All Success is Successful Adaptation

In 2011, on the Fortune list of most admired companies, UPS was first among the 10 contenders in the parcel delivery industry. It was given an average score of 7.42 out of 10 for its overall performance while the US Postal Service (USPS) scored only 3.89. In other words, UPS – an American-headquartered delivery service – was considered twice as impressive as the USPS – also an American-headquartered delivery service. What explains the difference?

One argument is that being owned by government stops the USPS from doing a good job. It is difficult to adapt because there are legal obligations to provide what is termed the universal service obligation. The agency has to provide everyone, everywhere with a post service at affordable prices whether or not they can provide those services at a profit.

In return, it was granted what was more or less a monopoly at the time it was set up in 1775. The idea was that the USPS would cover their costs because everyone had to use the service.

The situation has changed, with competition, but the USPS has not adapted to it. And one reason for this lack of adaptability is that external regulations don’t allow adaptation.

Another is that two hundred years of history have encouraged a culture that adapted too well to its perceived constraints. Some of this inability to adapt may be enshrined in union behaviour while just as much seems to be found in management and government behaviour.

If you find a system that is failing, then you have also found a system that is failing to adapt.

If you find a system that is failing, then you have also found a system that is failing to adapt. You need to discover first, what adaptations are needed for the system to succeed. Second, you should understand what has stopped the system from adapting successfully. And third, you should find out how to free the people in the system to make the necessary adaptations.

Usually, the people in the system know what is wrong with the system. If you reach out to them they are the fastest way of pinpointing the problems.

This approach has the additional benefit of engaging with the people who do the job. The people in management positions may have to make the biggest changes for organizational adaptation to work. Part of that process is placing the responsibility and authority for adapting as close as possible to the work itself.

Leaders who stay in the boardroom cut themselves off from their extremities.

Leaders who stay in the boardroom cut themselves off from their extremities. They suffer from organizational tourniquets that prevent blood supply and needed oxygen moving effectively around the body. They may have started as rules with a reason, but they eventually become maladaptive blockers whose existence few understand. Even worse, they bring pressures that reduce and damage sensitivity.

Parts of the organization can become misshapen according to the constraints placed around them. They need rehabilitation. They need a mixture of massage, exercise, stretching and loosening of the constraints that stopped people adapting successfully. Instead of just increasing the urgency, people often need greater slack to find new patterns that allow them to think their way to a game that they can win.

Ford was offered the chance to take easy money. In the aftermath of the financial crisis of 2008, the government invited them to consider a government bailout. Despite losses that year of $14.6 billion it insisted that it did not need the funds. This was the worst loss in its 105 year history, coming only two years after its previous record loss of $12.6 billion in 2006.

The bailout refusal goes back to 2005 when the Chairman, Bill Ford, asked his people to figure out a way of getting the company back to long term profitability. The new-kid-on-the-block, Mark Fields, presented his work to the board at the 7 December board meeting. The plan was made public before the end of January 2006.

“The Way Forward” aimed to adapt the company to the demands of its environment. It would stop producing unprofitable and inefficient vehicles, bring production lines together, close down fourteen factories and cut over thirty thousand jobs. Ford would reduce the size of the company by the 25% reduction in its market share over the previous decade. Ford also would develop cars faster with its new, and grandly named, Global Product Development System (GPDS).

American rivals were making the same kind of cuts. The Ford cutbacks were a survival adaptation. There are too many cars being produced in developed markets. Even automotive addicts have tired of main-lining the same-old-same-old fuel heavy vehicles. Especially when there were better alternatives from companies that adapted early. The new approach to car development was an improvement, but only aimed to bring Ford closer to its Japanese rivals rather than, for example, get beyond them.

Toyota market share doubled over the same time. It had 7.3% of the world market in 1995 which had risen to almost 15% by 2005. The growth was based in part on superior quality. The quality derived from a culture of constant improvement and the Toyota Production System (TPS). The way Toyota did business made it one of the most admired companies in the world. According to its peers, it was the ninth most admired in 2006, third, in 2007, fifth in 2008, and third in 2009.

Toyota saw the future in terms of small, incremental, continual adaptations thanks to ultra-engaged workers. But it also saw the big future, a chance to contribute, and an opportunity to do something remarkable. In 1992, brimming full of the confidence of competence it announced the Earth Charter, outlining goals to develop vehicles with the lowest pollution possible. Not just low pollution. Not just the lowest pollution in the industry. Hear the ambition talking. Toyota wanted to compete with possible.

It takes time and a lot of work to change history. Over the next two years, Toyota moved from their paper adaptation to a specific goal of building a car that is hyper efficient while retaining the benefits of a modern car. They wanted to build a proper little green car rather than a curiosity or monstrosity. Their project sponsor, the general manager of engineering, took over as chief engineer of the new car. By 1995, they showed their prototype hybrid electric-petrol car was shown at the 31st Tokyo motor show. The team named it in Latin – Prius – because they got there before anyone else.

