8 minute read 5 Oct 2020
Old tree with big branches

The importance of adaptability in an increasingly complex world

By Roger Park

EY Americas Innovation Leader

Entrepreneurial innovator and strategist. Ardent supporter of diversity and inclusiveness. Father of three.

8 minute read 5 Oct 2020
Related topics Innovation COVID-19 Disruption

In an uncertain world, adaptability to changing conditions is a must-have trait for businesses.

In brief

  • Business leaders must prioritize adaptability as a must-have organizational trait.
  • As disruption accelerates, evidence suggests that the biggest and “strongest” industry players are not always the most likely to survive.
  • Companies that understand their environments and are positioned to sense change and adapt are the most likely to thrive in the face of disruption.

In an increasingly complex and uncertain world, businesses can take a page from nature’s transformation playbook to become more adaptable.

Many are familiar with Charles Darwin’s evolutionary theory of natural selection,1 which helps explain that species – plants, animals and other organisms – with certain traits are more likely to survive. Plants, animals, other organisms use a variety of mechanisms, including adaptation, to increase their chances of survival.

Adaptation is one of nature’s most important transformation tools, and a key mechanism of natural selection. It helps explain how cacti and camels can survive in harsh desert climates, for example, or why certain animals have developed camouflage to avoid predators.

Today, however, climate change and other pressures are forcing species to adapt more often and more quickly than ever before, often faster than evolution by natural selection can keep up. Few species have demonstrated the ability to adapt quickly enough to these environmental changes, although there are cases that provide a glimpse of hope².

It is becoming increasingly clear that the ability to sense change and adapt to it quickly is more important than ever for all species. Businesses can look to this unlikely parallel from nature to understand how to survive and thrive amid rising disruption and uncertainty.

Lessons in adaptability

Among the most important similarities between nature and business is that the fundamental goal of the individuals in these systems — organisms and businesses — is to survive.

Today, no industry or company is safe from disruption, but many organizations are not prepared to adapt quickly enough to survive accelerating change.

For companies to position themselves for long-term success in this shifting environment, business leaders must prioritize adaptability as a must-have organizational trait. Businesses can no longer rely on traditional measures of business fitness. They must change their perspective and transform quickly and at scale to become adaptable today to survive tomorrow, but how? 

We focus here on three general ways that companies can start their journeys to becoming more adaptable and, therefore, more fit for an uncertain future. Businesses can:

  1. Adopt a new perspective on business fitness
  2. Plan for multiple possible futures
  3. Avoid common mistakes
1. Adopt a new perspective on business fitness

Organisms that are most likely to survive in their given environments and, therefore, most likely to survive are known as the fittest. The fittest species are not necessarily those that are the biggest, strongest, or fastest. Rather, the species that can succeed in their specific environments are the most likely to survive and thrive.

In a business context, size, reach and efficiency were traditionally seen as leading indicators of business fitness. For example, Sears once dominated North American retail through thousands of stores and efficient supply chain. Today, Sears Holdings has shuttered most of its stores.³  Failure to understand customer needs, limited investment in e-commerce, and inadequate leadership are among the factors that led to Sears’ demise. These traits limited the company’s ability to adapt, and its business model collapsed under pressure from new market forces.

There are many more popular examples of companies formerly dominant in their industries that failed to adapt to disruptions, from Kodak to Blockbuster. These anecdotes oversimplify highly complex situations, but they provide an important lesson.

Many business leaders still appear to believe that traditional indicators of market dominance provide an insurmountable competitive advantage. However, as disruption accelerates, evidence suggests that the biggest and “strongest” industry players are not always the most likely to survive. This has become increasingly clear as the pandemic has drawn on, with many companies, large and small, struggling to survive the COVID-19 disruption and its ripple effects.

The COVID-19 pandemic has accelerated the pace of disruption and highlighted the extent of globalization and the interconnectivity of technology, society and nature in new ways. This paradigm shift has also revealed the fragility of many companies that were long seen as industry leaders.

Not all companies have struggled during the pandemic, however. Some companies were in the right place at the right time, such as so-called “work from home” companies and e-commerce leaders. Others have remained stable due to a strong focus on resilience, financial stability and contingency planning. Even fewer have used the crisis strategically to innovate their business models or to grow. These companies have demonstrated the uncommon ability to adapt quickly to the changing environment. Such organizations are uniquely positioned to compete amid uncertainty in the now, next and beyond.

Adaptations in response to COVID-19

While many companies froze in the face of pandemic-related disruptions, others quickly repositioned themselves to succeed amid the uncertainty.

