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Tracey Latham-Green Critical Literature Review
Competitive advantage: The importance of adaptability
George Bernard Shaw once wrote:
“The only man I know who behaves sensibly is my tailor; he takes my measurements anew each time
he sees me. The rest go on with their old measurements and expect me to fit them.”
Now this was a man ahead of his time, recognising the need to constantly consider changes that are
taking place around him. Constant change is part of the business world we operate in today. No
longer can a business find a product or service, keep customers happy and stay in business for
decades. The requirements to be a successful company and maintain competitive advantage have
changed dramatically over the last 20 years. Prior to this a stable economy was commonplace and
change was slow however with the introduction of new technologies in a more globalised,
connected world with 24 hour working and instant connectivity the pace of change has increased.
New players enter the market in all sectors, all of the time, so companies need to be able to stay one
step ahead. This has made the need for businesses to be able to adapt to changing conditions more
important than ever before.
Adaptability can be defined as:
“The quality of being able to adjust to new conditions, the capacity to be modified for a new use or
purpose”
1
When reviewing academic literature and articles on adaptability one recognises a number of
common themes emerging being:
embracing risk and uncertainty
the importance of human resources
innovation and experimentation
culture, structure (and restructuring)
fully utilising new technologies
Historically, writers such as Michael Porter (1990) argued that there were a number of critical factors
for competitive advantage being architecture - such as distinct contractual relationships,
incumbency - ie advantages from being an early adopter/player and being more innovative than its
rivals eg by reinforced legal structure
2
but porter does not mention adaptability. However, Martin
Reeves and Mike Demler argue that “adaptability is the new competitive advantage” and is the most
important factor in success.
Successful companies do not get ‘stuck in a rut’. Tackling uncertainties and risk taking and not being
afraid of failure is important. Charles O’Reilly, in his 2014 study “Parsing Organisational Culture:
How the norm for adaptability influences the relationship between culture consensus and financial
performance in high technology firms” believes that risk taking and a willingness to experiment are
1
http://www.oxforddictionaries.com/definition/english/adaptability
2
Wall S, Minocha S, Rees B, (2010) International Business, third edition, Pearson, England pgs 89-90
vital in creating a culture that encourages growth. Reeves and Deimler quoted Intuit’s chairman
following an innovation experiment that failed in a recent article “It’s only failure if we fail to get the
learning”. However attaching a plan to all risks is necessary. Reeves and Deimler again state that an
initiative should be attached to every source of uncertainty.
3
John S McCallum recognises risks must
be managed closely and not just be taken at any cost “adapting effectively to rapid changes takes
serious money” and he advises finances need to be managed prudently, considering the cost of
adapting poorly.
4
This is in my view true, economically viable experimentation is what is necessary.
Many writers highlight the importance of human resources in ensuring adaptability, particular in
leaders within an organisation but also in involving staff at all levels in the decision making processes
within the organisation and ensuring adequate training, skills and knowledge. Greg Satell, writing in
Digital Tonto, argued that adaptability is more important than talent when it comes to successful
staff. He quotes a study by Philip Tetlock of pundits which found that deep expertise can hinder
performance and argues that “we need to move from a skills culture to a learning culture”.
5
Although I agree lifelong learning is important, individuals need key skillsets to acquire new learning
and understand their business environment so I would say adaptability is equally as important as
talent! Perhaps more realistically other writers such as Bruna Martinuzzi believe that the ability to
learn continuously and get out of your comfort zone is a key feature of successful leaders who are
able to encourage adaptability within organisations.
6
D Miller also argued that successful leaders
not only have a high level of personal adaptability but as mentioned in the previous paragraph, are
not afraid to take risks:
“Good leaders drive change through being personally very adaptable and by exhibiting the right
change leadership behaviours. They may have learned from change failures — scar tissue is not
scarce in this business — or they may have been driven by their own innate beliefs and
characteristics, and ambition for the change to succeed.”
7
People are naturally adverse to change in general according to Laurence Gonzales quoting Henry
Plotkin, a University College London Psychologist, that we tend to “generalize into the future what
worked in the past”. Therefore, Bruna Martinuzzi believes, when it comes to adapting to new
circumstances, we have to decide intentionally to challenge these mental scripts which tell us to
stick with the status quo and that ‘willingness to get out of one’s comfort zone and learn
continuously …marks a key difference between successful and unsuccessful leaders’.
8
In addition,
John McCallum highlights the need for organisations to watch and for and deal with Executive
burnout – when an individual stuck in the same job too long can become stuck in their ways, failing
to accept new ideas and experiment
9
, which is why the next common theme looked at can be
beneficial – restructuring!
