“It is not the strongest of the species that survives, nor the most intelligent. It is the one that is most adaptable to change.”— Charles Darwin
“Things change. The only thing constant is change. It’s up to you to be adaptable.”— Anonymous
“Adaptability enforces creativity, and creativity is adaptability.”— Pearl Zhu
“All failure is failure to adapt, all success is successful adaptation.”— Max McKeown
“The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself.”― George Bernard Shaw
“A wise man adapts himself to circumstances, as water shapes itself to the vessel that contains it.”— Chinese proverb
“Change is the only constant in life. One’s ability to adapt to those changes will determine your success in life.”— Benjamin Franklin
“Adaptability is key.”— Marc Andreessen
Constant change is our new normal. Success in a world of constant change requires constant change in our businesses and organizations. This in turn involves agility, adaptability, and resilience.
Agility was addressed in my last post but adaptability is an entirely different kind of ability. It is, to a large degree, structural in nature. Built-in. This means that it isn’t easy to assess or to change.
Adaptability – the ability to function effectively in a wide variety of situations and events. It means an absence of rigidity and presence of operational flexibility.
It is a function of your business or organization and its people. People typically are the main source of rigidity. Transitioning to an agile culture can help reduce operational rigidity and resistance to change.
How adaptable is your organization?
Kind of a tough question to answer, yes? Kind of an important question to answer regardless if you have any interest in becoming more adaptable. Adaptability deals with responses to change so assessing adaptability might be approached through actual responses and outcomes to these.
Change 🡪 Response 🡪 Outcome
Organizations face regular changes that require significant responses. Think COVID days. Huge changes requiring major, often long-term, responses. Outcomes? Mostly unclear yet except in general outlines.
If your organization has survived so far, it is probably adaptive to a reasonable degree. Possibly even very adaptive. But what does this mean in practical terms? How exactly might we go about becoming more adaptive? How do we know when we are sufficiently adaptive?
If you can’t measure it, you don’t really understand it
As management guru Peter Drucker supposedly said (but didn’t – see Related Reading below):
“If you can’t measure it, you can’t manage it.”
As a long-time numbers guy, I love this non-quote because it has a truly important insight for every manager and leader. There are lots of things that you can’t measure reliably in practice. You may think you are measuring them but in reality you are often measuring something else.
The key to measuring anything is understanding it fully beforehand.
Applied to adaptability, this is a critical point. Exactly what is “adaptability” in a business or organizational context? Long-term survival may indicate serious adaptability but it may also indicate good luck or chance. Besides, waiting for your long-term arrival to get a measurement basis seems a bit impractical.
So, what to do?
My approach would be to track a few impacts from adverse events or situations, your responses to each of these, and the outcomes – hopefully near-term – that resulted. This is a real-time measurement approach but limited to actual impacts. What about black swans and other unforeseen events and situations?
You really need to assess responses and outcomes that may occur following a wide range of possible impacts from whatever may be going on out there at some point (i.e., causes). These are not actual impact happenings but just impacts on your organization that might take place.
The causal driver and its likelihood are not relevant here, just the potential hit you could take and be required to respond adaptively to. This, as you will see immediately, is a simulation exercise. It can be done ahead of any actual impacts to see how your organization might be able to respond effectively and what the resulting outcomes might be.
Learning the hard way is not recommended in general
Impacts from actual major changes test organizations in real time. Our responses and outcomes to these give us some idea of our “adaptability”. But this real time adaptability assessment has a serious downside in that a bad outcome may be fatal rather than just an often-painful learning experience.
Your actual responses and outcomes following serious actual adverse impacts from whatever cause do provide the opportunity to learn about your adaptability, albeit the hard way. Post-outcome debriefing is always worth doing but it tells you only about the impacts that actually happened. It says not much if anything about impacts that could happen but have not. Yet.
Given the hopefully wide recognition of the importance of adaptability today (and possibly forever), the answers here are of supreme concern. Adaptability has to be assessed across a wide range of potential impacts, from whatever causes. Some impacts may affect points of particular vulnerability that you really must know about. You can’t wait for reality to strike to start learning.
There has to be a better way to do this offline (pre-reality) and systematically.
Stress testing for non-financial businesses
Financial companies got serious about risk impacts and risk-impact mitigation options modeling after the global financial crisis of 2008. As McKinsey & Company notes in a 2017 article on “Stress testing for nonfinancial companies”:
“Assessing a company’s vulnerability to risk makes otherwise theoretical discussions of strategy more real. In the decade since the global financial crisis, financial companies have honed their ability to measure risk in a way that nonfinancial companies have not. Granted, nonfinancial executives hadn’t faced the same existential crisis. And they’ve seldom come under the same kinds of investor and regulatory pressure. But the result is that they haven’t absorbed many of the lessons on risk management learned by the financial sector.”
