Adapting to Change in the Business Environment: 2 Keys to Flexibility

This article is an excerpt from the Shortform book guide to "Only the Paranoid Survive" by Andrew S. Grove. Shortform has the world's best summaries and analyses of books you should be reading.

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Does your business have a Plan B? Do you have a healthy “give-and-take” dynamic between upper and middle management?

Adaptability is a competitive advantage. Intel CEO Andy Grove offers advice on how to build a flexible organization so that you stay ahead of the game. The keys, he says, are proactively investing in alternatives and cultivating a flexible business culture.

Keep reading for Grove’s wisdom about adapting to change in the business environment.

Adapting to Change

Staying alert to the next strategic inflection point will only help if your company is ready to respond. If you anticipate a change but don’t move to counter it ahead of time, you’ll still be left adapting to change in the business environment on the fly. Grove offers two pieces of advice for building the flexibility to pivot when the time comes: Proactively invest in alternatives before you need them, and build a flexible business culture.

#1: Proactively Invest in Alternatives

You won’t be able to pivot your company unless you have something to pivot toward. Grove advises you to come up with a plan B before you need it. Think broadly about backup plans. Intel was saved by a new product, but, for you, it might be a new marketing strategy, customer base, or partnership.

Intel spent years developing microprocessors and working out the bugs before sending this product to market. They sensed a future market and began research and development in this market as a side project. This allowed them to shift much more quickly to exclusively selling microprocessors when memory was no longer viable.

Compare this to the crisis faced by Ford in the early 1970s. The American auto giant started losing market share when consumers began to prefer smaller, fuel-efficient cars: a market already cornered by firms like Volkswagen and Toyota. Without a sub-compact of their own, Ford rushed the development of the Pinto without taking the time for proper safety testing. They had to recall 1.5 million cars, face over 100 lawsuits, and spend years repairing their reputation after it came to light that a simple fender-bender could rupture the gas line, igniting the entire tank.

Predicting Whether Your Plan B Will Pan Out

While Grove stresses the importance of having a plan B, we must acknowledge that not all plan Bs are created equal. How do you know if you’re investing in a product that actually has a future?

No one has a crystal ball, but there are empirically documented strategies that make some predictions more accurate than others. In Superforecasting, Phillip Tetlock and Dan Gardner write about people who are able to predict future events with far greater accuracy than most. They identify several key methods of so-called “superforecasters.”

You can adopt these methods to forecast the answer to an important question when selecting your plan B: Will this new product or strategy catch on?

Taking an outside view: Superforecasters begin with a broad frame and work their way in. In trying to predict an outcome, they create lists of similar situations in the past to calculate the success rate. Before investing in developing a new product, ask yourself about similar attempted products in the past and their success rates. This will give you a clearer understanding than simply looking at the pros and cons of the product itself.

Drawing on a breadth of information and perspectives: Superforecasters try to pull in multiple perspectives and a broad range of relevant info in making their predictions. This largely confirms Grove’s advice to pay attention to all six forces and listen to a range of perspectives. But it also extends his advice: In forecasting, it’s better to know a little about a lot of things than a lot about a few things.

Thinking in probabilities: Superforecasters tend to think in percentages rather than a “yes/no” binary. They strive to guess how likely something is rather than state definitively whether or not something will happen. This advice works in combination with the strategy of taking an outside view. Once you identify your analogous situations, see if you can calculate their success rate as a probability. This will give you a clearer understanding of the potential risks and rewards involved in selecting your plan B.

#2: Cultivate a Flexible Business Culture

Now that you have a few backup plans, you’ll need a company flexible enough to use them when the time comes. Grove’s strategy for creating a flexible organization relies on balancing input and power between upper and middle management. He argues that companies become inflexible when they rely exclusively on one or the other. To give a clearer sense of how this balance works, Grove draws a clear contrast between two styles of leadership: “top-down” and “bottom-up.”

Top-down organizations rely heavily on the decision-making of upper management to function. Middle managers have much less autonomy in these organizations. The strength of this style is its ability to coordinate actions across all the departments. If your entire staff is used to following marching orders, it’s easier to get everyone acting together. The disadvantage of top-down organizations is that upper management often lacks important firsthand information that middle managers and employees who interact much more directly with the business environment have.

Bottom-up organizations rely on middle managers for leadership and direction. The role of upper management is largely to approve or reject decisions handed up to them. The strength of this management style lies in its ability to respond to firsthand information from the business environment. The disadvantage is that it is harder to coordinate actions across departments. If your departments work independently, they might not communicate with each other, and the head of one department won’t have the authority to make decisions for the other ones.

Grove argues that the most flexible companies are those that find a way to balance these two approaches. He suggests fostering a “give-and-take” between upper and middle management, in which they take turns influencing each other. He likens this process to a pendulum swinging back and forth.

He highlights the importance of inputs from both styles of management during Intel’s pivot. Before committing to the pivot, middle managers discovered that microprocessors were more profitable and began gradually re-allocating the resources under their control. Upper management listened to this signal and made the call to shut down memory production entirely, ordering a coordinated response across all departments.

Building Agility From Top to Bottom

Grove’s advice on building agility focuses directly on the interactions between upper and middle management, and how they communicate and share authority. However, this doesn’t cover the full picture of why some companies are more flexible in the face of change than others. Strategy experts argue that you can also increase your company’s agility by making changes to staffing and daily operations. Here are three important strategies.

1. Create cross-functional teams: A cross-functional team is a group that brings together a wide range of skill sets and represents different departments in the organization. These often take the form of working groups tasked with a specific problem. As well as generating insight by bringing many heads together, these teams improve coordination between departments as they develop solutions aligned with each department’s capacities and needs.

2. Accelerate your production cycle: The typical product cycle begins with research and development, then you design and build a prototype, test your product, and then apply what you learned to start the cycle over again. The faster you can make it through this process, the faster your company can adapt to change in the business environment. Closely examine your production cycle and eliminate inefficiencies, lag-time, or unnecessary steps.

3. Develop a shared compass: A shared goal or set of values among your employees can keep your company in alignment during a major pivot. It helps to have a vision that is organized around solving a problem rather than offering a specific solution. After all, the solutions to your problems can change from year to year, even if the core problem remains. You’ll also need to make this vision a core part of your company’s culture so that staff can understand your vision and align around its objectives.

Adapting to Change in the Business Environment: 2 Keys to Flexibility