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ADAPTIVEORGANIZATIONSorhowtobetterthriveinachangingworld

JuanCarlosEichholz

Manuscript01/10/2013Copyright2013Noreproductionsallowed

[email protected]


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MANUSCRIPT01/10/2013Copyright2013JuanC.EichholzNoreproductionsallowed. 2

TABLEOFCONTENTS

Forward

Introduction:TheTrees

PARTONE:THEQUESTIONSFORUNDERSTANDINGADAPTIVEORGANIZATIONS

1. WHYAdaptiveOrganizations?2. WHATareAdaptiveOrganizations?3. WHOshouldbeAdaptiveOrganizations?

PARTTWO:THEANSWERSFORBECOMINGAMOREADAPTIVEORGANIZATION

4. PURPOSE:TheOrganizationsSoul5. STRATEGY:TheOrganizationsBrain6. STRUCTURE:TheOrganizationsSpine7. CULTURE:TheOrganizationsBlood8. TALENT:TheOrganizationsHeart

Afterword:TheForest

NotesAcknowledgments

Index


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INTRODUCTION:THETREES

MicrosoftwasalreadymonthsintoamassiveprojectaimedattakingdownGooglewhen

thetruthbegantodawnonBillGates.ItwasDecember2003.HewaspokingaroundontheGooglecompanywebsiteandcameacrossahelp-wantedpagewithdescriptionsofall

theopenjobsatGoogle.Why,hewondered,werethequalificationsforsomanyofthem

identical to Microsoft job specs? Google was a web search business, yet here on the

screenwerepostingsforengineerswithbackgroundsthathadnothingtodowithsearch

andeverythingtodowithMicrosoft'scorebusinesspeopletrainedinthingslikeoperat-

ing-system design, compiler optimization, and distributed-systems architecture.Gates

wonderedwhetherMicrosoftmightbefacingmuchmorethanawarinsearch.Ane-mail

hesenttoahandfulofexecsthatdaysaid,ineffect,Wehavetowatchtheseguys.It

looksliketheyarebuildingsomethingtocompetewithus.Hesuregotthatright.Today

Googleisn'tjustahugelysuccessfulsearchengine;ithasmorphedintoasoftwarecom-

panyandisemergingasamajorthreattoMicrosoft'sdominance.

Thiswas the introduction ofanarticle titled Gates vs. Google:WhyGoogle scares Bill

Gates?,writtenbyreporterFredVogelsteininFortunemagazineonMay4th,2005,ata

timewhenthesearchenginecompanyfoundedbythetwentysomethingsSergeyBrinand

LarryPagewasstillafractionofwhatithasbecome,andwhenthesoftwarecompanywas

stillthesoledominantplayerthatnolongerisnow.

WhenIfirstredthearticle,theonethingthatimpressedmethemostwasthefactthat

BillGateswoulddevotehistimetoanalyzethedescriptionsofGooglesopenjobs.Being

myselfabusinessconsultantandprofessorofleadershipandorganizationalchange,itwasinawayfascinatingtorealizehowthefounderandCEOofoneofthelargestcorporations

intheworldwouldresorttonon-conventionalmeansanddatatobetterunderstandhow

theindustrycouldevolvein thefutureandwhattheopportunitiesandthreatswouldbe

there forMicrosoft.Hecertainly knew the importanceofobserving asmany signals as

possibleinordertomakeaccurateinterpretationsofanevermorecomplexanddynamic

reality.Infact,hehadfailedtodothatadecadebefore,whentheInternetwasinitsinitial

stepsofmassivedevelopmentandpenetration.Asopposedtosomeotherswhobetinfa-

vorofit,buildingprogramsthatcouldbesupportedonline,Microsoftbetagainsttheweb,

seeingnotmuchpotentialinitsfuture.Itdidnottakelongforthatviewtobechallenged

bysomeexecutives,though,whoforcedachangeinthecompanysstrategy,successfully

mobilizingenoughresourcestoseizethechancesassociatedtotheInternet.

WhileMicrosoftwasabletoadaptfastenoughinthe1990stokeepitsprominentposition

intheinformationtechnologiesindustry,itwasnotabletodoitagaininthe2000s.Not

onlyitwasincapableofchallengingGooglescorebusinessasasearchengine,despitethe

hugeinvestmentsmadeforthatpurpose,butitalsosawitsowncorebusinessasasoft-

waredeveloperdeclineovertime,especiallywhenApplesnewdeviceschangedtheplay-


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ingfield.

Whydidthathappen?Whatshouldhavetakenforhistorytobewrittendifferently?Will

Microsoftbeabletoreinventitself?Thesequestionshavenoclearanswers,butonething

issure:predictingthefuturehasbecomeanincreasinglyriskiertask.Inotherwords,there

aresomanytreesoutthere,andsodifferentfromeachother,thatseeingtheforestandmakingsenseofitisnowharderthanever.Forthatveryreason,thekeytoremaincom-

petitive and thrive in this changingworld lies more oneach organizations capacity to

adaptasfastaspossiblethaninitscapacitytopredictthefuture.Infact,theonething

that can be said aboutMicrosoft is that its own adaptive capacity decreased as time

passedordidnotraiseenoughtocopewithitscompetitorsadaptivecapacity.Lookingin-

sidetheorganizationtomakeitmoreadaptive,therefore,shouldnotbelessimportant

thanlookingoutsidetounderstandthetrendsandbothactivitiesarecertainlylinked,

thoughithasalsobecomeahardtasktoperform.Astheworldgetsmorecomplex,organ-

izationsdotoo,andtheirownforestgetsmoreandmorehiddenbehindthetrees.

Thepurposeofthisbookistohelptopmanagerslookinsidetheirownorganizationsto

seethatforest,makingsenseofwhatisgoingonthereandunderstandingwhatpartsor

treesof ittoaffect inordertobecomemoreadaptive. Inmyexperienceworkingvery

closelyforseveralyearswithexecutivesoflargecorporationsinmakingprogressontheir

toughestchallenges,I havelearnedalotaboutcarryingoutchangesthatwouldimprove

theorganizationsperformanceinasustainableway,andatthesametimeIhaverealized

howdifficultitcanbeforthosemanagerstoseethebigpictureoftheirowncompanies

anddothatkindofadaptivework.Theyaretypicallyverygoodatunderstandingthebusi-

nesstheyareinandinvisualizingtheopportunitiesinfrontofthem,buttheytendtohit

theirheadsagainstawallwhentryingtomobilizetheorganizationtoactfastenoughfor

takingadvantageofthem.Theyactlikeacarracerwhotriestodrivefasteronlybypush-ingtheacceleratorto itslimit,withoutputtinghishandsintheenginetomakeimprove-

mentsthatwillincreasethecarsoverallspeedingpotential.

Asopposedtothecarracer,though,whocouldrelyonthemechanicstodothatjob,top

managershavetodoitthemselves,namely,mobilizingtheorganizationtobemoreadap-

tive. In fact, that isone of theirmost important responsibilities in the knowledge era,

wheretheorganizationsadaptivecapacityhaslesstodowiththebrightnessanddeter-

minationofaCEOinmakingthebusinessdecisionsasitusedtobethecaseintheindus-

trialeraandmoretodowithunleashingthepotentialthatisbroughtbyevery-day-more

knowledgeableemployees. The sameway topmanagersare conscious aboutusingthebusinessoar,theyshouldbeconsciousaboutusingtheorganizationaloar,despitethatfor

mostofthemthisisstillprettymuchatrialanderrorprocess,giventhecurrentstageof

theoreticaldevelopmentofthisfield,ononehand,andtheinherentdifficultyofmobiliz-

ingpeopletoadapt,ontheother.

Thisbookpretendstobeonemorestepforwardinthepathofunderstandingadaptation

attheorganizationallevel,especiallyfromthepractitionersperspectiveandneeds.Itis


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certainlyneitherthefinalwordinthiseffort,northefirstone.Specifically,itbuildsonthe

ideasaboutAdaptiveLeadershipinitiallydevelopedbyHarvardprofessorRonaldHeifetz,

whomIfirstmetasagraduatestudentinthemid1990s.Hisbook LeadershipWithout

EasyAnswersbecameareferencepointforunderstandingleadershipandauthorityinthe

contextofadaptivechange,anditwaslaterfollowedbythemorepracticalandpersonal

bookLeadershipontheLine ,coauthoredwithHarvardprofessorMartyLinsky.Theappli-cationof theseideastodevelopleadershipcapacity inorganizationsthroughCambridge

LeadershipAssociates(CLA)theconsultingfirmtheyfoundedin2002allowedtofurther

advancethedepthandextensionoftheframework,drivingtothepublicationofThePrac-

ticeofAdaptiveLeadership, coauthoredbyHeifetz,Linsky and AlexanderGrashow, the

companys CEO.Togetherwithbeing professorand founderof theStrategicLeadership

CenteratAdolfoIbezBusinessSchoolinChile,Ihavepartneredwiththethreeofthem

foradecade,andthisbookistheproductofwhatCLAasawholehaslearnedsofarcon-

sultingwithcorporationsinfacingchangeprocessesfromanadaptiveapproach.

Inordertointroduceyoutotheconceptsthatunderlietheframeworkthatisdevelopedin

thesepages,thebookstartsfromthebroaderconceptsaboutchange,adaptationandor-

ganizations,developedinPartOne,leavingtoPartTwotheverynarrowandpracticalones

that touchon specificvariables thatcan drivechange tobuildmoreadaptiveorganiza-

tions.

Though it couldbetempting for you to immediately jump into the second partof the

book,youwillfindvalueinreadingPartOne,sincebecomingamoreadaptiveorganiza-

tionisnotjustamatteroflookingatabunchofvariablesandtrytomodifythem.Infact,

itwouldbenonsensetodothatwithoutunderstandingWHYitisimportant,whichisthe

questionaddressedinChapter1,thatanalyzesthestageofevolutionwearelivingashu-

manbeingsandthetrendsweareobservingintodaysworldthatarehavingadirectim-pactonorganizations.Also,becausethisisabookaboutadaptiveorganizations,itisuse-

fultocomprehendWHATtheyare,graspingthewholeideaofadaptationandhowitis

generated,whichinmanywaysisunderstandinghumannature,inbothitsindividualand

itssystemicaspects.ThisisthefocusofChapter2.

Nevertheless,notallorganizationsarecalledtobeequallyadaptive.Therefore,theques-

tionaboutWHOshouldbeanadaptiveorganizationisrelevant,andisaddressedinChap-

ter3.Google,forexample,needsamuchhigheradaptivecapacitythanBHPBilliton,the

largestminingcompanyintheworld.Whenthefirstonereferstothelongrunitisproba-

blythinkinginthenextthreeyears,whereasthesecondoneisthinkinginthenext30

years.Thisideaspeaksforitselfaboutthedifferencesthatthetwocompaniesshouldbe

expectedtohaveandactuallyhaveintermsofdecisionmakingstyles,structure,level

ofdisequilibrium,processesdefinitions,turnoverrates,andmanyotheraspects.Butboth

ofthemcanbemoreadaptivegiventheirownreality,andthatbecomesthechallenge.To

makesenseofthosedifferentrealities,wewillunderstandthat,dependingontheindus-

tryeachcompanyisin,itshouldbeexpectedtobeclosertooneofthefollowingfour

kindsoforganizationsthatwillbedepictedinChapter3,eachonerequiringdifferentlev-


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elsofadaptivecapacity:authoritative,bureaucratic,communalandcreative.

