Three important questions in strategy.
- Do we have the buffering capacity and capability to absorb shocks and to respond swiftly and effectively to fleeting threats and opportunities?
- Do we anticipate change and make innovative moves ahead of the unravelling of the change?
- Can we adapt quickly to changes in the business landscape, to our errors and to external threats and opportunities?
A cybernetic perspective of strategy.
There are three possible responses to changes in system inputs (matter, energy or information): buffering, feedforward and feedback. In strategy, these are absorb, anticipate and adapt.
Buffering, feedforward and feedback (from left to right)
Buffering is the passive absorption or damping of changes to the state of a system as they occur. Its source is reserve capacity or capability (‘slack in the system’); its advantage is resilience to unanticipated shocks; its drawback is that it is an investment in capacity or capability in excess of current needs.
Feedback is part of the adaptive response to changes in state that have already taken place (there is usually some delay). Negative feedback attempts to re-establish a prior state. Positive or re-enforcing feedback increases output of the system. Feedback’s source is systems of information gathering, analysis and decisions. Feedback’s advantage is that responses can be precise. Its drawback is that it occurs after a change of state has occurred; furthermore, unrestrained positive feedback always damages the system; and delayed negative feedback causes oscillations (as in swings in inventory).
Feedforward describes the response of system to input signals before a change in state has occurred in a system. Feedforward’s source is the same for feedback, but it precedes a change in state of the system. Its advantage is that it anticipates change of state. Its drawback is that it can induce errors that may accumulate, unless corrected by negative feedback.
Implications for Strategy
Absorb
Buffers are spare capacity and capability (the notion of discretionary “resource slack”), a cushion that enables resilient organisations to absorb shocks and to respond quickly to fleeting opportunities, e.g. a cash pile, inventory and spare factory capacity. A danger is that a buffer may become excessive (‘fat’). Strategy choices determine the extent of this form of resilience and resourcefulness.
Anticipate
In Adaptive Enterprise, Stephan Haeckel correctly stated that: “A sense-and-respond organization does not attempt to predict future demand for its offerings. Instead, it identifies changing customer needs and new business challenges as they happen, responding to them quickly and appropriately.”[1]
The feedforward concept is uncommonly used in business (see the confusing entry in Wikipedia: http://en.wikipedia.org/wiki/Feedforward_%28management%29). Feedforward is intrinsic to anticipatory strategic thinking, anticipating change, i.e. deciding and acting before noticeable change occurs – it is about shaping the future change by creating it, not by responding to change that has already taken place. For example, an anticipatory estate agency predicted in 2006 and 2007 that escalating house prices indicated untenable debt in society that would lead to collapse of the banking system and deep economic decline; consequently, it eliminated its own gearing and identified high net worth individuals with cash who would buy up bonded houses that would come on the market when owners no longer could afford to pay their bonds. Some countries noted the COVID-19 epidemic in China, anticipated it would cross international borders, prepared and were ready to act when it did arrive, e.g. Taiwan.
An anticipatory organisation does predict the future, not in a mathematically precise way, but in a statistical way that recognises a range of possible futures. It moves ahead of clear changes in the business environment, conducting affordable strategic experiments if time allows. This requires anticipation and taking steps ahead of the change. An anticipatory organisation also prepares for the management of erroneous predictions or disadvantageous outcomes, i.e. it prepares for fast failure (i.e. rapidly bring to an end or adapting failing experiments).
Adapt
Feedback is the hallmark of the adaptive organisation, e.g. responses to employee and customer surveys and to macro-economic and market conditions. In fact, much of the common form of strategy practice is adaptive in nature: responses to the outputs of SWOT, Five Forces and similar analytical tools of strategy. Adaptation is fundamental to defensive strategies to maintain competitive position, to correct errors in past strategic moves and it can also spark innovation to grasp emergent opportunities (sometimes dressed up as threats). Successful first responders and “second movers” are to be admired. However, the chance of successive, successful adaptation declines exponentially over time! This latter reality makes enduring success very challenging – and very uncommon.
Absorb, Anticipate and Adapt
Consider the rapid uptake of iPads. Within 9 months, unit sales reached 15 million units; then sales doubled every 6 months for two more periods! The rate of sales could never have been realised had Apple only “identified changing customer needs … as they happen”. It anticipated a rapid uptake, prepared its supply chain by building capacity ahead of the need – the buffer – and, as market information became available, Apple gave positive feedback to participants in its supply chain, which made possible the rapid, exponential rise in production and sales.
Now consider the sales of notebooks. Some competitors anticipated the development, launch and likely impact of the iPad on notebook sales. They prepared by developing competing products and built capability and capacity ahead of the market. They were able to respond quickly to Apple’s success by launching their competing products and were able to ride the tablet wave.
Companies with excessive buffers are squandering assets; those that eliminate their buffers become vulnerable to shocks and might not be able to respond quickly to fleeting opportunities. Companies that rely only on anticipation, i.e. moving ahead of the market are prone to ‘error catastrophe’ when they pursue too many opportunities. Companies that only adapt are always playing catch-up, while those that do not adapt are likely to become victims of ‘complexity catastrophe’ – the strategic sluggishness that follows re-enforcement of existing dynamics and ‘active inertia’ (busily staying the same).
Most enduringly successful companies have good, current business intelligence (the key input); they use anticipatory strategy techniques such as of scenario planning, game theory, real options and they conduct of affordable strategic experiments; they invest in the future and move ahead of the market; they build capacity and capability in prudent excess of current needs; and they also adapt quickly to the market dynamics … and their unsuccessful strategic experiments ‘fail quickly’.
Getting the right mix of absorb, anticipate and adapt is about business acumen[2] and good luck.[3]
Roger Stewart ©
October 2012, v 2015
[1] Haeckel, S. The Adaptive Enterprise. Boston: HBS Press; 1999, p3
[2] Charan, R. Sharpening your business acumen. Strategy and Business. 2006: Reprint No. 06106. http://www.strategy-business.com/article/06106?pg=7
[3] Makridakis, S. et al. Dance with Chance. Oxford: Oneworld; 2009.