Ford transformed plants nearly overnight to produce PPE, a feat that may have been impossible for the automaker before it adopted a culture of design thinking and rapid innovation.4

Food distributor Sysco shifted its supply chain to help grocery stores meet demand, repurposing its distribution network to fill a critical gap in food systems.5

Many “traditional” retailers, including Neiman Marcus and JCPenney6, have declared bankruptcy during the pandemic, but innovative platforms like Shopify and Mirakl have filled the gap to support rising e-commerce sales.

The examples of adaptations to the COVID-19 disruptions show that companies that understand their environments and are positioned to sense change and adapt to it quickly – or, even better, proactively – are the most likely not only to survive, but to thrive in the face of disruption.

Beyond COVID-19, old measures of fitness will no longer apply – companies need to reimagine how they will create and sustain value in the future.

New measures of business fitness

Fitness in the future will hinge on many things, with nuances for every geography, industry and even company. Still, all companies can invest in three transformative value drivers to stay fit and gain a dynamic competitive advantage:

  1. Putting humans at center: focusing on the needs of all stakeholders, not just shareholders, in designing business models, products, services and experiences
  2. Driving innovation at scale: exploring innovations on the front end of disruption and fostering a fail-fast culture that rewards innovation
  3. Deploying technology at speed: developing a holistic digital transformation strategy to keep pace with technology advancements and ahead of potential disruptions

These traits will be hallmarks of adaptable and future-fit companies. They will be able to move quickly and adapt to changes in customer demands, technology advancements and disruptive competition better than those that rely on size and efficiency alone.

2. Plan for multiple possible futures

How can companies know that they have what it takes to be future-fit if they don’t know what the future looks like?

Unlike plants and animals, people and companies can use scenario planning techniques to explore possible futures and guide transformation. Most scenario planning follows an academic and data-driven approach, like the stress testing required for banks. This type of approach is helpful in many cases to prepare for financial downturns, for example, but the focus can be too narrow to help companies prepare for myriad long-term disruptions.

We advocate for an approach that combines science and art, or a “futures view.” Companies may not be able to predict the future, but understanding what is possible, plausible and probable can help a company shape a preferable future.

Adapting to multiple possible future scenarios

This approach enables a company to identify what disruptions might be possible in the future and what that will mean for the organization. Through this understanding, companies can strategically plan for their preferable future at the intersection of these possible future scenarios and guide investment and adaptation (transformation) accordingly.

Disruption is a significant threat to all companies, but it is also a great opportunity. Companies that understand what is possible in the future can seize the upside of disruption by crafting a continuous transformation strategy that balances transformation initiatives over three horizons: the now, next and beyond. Companies that manage transformation in this way can build a foundation that can support future growth, enable new value propositions and explore entirely new businesses or “game changers” in the beyond.

3. Avoid common mistakes

Many internal and external factors are at play in a company’s long-term survival. We can see that “intergenerational” survival is more likely when companies adapt to the market quickly and avoid three common pitfalls that can lead to inability or unwillingness to adapt.

  • Abandon legacy mindsets: Many companies cling to legacy mindsets and base their assumptions about their industry and future on what worked historically. To overcome this, companies can instill a human-centered culture, grounded in a shared purpose and vision, that encourages innovation and a fail-fast approach. This mindset shift is difficult for large companies, but those that have taken this step can adapt much more quickly than competitors that cling to the past.
  • Develop symbiotic relationships with an ecosystem of partners: Many companies that cling to old ways of working also have an individualistic mentality and treat success as a zero-sum game. In today’s connected age, companies need to approach competition in new ways. Companies can consciously adopt this approach by partnering with competitors, academia and startups to improve competitive advantage. The nature of competition has changed, and business leaders need to embrace this new reality.
  • Know it can happen to you: In 2013, Nokia’s CEO, Stephen Elop, famously ended a speech by saying, “We didn’t do anything wrong, but somehow, we lost.” Nokia saw shifts in the market and disruptions on the horizon but did not change its behavior or approach to avoid disruption. Willingness to change even when business appears to be running smoothly can help companies reinvent their business continuously as the landscape changes.

Many other internal and external factors can limit a company’s ability to adapt, but these examples can serve as a quick guide for leaders hoping to avoid the same mistakes that have led other companies to the brink.

How can you learn from nature and disruption-ready companies to make your organization more adaptable in the future?  

This article was co-authored by Bansi Bhalla, Mitchell Hamilton and Aliesje Chapman. The views reflected in this article are those of the authors and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.

Summary

No industry or company is safe from disruption. Businesses can look to the unlikely parallel of nature’s deep book of innovations to become more adaptable and understand how to survive and thrive amid rising disruption and uncertainty.

About this article

By Roger Park

EY Americas Innovation Leader

Entrepreneurial innovator and strategist. Ardent supporter of diversity and inclusiveness. Father of three.

Related topics Innovation COVID-19 Disruption