Havinginternalizedthepreviousdistinctionsandthewholeideaofadaptiveorganizations,

youcanturntoPartTwoofthebook,lookingfortheanswersthatwillhelpyouunder-

standhowtoincreaseyourownorganizationsadaptivecapacity.Eachofthefivechapters

thatcomprisethissecondpartwillanalyzeoneofthefollowingdimensionsofanorgani-zation,diggingintothevariablesthatcanmakethedifferenceintermsofunleashingits

peoplescapabilities,makingitmoreadaptive.Thosedimensionsarethefollowingones:

1. Purpose,whichcanbeconsideredtheorganizationssoul.2. Strategy,whichcanbeconsideredtheorganizationsbrain.3. Structure,whichcanbeconsideredtheorganizationsspine.4. Culture,whichcanbeconsideredtheorganizationsblood.5. Talent,whichcanbeconsideredtheorganizationsheart.

Attheendofthebook,havingdevelopedallthepreviousdistinctions,youshouldhave

enoughelementsandthoughtstolookatyourowncompanyandanswerthesefiveori-

entingquestionsthatareputhere,attheverybeginningofthebook,toguideyourreflec-

tionsasyouread:

Whatkindoforganizationisit? Whatkindoforganizationshoulditbegiventheindustryitisin? Howadaptiveisitrightnow? Howmoreadaptiveshoulditbegiventherealityitisin? Whatarethecriticalvariablesthatshouldbeintervenedinordertomakeitmore

adaptive?


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PARTONE

THEQUESTIONS

FORUNDERSTANDINGADAPTIVEORGANIZATIONS


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Backinthe19thcentury,CharlesDarwinpronouncedthiswidelyknownphrase:Itisnot

thestrongestofthespeciesthatsurvives,northemostintelligentthatsurvives.Itisthe

onethatisthemostadaptabletochange.

Ofcourse,thisstatementistruenotonlyforbiologicalevolution,butforsocialevolution

aswell.Andit isespeciallytruefortheorganizationalworldnowadays,whereincreasing

levelsofexternalchangedemandincreasinglevelsofinternaladaptation.

Organizational adaptation,nonetheless, ishardwork, to the point that itmay become

even dangerous sometimes for thosewho promote it. And it is also purposeful work,

which should be strategically designed and led from the start, identifying the specific

changesthatshouldbefaced.

TheseideaswillbethebasisforPartOneofthebook,inwhichwewilltrytoaddressthe

followingissues:

Whyarewelivinginanewera? Whataretheimplicationsfororganizations? Whyisadaptationsopainfulandresisted? Whatistheroleofauthoritiesinmakingithappen? Doallorganizationsneedtobeequallyadaptive?


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CHAPTER1

WHYADAPTIVEORGANIZATIONS?

LANAirlines

Itwasdifficulttoimagineatthattime,almost30yearsago,whentheytookoveracargo

airlinewhichhadonlyoneaircraft,twomilliondollarsinsalesandabadlookingbalance

sheet.Moreover,theCuetofamilyhadneitherexperienceinthebusinessnorbigassetsto

countwith,andtheoldestbrother,Enrique,whoassumedasthemainexecutive,wasonly

24yearsoldandhadrecentlygraduatedfrombusinessschool.

ThenameofthecompanywasFastAir,thestartingpointoftheadventurethatallowed

theCuetos,togetherwithtwoinvestors,tobuyLanChilein1994andturnitintooneof

thetopthreeairlinecompaniesintheworldintermsofmarketcapitalization,andthefirst

oneinthewesternhemisphere.

The numbersarequiteimpressivewhencomparingthe company theybought 18years

agototheonetheyrunnow.Atthattime,LanChilehad13aircrafts,2,000employees,

320milliondollarsinsalesandonehublocatedinSantiagodeChile.Today,LATAMhas

300 aircrafts, 50,000 employees, 13billion dollars insalesand amultihuboperation in

SouthandNorthAmerica.

More impressive than the numbers, though, is the storyofsuccessfully facedadaptive

challengesthat isbehind them,startingbythedevelopmentof aglobalmindset inthe

headsofthoseyoungexecutivesmanyofthemformerclassmatesoftheCuetosbroth-erswhowereallbornandraisedina17million-populationcountry,locatedintheendof

theworld,surroundedbythePacificOceanandthehighestpartoftheAndesMountains,

andnotusedtolookingbeyond.ExceptfortheCuetosthemselves,whosefather,Juan,

hadbeenborninSpainandneverlostcontactwithhishomeland.

Thedevelopmentof thatglobalthinkingprovedtobecriticalinLANAirlinesfastgrowth,

sinceitallowedthecontrollerstounderstandthatthisbusiness,inaneraofderegulation

andglobalization,neededabigscale,farbeyondthefrontiersofasmallanddistantcoun-

try.Thatwasacondition,butcertainlynotenoughforhavingsuccessinanincreasingly

competitiveindustry,thatdemandedhighlevelsofefficiency,andinanevermorecon-nectedworld,thatrequiredgreatflexibilitytocopewiththeeconomiccyclesandalltypes

ofeventsthatcouldimpactpeopleswillingnesstofly.

Howtofacethesechallenges?TheinitialdecadeinFastAirprovedtobethecornerstone,

notonlybecauseoftheexperiencetheCuetoscouldgaininthecargobusiness,butmainly

becauseoftheteamtheywereabletoassemble,manyofwhichmembersarestillinthe

company.Having built that internal capacity theywere lateronable tobuy and run a


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muchlargercompanywhichhadbeenfoundedin1929bytheChileangovernmentand

remainedunder its control for six decades, imposing themanagement style that had

madethemsucceed:dynamism, informality,speediness, frankness,passion.Nowonder,

then, that after thismajor first step inbecominga regionalactor, many other smaller

stepsfollowedintheprocessofgainingscale:mergerwithLadecoaChileanstate-owned

airlinein1997;becomingmemberoftheOneWorldAlliancein2000;acquisitionsoflo-calairlinesin Peru in1999,Ecuador in2003,Argentina in2005, andColombiain 2010;

strengtheningofthecargobusinessbyopeningterminalsinMiami,Brazil,Peru,Ecuador,

Mexico, Colombia and Argentina, and by setting up alliances with Florida West and

Lufthansa.Anddefinitelythemostrelevantstephasbeenthelastone,announcedin2010

andimplementedin2012:amergerwiththeBrazilianTAMAirlines,thathasgivenriseto

LATAM, under the control andmanagementof the Cuetos, despite that TAMwas one

thirdlargerthanLANintermsofrevenuesandemployees.

ButgaininginternationalscalehasnotbeentheonlychallengethatLANhashadtoface

undertheleadofEnriqueCuetoandtheexecutivesthatmanagethecompany,twoofhis

brothersincluded.Thestrategydemandedhighlevelsofefficiencyinordertocompetein

themajorleagues,withoutloosingtheoldanddistinctivecharacterofqualityservice.In-

novationwasrequiredtocombinethesetwocompetitivegoals,anditcamethroughtak-

ing real advantage of the synergies between the cargo and the passenger businesses,

whichwasmadepossiblebythepreviousexperienceinFastAir.Infact,LANbecamethe

numberoneairlineintheworldintermsoftheproportionofrevenuescomingfromcar-

go, accountingforone thirdof the total. But thereweremore innovationsthat helped

too,likerenewingthewholefleetofaircrafts,lookingforthebestservicetoclientsandat

thesametimethebestcombinationofspacebetweencargoandpassengers,nottomen-

tiontheefficiencyinoilconsumption.Decisionsliketheseandothers,actually,allowed

LAN tocreate its own low-costmodel fornational flights, following the trendsofmanyothersuccessfulairlines,butwithoutsurrenderingtheservice.

Theairlineindustryhasbeenhardlyhitduringthepastfewyears,startingwiththeAsian

crisisin1998,followedbytheimpactof9/11,theriseoftheoilpricesince2007,andthe

subprimecrisisin2008,amongotherevents,allofwhichhasputalotofpressuretothe

companies,testingtheircapacitytoadapttothosechanges.Manyofthemhavedisap-

peared orhavebeenoperatingwith losses, and only someof themhavebeenable to

strivesuccessfully.LANAirlineshasbeenamongthelatterones,actuallygrowingatafast

paceduringtheseturbulenttimes.

SaabAutomobile

Weneedtogiveourcustomers the clearmessagethatSaabswillbeSaabsagain. The

companyhaslostitsDNAoverthepastyearsandthathascauseditscustomerstoturnits

backonitWearenotlookingfornewcustomers,werejustlookingforgettingourown

customersback.1


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ItwasFebruary2010whenVictorMullerpronouncedthisphrase.AstheownerofSkyper,

asmallDutchluxurysportscarmaker,hehadjustsignedthecontracttopurchaseSaab

AutomobilefromGeneralMotors,andwasenthusiasticaboutthepossibilityofrefloating

thisSwedishiconicbrand.

BuildingonitsexpertiseasfighterplanesproducerforSecondWorldWar,SAABcreatedanautomobiledivisiontodiversifyitsdecliningbusiness,launchingitsfirstproducttothe

marketin1949,theSaab92.Thiswasthebeginningofwhatwouldbecomeasortofcult

forasmallsegmentofveryloyalpeople,whocouldbecharacterizedaseccentricindivid-

ualists, attracted by the innovative, unique and quirky features of the Saabs over the

years:aerodynamicdesign,robustness,turbo-chargingandsophisticatedgadgets.

Despite this,however, the divisionwasneverableto sellmorethan140,000unitsin a

year,anditsself-financialsustainabilitywasalwaysatrisk.Thisfactwasbehindthemer-

gerwiththeSwedishcommercialvehiclesmanufacturerScaniain1969,andpushedthe

partialsaleoftheautomobilecompanyin1989toGeneralMotors,whichtookfullcontrol

overitin2000.

OnOctober28th,2011,afterhavinglaunchedanewmodelthatdidnotsucceed,obtained

financialsupportfromtheEuropeanInvestmentBankandChinesecarmanufacturers,and

madeallsortsofattemptstofindpartners,VictorMullerwasabletosay:'Ihavehadno

lifeinthepasttwoyears...Myjobwastosavethecompany.IthinkIachievedit. 2Less

thantwomonthslater,however,onDecember19 th,SaabAutomobilewasdeclaredbank-

rupt.

WasSaabcondemnedtodisappear?Coulditnothaveadaptedandsurvived?Whatwas

theadaptive challengethatneededtobe faced?During its firstthreedecadesofexist-ence,thecompanydidfairlywell,conqueringanicheinSweden,UnitedKingdomandthe

UnitedStates.Outofthefewmodelsthatwerelaunched,theSaabs96,99and900were

importantbreakthroughsthathada longproductionlife,offeringhighlydistinctivetech-

nologicalsolutions.Butthingsstartedchangingintheautomobilesectorduringthe80s,

whenJapanesecarsappearedtobeaseriousthreattoAmericanandEuropeanproducers,

forcingdeeptransformationsintheindustry.Productioncostshadtogodownandmore

efficientcarsweretobedeveloped,whichpushedallsortsofmergers,acquisitionsandal-

liancesbetweencompaniesindifferentcountriesandsegments,lookingforeconomiesof

scale.Infact,oneofthetendenciesthatemergedduringtheearly90swastheuseof

shared-platforms fordifferentmodels,allowingfor reduceddevelopment costswithoutattemptingagainsttheuniquenessofeachbrand.

Inthisscenario,itwouldbedifficultforarathersmallcompanytosurviveifitremained

alone.Notsurprisingly,therefore,afterreachingapeakproductionin1987,with134,000

units,Saabsawitssalescomedowninthefollowingyears,registeringalossof$848mil-

lionsin1990.Therewasnowayoutbutlookingforabigally,whichiswhatGMbecameto

Saabwhenitbought50%ownershipfor$600million.Thisdealfollowedthetrendalready


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initiatedwiththe acquisitionsofAlfaRomeobyFiat, Lamborghini byChrysler,Lotusby

GM,AstonMartinbyFord,andRoverbyBMW.EvenVolvoandLandRoverweretobeac-

quiredbyFordin1999.

