Know and Understand Your Company’s Adaptability Quotient

The recent closing of two of the last three Blockbusters in the country should be an eye-opener to all CEOs and business leaders.  Not because it’s a surprise. Personally, I was surprised to hear that even three Blockbusters still survived.

Rather, this once-mammoth of a company failed because it didn’t adapt to a changing environment.

In the early 2000s, Blockbuster-chief John Antioco was presented the opportunity to buy a new home video system for $50 million.  Antioco declined the offer. He thought it was a small niche business.  He was secure in his position in the marketplace. That business was Netflix, recently valued at $152 billion.

Businesses succeed and fail in their ability to adapt with the times. It’s a Darwinian concept — “It is not the strongest of the species that survives, nor the most intelligent.  It is the one that is most adaptable to change.”

Blockbuster lies in the same elephant graveyard as former business behemoths like BlackBerry, Yahoo, MySpace, AOL, Kodak and Toys “R” Us – businesses whose undoing was their inability to adapt: their low Adaptability Quotient, or AQ. 

AQ is defined as the ability to adjust course, product, service, and strategy in response to unanticipated changes in the market. It has been identified as “the future of work” by Fast Company magazine, while the Harvard Business Review describes it as the “new competitive advantage.”

Despite being a chief determinant of success in the modern era, the AQ has flown silently under the radar. Natalie Fratto, VP of Early Stage Practice at Silicon Valley Bank and one of the few early commentators on the AQ, has predicted that “adaptability quotient (AQ) will soon become the primary indicator of success, with IQ (Intelligence Quotient) and EQ (Emotional Quotient) both taking a backseat to how quickly we’re able to keep up with constant change.” 

There is no established metric to gauge a business’ AQ, but until one arrives, CEOs must consciously insert it into their business’ success equation. Organizations need to embrace adaptability as a core mission. Leaders must be willing to put the resources behind the change. Employees need to be continuously learning and questioning the status quo. 

The worst mistake any business can make is to think they have reached a stopping point.

Case in point: Blackberry. 

Nokia (the parent company of BlackBerry) had every reason to be cocky. There was a time when they dominated the emergent smartphone market with over 50% market share. Meanwhile, Steve Jobs, head of Apple, was quoted saying “I will never make a smartphone.” It appeared that no one was ready to encroach on BlackBerry’s turf. Until they did. 

Confident in what they thought to be a death grip on the market, BlackBerry had little interest in assessing maverick new players like Apple. Nor did they bother to update their product’s features in response to the iPhone release, which, despite nibbling at the market share, wasn’t alarming any Nokia execs.

Nokia dismissed the innovative features of competing products like the iPhone—seeing no need to respond with a better version of those same features in their own phones. They would later be outdone by competitors on account of that.

When people characterize BlackBerry as a “victim of its own success,” this is an apt characterization for the former tech giant. Their success bred a kind of complacency that stalled what should’ve been a relentless sprint toward product innovation. They were far too encouraged by a marketplace that was pitch-perfect for the product they’d forged, failing to see that it was perfect only for that moment in time.

Leaders of established companies often accuse new competitors of “stealing” market share (case in point, cab companies toward Uber and Lyft). In reality, these underdogs have merely reshaped the market into something that is altogether unrecognizable to the established players.

The tech publication Information Age said: “With smaller, newer, and more agile competitors unburdened by legacy systems, larger organisations must now seek to make meaningful changes more quickly. Essentially, the ability to anticipate change and quickly correct your course is separating the winners from the losers.”

A couple of ways to stay ready for market changes are:

Study the underdog: There is a lot to be learned from a wily new competitor. Outsider perspective and opinions that contradict traditional wisdom should be studied, rather than dismissed. Harvard Business Review recommends, “Ask your managers to shift their focus from traditional competitors’ moves to what the new players are doing and to think of ways to insure your company against this new competition or neutralize its effect.”

Reassess your relationship with certainty and uncertainty: Your company could be hindered by what has been called “false knowns” (questionable but firmly held assumptions) and “underexploited knowns” (megatrends you may recognize and perhaps have even acted on, but without sufficient speed or emphasis).

Don’t be afraid to challenge even some of the most firmly held assumptions about the way your industry functions. Bring in outsiders with the fresh perspective. Work to collaborate on what could be the “false knowns” of your industry; you could be among the first in your industry to question them and start changing the game.

Shrewd CEOs who intend to stay afloat in the modern economy must understand their AQ and make a fundamental cultural shift toward the cultivation of adaptability in their firms. The concept has been succinctly summed up by business author Alan Deutschman: “Change or Die.”

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