Despite many businesses recognising existential threats from disruption, they struggle to adapt to change. We often focus on innovation as technology and think it is the domain of the young. However, innovation is more about business models than technology and adapting business models is where the focus should be. We have long focused on IQ and EQ in management, but in a time of disruption AQ – Adaptability Quotient is critical. What is AQ and how do we build up AQ in today’s business.
Kodak is a classic example of a business sleep walking into obsolesce in a time of digital disruption. The critical issue missed from general analysis of Kodak’s demise, is the lack of AQ skills in Kodak’s leadership team. A trait that is too common in most businesses today.
One of the key aspects of AQ is exploration versus exploitation. Both are important, but most businesses suffer an exploration deficit as highlighted in Kodak. Kodak management had a successful model that exploited consumables needed for cameras. The Gillette business model, where you sell the camera once and make money selling film ever after. To suggest a camera that did not need film to the board of Kodak would have been sacrilege. We can criticise in hindsight, but I would hear the same discourse from most boards and senior executives today. The focus on exploiting a past successful model, blinded Kodak to change and the willingness to explore new models. How guilty is your business of doing the same thing?
The second issue is to unlearn, which flies in the face of experience and is a challenge for boards. The following is a revelation, as it shows disruptors are even exposed to weakness in AQ capabilities. Advisors in the UK FinTech space lamented that most FinTechs will fail. The problem being that most investors in FinTech tend to be ex-banking executives. They love the innovation and recognise the failings of traditional banking. But when it comes to putting their money at stake, they suddenly revert to what they were familiar with. Hence, they steer the FinTechs to do traditional banking instead of developing new business models. We can be critical, but it is a hard to let go of what worked in the past and was successful. To bypass that for an unknown is courageous for the most of us. Therefore it is important to constantly unlearn and relearn so as to never be comfortable and be more capable of adapting to new areas of business.
The third issue now brings in KYB and meso-management into the mix. To enable your business to be adaptable, you have to “Know Your Business”. You must understand the structures and how to measure impact of changing structures. Why businesses do not adapt, is that they don’t know how to measure, assess and monitor changed business models. Over a period of time the build in practices, controls, policies and measures for a legacy business model. Change that business model and all those processes have to be re-invented. Hence, a key requirement for adaptability is KYB to support AQ capabilities.
Every business is going through dramatic change. We are on the cusp of another industrial revolution event. An event like replacing the horse and cart with the automobile. Even I don’t have the Chrystal ball to advise what the change is. What we can do is build up AQ skills in our business and become as adaptable as possible