Atthispoint, Saabhad everything tosucceed: astrong brand, loyalcustomers and the

supportofthelargestautomakerintheworld.Thechallengewastoincreasesalesandre-duce costs, which should be attained by maintaining the Saabs identity and using a

shared-platformwithotherGMsmodels.Thisis,infact,whatAudihadbeenabletodoin

aturnaroundthatwouldtakeittoproducemorethanonemillioncars,sharingplatform

with other brands in the Volkswagen GroupSeat, Skoda, VW and competing in the

samesegmentasBMWandMercedes.

Nevertheless,Saabfailedtosuccessfullyfacethischallenge.Newmodelswerelaunched

sharingplatformswithVectraandOpelcars,butsalesneverreallytookoffinthedimen-

sionitwasneeded,whichmeantthatthecompanykeptonloosingmoneyforalmostall

the20yearsofGMsinvolvement.Atthecoreofthisdisappointingperformancewasthe

underlyingtensionbetweenthestubbornnessofSaabpeople,whoneverwantedtogive

upanyaspectoftheuniquenessof thecarstheyusedtoproduce,andtheunwillingness

ofGMpeopletounderstandwhatSaabsidentitywas.Bothpartsfailedtoengageinadia-

loguethatwouldtakethemtoagreeonwhatwasessentialandwhatwasexpendableina

Saab,whichwas critical to take advantage of the strengthof the brand inaway that

wouldincreasesalesandmakethecompanyprofitable.

Whentheglobalfinancialcrisishitin2008andGMhadtofaceitsownbankruptcyduring

thenextyear,Saabsfatecouldnotbeotherthandeath.Salescamedownto20,000units

and,theworstpart,itsidentityhadbeenlost.MakingSaabsbeSaabsagain,asVictorMul-

lerphrasedit,wasnothingbutadreamatthatpoint.

Interestingenough,GMitselfhadtheabilitytoadaptandthrive,verysuccessfullyindeed.

AndsodidVolvo,whichunderwentasimilarpathtoSaab,beingbothSwedishcarmakers,

withstrongidentitiesandwithfairlysmallsizes.AfterbeingacquiredbyFord,Volvode-

velopednewmodelsandopeneditsniche,increasingsales.AndwhensoldtoChinesemo-

tormanufacturerGeelyAutomobile,becauseofFordstroubles,thecompanywaswellfit-

tedtothrivethroughthenextdecade.

Andwhatelse?

Ofcourse,notonlytheairlineandtheautomobileindustriesarefacedwithchangingenvi-

ronments that pose adaptivechallenges to the players onthose fields. It isdifficult to

thinkofanykindoforganizationthathasnotbeentouchedbythemanyandfastchanges

thatweare witnessing nowadays in the world and in almost every community. These

changesdemandcertainsortsofadaptationfromthoseorganizations,but,astheprevious

twocasesshow,somesucceedandsomeothersfail,andthedifferenceliesintheircapac-

itytodevelopnewresponsestothesenewrealities,overcomingtheirnaturaltendencyto


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dowhattheyareusedtodoing,especiallywhentheyhavebeensuccessfulinperforming

thatway.

Think,forexample,intherecordcompanies,thatstartedfightingagainstthemanymusic-

sharingwebsitesthatemergedinthelate1990sandearly2000s.Whiletheyweredevot-

ingtheirenergyinlawsuitstostoppiracyandcopyrightviolations,tryingtorecoverthepreviousstatusquo,ApplecameupwiththeiPod,transformingthemusicindustryand

creatinganewstatusquo.

OrtakealookatthefinancialsectorintheUnitedStatesandEurope,whichwasdramati-

callyhitbythesubprimecrisisin2008.Isitpossibleforthosebankstosurviveintheme-

diumtermrelyingonthemultipleleveragemechanismsthattheycreatedtomakecredit

affordabletopeoplewhodidnothavethecapacitytopaybackifconfrontedwithprob-

lems?What demands from themand how hard has been that adaptation? Is it taking

placeor,mostlikely,hasitbeenavoidedthroughfakeandshort-termremedies?

Orwhataboutnewspapers,facedwiththefactthatinformationisnowbeingprovided

throughliterallymillionsofsources,usingtheInternetorTwitterasdistributionchannels,

andmanyofthemconsideredtobemorereliable?Itisobviousthatanewspapercannot

remainthesameasitusedtobe,butitislessobviouswhereitshouldgoandwhatneeds

tobechangedtogettothatplace.

Ortheextractingandtheenergycompanies,whichhavetodealwithmoreempowered

communities,notonlyindevelopedcountries,butinthedevelopingworldtoo.Howdo

theylearntointeractwiththosecommunitiesinawaythattheoperationprovidesvalue

toeveryone?Easytosay,difficulttoputinpractice,especiallywhenthatinteractiondevi-

atesresourcesandtimefromtheproductionitself.

Andthecompaniesthatproducethekindsofgoodsandservicesthatcannowbeprovid-

edfromChinaor Indiaatmuchlower costs.Howdotheyadapt?Is thatpossibleordo

theysimplyhavetogooutofbusiness?Andifthatisthecasewithmanyfirmswithina

country,howdogovernmentsrespond?

Yes, governmentsare in trouble too,having todealwithproblemstheydonot under-

stand, beingforced toprovide fast solutions theydonothaveathand, topeoplewho

havehigherexpectationsthaneverbefore,withinapoliticalclimatethatismoreinclined

topolarizationthancooperation.Howtorecouppeoplestrust?Thisisamajoradaptivechallenge,which talksaboutthe need toreframethe social contractinwhichwehave

livedformorethantwocenturiesinthewesternworld.

ANOTHERREVOLUTIONWITHINTHEEVOLUTION

Theabovelinestellusaboutchange.Changethatcomesfromdifferentsources,butthat

hasacommoneffect:theneedforadaptationinsocieties,governments,industriesand


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companies,startingbyindividualsinthosesystems,ofcourse.Moreover,thoselinestell

usabouttheneedforadifferentkindoforganizationthantheonewewereusedto.We

willcallitamoreadaptiveorganization,whichisthefocusofthisbook.

Butwehavetostartbytryingtomakesenseofwhatisgoingonintheworld,understand-

ingthetrendsandprojectingtheirimpactonorganizations.Withoutdrawingthecontext,wewillmissanimportantpartofthepicture,probablytheonethatSaabAutomobiledid

notwanttolookatseriouslyenough.

Wheredowecomefrom?

OurancestorshaveinhabitedtheEarthforseveralmillionyears.Andnotmuchreallyhap-

peneduntilonlytenthousandyearsago,whenagriculturewasinvented.Beforethat,the

varioushomospeciesthatexistedalongthecenturiessurvivedashuntersandgatherers,

movinginsmallgroupsfromoneplacetoanotherchasinganimalsandlookingformore

fertilezones.Butwhenenvironmentalconditionsbecamemilderandthehomosapiens

learnedtoproducehisownfooddirectlyfromtheground,everythingchanged.

ThisAgricultureRevolutionputanendtotheneedofbeingnomads,sothesmallgroups

becamesedentaryandstartedgrowing,fromsmalltowns,tocitiesandeventolargecivili-

zations.Thereweremany benefitsassociatedwith this change,which supposeda tre-

mendous step forward inhumandevelopment, allowing for the appearance ofwritten

languagesome five thousandyearsago and the emergence of increasinglymore disci-

plinesthatprovokedafasterandbroaderpaceofprogress.

Nevertheless,thisdemandedapainfullearningtoo,notsomuchintermsofexploitingthe

naturalresourcesanddominatingallotherspeciesonearth,butmoreintermsoflivinginlarger communities, with all sorts of challenges associated with power, order, justice,

identity,freedom,rightsandduties,definitionsofacceptableandnon-acceptablebehav-

iors,enforcement,andsoonandsoforth.

Preciselywhen someinterestingphenomenaweretakingplace in regardto these chal-

lengesinsomepartsoftheworld,allowingforthefirstdemocraticexperiments,another

revolutionintheproductionsystemstartedtounfold,intheendofthe18thandthebe-

ginningofthe19thcentury.Inthiscaseitwasnottheuseofland,buttheinventionof

non-mechanicalformsofenergythatbroughtdifferenttypesofmachineryintoplay,ac-

celeratingeconomicgrowthtolevelsneverseenbefore.

Again, despite the benefitsof this Industrial Revolution, that drovemost of the world

populationtoincrease its leveloflifequality,andmillions tocomeoutofpoverty, the

transitionwaspainfulandwehadtoadapt:inequalityaugmentedamongcountriesand

people,raisingaseriesofsocialquestionsandexperiments,thatproducedunprecedented

levelsofpoliticalturmoil,ideologicalconflictsandwar.


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Andpreciselywhenwewerelearningnewwaysandaddressingsomeofthesechallenges

thefalloftheBerlinWallin1989turnedouttobeasymbolofthat,anddemocracywas

becomingacceptedasthebestpoliticalsystem,ononeside,andthefreemarketecono-

myasthebesteconomicsystem,ontheother,athirdrevolutioncameintoplace.

Thiswas called the Knowledge Revolution,and ithas been deepening atan incrediblepacesincetheearly1990s,makingusfaceallsortsofadaptivechallenges,systemically

andindividually.Whatappearsbehindthisistheexplosivemixofinformationandcom-

munication,whichbest expression is the Internet. Neverbefore humanitywas able to

producesuchamountofknowledgeandinformation,andneverbeforetheexistenceofit

wasaccessibletoanybody,basicallyatnocost.Theconsequencesofthisareenormous,

startingbytheempowermentofpeople.

Duringthelongeraofhuntingandgathering,individualsinaclangrantedhighvalueto

theoldermembers,whoseexperiencewasappreciatedwhennewsituations hadtobe

faced,likeithappenedwiththesilverbackinthecaseofthegorillas.Duringtheagricul-

tureerathatchanged,andthemostvaluedpeoplewerethosefewwhoownedtheland,

whereasalltheresthadtoworkinverymiserableconditions.Duringtheindustrialera,

landbecamelessimportant,andthenewmostvaluedpeopleweretheownersofcapital

thecapitalists,physicalandfinancial,becausethatwasthescarceresource.Nowadays,

capitaliseachdaylessscarce,andthevalueisinthosepeoplewhocanmakeuseofthe

vastandwidelyaccessibleknowledgeinwaysthatcanaddvaluetoothers.Whocando

that?Millionsofpeople,networkingwithpartnersthroughalaptopcomputerconnected

inacoffeeshop.

Havingpeoplewithallthisentrepreneurialandcreativepowerisahugeopportunityfor

organizationsandfor countries aswell,butatthe same timeamajoradaptivechal-lenge.Insimplewords,theindustrialtypeoforganizationdoesnotfitpeoplelivinginthe

knowledgeera,andthosecompaniesthatdonotrealizethisandact,willendup loosing

theirmostimportantasset.

Wherearewegoing?

Butbeforediggingdeeperintothechallengesthatallthisposefororganizations,letus

takeabriefreviewofsomeofthetrendsofthecurrentera,allsomehowconnectedto

thisideaofpeopleincreasinglyhavingthepower.

