Time to adapt
Organizations that embrace adaptive, trial-anderror business approaches are more likely to prosper, says economist Tim Harford in his book Adapt: why success always starts with failure.
Why is the idea of being adaptable so important now?
The basic market pressures on companies have never been stronger. Because of globalization, we are increasingly competing with companies all around the world. Companies will be wiped out very quickly if they don’t adapt.
Why do individuals and organizations fi nd embracing failure as part of the adaptation process so tough to accept?
Because it isn’t easy. As the Japanese mathematician Goro Shimura said, it is very difficult to make good mistakes. It’s hard to measure whether something is working or not when you are trying new things, and there are huge cultural and psychological barriers too. Even with no political obstacles, we still face our own psychological frailties. We are all afraid to fail. Loss aversion – a disproportionate anxiety about small losses – is an important factor. It’s also not easy to direct and sustain adaptability at a company level.
Companies will be wiped out very quickly if they don’t adapt.
How can companies maximize their chances of successful adaptation without taking big risks?
Companies can adopt an “adapt lite” approach. If your day-to-day activities generate lots of data, it enables you to try new things. Look at Amazon; they are always coming up with different offers or prices and everything is being tweaked. The company serves up different versions of web pages at random to see what works. The same thing applies to supermarkets experimenting with different offerings, prices and product placements.
Small-scale adaptation like this is happening. It’s rare to come across companies that make big structural changes, because they are more threatening and much harder to achieve. A good example is stockbroker Schwab. Recognizing that investment trading was moving toward the internet, the company’s bosses set up a stand-alone online share-trading fi rm as a separate operation from the conventional brokerage business. Such was its success that the online business had consumed its parent company within 18 months.
Schwab’s bosses could have acted more cautiously and simply launched an online share trading arm to complement the existing business. But given how quickly internet trading has grown, the company would have lost ground to more forward-thinking rivals.
What can we do, individually and organizationally, to make sure we keep trying in the face of failure?
On an individual level, tell yourself you will experiment and try things that probably aren’t going to work. Pre-committing in this way is like committing to exercise, or quitting smoking. At an organizational level, it’s not about management saying they welcome all failure. Some mistakes are unacceptable but others, with small downsides but potentially big upsides, are good ones. The World Bank is a good example. It has started organizing ‘Failure Fairs,’ where 10,000 staff get together for two-or three-day mini conventions. Speakers talk about projects that failed and why, helping others not to make the same mistakes.
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