I was quite bored with the intial reading of the book, however it gets more absorbing as one reads it. After reading it, it makes me more curious to read another book “Borrowing Brillance” from the same author.
One of the main ideas I get from the book is that “Only the paranoid survive”.”Adaptive management” is the process used to make real time adjustments and modifications to the original plan so that it survives and thrives in the changing business environment in which it operates. According to David, there are 11 principles of adaptive management.
1. The Principle of Problems
A business model is the solution to the hierachy of problems. Your strategy should be based on a primary problem and your hypothesis for solving it. For Wal-Mart, low price is the problem and their business model is designed to solve it. For Polaroid, instant photograhy was the problem and analog film was the solution.
For example the case of Enron. It’s original strategy was based on generating electricity through natural gas. However with the deregulation of the energy in the 1980s, it became more involved in the buying and selling of electrical power, its share price closely tracked its profits from the wholesale trading business, which accounted for almost 90% of the company’s revenue.
When profits become the main strategy, one begins the long slide downhill. Enron was so focused to reporting its profits that they start to even cook the books. This is because their primary strategy becomes the bottom line, and only tactics that deliver in the short term are accepted.
Thus you are solving the profit problem, not your customer problem.
2. The Principle of Solutions
“Tactics” are the things we do to solve our problems. The principle of solutions says that effectiveness of these tactics will naturally degrade over time, so adaptive management is the constant search for new and improved solutions to our problems; that is new and improved tactics.
3. The Principle of Force
We need to carefully choose our competitors and compete at a place where we have superior forces, this is called “positioning”. For example, in the beginning Facebook choose to compete only at colleges, and not to battle with Myspace as an open social network until Facebook had the firepower to do so.
4. The Principle of Concurrent Thinking
It helps us to answer the dilemma between strategy and tactics. Which comes first, tactics or strategy? Is the development of a plan a top-down process (strategy first) or a bottom-up process (Tactics first)? The answer is both for concurrent thinking.
We need to perceive things from top-down strategically and at the same time, see how things fit together from bottom up tactically.
5. The Principle of Cascading Objectives
It refers to how we turn our strategy into a set of specific objectives and the metrics associated with it.
6. The Principles of Multiple Futures
As the business is operating in a chaotic environment, it is impossible to predict the future. So instead of trying to predict a single outcome, the adaptive manager considers multiple scenarios, which allows him to construct an inventory of solutions and gives him the insight and intelligence to make real-time adjustments to the plan.
It’s because of multiple futures that we need adaptive management in the first place.
7. The Principle of Paper Plans
The plan itself is worthless. It is the act of planning, not the plan, that is important. This is because by planning, it educates you and your field managers and so allows you to make intelligent adjustments during implementation. In today’s world, paper plans become obsolete the moment you print them.
8. The Principle of Doubt
“Suspicion” is the driver of evolution of a business model, and adaptive managers need to doubt their own forecast and business models. Only the paranoid survive. Don’t be fooled by the power of positive thinking. Positive thinking is like a drug, a little bit of it won’t hurt you but a lot of it can cripple you, make you out of touch with reality and therefore completely ineffective.
9. The Principle of Correlation and Causation
We based on a hypothesis for solving our problem. This hypothesis is based on cause and effect. Then we delveop tactics to drive a certain effect. However we must be careful in using correlation to measure the results, as we can be misled by lurking variables and faculty data. Correlation doesn’t always mean causation.
Example an international study cited by the National Cable and Telecommunications Association showed that there’s a direct correlation between the number of television sets in the home and life expectancy. It seems that watching TV makes you live longer.
Well as a matter of fact, watching TV doesn’t increase life expectancy. There is a lurking variable called “wealth” – people who have more money buy more televisions and also have access to better health care, chlorinated water and better nutrition. People in Angola and Bangladesh don’t have TVs in every room.
10. The Principle of Alterations
There are two ways a business model evolves from Plan A to Plan B. The first is the principle of strategic alterations – using existing tactics to solve a new problem. Arm & Hammer use baking soda to absorb refrigerator odor as a form of strategic evolution.
The second is the principle of tactical alterations, example new tactic to solve existing problem example Gillette add more blades to its razor.
11. The Principle of Strategic Debate
This is a question of corporate culture. Most large organizations demand blind adherence to the corporate mission statement and corporate plan. By creating corporate rigidity, it kills the ability to evolve. Adaptive managers encourage dissension and debate, creating a fluid corporate culture intent on improvement.