“We believe that nonfinancial companies, too, would benefit from a more aggressive look at the risks they face. Among the most important steps they could take, for example, would be to quantify risks in the context of broader scenarios, and not just as discrete sensitivities. They should calculate the effect of more extreme one-off events, such as a cybersecurity attack, in addition to continuous risks, like GDP. They should model risk-mitigation strategies as well as the risks themselves. And they should sustain a conversation about risk that is explicitly tied to strategic planning, capital allocation, and other business decisions.”
The time for such analyses is before a major crisis occurs, not afterwards in the context of sorting through real impact debris.
Simulation modeling based on plausible scenarios
Offline, systematic analyses of major crisis stresses can be done using simulation models that can reflect both crisis impact and management responses. Findings are typically fed back in the form of avoidance and mitigation strategies. Again, done pre-impact, not post-impact.
From McKinsey again:
“Companies often maintain a list of the main risks that managers believe they face, which they report as their “risk register” in annual reports. These include discrete operational events, such as major industrial accidents, cyberattacks, or employee malfeasance. If they take the next step to quantify those risks, many simply turn to that list and model them, often for the first time, onto their financial outlook. That’s a good start, as it gives managers some insight into how sensitive the company’s financial health is to changes around individual risks, which many companies don’t do. But measuring individual risks discretely does little to illuminate a more complex landscape of interrelated risks that often move together in the real world. That requires the further step of coherently clustering risks together into scenarios.”
“Scenarios are more appropriate because they help managers consider the effects of a variety of severe but plausible scenarios without being farfetched. They can also accommodate interaction effects among sensitivities. One manufacturer in our group reported modeling 18 different scenarios, after eliminating many more that they felt did not meet the plausibility criteria. The comprehensiveness of the exercise equipped the board with a clear perspective on the company’s resilience and a number of management actions in time for the Brexit referendum months later. And finally, integrated scenarios also ensure that companies do not miss or underestimate the correlations between their different business activities and individual risk types, thereby underestimating group-level vulnerability.”
Crises are almost always complex in nature. Meteor hits are rare. Adverse external situations generate impacts that affect many aspects of an organization. Think COVID times. Modeling these involves multi-factor scenarios, not simply isolated risks.
How does adaptability fit into this approach?
This is really the key to both assessment and response testing for major changes. The simulation model describes impact magnitudes and locations (points of vulnerability) in a way that allows testing of various pre-impact and post-impact responses. Pre-impact responses are better.
Our COVID world, including whatever it may be morphing into these days, is impacting nearly every aspect of most businesses and organizations. Huge, largely unpredictable impacts. Scrambling, also known as real-time responding, is the order of the day for many, or perhaps most, of us. Very few have done the essential pre-impact analyses and response simulations.
The combination of impact damage and response effectiveness provides a valuable measure of our likely adaptability. Then, we can seek to improve our adaptability by structural, process, and practice changes – hopefully, pre-impact.
Large complex businesses can generally be broken into smaller self-contained units for such analyses but systemwide impacts require a full business model. This is not a simple task, obviously. The difficulty here can be greatly reduced by incremental layering of business structure and operations. Start simply.
People make every business different
There is no one-size-fits-all in simulation modeling, even for identical businesses – such as hotels. Structure and operations can be virtually identical yet have very different impact responses because they flow from different people.
One hotel business may decide to diversify geographically as a way to minimize exposure in any one area. Another similar hotel system may decide to diversify in terms of services and customers, such as business meetings vs. recreational uses. This sort of structural and operations difference can be modeled relatively easily.
This is why the simulation models need to provide for real human input. Your humans. This is done by simulation steps by month, with your management team responses input at each step based on whatever has just happened. Final outcomes are not visible until the simulation game is over, which mirrors the way reality works. Impact responses are always people-dependent.
Scenario uncertainties in terms of likelihood (or happening at all) or in terms of the actual nature of what the scenario outlines, do not need to be quantified (i.e., with probabilities). The idea is simply to see where each scenario’s impacts are most damaging and to figure out practical ways to minimize or even avoid such damage.
Resilience can also be assessed and improved
Adaptability deals with management responses to scenario events and situations. Your set of management responses determines your adaptability. A narrow or limited set of available responses reflects rigidity and possibly lack of creativity. A wide set of available responses reflects a greater range and degree of adaptability.
Resilience addresses the ability to recover effectively from serious adverse impacts. It looks primarily at outcomes rather than impact and response mechanics, which adaptability addresses. Resilience reflects the degree to which impact-recovery can occur.
For example, a business that is concentrated in a single location, or depends on a small number of major customers, or sells a small set of major products is almost by definition weakly or insufficiently resilient. A major impact can be fatal in many instances.
To improve resilience, structural and operational changes are usually required. Customer, product, and location diversification improves resilience.
Simulation approaches normally generate quantitative estimates of outcomes based on adverse event scenarios and management’s stepwise responses. These estimates may be profit-based but it is common to include other measures such as cash flow, cash reserves, debt capacity, and liquidity.