Meanwhile in Detroit City, GM had just started marketing the gas-guzzling pimp mobile, 6000lb Hummer sports utility vehicle. It was the epitome of all that is wasteful with fuel economy of under of 10 miles to the gallon. Hummer drivers received five times as many traffic tickets as other drivers while blind spots made parking difficult and dangerous. Not to be outdone, Ford sold the longest and heaviest sport-utility vehicle ever made. The Excursion was built for 9 passengers, could tow 11,000lbs, had a 325 horse power, 7.3litre turbo diesel that averaged at little more than 14 miles per gallon and weighed over 7000 pounds.

The Detroit Three preferred to keep churning out bigger, heavier and more damaging to the environment than do something better. They ignored trends they knew about. They played a self-defeating game of denial chicken. The year-on-year damage to their market share, erosion of their profit margins, and buying sales through excessive promotions and cheap financing were all put to one side. This was a long emergency. The crash was never going to happen. And if it did, it wasn’t going to hurt their leaders.

By 2008, the financial system had crashed, the US was involved in two unnecessary, costly wars, and the world had entered its great recession. In 2008, in the world’s richest economy, GM and Chrysler were forced to go begging cap in hand to Washington DC, the political home of capitalism. With Ford, GM and Chrysler all losing money, the Toyota Prius had sold more than 1 million vehicles. Within just two more years, worldwide sales had reached 2 million vehicles.

The Prius required adaptability before the fact. It was a form of pre-emptive creativity. If originality demands that an obvious fact be followed by a non-obvious solution, then it qualifies. Toyota people were able to accept environmental science, laws of economic scarcity and the needs for self-expression among a certain segment of the buying public. And because they noticed this changing pattern they were able to adapt years ahead of their rivals. They were able to make moves at the genetic level of adaptation.

Even after the success of the Prius it was mocked by a certain group of naysayers. For example, US radio broadcaster, Rush Limbaugh, self-described as the ‘most dangerous man in America’, felt that “liberals think they’re ahead of the game on these things, and they’re just suckers”. Even after its success, he went to suggest Japan was hit by an earthquake and tsunami in 2011 because Mother Nature was angry about the Prius.

Enthusiastic ignorance is a most dangerous behaviour to enlightened adaptation.

Enthusiastic ignorance is a most dangerous behaviour to enlightened adaptation. Individuals and groups can become hugely successful by telling others what they want to hear or what they are willing to believe.

Yet nations and organizations are damaged by this type of maladaptation. Believing that anything clever is liberal, science is a conspiracy, sharing is unpatriotic and that knowledge is selling out, these beliefs stop people seeing what is changing and considering how best to create new winning games.

By 2008, Ford’s confidence in its own plans had grown high enough to turn-down government funds. It did argue that its competitors should receive bailout funds so that the suppliers they all depended on would survive. It had recognised necessity of deep adaptation before its Detroit competitors, and in 2006 had set up $23.5 billion credit before the financial crash. There was also an opportunity to use this advantage to promote Ford as an independent company at a time when this was particularly popular.

Ford’s CEO explained that he had taken the original restructuring plan to over 40 banks to get the financing. He asked for much more bank credit than anyone expected to use, and he had made tough decisions without being forced by government. By reacting as soon as possible to patterns of change, he was able to swerve ahead of the curve. He was able to make changes on a timescale that suited Ford, and invest in R&D to accelerate the development of new technologies. This is also pre-emptive adaptation.

In 2010, Ford earned its biggest profit in ten years, nearly $7billion. It followed up that accomplishment with its strongest quarter in thirteen years, $2.55 billion on revenues of $33 billion. Sales were up 16% primarily because of strong demand for more fuel efficient vehicles. Demand that Ford could now supply. It is demand Ford is preparing to encourage with new partnership deals on hybrid trucks and SUVs with Toyota. They will work together which is, in itself, a superior adaptive strategy.

Chatting at the consumer electronics show 2010 with his 1950s haircut, red tank top, button down collar and boyish, infectious grin, Ford CEO Alan Mullally could be seen as a kind of geek hero extolling the virtues of cars as portable iPhones. At the 2011 consumer electronics show in Las Vegas, Ford made another surprise appearance to unveil its new all batter powered car, the Ford Focus. Instead of launching at the Detroit car show, Ford has transformed its perspective to view its products as part of something bigger than the automotive industry.

This more accurate view of reality was embraced by Toyota, rejected by a section of media commentators, industrialists and politicians, and appears to be the most powerful characteristic of Ford’s CEO. This shift in perception, to a more accurate view of reality, particularly at the top, allows the organization to move more rapidly and adapt situations more effectively into winning games ■

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