3
Reeves M, Deimler M (2011) Adaptability: The New Competitive Advantage published in Harvard Business
Review
4
McCallum JS (2001) Adapt or Die published in the Ivey Business Journal
5
Satell G (2014) Adaptability is more important than talent, Digital Toronto on www.businessinsider.com
6
Martinuzzi B (2014) The Agile Leader: Adaptability
7
Miller, D. (2002). Successful change leaders: What makes them? What do they do that is different? Journal of
Change Management, 2, 359–368
8
Martinuzzi B (2014) The Agile Leader: Adaptability
9
McCallum JS (2001) Adapt or Die published in the Ivey Business Journal
Restructuring organisations is very popular at the moment and has recently been adopted within the
public sector, mainly as a cost cutting exercise, removing levels of management and delegating very
limited authority. The structure and culture of organisations and the way people work and decisions
are made is another area that needs to be adaptable. In organisations who have been around for a
long time with traditional structures, periodic restructuring can be of immense benefit argued both
John S McCallum in his 2001 article “Adapt or Die” and Vermeulen, Puranam and Gulati writing in
Harvard Business Review. It allows employees to make new network connections, find new ways of
working and stop the deadening impact of routine. Old relationships are maintained and new ones
made so the exchange of ideas is more likely to occur and not being in the same job, in the same
place, for a very long time stops the natural ‘it’s always been done that way’ mentality from trying
out new ways of working for example. Restructuring should not just be in the way the company is
structured in terms of management levels and decision making but also organising work streams
around different criterion for example can be beneficial. As mentioned before, the longer people
work in the same way the more difficult it is for them to ‘break the routine’. However, as Vermeulen
et al recognise companies need to ensure the periodic restructure does not become a routine in
itself, as was the case in Hewlett Packard, where executives got used to working in alternate ways
each five years thereby removing the benefit of restructuring and no improvements materialised.
Restructuring a company can make the organisation more capable of doing more innovative things,
exploring new areas of work. For example, Vermeulen, Puranam and Gulati believe that by changing
the way business units are organised from a single criterion structure – eg function, product,
geography or market to a matrix to force interactions across dimensions within the company. This
can improve adaptability and prevent ‘entrenched silos and routine traps’ but management of
matrix organisations is difficult and accountability can be blurred and importantly decision making
slowed down.
10
That is why, in my opinion, any restructure of this format needs to be accompanied
by delegated decision making powers as highlighted by Reeves and Deimler, to ensure the pace of
change can be as fast as is necessary to adapt to the wider environment changes.
Christensen and Overdorf argue that “what manager’s lack is a habit of thinking about their
organization’s capabilities as carefully as they think about individual people’s capabilities”
11
. During
a restructure more focus can be placed on what each area can achieve together rather than as
individual employees. They argue too many companies solely focus on what capabilities they have
focussing on their resources without considering the other key elements of processes and values.
Decision making processes that take too long for example, restrict what a company can achieve as
by the time a decision has been made to make a new investment or try a new service the moment
has passed, a competitor has done it already or the idea has been superseded. This lack of shared
decision making, and in fact trusting employees to make decisions, is intrinsically linked to the values
of the company, what the priorities of the business are and the direction of travel they want to
follow. These values need to be filtered down throughout the organisation to enable staff to get
involved in making the right decisions. Reeves and Deimler highlight that “at Whole Foods the basic
organisational unit is the Team and…Team leaders not national buyers – decide what to stock…They
are encouraged to buy from local growers that meet the company’s quality and sustainability
10
Vermeulen F, Puranam P, Gulati R (2010) Change for Change’s Sake in Harvard Business Review
11
Christensen C & Overdorf M (2000) Disruptive Innovation Meeting the Challenge of Disruptive Change in
Harvard Business Review
standards.”
12
Their local knowledge is recognised and valued by the customer and when making
their buying choices they are recognising the overall company value of buying sustainably and
locally, in line with the company’s vision and values.
Often more modern organisations rather than traditional organisations have a flatter decision
making structure, with team members having more decision making powers. This can be very
effective in improving adaptability and encouraging innovation. Reeves and Deimler believe that
having this flexible structure with dispersed decision rights is a powerful factor in allowing
companies to mobilize quickly and change direction fast when necessary. Involving employees in
strategic planning has been found to have a positive impact. A 2004 study by Tuominen, Rajala and
Moller in Finland found that
“by increasing employee’s involvement in strategic market planning and technology management,
managers are able to enhance their companies innovativeness”
13
. Their empirical study also found
that “the components of adaptability have a strong positive association with a high level of
innovativeness.”
14
Adaptability and innovation do appear to go hand in hand so having the innovative freedom to
explore new markets and products, in an economically viable way, and take risks are an important
factor in ensuring competitive advantage. This highlights the importance of another key theme in
this area, the ability to utilise new technologies to understand your market and customers. Reeves
and Deimler argued that “the ability to read and act on signals” and using new technologies to
analyse customer purchasing information, as Tesco do with their clubcard customer database, is key
to targeted marketing and developing new products.
15
John McCallum also argued that looking for
opportunity on a continual basis is one of the areas Executives should focus on to ensure they are
able to adapt to current business conditions
16
, and the use of technology to analyse data is key here.
Technology can also help with new ways of working and involving staff in strategic decision making
and in fast decision making and execution, something which Charles O’Reilly identifies as a key
component of ‘adaptability’
17
. I would argue that good use of new technologies, not only to scan
the current market but also to allow more flexible working and involvement in decision making, such
as online staff forums, can only help companies identify opportunities and keep their employees
engaged in the work of the organisation.
