Blockbuster dominated the movie rental industry with video tapes and then DVDs. It penalized customers with late fees, which became the basis of much of its revenue. Blockbuster ruled its market in 1997 when Reed Hastings and Marc Randolph co-founded Netflix. Customers could rent DVDs by mail and return them when they pleased, and it didn’t charge late fees. In 1999, Hastings proposed a partnership between Netflix and Blockbuster, but Blockbuster’s senior executives laughed Hastings out of their offices.
“You’ve got to disrupt or be disrupted.” (Cisco executive chairman John Chambers)
Netflix soon changed its business plan and adopted a subscription-based model, offering customers a month’s free trial. Within four years, Netflix served one million subscribers. In 2007, it began streaming videos. In 2013, with its series House of Cards and other blockbuster programming – Orange Is the New Black, Luke Cage, Stranger Things and 13 Reasons Why – Netflix became an online movie producer. In 2016, Netflix started DVD.com. Netflix is agile. It regularly updates itself to remain a first mover, and it resets the business terms its competitors face. Blockbuster failed to adapt and died.
The “4D Connections of Adaptive Space”
Agile organizations understand the value of “both internal entrepreneurial activity and short-term operational efficiencies.” Conventional businesses base their growth on strategies that involve human capital and their individual skills, gifts, expertise and areas of competence. Adaptive-space firms depend more on strategies based on social capital – the competitive advantage that derives from employees’ connections with one another. Adaptive space rests on four connections – or “dimensions” – that fuel agility, innovation and adaptation. The “4Ds” are:
- The “Discovery Connections of Brokers”
Silos can be obstacles to discovering and sharing new ideas and insights. To break the logjams, some people act informally as internal brokers. They serve as “bridges” to connect members of in-house subgroups so they can explore and share ideas productively. Brokers fuel “discovery connections” that uncover new concepts and products.
“Challengers…enable agility by positively disrupting the status quo and breaking down barriers to progress.”
Pixar Animation Studios CFO Lawrence Levy is a broker. Before he joined Pixar, the firm couldn’t cover its expenses. Levy became the bridge connecting Steve Jobs – Pixar’s most important investor – with Pixar employees, who initially distrusted Jobs. By facilitating connection and communication, Levy enabled Jobs and Pixar employees to understand one another and to work together productively. The bridge Levy built ultimately enabled Pixar to become the dominant force in animated films.
- The “Development Interactions of Connectors”
Without useful application, new ideas have little value. Useful application requires sustained development, which depends on positive interactions and productive socialization. Agile firms must foster internal “entrepreneurial groups,” whose members cohere easily and productively. Coherence is essential for building and refining ideas and scaling those ideas profitably. The process requires a “connector,” someone who is hands-on in developing and applying new concepts. Thomas Edison played this role for the researchers and craftsmen he assembled at his Menlo Park research lab in New Jersey. Edison called the lab his “Invention Factory.” He and his team earned more than 400 patents together.
- The “Diffusion Connections of Energizers”
A medical devices firm put together an “innovation team” of 30 superstars to develop big, disruptive ideas. The team performed well, and some of their ideas reached the prototype stages. Unfortunately, none progressed past prototypes. After three years, the team had produced no new commercial products.
“For good ideas and true innovation, you need human interaction, conflict, argument and debate.” (entrepreneur Margaret Heffernan)
The company closed the team and dispersed team members back into the overall organization. But those employees weren’t ready to abandon their ideas. They “diffused” their concepts throughout the company. Team members became energized by their renewed access to the broad resources of the firm, which made all the difference in bringing a “set of bold new products…to market.” Energizers diffuse new ideas. They are special people within organizations who enable colleagues to dream big and to pursue their dreams with enthusiasm and purpose. Alibaba founder Jack Ma is one such energizer. Ma’s energy and agile thinking creates adaptive space in which his employees and his companies can thrive.
- The “Disruptive Connections of Challengers”
Challengers make connections that disrupt worlds; their ideas become the “new normal.” Amazon founder Jeff Bezos exemplifies a challenger and is the Internet champion of “positive disruption.” Bezos understands that formal organizational structures stifle new ideas in large companies. He always takes the long-range view and never worries about short-term profits. Bezos didn’t expect Amazon to be profitable for the first 60 months of operations, which frustrated his investors. But he was a visionary: He focused Amazon on satisfying customers. Amazon became the Internet’s largest and most successful retailer.
The Five Principles of Adaptive Space
Having created an internal sense of adaptive space, agile firms can develop innovative ideas. These ideas often become imaginative new products or business concepts. The “five easy-to-remember principles” of adaptive space are the basic methods that agile firms use for commercial success:
- “Engage the Edges”
Constant, rapid change in formerly familiar markets can become “uncharted territory.” In this uncertain environment, firms must be bold. They must move to the “extreme edge” of business and try radical new approaches to stay successful. The edges of commerce may be where your firm will prosper.
