sector and public, have hyper-centralized control. Decision-making is often an exercise in buck-passing until someone is willing to take responsibility. Future-ready businesses give their people the autonomy, the responsibility, and the tools to react to changes in the environment. This is not cheap. It requires investment in skills, coaching, and process development. It changes your hiring and management practices and the very culture of the business. But it is powerful.
Get in Shape for the Game
The third and final thing organizations and their leaders need to do is get the business into shape for the game that it is in today. No longer is leanness the determinant of success in the sport of business. Instead it is suppleness. And supple businesses look quite different to the monoliths of old.
They are networks of semi-autonomous components, being constantly reconfigured to meet the changing challenges of the day. Each component can take an entrepreneurial approach, proffering its services to multiple customers, building resilience and scale. Building a new proposition is simply a question of assembling the right components, or building a single new component matched to a network of others.
These networked businesses are not the most efficient. There is an overhead in this agility. You need to have the resource to scan the horizon. Maintaining live collaborations takes constant effort. But the advantage is that they are extremely resilient in the face of change. They are the platforms for sustainable success.
What It Means to Be Future-Proof
In summary, the businesses of today that will still be around in 10 or 20 years’ time are the ones led by people with the bravery to change their philosophy.
To make the leap from optimization to adaptation and carry their shareholders, their staff, and their partners with them. They are the ones who can carve out the time for foresight, constantly scanning the near horizon for threats and opportunities. Who can clear the paths of communication, accelerate decision-making and distribute power to the edges of their organizations. And who can restructure their organizations from monoliths to networks, with building blocks that can be reassembled rapidly to meet changing opportunities and threats. This is what it means to be future-proof.