execute in the present and adapt to the future

To survive, organizations must execute in the present and adapt to the future. Few of them manage to do both well
Any business faces two basic demands: it must execute its current activities to survive today's challenges and adapt those activities to survive tomorrow's. Since both executing and adapting require resources, managers face an unending competition for money, people, and time to address the need to perform in the short run and the equally vital need to invest in the long run. This problem raises an important question—is it possible to do both well or is there an inevitable trade-off between executing and adapting?

Executing versus adapting
Tom Peters and Bob Waterman were among the first popular writers to draw attention to the managerial implications of this challenge, in 1982's In Search of Excellence,1 where they argued that organizations must simultaneously be "tight" in executing and "loose" in adapting. This dialectic has been a central theme in management literature ever since: James Collins and Jerry Porras, for example, note the importance of both control and creativity in Built to Last,2 Richard Foster and Sarah Kaplan examine the need to balance operating versus innovating in Creative Destruction,3 and Michael Tushman and Charles O'Reilly paint their vision of an "ambidextrous" organization that can operate as well as innovate in Winning through Innovation.4 One of the best-known and most-cited academic papers on the topic, written in 1991 by Stanford's James March, used the memorable terms "exploration" versus "exploitation."5

Barriers to adaptability
Any organization faces many potential barriers to adaptability, some specific to itself. We will focus, however, on three that are deeply rooted in the nature of organizations and thus widely shared.

People: The price of experience
Much has been written about recent research in behavioral economics showing that managers and other decision makers are not as perfectly rational as traditional economic theory assumes.7 This research tends to focus on common biases and errors, which affect the quality of decision making. Such biases can undermine adaptability; the well-studied bias of overoptimism, for example, can make organizational-change efforts seem less urgent.8 What is less well known is that behavioral research also offers insights into why people become set in their ways and have difficulty adapting to change.

Structure: The risk of complexity catastrophes
Organizations can be viewed as a form of network in which webs of people interact. A very general phenomenon in networks, called a complexity catastrophe, helps explain why large organizations often find it harder than small ones to adapt.10

Resources: The path to dependence
In 1959, long before the idea of a tension between exploration and exploitation became popular in management circles, Edith Penrose, an economist at the London School of Economics, published a slim but influential volume: The Theory of the Growth of the Firm.12 Penrose viewed this growth as a process of search and exploration. Management teams seek out new opportunities in the environment and then use corporate resources to exploit them.

By resources, Penrose primarily meant physical assets and talent, but modern theorists have extended her definition to include less tangible but equally important resources, such as knowledge, brands, reputations, and relationships. In short, resources are whatever management uses to exploit opportunities.

Creating an adaptive social architecture
Thus three critical and widespread barriers to adaptability are a lack of flexibility in individual mental models, complexity catastrophes, and path dependence in resources. Overcoming these barriers isn't easy—if it were, far more than 0.5 percent of all companies would perform well over many decades. But by understanding the nature of the barriers, we can begin to address them.

Organizational hardware
The hardware fixes for the adaptability problem, though challenging, are in many ways the easier ones. Companies can use three key approaches:

Reduce hierarchy.
Increase autonomy.
Encourage diversity.
Reducing the level of hierarchy can help to prevent a small number of mental models from dominating the organization, while increasing the level of autonomy helps to reduce interdependencies and to lower the risk of complexity catastrophes. Encouraging a diversity of mental models,resources, and business plans increases the odds that if the environment shifts, a company will have, somewhere inside it, the ability to respond.

Organizational software
Flatness, autonomy, and diversity are diametrically opposed to the control, coordination, and consistency that successful execution requires. But the software of norms and culture can help organizations have their adaptive cake and execute it too.