FromWesttoEast.ItiswellknownthatChinaisapproachingtobethelargestecono-

myoftheworld,whichshouldhappenbytheyear2025.Butthisisjustasymptomof

a larger phenomenon that has todowithpeople and that applies toan increasing

number ofAsiancountries. Everything started some fourdecadesagowithTaiwan,

HongKong,SouthKoreaandSingapore,growingatfastratesduetotheindustrializa-

tionoftheireconomies,whichsupposedtheincorporationtothelaborforceofmil-

lionsofpeoplewhowereatthetimelivinginthefarmsinaneconomyofsubsistence.


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ManyothercountriesintheregionfollowedthepathofthesocalledFourTigers,ul-

timatelyincludingChinaandIndia,eachofthemwiththeirspecificcharacteristics.But

thatis not theendofthestory. Inthelate60s,around100,000offoreignstudents

cametotheUnitedStatespursuingundergraduateorgraduatedegrees,comparedto

over700,000whowereenrolledin2011.Morethan60%ofthemcomefromAsia,and

thenumberofthosecomingfromChinagrewby23%between2010and2011,ac-countingfor22%ofthetotal.

3ThismeansthattheeconomicimportanceoftheEast

doesnotcomesolelyfromhavingahugeandcheaplaborforcethatcanproducefor

westerncompaniessettledthere,butfromtheincreasingamountofeducatedpeople

whowillsoonoutnumbertheonesintheWest.Inotherwords,theAppleorGoogleof

thenextdecadewillmostlikelycomefromanAsiancountry.

Fromverticalitytohorizontality.Firstitwasthemassmedia,thefourthpower.NowitisWikipedia,Facebook,Twitterandallnewsortsoftechnologiesthatallowordinary

people to take the lead.Neither Presidents,nor priests,nor even CEOs can longer

standinthepulpitandpreach.Theyear2011wasaclearmanifestationofthis,withsocialmovementsallovertheplanet,fromtheArabSpringtotheIndignadosinSpain,

nottomentionthestudentsinChileandOccupyWallStreet,andthewithdrawalsof

primeministersinItalyandGreece.Peoplewanttobepart,havingtheirvoiceheard,

and theyhavethenecessary levelof educationand the technologies toarticulatea

speechandtoorganizethemselvestomakethingshappen.Theywanttobeactors,

notjustspectators.Thisisathreatforauthorities,inthepublicandintheprivateare-

na,butatthesametimeanadaptivechallengethattheycannotoverlook.Howdoyou

mobilizepeoplewhenyourformalpowerdoesnotsuffice?

Fromemployees toentrepreneurs.Many thingshavebeensaidaboutGenerationY,thosewhowereborninthe80sandearly90s:lackofcommitment,short-termview,selfishness,willtoescalatetoorapidlywithinanorganization,disrespectfulness.Per-

hapsthatisonewaytolookatit,especiallyfromthoseolderonesthatdonotwantto

dealwithsomethingthatchallengestheirstatusquo.Butanotherwaytolookatthis

generationisinrelationtothehigherlevelsoffreedomthattheyenjoy,whichdrive

themtolookforpurposeinwhattheydo.Inotherwords,mostofthemdonotwork

foralivingnorliveforworking,butlooktheirworkasawayofpersonalrealization.

Thisiswhyataskisnotenoughforthem;theywanttoaccomplishsomething.Andif

theyarenotgiventhepossibility,theysimplyleave.Itisamatterofmotivationsinthe

end, and todaysnew generationssee themselvesmoreasentrepreneurs thanem-

ployees.

Fromyoungtoold.Lifeexpectancyatbirthintheworldwas53yearsoldin1960.Fivedecadeslateritroseto70yearsold,thatis,anincrementofonethird.Ontheother

hand,thefertilityratewas5birthsperwomanin1960,whichcamedowntohalfofit

fivedecadeslater.4Theconsequenceofthesetwotrendsisobvious,andisbeingseen

asdifferentkindsofpopulationinvertedpyramidsinmoreandmorecountries.That

createsamajorchallengeforpensionandhealthsystems,butitalsocreatesagreater


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generationgapattheworkplace,inmanywaystiedtothedigitalgaptoo.Itshouldnot

beasurprise,therefore,thatsomecompanieshaveatwo-waymentoringsystem:one

thatpassesonexperiencefromtheoldonetotheyoungones,andanotherthatpass-

esondigitalexpertisetheotherwayaround.

Fromtheelitestothemasses.Fiftyyearsagotheworldpercapitaincomewas500dol-lars, whereas today is approaching 10,000 dollars, a huge increment that actually

speededupbetweentheAsianandthesubprimecrisis.5Oneoftheconsequencesof

thiseconomicgrowthhasbeentheemergenceofa growingmiddle class,withpur-

chasingpower,whichhastakenthecompaniestoorienttheirmarketingstrategiesto

largersegmentsofthepopulation,creatingsomesortofdiscomfortamongtheelites.

Onecanseethatinindustrieslikethewine,thatusedtobeanexclusiveproductuntil

Californian andAustralianwineriesmade itpopular;oreven knowledge, that isno

longerontheshelvesofthoseoldandmagnificentlibraries,butinthescreenofany

computer;or thosespectacularcruisesthatarenowaffordabletomillionsofpeople,

likeresorts,flightsandthelike.Anotherconsequence,thatisbecomingmorevisible,especiallyinmorecentralizedandhierarchicalcountries,isthediscomfortofthismid-

dleclasswiththoseelitesthathavedominatedthescenefordecadesandcenturies,

anemotionthatisbehindmanyofthesocialmovementswementionedbefore.

Fromlocaltoglobal. ItissaidthatglobalizationstartedwiththeGulfWar,in1991,whenCNNtransmittedliveinternationally,andtheworldbecamethisglobalvillage

thatpeoplestartedtalkingabout.In fact,globalizationfirstexistedundertheRoman

Empire,butitwasnotinrealtimeanditdidnotbringdownculturalboundaries.The

mediaistheonethathasplayedanimportantroleinreframingtheideaofbounda-

ries,whichwasthenfollowedbyallsortsofcompanies,especiallyintheITsector.And

thisisnotthemultinationalcompanythatalreadyexisteddecadesago,withopera-tions indifferentcountries, buttheglobal company,withaglobalmindset,culture,

structure,teamsandcommunications.Ofcourse,thechallengehasbeentobeglobal

withoutlosingthelocal,becauseourprehistoricbeingisusedtolivinginsmallgroups

andneedsasenseofidentity.Nosurprise,then,thatitisalwaysthecasethatthe

mostreadnewspaperineverycitywillbethelocalone,notthenationalone;andthat

thesloganofthemostglobalizedbankintheworld,HSBC,istheworldslocalbank.

Frommentowomen.Itishardlydisputablethat,overthecenturies,humansshapedamasculineworld,basicallybecauseitweremenwhotypicallyoccupiedthepositionsof

formalauthority,astheheadoftheband,thechiefofatribe,thekingofareign,theemperorofanempire,thepresidentofacountry,theCEOofacompany.Thathashad

bigconsequencesforsociallife,sincethereareculturalandbiologicaldifferencesbe-

tweenmenandwomen.Havingaworld ruledbymenmadeour relationshipsmore

competitivethancollaborative,moreselfishthangiving,morehierarchicalthanpartic-

ipatory,moreresult-basedthan process-based,morerationalthan emotional,more

action-focusedthanreflective-focused.6Onecan argue that thosemasculine charac-

teristicsweremorerelevanttosurvivalintheoldtimes,butthefactisthatthenew


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timesareverydifferent,aswehavebeenillustratingsofar,andthequestionfallsby

itsownweight:Arefemininetraitsmorerelevantnow?Shouldmen,therefore,devel-

optheirfeminineside?Whatwearewitnessing,atleast,isthatwomenareincreasing-

lybecomingpartofthelaborforce,pursuinghigherdegreesofeducationand,more

importantly,occupyingpositionsofauthority.Andthatspeaksforitself.

Fromruraltourban.Lessthan5%oftheworldspopulationlivedincitiesacentury

ago.In2008,forthefirsttimeinhumanity,thatfigureexceeded50%. 7Thissimpleas-

sertionsaysalotintermsofwhatshouldbeexpectedinthefollowingdecades.Most

ofthathalfoftheworldthatstilllivesinruralareasismuchlessproductivethanthe

otherhalfthatlivesinurbanareas;theformeronesarestillintheagricultureeraand

mostofthelatteronesareintheknowledgeera.Therapidpaceatwhichthisischang-

ingChinaisbuildingthreecitiesofthesizeofSidneyeveryyeartalksaboutthehigh

levelofeconomicgrowththatispotentiallystillahead,butatthesametimetalkabout

thechallengesintermsofenvironment,education,health,housingand,perhapsmost

ofall,managingpeoplesexpectations.

Fromlineartosystemic. Whenonethinksaboutthetypesofchallengesthatwehavebeenreferring toin thepreviouspages,complexityis awordthatcomesupalmost

naturally. That complexity is tied to the notion that thereare noclear-cut answers

and,therefore,learningandadaptationarerequired.Inotherwords,thetoolsofthe

industrialeraarenolongertheonesthatwillallowpeopleandorganizationstothrive

inthisnew reality.But anotheraspect ofthatcomplexity comesfromthe fact that

thosenewresponsesinvolvealotofstakeholders,becauseoftodayshyperconnectiv-

ity.So,wearenottalkingaboutatheoreticallearning,thatcantakeplaceinaroom

fullofexperts,whocantrytounderstandwhatproduceswhatand,therefore,findlin-

earrelationshipsthatwillhelpsolvetheproblemsbyaddressingthecauses.WhenwethinkabouttheendemicdebtcrisisinEuropeortheclimatechangeorbuildingamin-

ingcomplexordecidingonamergerorreachinganagreementbetweentheNBAand

theplayers,itisnotamatterofrightorwrong.Therearemanygroupsthatholda

stakeintheissue,whohaveenoughpowertoraisetheirvoiceandpushfortheirpre-

ferredoutcome.Therearestoriesinvolved,aswellasemotions,fears,assumptions,

internalnegotiations,alliances,andmanyotherthingsoccurringunderthetablethat

willhaveaneffectintheprocess,preventingitfrombeinglinearandmakingitmore

systemic.Inaworldthatusedtomoveataslowerpace,thatwasmorehierarchical

andlessconnected,thesystemicapproachdidnotmatterthatmuch,butnowitdoes.

THECHALLENGEFORORGANIZATIONS

ItissaidthatHenryFordusedtomentionthefollowingphrase:WhyisitthatwheneverI

askforapairofhands,abraincomesattached?Asharshastheymaysound,thesewords

makeperfectsensecomingfromapersonwhopioneeredtheassemblylineintheauto-

mobileindustry,preciselyforthepurposeofmakingproductionsomethingasmechanical

aspossible,withalmostnointerferenceofhumannoise.


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Ifthatwassaidatthebeginningofthe20thcentury,attheendofitJackWelch,theleg-

endaryCEOofGeneralElectric,pronouncedthefollowingwords:Theworldismovingat

suchapacethatcontrolhasbecomealimitation.Itslowsyoudown.Youvegottobalance

freedomwithsomecontrol,butyouvegottohavemorefreedomthanyoueverdreamed

of.8

Inthecomparisonofthesetwophrasesliesthedifferencebetweenthemainchallenge

thatcompanies facedin the industrialera andtheone theyface intheknowledgeera.

Then,thequestionwashowtocontrol employees inaway thattheyactuallydidwhat

theywerecommandedtodo.Today,thequestionishowtomobilizepeopleinawaythat

theycanmakeuseofasmuchoftheirpotentialaspossible.

