The types of strategy required to be successful in an economy and society, in which there is more uncertainty and a faster pace of change than ever before, is generating a lot of discussion. (See Why Strategy Is Still Worth A Business Owner’s Time.)
Adaptive Strategy is an alternative developed by The Boston Consulting Group (BCG)1. Here’s how I think it applies to owner managed businesses.
Adaptive strategy is built on the 3 R’s required in a changing environment2.
1. Responsiveness (or agility). Means a company can respond quickly to changes in the market and begin to act while plans are still being finalized; is flexible in process and structure; and can deal with short cycle times. This should be an advantage for small to mid-size owner managed businesses which, by nature, can react to change more quickly than corporations.
2. Resilience (or robustness). Is a characteristic of owner managed companies which have strong balance sheets and good cash flow. They also must be good at thinking through all of the alternatives, having contingency plans and hedging bets. This gives them the ability to withstand any surprises.
3. Readiness (or anticipation). Is a result of how well a company stays in touch with its market – the quantity and quality of information it obtains from customers, suppliers and other industry players. This can’t be left to front line people. The owners and managers must get out there – they are the ones who use the information to think through different scenarios and improve forecasts.
An adaptive approach is applied using a 4 step closed loop process.
An adaptive strategy is a dynamic approach in which better-fitting strategies continuously evolve in response to change. It is applied via a 4 step process.
Step 1 – Variation (or innovation). A company continually looks to vary the status quo by targeted innovation; natural or proactive modification of internal practices; responding to signals from the economy, customers, competitors; and by leveraging the innovative capabilities of external resources e.g. suppliers.
Step 2 – Selection. The most promising variations/innovations are selected by e.g. pilot projects, limited and full-scale tests conducted directly in the marketplace.
Step 3 – Amplification (or scaling up). Those which show the greatest potential are quickly scaled up. They become a permanent part of the company’s routines and offerings by e.g. allocating resources to them.
Step 4 – Modulation. Modulation is simply fine tuning the application of the first 3 steps in response to what is happening in the marketplace and the company’s goals.
You may feel that you’ve seen each of the steps before. But BCG argues that the way in which they’re combined and applied is what makes adaptive strategy unlike classical strategy in a number of respects.
Practically, the most important difference is that the adaptive approach largely removes the distinction between planning and implementation, since successful strategies emerge from practice rather than from analysis and design.
It’s almost an extreme form of strategy by evolution.
Can adaptive strategy be applied in owner managed businesses?
BCG has identified 4 situations in which adaptive strategy can be applied and well-known corporations which fit those situations. I’m not sure if the corporations pro-actively employed adaptive advantage or if BCG is fitting their actions to the model.
I’m waiting for more evidence.
1 Kilian Berz, Managing Director of The Boston Consulting Group (BCG) Canada – presentation to the Canadian Association of Management Consultants (CAMC) and Cost and Management Accountants (CMA) in Toronto on 16 Feb 11.