Adaptive Leadership 101

Contrary to what you might think, adaptive leaders don't really adapt to change. Adaptation implies a response, a reaction to change.

Adaptive leaders are proactive. They anticipate change, prepare for it, and often make change happen in the direction they want to go. That's an essential ability for individuals charged with leading their business or organization in this rapid‐fire millennium.

There is more of everything—competitors, consumers, opportunities—and it's spinning the marketplace at high speed, facilitated by lightning changes in technology. Anticipating change that is coming provides an obvious advantage if you're competing in that marketplace. But if you're not born with ESP or your crystal ball is broken, what can you do?

You can learn. Whether you're in charge of an organization, a division, or a team, adaptive leadership is something you can learn and apply. It's an acquired ability. It's no surprise, then, that adaptive leaders share commonalities in their success stories.

Adaptive Leaders Are Attuned to Weak Signals

Weak signals are social barometers. They operate similarly to the needle on a barometer, where movement indicates impending change. The movement can be subtle and sometimes difficult to decipher, but adaptive leaders not only are alert for these signals, they are always thinking ahead about how to capitalize on them.

Weak signals emanate from changes in technology and society, including shifting demographics, markets, and public opinions.

In a 2009 interview, author and management thinker C. K. Prahalad discussed the importance of focusing on weak signals in his own research, noting that weak signals offer a different way to think about a particular problem.Tapping into these signals can mean the difference between growth and stagnation for companies today.

At Hasbro, CEO Brian Goldner convenes brain‐storming meetings focused on emerging technologies that might hold promise for new products at the family entertainment firm. It is adaptive leaders like Goldner who have helped the company grow over the past nine decades from a seller of textile remnants and pencil boxes to a manufacturer of toys and board games and, in more recent years, producer of big screen entertainment.

In fact, it was Hasbro president Merrill Hassenfeld who, in 1952, with an eye on what was still an embryonic advertising tool, launched TV commercials for Mr. Potato Head, the first toy to be advertised on television.

Keurig offers another example of how weak signals can sow the seeds of success. The growing popularity of specialty coffees and the spread of high‐end coffeehouses in the mid‐1980s stimulated consumers’ desire for quality coffee everywhere, all the time.

It was nothing more than a weak signal—a desire, not a demand—but it caught the attention of Keurig cofounders John Sylvan and Peter Dragone, who in 1992 founded the company dedicated to delivering a user‐friendly premium coffee system. Today, Keurig coffeemakers are ubiquitous in homes and offices across the United States.

Adaptive Leaders Recognize and Utilize Others Who Think Differently

Keep an eye on the mavericks among your employees; they may be the first to recognize weak signals. Mavericks often are young, new to your organization, and therefore less governed by its dominant logic.

Call them independent thinkers. The good news is, this allows them to see solutions that others might miss or not even consider.

The bad news is, mavericks can impress managers and teammates alike as arrogant or abrasive and thus may come to your attention only as problems. By taking the time to seek them out and cultivate their ideas, however, you may tap into the next big thing.

Anand Mahindra discovered the value of mavericks not long after he assumed the helm at Mahindra & Mahindra, a leading producer of passenger and agricultural vehicles.

In the early 1990s, the company needed to strengthen the chassis on one of its passenger models widely used in India, but the new design required a multimillion‐dollar capital expenditure in specialty equipment.

Instead, Mahindra invested his trust in a young, brilliant, but somewhat thorny maverick in his organization, giving him $45,000 in seed capital and room to experiment. The end result solved the chassis problem at a fraction of the original estimated cost.

Some years later, it was another maverick in Mahindra's company who came up with the design that would evolve into the Scorpio, Mahindra & Mahindra's very popular SUV. Adaptive leaders like Anand Mahindra make a point of championing mavericks because they understand that sacrificing good ideas for congeniality is a poor investment in the future. And employees—mavericks and non‐mavericks alike—who believe that an organization accepts them and values their ideas gain confidence and are more likely to share the kind of observations and innovations that help companies move forward.

Adaptive Leaders Bet Small Before Betting Big

Anand Mahindra's $45,000 investment in a new chassis design is a perfect example. He gave the designer $15,000 in three stages. Thus, at any point during development he could have lost $15,000 or $30,000 or, at most, $45,000 if it didn't pan out—a far cry from the millions he might have invested had he gone with Plan A.

Similarly, Keurig's cofounders first targeted the office market before setting their sights on the much larger household market. This strategy allowed them to leverage what they learned and to perfect their technology while building brand awareness and loyalty among consumers.

Some companies create special units to test the waters, creating solutions that can be scaled up as needed. IBM launched a management process called emerging business opportunities (EBO) in 2000 to give promising innovations a jumpstart.

The company's Pervasive Computing unit, a division tasked with developing wireless computing technologies, was wrapped into the EBO structure a year later. Under the leadership of IBM veteran Rodney Adkins, Pervasive Computing began nearly all projects as in‐market experiments for individual clients, with an eye toward larger market application.

Adkins, like Mahindra, understood a key advantage of betting small before betting big is that win or lose, it costs less on multiple levels to gather critical information and explore options.

Adaptive Leaders Practice Planned Opportunism

They do this by ensuring that their organization has the capabilities, processes, and culture necessary to have one foot in the present and the other in the future.

IBM's EBO framework created within the company not just a separate structure, but a less tradition‐bound culture, specific practices, and independent resource allocation dedicated to launching new ventures. The change was a clear signal to all IBM leaders to focus on future potential, not past success.

The worst can, and often does, happen when leaders don't practice planned opportunism, as United Rentals, Inc. (URI) discovered. The equipment rental company was nearly KO'd when an impending acquisition deal collapsed just as the recession hit, leaving empty seats at the management and board tables.