Giventhecomplexityoftodaysworld,asdiscussedbefore,youwantasmanypeopleas

possibleinyourcompanythinkingaboutimprovingthingsandactingtogetherwithothers

inordertomakethathappen,beitthedevelopmentofanewproductorbetterpractices

for attending clientsorways tohaveamore comfortableworkspace. Ifemployees are

used toact byonly following the commandsoftheirbossorthe standardprocedures,

theywillavoidthinking,takingresponsibilityandactingwhenthereisanopportunityfor

improvementoraproblemthatneedstobeaddressed.Theresultisonlyone:thecompa-

nyisnottakingadvantageofitspotential,themostimportantofwhichisitspeoplesca-

pabilities.Andthisisaviciouscircle,becausewhenthathappens,themosttalentedpeo-

pleleavetheorganization.

WhenonelooksatSaabAutomobile,thisisexactlywhatstartedhappeningafterGMpar-

tiallyacquireditin1989.Fortwodecades,teamsfrombothcompaniessubtlyfoughteach

other,becauseofthedifferentvisionsandvaluestheyheld.Theyblamedfornotbeingable toreachthe establishedsale and productiongoals, usingthat asamechanism to

avoidtheirownpartofresponsibilityandnotactivatethemselvestodothingsdifferently.

Tomakethingsworse,in2003,afterGMhadtakenfullcontrolofthecompany,1,300de-

signers and engineers from Saabwere laid off when the engineering department was

mergedwithGMsEuropeanoperationsinGermany.ThismeanttheendofSaabsability

todevelopproductswithitsownidentity.

Onthecontrary,LANAirlineswasabletogrowthewayitdidbecausetheyopenedspace

topeoplesinitiative,creativityandwillingnesstotakeadvantageoftheopportunitiesfor

improvement.Instead,forexample,ofhavingagroupofexpertswriteamanualabouttheinternationalflightsonboardserviceakeyfactorintheairlinestrategytheydecidedto

givethatworkbacktoagroupofcrewmembers,whoworkedtogetherindevelopinga

uniquestylethatwaspassedontotherestofthecrew,assuringsustainability.Nosur-

prise,then,thatthecompanyhasbeenrecognizedseveraltimesasthebestLatinAmeri-

can airline, and also the one providing the best service on board (Business Traveller,

SkytraxandLatinTrade).Thatdoesnotmeanthatthereisnocontrol,especiallyifthere

areveryrigidsecurityprotocolsthatneedtobefulfilled,butalignmentdependsmoreon


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theclearstrategyandthestrongculturethatLANAirlineshasbuilt,allowingtalenttode-

velopwithinaflexiblestructureandwithhighlevelsofcommitment.

Theevolutionoforganizations

Forsomemillionyearshumanbeingsorganizedthemselvesinsmallgroupsorbandsofaround10to50 individuals,prettymuchlikechimpanzeesstilldo.

9Thiswasaveryloose

andhorizontalstructure,withnoformalauthoritygrantedtoanyone.Oldermembersof

thegroupwouldbelookedforguidanceandadviceifneeded,especiallywhenproblems

arose,likelackoffood,externalthreatsorinternalconflicts.10

Thingsbecamemorecomplicatedintheagricultureera,becausethissmallandsimpleor-

ganization,whichcouldbethoughtofbeingasortofextendedfamilyintodayseyes,was

replacedbyincreasinglylargerandmorecomplexsocialstructures,withcastes,divisionof

labor,formalrulesandpunishments,provisionofcommongoodsandthelike.Eventually,

thisgavebirthtowhatwecallsocieties,withdifferentkindsofgroupswithinit,startingby

thefamily, thesmallestof them.These societies,sinceEgypt some fivethousandyears

ago,wereveryhierarchical,andtheintermediateorganizationsthatexistedwithinitdid

nothavea largesize,ingreatpartbecausethetaskstheyneededtoperformdidnotde-

mandabigscale.TheonlyreallyimportantorganizationwastheStateitself,inthediffer-

entexpressionsittookovertheyears.

Everythingchangedintheindustrialera,whenthetypeoforganizationswegottobefa-

miliarwithappeared.Theshoemakerwasreplacedbytheshoefactory,thestagecoach

wasreplacedbytherailroadcompany,themoneylenderwasreplacedbythebank,thelo-

calcandleproviderwasreplacedbytheelectriccompany,theminerwasreplacedbythe

miningcompany,andsoonandsoforth.

Thisiswhentheideaofproductivitycameintoplay,meaningthataworkershouldper-

formataskthatwouldendupgeneratingaproductintheleastpossibletime.Therefore,

therehadtobeafewpeopledesigningtheprocess,typicallyengineers,andabigbunchof

workersexecutingthetasksthatwereconsideredinthatdesign,withoutwastinganymi-

nute.Thefatheroftheseconcepts,thatgaverisetothedisciplineofscientificmanage-

ment,wastheAmericanmechanicalengineerFrederickW.Taylor,whosethoughtcanbe

summarizedinthefollowingsentence,pronouncedin1906:Inourschemewedonotask

fortheinitiativeofourmen.Wedonotwantanyinitiative.Allwewantofthemistoobey

theorderswegivethem,dowhatwesay,anddoitquick.

11

ThebestmaterializationoftheseideascamewithHenryFordsassemblyline,whotook

productivitytolevelsneverseenbefore,whichwasfollowedbycompaniesalloverthe

place,generatingabigstepforwardinthecapacityofhumanbeingsforproducinggoods,

and,therefore,wealth.

Thisindustrialtypeoforganizationwasverypyramidal,operatedthroughcommandand


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control,exercisedoverpeoplewhowherehiredbecauseoftheirphysicalstrength,bysu-

pervisorsthathadtomakesurethatthedesignedprocesswereexecutedinthemosteffi-

cientway. The big assumption behind the effectiveness of this organization lied in the

typeofworkperformed,whichwasmechanicalortechnical,aswewillrefertoitfrom

nowon,meaningthatitconsistedoftherepetitionofactionsthatdidnotrequirenew

learning.

Anorganizationforthe21stcentury

Ifonethingistobeconcludedfromthetrendswementionedaboveinthisknowledgeera

isthatpeoplearebecomingmoreimportantthaneverintheproductionprocess,andthat

isbecausethetypeofworkthatneedstobeperformedinordertobecompetitivethe

wordthatweprefertousenowadaysinsteadoftheclassicalsurvivalislesstechnicaland

moreadaptive,whichmeansthatmorelearningandlessrepetitionisrequired.Inother

words,thebigassumptionthatjustifiedtheindustrialtypeoforganizationdoesnolonger

sustain,atleastnotwiththebroadnessitusedto.

Itiswellknownthesayingthatgoeslikethis:Ifyoukeepdoingthesamething,youwill

keepgettingthesameresult.Butinadynamicenvironment,likebusiness,thatisnotful-

lytrue,andthesayingshouldbepartiallyreplaced:Ifyoukeepdoingthesamething,you

will keep gettingworse results. This isbecause therewill beotherswhowill improve

theirwayofdoingthings,meaningthatthesameresult you keepgettingwillbeworse

thanbefore,relativetoothercompanies.Thisisonlytosaythatthemoredynamicthe

environmentinwhichyourorganizationis,themoreadaptiveitsworkhastobe,which

meansthatthere has tobe roomfor experimentation, tryingwithnew strategies,new

products,newteams,newsystemsandprocesses,newalliances,newclients,newmar-

kets,newassumptions.

How suited isthe industrial typeoforganizationthatwedescribedbefore tothischal-

lenge?Verylittle,becauseitisrigidanddoesnottakeenoughadvantageofitspeoples

capacities.Thisiswhyanewtypeoforganizationisneededforthisnewera,theadaptive

organization,becauseitiswellsuitedforperformingadaptiveworkor,inotherwords,has

ahighadaptivecapacity.Thisisnottosaythatallorganizationsneedtobeequallyadap-

tive,becausenotallofthemhavethesamecombinationoftechnicalandadaptivework,

aswewillsee,butitisclearthat,regardlessofthelevelofadaptivecapacitythatisre-

quired,thisorganizationisbuiltonvaluesthatmakeitverydifferentfromtheindustrial

typeoforganization.

Ifthatorganizationwasrigid,thisoneismoreflexible;ifthatonewaspyramidal,thisis

morehorizontal;ifthatonewascommandandcontroldriven,thisoneismorepurpose

andculturedriven;ifthatonewasfocusedongeneratingprofits,thisoneismorefocused

ongeneratingvalue;ifthatonelookedforworkersphysicalabilities,thisonelooksmore

forworkersintellectualandemotionalabilities;ifthatoneconsideredpeopleasaneces-

saryevil,thisoneconsidersthemmoreasanindispensableasset;ifthatonewastaskori-


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ented,thisoneismorerelationshipsoriented;ifthatonewaslinearly-minded,thisoneis

moresystemic-minded;ifthatonewasmasculine,thisoneisalsofeminine.

THEORGANIZATIONASALIVINGSYSTEM

Themodernhomosapienswasnotthefirsthumanbeing.Heappearedaround200thou-sandyearsago,precededbyseveralspeciesofthegenushomo,whointurnevolvedfrom

thefamilyofthehominidsorgreatapes.Asenvironmentalconditionschangedandgenet-

icrecombinationtookplace,somespeciesdisappearedandothersemerged,preserving

mostoftheirancestorsDNAandchangingonlyasmallpartofit.Infact,ifwejustwere

tocompareourcurrentDNAashumanbeingswiththechimpanzees,wewouldrealize

thatabout99percentisthesame.

Something verysimilarhappenswith organizations, in thesense that theychangeover

time,aswesaid,adaptingtoexternalconditionsandneeds,throughanevolutionarypro-

cessthatallowsthemtopreservewhatisessential,discardwhatisnolongerrequiredandrearrangesomeotheraspectsinordertobetterfulfilltheirgoals.Inotherwords,itisan

experimentationprocessthatlooksforspecificchangesinwhatisexpendablebutpoten-

tiallyrelevant,thatcallsfortestingvariations,makingselectionsoutofthevariations,and

lookingforamplificationofthoseselections.Andasithappenswithspecies,someorgani-

zationsadaptandcontinueliving,andsomeothersceasetoexistbecausetheyarenot

able to face their adaptive challenges, namely, change that small part of its DNA that

wouldmakethemthrive.

Thereisanimportantdifference,though,betweenspeciesandorganizationsaslivingsys-

tems.Intheformerones,evolutionistheresultofablindprocessofgeneticexperimenta-

tionsofarandinmostpart,atleast;whereasinthelatteronesistheresultofapur-poseful process of learning through experimentation. In otherwords, it should be ex-

pectedthatsomespeciesdisappeared,becausetheydonothavecontrolovertheirpro-

cessofgeneticrecombination.Butthatisnotthecasewithorganizations,becausethey

dohavecontrolovertheirlearningprocess.Whenspeciesadaptandsurvive,itisbecause

ofrandom;whenorganizationsadaptandsurvive,itisbecauseoftheadaptivecapacity

theyhavedevelopedthroughanintendedleadershipexercise.Whenspeciesarenotable

toadaptanddisappear,it isbecauseof randomness;whenorganizationsarenotableto

adaptanddisappear,itisbecauseofaleadershipfailureincreatingthatadaptivecapaci-

ty.12

Thebigchallengefororganizations,then,ishowtodevelopahigheradaptivecapacity,

andthatisnotrandom,itisintended.Anditisrelatedtotheexerciseofleadership,inthe

senseofaskingwhatisitthattheorganizationneedstochange,first,andmobilizepeople

towardthatchange,second.

