If the market conditions of a company change, but the business doesn’t adapt to that change, it almost always dies. I remember visiting Harvard Square in Cambridge in 1996 and buying some Jazz albums from a large music store there. Today, that music store doesn’t exist. In fact, I cannot seem to find any music store! The music industry changed, and those music stores failed to adapt to that change. They all vanished from the face of the Earth. Is this what Bob Dylan meant when he wrote the first one now will later be last, cause the times they are a-changin’?
Adapting to Change
Adapting to changing industry conditions is one of the central jobs of firm management. If the leaders of a company do not bring about the needed change, who else would? The larger question is how easy is it to change.
The First One Now Will Later be Last, Cause the times they are a-changin’
As I have been studying survival and failure of firms for a long time, I can give examples of industry after industry where companies just failed to adapt to a changing environment. What happened to your neighborhood bookstore that existed? What exists in its place today? Where is that store? In fact, where are all those mom and pop bookstores?
Take anther example of the Swiss watch industry. In 1973 Switzerland exported 40MM watches to the rest of the world. In 1983 it exported 3 MM watches. 50% of the Swiss Watchmakers disappeared! In just ten years! And I am only getting started.
Stories Of Transformation
At the same time, there are examples of firms like General Electric and IBM who survived and adapted multiple waves of creative destruction in their industries. GE is the only original Dow listed stock still in the index! It started as a lighting company. IBM began as a punchcard tabulating company. Over the last hundred years or so, these companies have changed from their core. IBM went through waves of disruptive events in its industry. Mainframes, minicomputers, desktops, laptops, tablets, smartphones waxed and waned in importance. GE became a financial services company and then since the great recession has gone back to its industries roots.
Some Fail While Others Survive
What does it tell us? Most companies fail to adapt to environmental change! But, many companies have survived over the long run and can indeed adapt. Will the many companies facing rapidly changing conditions in their industries adapt to change or wither away? Can Gillette remain a dominant shave care company? How will P&G survive the many challenges it faces in its various categories? Can Walmart survive the online revolution? The answers are neither easy nor clear.
So How do Firms Adapt?
How do companies adapt? I explored this question in my podcast this week. In the current season, I am exploring management science literature to answer pressing questions for businesses today. I found that there are at least two distinct views on adaptation in the research literature. On the one hand, sociologists think that firms are inert and do not change. But behavioral economists and organizational theorists believe that companies can adapt although not in an unconstrained manner.
The Art of Adaptation
For a firm to adjust to a changing environment, it needs to have a meta strategy process. Such a process allows it to anticipate massive changes much ahead of time. Such a process enables leaders to plan to develop or acquire the needed capabilities much ahead of time. That is the only way of surviving. A last minute hustling of strategy tweaks or large-scale acquisitions or financial engineering has not paid off for any firm in the past.
In the podcast, I go into much more detail on the literature and how firms can adapt or fail to adapt. You can listen to the podcast here.
The Key Takeaway
One of the solutions to the challenge of adapting to a changing environment is a meta strategy process. In my book the dark side of innovation, such model. That strategic anticipation and response framework can help firms prepare for change. Such a process is a critical tool in the art of adaptation.