Google is widely hailed as one of the most nimble and innovative companies in the world. But that doesn't mean it hasn't confronted its share of big company organizational issues.
Its creation of Alphabet is a case in point. The company set out to compete more effectively amid constant disruption when it placed its well-established businesses (Google, Gmail, YouTube, Android, Maps) with Google and its more speculative businesses (Calico, Waymo, Nest, Google Fiber, GV, CapitalG) with Alphabet. The objective was to separate the more mature money generators from the company's growth initiatives. The new structure would give each business the leeway to make decisions based on the contours of its specific market while discouraging the resource battles that slow down other large technology companies.
Rather than force strategic decisions about where to play in a static, function-driven organization and team structure, Google created a more flexible organization that could act based on the imperatives of each unique business. This mindset—namely, the aptitude to bring inner-game agility to operations, planning and people management—is the hallmark of an adaptive organization.
The most adaptive companies:
- quickly reallocate investments and resources as new threats and opportunities arise instead of waiting for the yearly planning meetings;
- take risks and prioritize new ideas;
- attack priorities by empowering teams to tackle problems together, giving them true ownership of decisions; and
- focus the right talent on the right objectives, using qualitative and quantitative means.
Continuous strategic and financial planning
Strategic planning processes that can't respond quickly to market changes and the competition's moves can lead to unfortunate results. Consider Microsoft's experience with smartphones. It's hard to fathom now, but prior to 2007, Windows Mobile 6 was a market leader in mobile, with a share of 30% vs. Palm, BlackBerry and Symbian. But once the iPhone and Android hit the market, it was game over. Despite its landmark acquisition of Nokia's phone business, Microsoft has steadily lost share since then and is now a minor player in arguably the most important sector of technology.
Too many companies protect their sacred cows and dedicate and distribute their resources across the same priorities year after year so that everybody gets their 2% to 3% bump. But as strategic needs change, the most effective leadership teams can unlock financing and resources to put them behind critical new initiatives rather than stick to the budget calendar.
Prioritizing new ideas
Amazon's acquisition of Whole Foods threw industry assumptions up for grabs in retail. Grocers long assumed that the food business was safe from disruption, prompting many to put off investments in omnichannel innovations. Now they're at risk of being engulfed by Amazon's innovation machine, which dedicates $16 billion a year (almost 12% of sales) to "technology and content," with much of it going to IT-related research and development. In contrast, Gartner reports that retail and wholesale companies spend far less—only about 1.5% of sales on IT.
Too many companies either underinvest in new ideas or pull out of their bets too early. The most adaptive companies spot and nurture their own innovations and opportunities for disruption. They take the long view by systematically investing in innovations that might not bear fruit for years (or at all), but when they do, the result can be truly disruptive.
Developing self-organizing teams
Digital initiatives typically straddle multiple parts of any organization and likely won't succeed if departmental boundaries get in the way. Companies need to embrace having many cross-functional SWAT teams with decentralized decision making and the authority to make rapid, day-to-day decisions within their group.
A good example is the call center team at USAA, which is widely hailed in the financial services industry for its strong customer service. Rather than enforcing that its call center employees stick to a script, the company has instead explicitly empowered them to spend as much time as needed with customers to truly understand their needs and solve their issues on the first call. These frontline employees learn from each other and are the company's eyes on the insurance and banking markets. This not only makes for happy, satisfied customers but also builds loyalty and satisfaction among a critical group of employees.
Innovation thrives when self-organizing, cross-functional teams become the norm, not the exception. Top innovators adopt an organizational structure that is flexible enough to allow people across the business to align themselves to the new innovation efforts that excite them.
New models of managing and deploying talent
An adaptive organization requires new ways of working. While companies have traditionally relied on gut instinct and manager discretion to make critical talent decisions, digital leaders are increasingly turning to behavioral analytics. The idea here isn't to look over the shoulders of individual employees but rather to analyze behavior patterns to see if execution is lining up with strategic intent. That sort of insight can lead to important changes in recruiting, training programs, incentives and team coordination.
Start-ups such as VoloMetrix, which was acquired by Microsoft in 2015, give companies tools to develop a much deeper understanding of how employees interact with each other and customers so that they can optimize organizational performance. By mining anonymous email and calendar data from a sales organization, leaders can draw a much clearer picture of the daily activities and collaboration patterns among the company's sales reps. How much time are salespeople spending with customers? What is the true cost of these relationships? How much time are people spending in superfluous meetings? Are these activities aligned with the most important initiatives?
Successful strategy in a digital world requires companies to make important decisions about what markets to attack and what products or services it needs to win. But outer-game questions shouldn’t overshadow the inner-game imperatives of creating a business model that is data driven and flexible. After all, an adaptive organization ensures that companies put the right people and resources toward their most important opportunities.
Elizabeth Spaulding leads Bain & Company's Global Digital practice, while Greg Caimi leads the practice in the Americas. They are based in San Francisco.