WhyisitthatSaabAutomobilecouldnotadapt?Whyisitthat,insteadoffollowingthe

paththatAudiorVolvofollowed,itdisappeared?Itwasaleadershipfailure,nodoubt.But


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whydiditbecomesodifficulttoexerciseleadershipandmaketheorganizationadapttoa

newreality,preservingitsmanystrengthsandchangingwhatwasneeded?

Ontheoppositeside,whyisitthatLANAirlinescouldadaptandbecomeanimportantac-

torinaverycompetitiveindustry,wheremanyothersdisappearedduringthelastdec-

ade?Therewasalotofleadershipbeingexercised,andbymanypeople,nodoubt.Butwhywasthatpossible?Whatarethespecificaspectsof thiscompanythatmakeitmore

adaptivethanmanyothersinitsindustry?

Theseare the fundamentalquestions that inspiredus towrite thisbook,trying tohelp

thosewhoruntodayscomplexcompaniestounderstandwhatisthattheyhavetolookat

and change thatwill allowthem tobuildamore adaptiveorganization, considering its

owncontext.

Sofar,weknowthatweare living inanincreasinglydynamicand changingworld.We

knowthatthisknowledgeerademandsmoreadaptiveandlesstechnicalworkcompared

totheindustrialera.Weknowthatinordertoperformmoreadaptiveworkandincrease

theiradaptivecapacity,organizationsmustboosttheirpeoplespotentialinsteadoflimit-

ingit.Andwehaveputanametoacompanythatiswellsuitedtodothis:theadaptive

organization.Inotherwords,wehavealreadyansweredwhyadaptiveorganizationsare

needed.Weshouldnowprovideabetterunderstandingoftheconceptsthatunderliethis

organization,whichwillbethesubjectofthenextchapter.


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CHAPTER2

WHATAREADAPTIVEORGANIZATIONS?

Hewlett-Packard

WhenCarlyFiorinawasappointedCEOofHPin1999,theBoardofDirectorsgavehera

fundamental mission: Totally recreate and reinvent HP according to the original HP

Way.13Howdidsheinterpretthissortofcontradictorystatement?Preservethebest,

reinventtherest,assheusedtosay.Andthatiswhatshedid,ortriedtodo.

Beingapowerfulanddeterminedwoman,withastrongreputationinAmericascorporate

world,FiorinasoughttotransformthebureaucraticcompanythatHPhadbecomeduring

thelastdecadeintotheleadingactorinelectronicservices,acceleratingchangeandrisk

takinginthesamewayshehadsuccessfullydonebeforeaspresidentoftheglobalservice

providerbusinessatLucent,anequipmentandtechnologyspinoffofAT&T.

HerappointmentwasabigstepthattheBoarddecidedtotake,anditdidsobecauseits

membersunderstoodthatHewlett-Packardwasnotanymorethatinnovativeandadmired

technologicalcompanythathadbeenfoundedin1939,atrueiconfordecades.Fiorina,in

fact,wasthefirstCEOinHPshistorytocomefromoutside,tobeawoman,tobeunder

45yearsold,and tonotbeengineer.Moreover, shebecame the firstwomantoleada

Fortune20company.Theyclearlywantedachangeasurveyamongthetop300execu-

tivesshowedin1997thatpeoplewantedashifttowardmorethinkingandmorecustomer

focus,butachangewithintheHPWay,withinalongtraditionofdoingthingsaccording

tocertainvaluesthathadbeenembodiedandingrainedforyearsbythetwofounders,

oneofwhomwasstillalivewhenFiorinatookover.

Beingamarketer,Fiorinastartedbyrefreshingsomeold-fashionedsymbols,givingcredit

toeverythingthathadbeendonebefore,butquicklytryingtoshowanewseal.Infact,

sherenewedtheclassicrulesofthegarage,thatrepresentedthecompanyssoul,and

changednotonlythelogosshapebutalsothewordsinit:HPinsteadofHewlett-Packard.

Ofcourse,thatcamealongwithanorganizationrestructuring,whichmeantdividingthe

companyintosixdivisionsandreducingthenumberofproductgroupsfrom87to12.The

corestrategywassimpleandvastlyconveyed:positionHPfortheInternetssecondwave,

creatingnewe-servicesandthehardwareandsoftwaretodeliverthem.

Sheknewthatwithinthecompanyshehadthebestengineersandalonghistoryoftech-

nologicalinnovation.Butthatwasnotenoughtocompeteinanindustrythathadstrong

playersandthatwaschangingquitedramatically.Therefore,shealsolookedforopportu-

nitiesoutside,startingbyimplementingtheseparationofthecompany'stechnicalequip-

mentdivisionintothestandaloneAgilentTechnologies,adecisionthathadbeenmadeby

theBoardbeforeherarrival.AnothermovewasherattempttoacquirePricewaterhouse-

Coopers global management and information technology consulting business, which


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wouldhavemeant integrating31,000 employeesin2000, despite thelayoffs thatwere

takingplacebecauseoftherestructuringandtheeconomicdownturn.Butbytheendof

the year she had tobackup, giving intothe internalresistancetotheacquisition,the

same thing that happened with the attempt of acquiring the computer-services busi-

nessEDS,whichwashighlyresistedbytheshareholders.Nonetheless,shedidnotgiveupinhereffortstomakethecompanygrowbeyonditsin-

ternalcapacities.In2001shewentforadealthatwouldbecomehermostrelevantchal-

lengeand,infact,apersonalbattle:themergerwithCompaq,aleadingcompetitorinthe

PCindustry.Theannouncementofthemerger,afterafewmonthsofsecretnegotiations,

producedanimmediatereactionamonganalystsinWallStreet,whodidnotconsiderita

good idea, but, more importantly, created a conflict within the Board and a division

amongshareholders,withastrongoppositiontotheproposalcomingfromtheHewlett

andPackardheirs,ledbyWalterHewlett,whowaspartoftheBoard.Aftersixmonthsofa

hardandopendispute,theshareholdersvotedinfavorofthemerger,winningbyamar-

ginofonly2.8%,andFiorinasucceeded,butleavingatraceofdistrust,woundedegosand

senseofloss.ManypeoplesawinthisthefinalburialofthatfamousandtraditionalHP

Way.

Asoneexecutiveputit:WewerelookingforaCEOwhowouldshakeupacompanythat

hadgrownslowandstale.Themoralofthestory:watchoutwhatyouwishfor,because

youmaygetit!14

Butallthesechangeswerenotcostless.Fiorinasreputationwasdamaged,thousandsof

employeeswerelayoffandthestockpricefellduringhertenure.Finally,inearly2005,

followedbyaleakageofinformationtothepressofarestructuringplanthatwasbeing

discussed in the Board, thatwould put limits to Fiorinas power, she entered a Boardmeetingand,withoutexpectingitorreceivinganyexplanation,shewasfired.

Asoftoday,therestillcoexistdifferentinterpretationsaboutFiorinasperformanceboth

intermsofthestrategyshefollowedandinthewaysheimplementedit.Thefactisthat

aftersheleft,HPsstockstartedstronglyraisingforthenextthreeyears,thecompanyre-

gaineditspositionasnumberonePCmanufacturer,andwentbacktoberecognizedas

onethetopinnovatorcompanies.

WasitduetoCarlyFiorina?Couldhavethosechangesbeenimplementedwithlesspain?

Weretheysustainable?WasitnecessarythatFiorinabefired?Howmuchmoreorlessre-sistancewouldHPopposetonewchangesnow?

Thesearequestionsthatcouldbeapplicabletomanyothersituations.Infact,whenevera

changeisundertaken,somesortofresistanceshouldbeexpectedfromcertainfactionsor

groups,evenwhentheythinkthechangeisgoodandnecessary.Thisisbecause,despite

thebenefitsthatwillcome,therewilltypicallybecostsassociatedwiththemthatsome

peoplewillhavetobear,asinthecaseofHP.


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Ofcourse,thisisnothingnew.Backin1513,NiccolMachiavelliwroteaboutitinhismas-

terpiece,ThePrince:Itmustberememberedthatthereisnothingmoredifficulttoplan,

moredoubtfulofsuccess,normoredangeroustomanagethananewsystem.Fortheini-

tiatorhastheenmityofallwhowouldprofitbythepreservationoftheoldinstitutionand

merelylukewarmdefendersinthosewhogainbythenewone.Thehesitationofthelatterarisesinpartfromthefearoftheiradversaries,whohavethelawsontheirside,andin

partfromthegeneralskepticismofmankindwhichdoesnotreallybelieveinaninnova-

tionuntilexperienceprovesitsvalue.

Afamilybusiness

Take,forexample,thecaseofafamilybusiness,foundedbyayoungfatherwhoputallhis

lifeandeffortattheserviceofthisautomobiledistributionfirm,makingitgrowwithnew

representationsandsalesstores,hiringyoungprofessionalsandtechnicianswholearned

howtodotheirjobandgrewwiththecompany.Untilthefoundersthreesonsgraduated

andcametowork,oneafteranother,withtheirfather.Itwasonlytheyoungest,though,

whohadthetrainingandthecompetenciesrequiredtoassumearelevantmanagerialpo-

sition,despitethathistwoolderbrotherswereshortlyappointedinthemainexecutive

postsbelowtheirfather.Whenthreeoftheoldexecutivesleftthecompany,thefather

realized that itmighthave been amistake to bringhis sons toworkwith him, buthe

thought things would get better. On the contrary, when the youngestbrother started

showing his abilities for running the business, more tensionwas felt within the family

membersandinthegroupofmanagers.Atcertainpoint,itwasobviousforeveryone,in-

cludingthe65year-oldfather,thatachangeinroleswasneeded,takingthetwooldest

sonsoutofexecutivespositionsandformingatopteamledbytheyoungestone.Eventu-

ally,thedecisiontooksolongtobemade,thatthelatteroneendedupleavingthecom-panyandstartedanewbusinesshimself.

Wefindthesamepatternhereaswedidintheothersituations:thefather,knowingwhat

wasbetterforthebusinessdevelopment,foundittoodifficulttoputthefamilyloyalties

atriskandneverhadthecouragetoassumethecostsofthedecisionnortheabilityto

work them through. Inhis mind, therewas always the fear ofbreakingup the family,

whichparalyzed himonetimeafter another,preventing theadaptationthat needed to

takeplacebothinthebusinessandinthefamily.

Greece

Andifwewanttolookatalargersystem,simplyconsiderthedynamicsbehindtheEuro-

peandebtcrisis,andspecificallythepositionof formerGreekPrimeMinisterGeorgePa-

pandreou,whoassumedpowerinOctober2009inthemidstofaneconomiccrisisinhis

country,withabudgetdeficitof13%andanunemploymentrateof10%.Heannounced

anausterityplanandreceivedthefinancialbackupoftheEuropeanUnionandtheIMF,

withthebiggestbailoutplaninwesternhistoryasofthosedays.Nevertheless,thiscaused


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awaveofnationwidestrikes,whichputahalttothetransformationsthatwereneeded,

takingGreeceagaintotheedgeofdefaultin2011.Thistime,though,thesituationhad

becomemore critical, consideringthat Italyand Spainwerealmost theretoo,which is

why,afterseveralweeksofhardnegotiations,theEurozonecountriesfinallyreachedan

agreementonabailoutdealthatwouldpreventasystemiccrisis.Papandreou,neverthe-

less,sensingthathecouldagainfacesocialresistancewiththeadjustmentplanthatheneededtocarryoutaspartoftheagreement,surprisedeveryonebycallingareferendum,

which, in turn,founda strong oppositionwithin the political system and the Eurozone

leaders,takinghimtowithdrawontheideajustafewdaysafterannouncingit.Oneweek

later, onNovember10th 2011,despitehis efforts toreachabig political agreement to

supportthereforms,heformallyresignedasPrimeMinisterofGreece.Everyoneinthe

countryknewthatachangewasnecessary,butonlyafewwerewillingtoassumetheper-

sonalcostsimpliedinit.Andtheeasywayoutseemedtoscapegoattheauthorityfigure,

likeithappenedalmostatthesametimeinItalyandSpain.Butthequestionremains:did

peopleinthosecountriesadapttoovercometheeconomicsituationthattheyarefacing?