There have been very few empirical studies looking at the impact on profits in an adaptable
company as opposed to one that is not, however, in a 2006 study Katsuya Takii ‘defined a firm’s
adaptability by its ability to correctly predict and, therefore, appropriately adapt to an unexpected
12
Reeves M, Deimler M (2011), Adaptability: The New Competitive Advantage in Harvard Business Review
13
Tuominen, Matti ; Rajala, Arto ; Möller, Kristian (2004)How does adaptability drive firm innovativeness?
Journal of Business Research, 2004, Vol.57(5), pp.495-506
14
Tuominen, Matti ; Rajala, Arto ; Möller, Kristian (2004)How does adaptability drive firm innovativeness?
Journal of Business Research, 2004, Vol.57(5), pp.495-506
15
Reeves M, Deimler M (2011), Adaptability: The New Competitive Advantage in Harvard Business Review
16
McCallum JS (2001) Adapt or Die published in the Ivey Business Journal
17
O’Reilly C (2014) Parsing organisational culture: how the norm for adaptability influences the relationship
between culture consensus and financial performance in high technology terms. Published in August 2014
Journal of Organizational Behaviour
change in the environment and using it developed a model that allowed for empirical examination of
the impact of a firm’s adaptability on its expected profits. The study concludes that
“The regression analysis showed that adaptability has a robust, significant and positive impact on the
average profit rate and the market value of a firm. There is also evidence that risk-taking firms are
more adaptable when reacting rationally to changes in the environment.”
18
I would argue that in a modern world with constantly changing economic, political and social
environments and company that is unable to adapt is doomed to failure. However, I would caution
against taking risks without proper research and the utilisation of both technologies and all of a
company’s resources, including well trained staff whose skills, abilities and input are recognised is
essential to make sure the right business conditions are maintained. Periodic restructures and
reviews of how companies work and moving staff around are all good ideas, but restructure must
not become routine. Many of the writers on the subject of adaptability are keen on the ‘maverick
individual’ approach and that these are the best individuals to lead. This is probably true, but they
cannot lead alone, personal experience tells me they need to work with other team member. I
believe a mix of skills and different personality types is required, as for example tight reins need to
be kept on finances to ensure that the resources are in place to experiment, innovate and take those
well managed risks BUT a company which does not embrace new ideas, adapt and speculate to
accumulate will undoubted fail – imagine if Peugeot had just stuck to producing Coffee Mills and
Bicycles as they were doing in 1810, it is very unlikely they would be as successful as they are today
if they had not adapted to the world around them! I am in agreement with Reeves & Deimler –
“adaptability is the new competitive advantage”
19
References
Dreyer, Bent ; Gronhaug, Kjell (2004) Uncertainty, flexibility, and sustained competitive advantage.
Journal of Business Research, May, 2004, Vol.57(5), p.484(11)
Hult G T M, Hurley Robert F, Knight Gary A(2004) Innovativeness: Its antecedents and impact on
business performance. Industrial Marketing Management, Volume 33, Issue 5, July 2004, Pages 429–
438
Martinuzzi B (2014) The Agile Leader: Adaptability
McCallum JS (2001) Adapt or Die published in the Ivey Business Journal
Miller, D. (2002). Successful change leaders: What makes them? What do they do that is different?
Journal of Change Management, 2, 359–368.
O’Reilly C (2014) Parsing organisational culture: how the norm for adaptability influences the
relationship between culture consensus and financial performance in high technology terms.
Published in August 2014 Journal of Organizational Behaviour
18
Takii, Katsuya (2006) The value of adaptability—Through the analysis of a firm's prediction ability
Journal of Economics and Business, 2007, Vol.59(2), pp.144-162
19
Reeves, Martin ; Deimler, Mike (2011) Adaptability: the new competitive advantage: in a world of constant
change, the spoils go to the nimble. Harvard Business Review
Ployhart, R. E., & Bliese, P. D. (2006). Individual ADAPTability (IADAPT) theory: Conceptualizing the
antecedents, consequences, and measurement of individual differences in adaptability
Reeves, Martin ; Deimler, Mike (2011) Adaptability: the new competitive advantage: in a world of
constant change, the spoils go to the nimble. Harvard Business Review
Takii, Katsuya (2006) The value of adaptability—Through the analysis of a firm's prediction ability.
Journal of Economics and Business, 2007, Vol.59(2), pp.144-162 [Peer Reviewed Journal]
Thompson, Peter B. ; Shanley, Mark ; Mcwilliams, Abagail (2013) Ownership culture and strategic
adaptability. Journal of Business Strategies, Fall, 2013, Vol.30(2), p.145(35) [Peer Reviewed Journal]
Tuominen, Matti ; Rajala, Arto ; Möller, Kristian (2004) How does adaptability drive firm
innovativeness?. Journal of Business Research, 2004, Vol.57(5), pp.495-506
Wall S, Minocha S, Rees B, (2010) International Business, third edition, Pearson, England
