In today’s complex and unpredictable world, adaptation is more critical than ever for organizations. According to an Innosight study, the average life-cycle of a company on the S&P 500 index has dropped from 61 years in 1958 to just 18 years. Projecting this decline forward, 75% of today’s S&P 500 companies will be replaced within the next decade. In this new reality, it is more essential than ever for organizations to adapt—to pivot in real time with the changing needs of an increasingly more complex operating environment.
The key to addressing this dismay lies in arming organizations and individuals with a new way of understanding what it takes to adapt in a complex world. A decade-long research/practice partnership suggests that organizations need to enable adaptive space. After conducting hundreds of interviews and analyzing the internal network dynamics of dozens of institutions, the research suggests that adaptive organizations are able to repeatedly facilitate the generation and movement of ideas and information across the firm, creating new solutions and business opportunities.
To understand these dynamics, we need to think of organizations as comprised of two primary systems: an operational system and an entrepreneurial system. Operational systems are found in the formal, bureaucratic organizational structures that push for order, e.g., standardization, alignment, and control. They are responsible for productivity, efficiency, and results. Entrepreneurial systems occur in the informal structures and systems that push for change, e.g., new opportunities, different operating procedures, new products and services, or extension into different business areas. They are responsible for innovation, learning and growth. Traditionally, these two systems are in tension with each other. The operational system is designed to eliminate variation and drive efficiencies, stifling out novel ideas. While, the innovative nature of the entrepreneurial system clashes with the rigidity of the operational system.
Adaptive space occurs in the interface between the operational and entrepreneurial system by embracing, rather than stifling, the dynamic tension between the two systems. It does this by enabling network structures to spark the emergence of novel ideas and then leveraging the natural benefits of cohesion that occur in the local, entrepreneurial context to foster idea development and sharing. Ultimately, this leads to idea diffusion across the organization to gain formal endorsement from the operational system. In this way, novel ideas are more readily introduced, more openly shared and more effectively integrated into formal processes. All of this is essential to scaling and creating value in organizations.
Adaptive space, therefore, is essential in helping organizations become and remain adaptive. It helps address the most pressing problem facing organizations today: the need to overcome the overwhelming bias in organizations for the operational system to stifle out the creative energy of the entrepreneurial system, thereby limiting bold innovations and inhibiting adaptive capacity.