Becauseonethingissure:thatdoesnothappenbysimplyreplacingtheauthorities.

ADAPTIVECHALLENGES

Hewlett-Packard,thatfamilybusinessandGreece,theyallfacedanadaptivechallenge.A

changewasneeded,fordifferentreasons,butgoingaheadwithitwasnotjustamatterof

makingadecisionandleapintoaction.Inordertomakethatchangehappen,areframing

processhadtotakeplaceinmanypeoplesmentalitiesandbehaviors,whichinturnwere

connectedtoassumptions,values,loyalties,attitudes,competenciesorhabitsthatneed-

edtobequestioned.Infact,whatweseeaboveisthatadaptivechangehaslittledoto

withrationalityormakingtherightdecision,butwithmanyotherfactorsthathavemore

todowithpeoplesemotions,thatpreventchangeormakeittoodifficultorslow,despiteitsneed.

IfCarlyFiorinawantedtotransformHPintheleadingactorinelectronicservices,moving

itbeyonditstraditionofelectronicproductsmanufacturer,therewerecompetenciesthat

neededtobedeveloped.Actually,thatcouldhavebeendonethroughhiringnewpeople

oracquiringothertypesofcompanies,asshetried.Theissueisthattherewerevaluesat

stakehere,connectedtowhatmanypeopleinthecompanythoughtitsidentitywas.Be-

cause,infact,HPhadastrongidentity,builtonitsculturetheHPWayandonthelega-

cyofitstwofounders,WilliamHewlettandDavidPackard.Fiorinaknewthis,andactually

madeattemptstohonorit,butnotsufficiently,notinastrategicway.HPsadaptiveca-pacityatthattimewasnotlargeenoughtogowhereFiorinawantedtotakeit,atthepace

shewantedtoadvanceandwiththetypeofmanagerialstylesheembodied.

HPsadaptivechallenge,asunderstoodbyFiorina,waslargerthanitsadaptivecapacity,

thesamethingthathappenedtothefatherandfounderofthefamilyfirm,whocouldnot

bearriskinghissonsloyalties,whichwasthecoreoftheadaptivechallengethecompany

facedifitwantedtocontinuegrowing.AndtheGreeks,likemanyothercountriesinthe


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beginningofthisnewcentury,havenotdevelopedtheadaptivecapacitytofacethechal-

lengeofdiminishingitslivingstandardintheshortruntoallowforthereformsthatcould

allowthemtoregainmomentumtowardthelongrun.

Inall thesecases, andmanyothers including SaabAutomobile,ofcourse, facing the

adaptivechallengesuccessfullydemandsincreasingtheadaptivecapacityofthe system,whichcallsformoreadaptiveworkthantechnicalwork.

Facinganadaptivechallenge

Whenthingsarecalmandtheorganizationisinastateofequilibrium,keepondoingthe

samewouldnotbeabadideaatall.Infact,peopleknowwhattheyhavetodoinorderto

gettheexpectedresults,soitbecomesamatterofmanagingtheresourcesathand,mak-

ingagoodallocationofthem.Ifitisnotbroken,whyfixit?wouldbeagoodsayingto

haveinmindinasituationlikethis.Infact,humanbeings,andorganizationsasaresult,

lookforequilibrium,forwaysinwhichthingsareundercontrolandfunctionalmostau-

tomatically,likeFordsassemblylineusedto.

Butwehaveseenthattodaysworlddoesnotallowforstayinginthatcomfortablesitua-

tionfortoolong.PerhapsamoreapplicablesayingnowwouldbeThereisnothingharder

thanstopdoingwhatwedowell.Whywouldanyoneliketodothat?Simplybecauseitis

likelythatwhatworkstodaywillnolongerworkinthenearfuture.Thinkingandactingin

thiswaymakesanorganizationbeaheadoftherest,creatingitselfastateofdisequilibri-

um,beforeitiscreatedbyexternalconditions.AsBillGatesusedtosaytohispeople:

Microsoftisalwaystwoyearsawayfromfailure,meaningthattheyhadtopermanently

challengethemselvesinordertoremaininbusiness.

Disequilibriumcomesfromthemostdifferentsources,andwhenthathappens,anadap-

tivechallengeisfaced,thatis,theorganizationshouldlookfornewwaysofdoingcertain

things,thrivingagainstthenaturaltendencytoremaininthecurrentequilibrium.

Think,forexample,whathappenswhenanewcompetitorcomesintothegame,orwhen

thereisaneconomicdownturn,orwhentheonlyalternativetogrowisgoingbeyondthe

countryboundaries,orwhenamergertakesplace,orwhenitbecomesdifficulttoattract

talent,orwhenregulationischanged,orwhenlocalcommunitiesprotest.Orwhathap-

penswhenanewCEO isappointed,orwhen the teamdoesnotgetalonganymore,or

whenpeople feel overwhelmedandpurpose is lost,orwhenthere isa conflictamongpartners,orwhenanewtechnologyisintroduced,orwhenanorganizationrestructuring

takesplace.

Allthesesituations,andmanymore,poseanadaptivechallengeforacompany,meaning

thatitisnotpossibletocontinuethinkingandactingintheexactsamewaypeopleare

usedto.Andinfact,acertainleveloftensionisfelt,asaconsequenceofthedisequilibri-

umthattheyinitiallycreate.Butorganizationsreactindifferentmannerstothesestimuli.


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Sometakeadvantageofthemandthrivethroughanadaptiveprocess,fasterorslower,

moreorlesseffectively;somelookforwaystoavoidhearingthemessageandtrytore-

store the previous equilibrium; and some deceive themselves, thinking that they are

adaptingwhentheyaredoingthesamethingsbutunderadifferentwrapping.Whythese

differences?Becausetheadaptivecapacityofthosecompaniesisnotthesame,thatis,

someofthemaremoreadaptivethanothers.Inotherwords,havingagreateradaptivecapacityallowsanorganizationtofacegreateradaptivechallenges,andtodoitinamore

effectiveandfasterway.Thedeeperchallenge,therefore,isgettingtoincreasetheadap-

tivecapacitybeforetheoccurrenceofthosestimulithatgenerateimbalance.

Technicalandadaptivework

Notallisaboutadaptationthough.Evenwhenthetimesweliveindemandmoreadaptive

workthanbefore,asdiscussedinthepreviouschapter,alotoftechnicalworkhastobe

performed.Thedifferencebetweenoneandtheotherliesintheideaoflearning,thatis,

whether new assumptions, values, loyalties, attitudes, competencies or habits are re-

quiredtocarryouttheworkahead.Iftheexistingframeisenough,itwillbejustamatter

ofapplyingtheknow-howthatisthere,atthecompanysdisposal,andthatistechnical

work.Itmayberoutinework,forwhichprotocolsandsystemsexist;oritmaybesome-

thingthatgoesbeyondroutine,butthatcanbesolvedbytheexistingknowledgewithin

thefirmortheexpertknowledgethatcanbehiredoutside.

AnimportantpartofHPsworkisinfacttechnical,andevenmoreinthecasesofLANAir-

linesandSaabAutomobile.Flyinganaircraft,forexample,istechnical,andsoisbuilding

anddistributingthethirdseriesofthePavilionlaptop,ormakingtheassemblylinework.

But how technical iscarryingout themergerwithaBrazilianairline that iseven larger

thanyours?TopexecutivesinLANAirlinesmayhaveexperienceinacquisitions,andtheycanevenhireagoodconsultingfirmtohelpthem,butthereisalotoflearningthatneeds

totakeplaceinthousandsofpeoplefrombothcompanies,regardingloyalties,organiza-

tionalvaluesandbehaviors,statusandpowerissues,practicesandprotocols,justtoname

afew.

Becausethesesituationsthatdemandlearningarisemoreandmore,adaptiveworkisbe-

coming everyday agreateraspect ofpeople and companies lives. But the tricky thing

hereisthatpeople,andespeciallytopexecutives,tendtotreattheadaptivechallenges

theyfacethroughtechnicalworkinsteadofadaptivework.Whydoesthishappen?Be-

causewehaveanaturaltendencytorelyonwhatwealreadyknowandcontrol,verywellexpressed inthatold saying: Whenyou haveahammer,everything looks like anail.

Whatistheeffectofdoingthis?Thattheadaptivechallengeisnotreallyfaced,butavoid-

ed,eventhoughpeopleareactingingoodfaith,trustingthattheyaredoingwhatthey

havetodo, likeCarlyFiorinadidwhensheputsomucheffortoutsideinvestingin the

brand,acquiringcompanies,restructuring,inspiringpeople,asshehadsuccessfullydone

inLucentandsolittleinsidebuildingalliances,hearingthedifferentvoices,acknowledg-

ingpeopleslosses,pacingthework,managingthedistress.


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Technicalwork isverydifferent fromadaptivework. In the former, thereare clearan-

swersandlittleuncertainty,whereasinthelattertherearenoclearanswersanduncer-

taintycanbeveryhigh.Ifoneinvolvesnobigchoices,theotherinvolvesdifficultchoices

and,therefore,losses.Ifoneisstraightforwardandisexecutedthroughpreciseinstruc-

tions,theotheristimeconsuminganddemandsalotofconversation.Ifonecallsforpeo-pleshands,feetandmouth,theothercallsforpeoplesbrain,eyesandears.Ifoneisfo-

cusedonthetask,theotherisfocusedonthepeopleconnectedtothetask.Ifoneisline-

ar,theotherissystemic.Ifonerequirescommandsfromtheauthority,theotherrequires

leadershipfromtheauthority.Ifonerunssmoothly,theotheristypicallyaccompaniedby

conflictanddistress.Ifonedemandsprecisionandcanbetranslatedintoprotocols,the

otherdemandscreativityandgetsrestrainedbyprotocols.

Having these distinctions and realizing that todays dynamic reality requires for more

adaptiveworkthaneverbefore,itbecomeseasiertounderstandwhyitisincreasinglyim-

portantfor companies toboosttheirpeoplespotential insteadof limiting it. Technical

work calls for using a specific competency or expertise that people might have

sometimesaverycomplexandexpensiveone,whereasadaptiveworkcallsforusingas

muchofpeoplescapacityaspossible,allowingfortheirinitiative,creativity,collaboration,

frankness,questioning,mindfulness,beyondtheirtechnicalexpertise,ofcourse.

Avoidingadaptivework

Thereisnodoubtthatadaptiveworkischallenging,andalsoattractive.Butatthesame

timeitisdifficultandresisted.Difficult,becauseitgoesagainstournaturaltendencyto

look for equilibrium, and alsobecause it requiresa set ofskills that people are hardly

trainedin.Andresisted,becauseadaptationproduceslosses,oratleastasenseofloss.Theycanbevisiblelosses,likemoney,aformalpositionwithinacompany,theactualjob,

andamarriage,amongothers.Buttheycanalsobeinvisiblelosses,likeloyalties,expecta-

tions,status,power,values,self-confidence,trust,tonameafew.

