Companies struggle most with the timing of their strategic decisions and actions to match the speed of change in their market and finding the right level of strategic flexibility is both an art and a science, says Carine Peeters
Virtually all companies have to deal with a turbulent environment, especially as the world digests the longer-term effects of the recent pandemic. It’s safe to say the new normal is the continuation of turbulence, which means firms must learn to minimise the threats of turbulence, while shaping and grasping opportunities to derive new sources of competitive advantage.
For many organisations, such strategic flexibility is not an easy endeavour. Strategic flexibility requires striking a balance between not changing enough and changing too much, with the risk of losing focus or alienating the organisation in the process.
After collating data and conducting research on over 400 organisations since 2018, our research shows that adaptive organisations achieve this balance thanks to a system of five key capabilities that they proactively build and nurture. But what are these five adaptive capabilities, and how can organisations foster them?
Awareness means being able to identify relevant changes that are happening in the organisation’s markets, and beyond: in other industries, technologies or countries that may give you an indication of key trends that can affect your business going forward.
Adaptive organisations are constantly on the look-out for new relevant information. But knowledge is not enough. Awareness also means being able to interpret the information in terms of the need for, and the timing of, change. For that, adaptive organisations make sure to share within the organisation the insights gained about their environment. And they are proactive in understanding the implications of new evolutions for their business.
Our survey shows that companies are well equipped to identify relevant trends, but they struggle to tie them to the concrete needs of their business. The latter requires a deliberate ‘translation’ effort to regularly assess the relevance of outside changes and what they mean in terms of new threats or opportunities. This translation effort is most successful when closely guided by the organisation’s long- term vision and purpose.
Being aware is good; but rarely sufficient. You will want to use that awareness to identify new potential opportunities for your organisation. And those innovative ideas may come from anywhere in the organisation. But then what? How can you know which ones have the best potential? More often than not, if you are in a turbulent market, the answer is you can’t. So, you’ll have to try them out.
Pursuing large, long-term projects would lock a firm down on a given path for the coming few years, however. Therefore, it is important to select and try short projects, which will get market feedback as early as possible. So, if they are to fail, they will fail fast. And most importantly, you will learn from these experiments, so you can finetune them over time, based on market feedback.
Our research shows that companies are good at generating new ideas, but they often struggle to capture and embed customer and market feedback early enough in the process. These experimentation tactics must be embedded in a supportive company culture, in which failures are seen as learning events that will strengthen the organisation.
Experimenting with innovative ideas and being open to failures is a wise idea, but you can also increase the odds of success by making sure you have the right skills and expertise on board to explore new opportunities. The partnering capability is what will get you there. It has two main dimensions: an internal one and an external one.
Internally, partnering means recognising and leveraging on who has the best skills and expertise for a new project. No matter what department they work in, cross-collaboration is important and the organisation should be proactive in bringing together the relevant experts in the organisation for these projects.
But adaptive organisations do not stop there. They also acknowledge that the best skills and expertise may not even be inside their organisation. And even if they could develop the necessary capabilities internally, doing so may be too costly, risky, or otherwise not desirable. So, they refrain from doing so, and instead systematically look outside and encourage everyone to seek out ideas and join forces with external parties to co-create insights and new capabilities.
In the context of adaptation, ambidexterity means being able to explore new opportunities and innovate, and, at the same time, exploit the company’s existing core business. This is one of the biggest challenges for established organisations, but it is also an opportunity when competing against start-ups.
Because the logics of exploration and exploitation are so different, adaptive organisations keep a healthy distance between these two efforts and give exploration initiatives sufficient autonomy to succeed.
But adaptive organisations also know the importance of not losing focus while exploring new opportunities and they know that, unlike in the case of start-ups, their innovative initiatives may benefit from some of the resources and capabilities already existing in the organisation. So, they look for ways to keep the exploration and exploitation sides of their activities connected and have both agendas evolve together. Unsurprisingly, balance is the keyword when it comes to ambidexterity.
Shaping and experimenting with new opportunities while exploiting one’s core business is possible only to the extent that the organisation is able to act decisively, which does not necessarily mean being the first or the fastest. Rather, it means being able to take and implement decisions in a timely manner – or put differently, when the time is right. Getting the timing of one’s moves right is first a matter of decisions. Organisations must aim to match the rhythm of their strategic decision processes with that of the market in which they operate – not with fixed budgeting and planning cycles
Decisiveness is as much about timely decision as it is about timely execution. Overall, they are all-in to support innovative initiatives to flourish and will not hesitate to take bold decisions when necessary. Paradoxically, these supportive bold decisions also include stopping new initiatives to free resources to invest in other opportunities. And when a decision is taken, adaptive organisations execute fast and effectively.
Bringing it all together, our research suggests that companies struggle most with the timing of their strategic decisions and actions to match the speed of change in their market. But what is a correct level of ambition to have for these capabilities? Should all companies aim for five out of five? The answer is no. Finding the right level of strategic flexibility is both an art and a science.
First, leaders should set their ambition level in light of the degree of turbulence their organisation faces. Second, they should identify and act upon the most important factors that hold back adaptiveness in their organisation. Third, the five capabilities act as a system. It makes little sense to be excellent at one while lagging behind in another. Better to think of raising the overall level of adaptiveness with systemic actions that contribute to multiple capabilities at the same time.
Carine Peeters is a Full Professor of Strategy at Vlerick Business School.