By March 2009, URI's stock had plummeted from $35/share to just over $3/share. It was a worst‐case scenario in being unprepared, a lesson not lost on newly appointed CEO Mike Kneeland.

Kneeland worked with the board and URI's management team to ward off future unpredictability by diversifying both its market—reducing dependence on the construction sector—and its rental equipment—adding specialty equipment to its inventory.

These and other changes equipped URI to weather future storms and shape opportunities that have come its way in recent years. Now better prepared, the company is again experiencing growth.

For the first nine months of 2015, URI's total revenue was nearly $4.3 billion and rental revenue was more than $3.6 billion, an increase on both fronts over the previous year.

Adaptive Leaders Are Courageous

Courage can manifest in many ways. Pulling the plug on a project that isn't working out instead of continuing to pour money into it to save face is one way.

Keurig's management team decided their original home brewer design was too expensive to manufacture and just didn't work well enough. They scrapped the prototype even though they already had sunk money and time into it.

The model they did launch had none of its predecessor's flaws and was affordable to manufacture as well as to purchase. That single decision may well have determined the company's future.

Sometimes courage is a preemptive strike, ending something that is working but has no—or, at best, limited—future potential.

Tata Consultancy Services (TCS), one of India's top global IT services providers, had a thriving call center business at the turn of this century. But after only a few years, the company decided to divest the service.

To CEO S. Ramadorai, the turnover rate among operators was too high; generally, they stayed only three months to a year. And even though the business turned a profit, it was proving costly and disruptive.

Additionally, Ramadorai felt sustaining the call center diverted company energy and resources from its goal of becoming central to customers’ strategic objectives. The decision to withdraw from the call center business allowed TCS to focus attention on a segment of the company that ultimately helped it grow toward the future it wanted.

Not infrequently, adaptive leaders demonstrate courage through pluck, having the grit to stand up for what is right for their organization.

IBM initially hired Lou Gerstner as CEO to sell off the company in bits and pieces. Instead, he reshaped the company to be more innovative and adaptive; it was under his leadership that the EBO process was introduced.

Mahindra & Mahindra leader Anand Mahindra chose to discontinue the customary Diwali bonus in his first year at the company. In India, companies traditionally have given employees monetary gifts in autumn in honor of the Diwali—the Hindu festival of lights. Mahindra felt bonuses should be tied to merit—effort that benefited the company—not entitlement.

It took courage for him to stand up to employees’ wrath over his decision, especially after they stormed his office, keeping him there for several hours. It would have been easy to cede to their demands—easy, but not right for Mahindra or the organization. He took the risk to ensure the company moved in the direction he wanted it to go, toward a more secure and competitive future.

Adaptive Leaders View Challenges as Market Opportunities

In the movie The Candidate, U.S. Senate candidate Bill McKay (played by Robert Redford) campaigns on the platform, “There's got to be a better way.” That's how adaptive leaders think.

The Keurig K‐cup brewer, with its always‐fresh individual cups of coffee, was invented to replace the messy, stale, office coffee system that John Sylvan was assigned responsibility for early in his career.

When URI was nearly ruined after a perfect storm of circumstances, company leaders turned obstacles into opportunities by reshaping the firm as a provider of fleet and tool management as well as rental equipment.

Satya Nadella has been working on “a better way” for Microsoft since he took over as CEO in 2014. For decades, Microsoft has been accused of contentious, some have said predatory, competitive practices in the tech industry. Nadella's better way is to make allies and partners of one‐time foes in his drive to create superior products and unleash future opportunities.

As part of this strategy, he has loosened Microsoft's iron grip on its proprietary operating system (OS), Windows, announcing last year that the company would give away the OS to smartphone and tablet makers. His thinking is that releasing the company's bread‐and‐butter product for free will encourage innovators to develop apps and services for the Microsoft platform on mobile devices.

The creation of the Willow Creek Community Church is rooted in Bill Hybels's belief that there had to be a better way to worship. The church that Hybels and his friends founded in Illinois in 1975 offered lively services that incorporated video, music, drama, and contemporary relevance.

Their mission was to reinvigorate Christians whose faith had been dulled by conventional church rituals. Willow Creek became so popular it attracted national media attention, and ministers from all over the country descended on Hybels to learn how he did it.

Inundated with so many demands on his time, Hybels created the Willow Creek Association (WCA), a separate organization dedicated to ministerial conferences and training in the “Willow Creek way.”

Like the church, the WCA thrived, but when market saturation began to erode attendance at the events, they were replaced by an annual Global Leadership Summit.

This latest iteration addresses leadership on a broader plane and has featured the likes of Carly Fiorina, Colin Powell, Bono, and Jimmy Carter; I was honored to be among the summit speakers in 2013.

In 2014, a quarter‐million people around the world attended the two‐day event either on site or via broadcast. From impersonal to engaging church services, from overwhelming demands to a dedicated effort, from diminishing returns to a global market—at every turn, Hybels and other Willow Creek leaders have turned what might have been deal breakers into new opportunities.

These are some of the essential abilities that set apart Hybels, Mahindra, Goldner, Kneeland, and the other individuals discussed earlier from so many other business and organizational leaders today. They are adaptive leaders. They are not content to accept things as they are. Instead, they see what could be. They ask, why not? And then they make it happen.

Vijay Govindarajan is the Coxe Distinguished Professor at Dartmouth's Tuck School of Business and Marvin Bower Fellow at Harvard Business School. This article is based on his book Three‐Box Solution: A Strategy for Leading Innovation (Harvard Business Review Press, April 2016).