Thatiswhyitissocommontodotechnicalworkasawayofavoidingadaptivework,as

discussedbefore.Sometimesthisisdoneconsciously,butmostofthetimeitisdoneun-

consciously,asithappenedwithSaabAutomobile,wherenoneofthemanythingsthey

didtotransformthecompanyactuallypointedouttotheessenceoftheadaptivechal-

lengetheyfaced,whichwasincreasingsalesbyreducingcostsandpriceswithoutgiving

uptheidentityofaSaab.Andtheydidnotdoitbecausetheperceivedlossesweretoohigh.

Buttherearemorewaystoavoiddoingthenecessaryadaptiveworkwhichorganizations

are facedwith.Manytimespeoplewithin themtryorjustputthe responsibilityof the

problemstheyhaveoutside,blamingthepoliticalorregulatoryauthorities,forexample,

orthebadeconomicconditions,ortheunscrupulouscompetitors,orthesocialandlocal

movements,oreventhenonresponsiveclients.Andmanyothertimestheyprefertoover-


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lookwhatisgoingonoutside,underscoringtheproblemstheyhaveorwillhave.Infact,

thesesamedynamicsofadaptiveworkavoidancecanbeobservedwithintheorganiza-

tion,amongbusinessunits,departmentsorteams,whentheyblameeachotherordevel-

opanoversimplifiedoroveroptimisticviewofthesituation.

Whateverthemechanism,thefactisthatoneshouldexpectavoidancetotakeplaceasawaytominimizeorgetaroundthelossesatstake.Butthefinalresultisonlyone:failure

toadapt.

ADAPTIVECAPACITY

LANAirlines,SaabAutomobilebeforedisappearing,HP,a typicalfamilyfirm,BHPBilli-

ton,Google,Citibank,Macys,BritishPetroleumorevenRealMadridprobablythemost

widelyknownsoccerteamintheworld.Whateverorganizationwelookathasabusiness

tocarryout,whereallormosteffortsareinvested.ExecutivesatLANAirlineswilldevote

alotoftimetologistics,toopeningnewroutes,tosecuretheaircraftstheyneedtogrow,toaligntheoperationsofthelocalairlinestheyhavebeenacquiring.ExecutivesatHPwill,

inturn,devotetheirenergiestodevelopingnewproducts,toprovidingthebesttechno-

logicalservices,tofindingmoreefficientwaystomanufacturethoseproducts.Executives

atRealMadrid,ontheirpart,willusetheirtimeinfindingnewplayerstohire,innegotiat-

ingwiththeirrepresentativesandcurrentclubs,indealingwiththepressandthefans,in

marketingand,ofcourse,intalkingaboutthepreviousandthenextgame.

Nonetheless,howmanytopexecutivesputexplicitemphasisanddedicatetimetodevel-

opingtheircompanysadaptivecapacity?Thisisnotlikedoingsomethingdifferentfrom

the actual business, but doingthatsamebusinesswithabroaderperspective.In other

words,whileperformingthetasksthatarenecessarytoobtainthebusinessorbudgetaryresults,thereisaneyeputintomakingcertainaspectsoftheinteractionsthatarebehind

thetasksmorefunctionaltowardaveryspecificgoal:buildingamoreadaptiveorganiza-

tion,thatis,increasingtheorganizationsadaptivecapacity.

Consciouswork

Whatareadaptiveorganizationsthen?Basedonthedistinctionswehavemade,itisnow

possibletosaythattheyarethosethatadaptproactivelyorreactivelymoreeasilyto

externalandinternalchanges,effectivelycarryingouttheadaptiveworkthatisdemanded

bythosechallenges,becausepeopleinalllevelsoftheseorganizationshavethereadinessandabilitiestofacetheminsteadofavoidingthem.

Ofcourse,thismakesacompanymorecompetitiveinthelongrun,becauseitallowsitto

createandtakeadvantageofopportunities,tocorrectthecourseofactionwhenneeded,

tobelessdependentontheideasandcompetenciesofabrilliantCEO,andtodeploymost

ofitspeoplespotential.


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Thelargertheadaptivecapacityofanorganization,themoreandgreateradaptivechal-

lengesitwillbeabletoface.HP,forexample,hasnowalargeradaptivecapacitythanit

hadin1999,whenFiorinastartedintroducingthechangessheenvisioned.Butthisisthe

resultofarathertraumaticprocessmorethanawellthoughtstrategytomakeithappen.

Aspersons,weallincreaseourindividualadaptivecapacitywhenweundergostressfulep-

isodesinourlivesthatmakeusquestionourselvesandfindnewwaystomakeprogress.But,aswithcompanies,thatdoesnotneedtobethecase.

Anorganizationcanconsciouslylearntobecomemoreadaptive,workingsomevariables

thatwillbeanalyzed inPartTwo.But this issomething thatneedsto beontheCEOs

agenda,thesamewaythebusinessitselfisonhisorheragenda.JackWelch,asCEOofGE,

wasone ofthe firsttopexecutives tounderstandthis,whichhappened afterhis initial

yearsinthatposition,whenherestructuredthewholecompanyandearnedthenickname

ofNeutronJack.Butthenwhat?Shouldhecontinuetobeontopofeverymanager,mak-

ingeverydecision,puttingpressureallovertheplacetomakethingshappen?Thatwould

havekilledthecompanysdevelopmentandwouldhavealsokilledhim.Heunderstood,at

thatpoint,afterdealingwiththeemergencyoftheearly80s,thathisrolehadtochange,

and itdidactuallychange. Inhisownwords: Acompanycanboostproductivitybyre-

structuring,removingbureaucracyanddownsizing,butitcannotsustainhighproductivity

withoutculturalchange.15Thiswashiswayofsayingthatheoughttolookinsidetoo,an-

alyzingandimprovingthewaypeoplewouldinteractamongthemselvesandwithothers

outsidethecompanywhiledoingtheirtask.Actually,inthelastpartofhistwo-decadepe-

riod,JackWelchstartedtalkingaboutthatboundarylessbehaviorthateverymanager

shouldembodyinGE,whichwaslinkedtothedevelopmentofleadershipabilities,360

feedbackprocess, living the GEvalues, stockoptions,anenvironment inwhichpeople

couldbetheirbest,anti-parochialattitude,removalofblockersandbarriersamongde-

partments,andregularmeetingswithemployees.Thiskindof initiativesandtheprioritythatwasgiventothemsubstantiallyincreasedGEsadaptivecapacity,anditshouldbeno

surprisethatthiscompanyisstillconsideredthetoponeinexecutivedevelopment.

Tensionandholdingenvironment

Peopleresistchangewhentheyfearthattheymightloosesomething,aswasdiscussed

before.Infact,peopleweighloosingsomethingastwiceasmuchasgainingit.16Buteven-

tuallytheychange,andsodoorganizations.Andthemoretheyareusedtochanging,the

moreadaptivetheybecome.Whyisitthat,despitethelosses,apersonoranorganization

wouldendupchanging?Itiscertainlyrelatedtothebenefitsthataresupposedtocomeinthefuture,butitismorecomplexthanthat.Afterall,thelossesarefeltbeforethanthe

benefitsarriveand,asopposedtotheformerones,thesearetypicallyvagueanduncer-

tain.

Ashumanbeings,wechangewhenweexperiment,foralongenoughperiodoftime,the

tensionthatcomesfrombeingindisequilibrium.Thekeytochange,therefore,istore-

mainindisequilibrium,holdingthetension,duringthatdifficultperiodwherethelosses


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seemhigherthanthebenefitsandwhenthetemptationofpullingbackisstrong.

Let usthink ofJim,for example,a successfuloperationsmanager inamining company

whowasusedtoreachingthe resultsdemandedby the corporate level, inresponse to

whathereceivedagoodannualbonusandtheappreciationofhisboss.Hisprofessional

lifewasinequilibrium,sincehelikedhisjobandperformedaccordingtotheexpectationsthatrestedonhim.FromtimetotimetheHumanResourcesmanagercametohimwith

somecomplaintsraisedbycertainmembersofhisteam,butsincethegoodresultssup-

portedhisperformance,heignoredthem.Infact,hethoughtthathisauthoritativeand

harshstylewasthekeyforthatgoodperformance.Nothingwasreallygeneratingtension

inJimand,therefore,hefoundnoreasontochange.Untiltheequilibriumwasthreatened

whenanewbosswasappointed,Sarah,whocamefromthePublicAffairsdepartment.Af-

teracoupleofmonthssherealizedthatthehighturnoverratethatexistedinyoungand

newlyhiredengineersinoperations,thatshehadbeenwornof,wasdirectlyconnectedto

theharshstylethatJimandtwootheroldmanagershadembracedforyears.Adecade

agopeoplewereusedtothatkindofmistreatmentanddidnotleavethecompany,but

thatchangedwiththenewgenerationandwiththeshortageofprofessionalsinthemin-

ingindustry.SarahgatheredtheevidenceandhadindividualconversationswithJimand

theothertwomanagers,explainingthemthattheyhadtochangethewaytheyconducted

theirpeople.Jimfoundmanyexplanationstojustifyhimselfinthebeginning,avoidingthe

adaptive work Sarahwas facing him with, but he started feeling an increasing tension

whenhereceivedlivefeedbackfromhisdirectreports,whenacoachmadehimseethings

about theeffectsofhis behaviorthathehadnotnoticedbefore,andwhenherealized

thatthecompanywasinaseriouseffortofintroducingneworganizationalvaluesthatput

peopleasthecenterofitsmission.Atcertainpointthetensionwashighenoughtomake

himunderstandthathehadtochangeandthatheneededhelp,whichheaskedhisboss

for.Afterayearofsustainedadaptivework,peoplecouldnoticeveryvisiblechangesinJim,whichwasnotthecasewiththeothertwomanagers,whowereeventuallylaidoff.

ItisnotdifficulttounderstandthatfacingthisadaptivechallengewasahardtestforJim.

Heavoideditinthebeginning,untilthetensionhefinallyfelttookhimtoquestionhimself

instead of denying everything and blaming others. And during that period of adaptive

workhehesitatedmanytimes,goingbackandforth,tryingtodevelopnewabilitiesand

findinghimselfresortingtohisdefaultsettings,andbeingquestionedbyhisbuddieswhen

heexpressedhiswilltodothingsdifferently.Buthecouldsustainthisprocessofdisequi-

librium,finallyreachinganotherequilibrium.Withoutexperimentingandinternalizingthe

tensionassociatedwiththedisequilibrium,hewouldhavenotchanged;butwithoutbeingcontained,hewouldhavenotgottenintotheadaptivework.

Tensionandholdingenvironmentgohandinhand.Whenthereisdisequilibrium,thereal-

soneedstobeapowerfulenoughholdingenvironmenttomakeitproductive.Tensionis

thesourceofchange,butwhentensionisnotcontainedcanbedestructive.Sarahcreated

tensioninJimbyshowinghimevidenceoftheeffectsofhisbehavior,byexposinghimto

feedback,byshowinghimhowtheexternalconditionshadchangedandhowtheorgani-


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zationwaschanging.Butatthesametimeshecontainedhim,beingexplicitabouthow

importanthewastothecompany,byofferinghimhelp,byhearinghimandopenlyrecog-

nizingthatthisadaptiveworkwouldbedifficultforhim.

Thatbalancebetweentensionandholdingenvironmenthadtobe alsoconsidered ina

largerscalebythetopexecutivesintheminingcompany,becausethiswasnotaboutJimalone,butaboutachangeprocesstriggeredbythenewconditionsintheindustry,that

wouldrequiretimeandconsistency,sincetheorganizationwasveryusedtodoingtech-

nicalwork,butnotthatmuchusedtodoingadaptivework.

Tensionandawareness

Ifcontainingthetensioniskeytochange,feelingthetensionisessential.Aswejustsaid,

Adaptive Organizations - Eichholz - Manuscript 01-10-13

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