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    Strategy: Building an adaptive enterprise

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    AA10-Jun-Jul-2005-neely_large4Last issue we examined the potential impact that accelerating change, cyclical volatility and emerging technologies can have on even the most well-researched business plan. We saw that the growing connectivity – between people, businesses, information fl ows and markets – is dramatically accelerating the pace of change. Trends emerge faster, their impacts are felt sooner and the market volatility generated by these changes is also greater. The net effect, we saw, is that even the smallest changes or trends can have disproportionately larger effects in no time at all.

    This reality represents a challenge for all businesses: to survive, companies must adapt at the same pace as their environment. Decisions (and changes) must be made in real-time, often with imprecise or incomplete information.

    If the challenge is difficult for existing firms (which often have multiple layers of management and other resources at their disposal to monitor and respond), it poses significant challenges when you’re in the middle of designing your business model and planning the company you will one day become.

    After all, every time something changes in your immediate business environment, say, a new technology, a new gap in the market, a new competitor, there is an opportunity to make a change in your business to benefit from the opportunity presented.

    Business management traditionally focuses on stability and control, which is the antithesis of change. How can you structure your business, processes, culture and capabilities when you require maximum flexibility? As the owner of an adaptive enterprise, you must embrace ambiguity and chaos, which requires new thinking:

    i) self-organisation.

    It is impossible to plan or devise guidelines for all eventualities. Instead of entrenching rules for organisational behaviour, develop rule sets to guide individual choices and empower employees to respond to specific circumstances.

    ii) open systems.
    Do not succumb to the “Not Invented Here” complex. Look outside your business (and industry) for ideas, innovations etc. that, when combined with your existing thinking, create new value.

    iii) sense and respond.
    In biological terms, organisms are “sense-and-respond” systems that detect and respond to important events in their environments. Responding to non-events wastes energy. Failing to detect and respond to threats often means death. Becoming a sense-andrespond business requires real-time access to data about your market, customers, competitors etc., and, importantly, highly tuned filtering processes to differentiate between “important” and non-important events.

    iv) feedback loops.
    Each time you detect and respond to a market event, you must also examine the effectiveness of your detection and response mechanisms, as well as the outcomes, and re-integrate this learning into your adaptation processes.

    v) iteration.
    Regardless of your current status quo, you should continually be testing and examining alternative approaches and options for potential improvements or benefi ts.

    vi) challenging culture.
    From day one, you will be competing with companies who are bent on destroying your business model. Assemble a cross-functional team that is charged with evaluating your business through the eyes of competitors and forming strategies for destroying your business. Only when you understand your weaknesses, and how others might exploit them, can you develop defences and alternative strategies.

    Potential investors will still want to see a refi ned business model, detailed execution plans and strong internal management. However, rather than traditional “what if” scenarios or static strategies for responding to foreseeable risks, you should demonstrate how you have engineered agility into your company so that it is able to quickly adapt to and manage change, whatever form it may take, with a particular emphasis on responding to issues thrown up by globalisation, the “24/7 service culture” and the requirements of customer driven markets.

    Mark Neely is a lawyer, technology commercialisation consultant and author of 10 books, including The Business Internet Companion. Email mpn [at] infolution.com.au

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