You can get as quantitative as you like (and have the time and resources to pursue). The better use of quantitative measures in my mind is to compare scenarios. Depending on how good your simulation model is, its quantitative outputs may or may not reflect what might actually happen. But comparing several scenarios can tell you quickly what works and what doesn’t for your organization.
Assessing and improving adaptability
Scenario-based simulation analyses provide both an assessment – relative, by scenario comparisons – and a basis for designing and evaluating improvement approaches. Scenarios describe what might happen. Management’s stepwise responses describe options for dealing with – adapting most effectively for – each scenario.
Models will have sets of metrics that together quantify outcomes. Response ideas and options will generate a ranking of outcomes from fatal or truly awful to good and even to big wins. So long as the model structure is sound, this should provide reasonably reliable rankings for assessing responses and associated outcomes.
Because of the stepwise management input necessary here, these mechanics place great value on your organization’s particular degree of creativeness and management effectiveness. Each organization will have its own level of these, making its adaptability improvement plan different.
What works best for your organization may not work at all well for another otherwise similar organization. People make the difference.
Constant change is our new normal. Not stability but change itself. This means that success in such a world requires constant change – adaptation – in our businesses and organizations. No more business-as-usual. Success going forward involves agility, adaptability, and resilience. Adaptability – assessment and improvement – may be the most important of these.
From the Drucker Institute on measuring to manage:
“’If you can’t measure it, you can’t manage it.’
This maxim ranks high on the list of quotations attributed to Peter Drucker. There’s just one problem: He never actually said it.”
“Confession: I’m a numbers guy, and so I’ve always loved using this purported Druckerism. After rolling it out at a recent conference to emphasize the importance of measuring outcomes, Zach First of the Drucker Institute, who was also there, kindly informed me of my mistake—not only on the misquote, but regarding Drucker’s broader views on the subject.”
“The fact is, Drucker’s take on measurement was quite nuanced. Yes, he certainly did believe that measuring results and performance is crucial to an organization’s effectiveness. “Work implies not only that somebody is supposed to do the job, but also accountability, a deadline and, finally, the measurement of results —that is, feedback from results on the work and on the planning process itself,” Drucker wrote in Management: Tasks, Responsibilities, Practices.”
“But for all that, Drucker also knew that not everything could be held to this standard. ‘Your first role . . . is the personal one,’ Drucker told Bob Buford, a consulting client then running a cable TV business, in 1990. ‘It is the relationship with people, the development of mutual confidence, the identification of people, the creation of a community. This is something only you can do.’ Drucker went on: ‘It cannot be measured or easily defined. But it is not only a key function. It is one only you can perform.’”
“What a wonderful insight. When it comes to people, not everything that goes into being effective can be captured by some kind of metric. Not enthusiasm. Not alignment with an organization’s mission. Not the willingness to go above and beyond. True, a 360-degree review might pick up on some of these qualities, but often poorly.”
Agility. Adaptability. Resilience. (AAR).
What is needed during an extended period of major change is an entirely different way of leading and managing. This has three primary components:
- Agility – the ability to move quickly and change direction quickly. It involves very close attention to current conditions. It requires a very different kind of organization and culture.
- Adaptability – the ability to function effectively in a wide variety of situations and events. It means an absence of rigidity and great flexibility.
- Resilience – the ability to recover from almost any kind of adverse impact or situation. It goes beyond survival and extends to success post-recovery.
Agility in the context of a business, or organizations in general, deals with rigidity in process, people, and practices that slow decision-making and responsiveness. While the mechanics originated largely in software and product development, the concepts are very powerful and broadly applicable as outlined in a recent post.
Adaptability and its narrower aspect resilience have been addressed at a high level in this post. If you are not familiar with interactive scenario-based simulations, here is a good place to start – Forio webinars.
MPS Interactive, an e-learning developer, has an interesting overview of business simulations in a COVID-changed world: “Using Business Simulations to Navigate Change and Build Agility”:
“With the flux that 2020 has brought to our lives, turbulence is no longer something you prepare for but a reality you live in. Buzzwords like adaptability and agility are common parlance and change is the only constant. In this free-falling world, resources are scarce and swiftly-depleting, and businesses are hard-pressed for solutions to problems they have never faced or even visualized. Where do we go from here? Douglas Adams would propose 42 as the universal answer – I vote for simulations.”
“So what exactly are simulations? They are methods of training that create multiple hypothetical real-life situations and use changing variables within the business environment to predict behavioral patterns and responses to systemic stimuli. Too complex? Let’s break it down.”
⯈ Simulations start with a fictitious scenario using the business environment the user is already part of.
⯈ The user is then presented with a series of decisions, which are essentially choices among seemingly equal options.
⯈ Qualitative and quantitative inputs are seamlessly woven into the storyline for the user to take better-informed decisions.
⯈ What users select will dictate the learning path, and could also impact resources, deliverables, or even further scenarios.”