“New ideas, especially the bolder ones, provide no short-term benefits.”
Consider 3M, the multinational conglomerate. Its researchers became curious about “infection control.” They investigated “extreme cases” of infections that took place outside their researchers’ usual target markets. In the course of their investigation, they found prominent veterinary hospitals with rates of infection that were lower than several human hospitals with superb infection controls. The company also opened connections with American military MASH units that have histories of low infection rates, even though these battlefield units could not “scrub” their tents’ walls and “dirt floors.” Researchers from 3M also got to know leading movie makeup artists, who use latex to make costume prosthetics that adhere effectively to human skin but remove easily.
“In today’s world of choosing either to positively disrupt or be disrupted, a countercultural perspective may be what is most needed.”
Exploring the edges of these fields brought 3M revolutionary new insights. Its researchers created “radically different” solutions to the issues surrounding infection control – solutions that led 3M to discover brand-new markets for its products. The company now sells a full portfolio of products for hand hygiene used to serve a variety of health care needs and environments. Its culture supported an adaptive space on the edges of its markets, thus enabling its researchers to explore potential new fields and create fresh opportunities.
- “Find a Friend”
Many businesspeople with new ideas make the mistake of first trying to line up corporate leaders’ support for their concepts. A more effective course is to discuss your ideas with friends you trust. They can give you priceless, objective analysis to help you determine whether your ideas have merit and whether those merits are different than the ones you initially identify. Friends may be able to recommend the most productive next steps for your idea. Your friends form your “safe zone” – an adaptive space in which you can examine your concepts without fear of repercussions.
- “Follow the Energy”
Like emotion, energy is contagious. This is true both of positive energy as created by Jack Ma and of negative energy that’s sucked out of you by an “energy vampire” who leaves you listless. Following the energy calls for using five basic strategies: 1) Form a community with good energy and momentum inside your organization; 2) Build empathy by using positive stories to energize your internal networks; 3) “Create a slack attack” that monitors and adjusts for diverse energy levels; 4) “Kill zombie projects” by terminating energy-draining endeavors that are driving everyone crazy and will never work; and 5) Seek and nurture smaller but promising projects that have the potential to grow.
- “Embrace the Conflict”
In 1937, Snow White and the Seven Dwarfs, the world’s first full-length animated feature film, premiered in Los Angeles. The audience gave it a standing ovation. Walt Disney and his company produced the Technicolor movie, a tremendous hit. During its original run at the height of the Great Depression, Snow White and the Seven Dwarfs earned $8 million, making it the most profitable movie of its era. Since then, it has grossed more than $400 million worldwide.
“If our inner circle reflects us, it is essential that we more intentionally select our friends. We need to shape our inner circle to facilitate agility.”
Despite the movie’s huge success, Disney had to fight everyone around him to get it made, including his wife Lillian and his brother Roy, who was in charge of finances for Disney’s company. Before the production of Snow White and the Seven Dwarfs, almost everyone except Disney believed animated films occupied a small market niche: children’s films. People called the movie “Disney’s folly.” In the face of constant objections and roadblocks from his family and colleagues, Disney persevered. He didn’t run from conflict; he embraced it. If you find yourself bucking the crowd, think about Disney and stand up for the projects you believe in.
- “Close the Network”
Silicon Valley nurtures a high-tech ecosystem. Within its “distinct boundaries,” social interactions can result in productive liftoff for exciting, high-tech innovations. Silicon Valley’s physical boundaries fuel the social relationships that develop among the hard-charging entrepreneurs and technical wizards who, because of their close proximity, come together in “social clusters” to dream and create together.
“One of the only ways to get out of a tight box is to invent your way out.” (Amazon founder Jeff Bezos)
Silicon Valley has distinct geographic boundaries: to the west are the Santa Cruz Mountains; San Francisco Bay stands to the north and east. Given close proximity, people in tech constantly bump into one another in the normal course of their days. Silicon Valley makes up a closed network of entrepreneurs who feed off each other’s brilliant ideas. It’s an adaptive space of the first order, not in spite of its boundaries, but because of them. Powerful, sustained momentum can develop in closed systems. Find ways to create these nourishing ecosystems within your organization.
You Need Adaptive Space
Agile, adaptive companies promote connections that foster discovery and innovation to serve their marketplace. They need robust networks to diffuse new ideas into scalable commercial realities. Companies must continually disrupt themselves and foment new iterations to meet changing demand. Adaptive space makes this dynamism possible.