Insights

Adaptive Space

How Focusing On Social Capital And Networks Can Increase Agility

A decade and a half ago, Michael Arena became fascinated with one of today’s fundamental business questions: Why is it that at a time when businesses know that they must adapt or die some organizations respond effectively, becoming significantly more agile, but others don’t?

During the first ten years of research, Arena and his research team talked with nearly 500 leaders across 60 major companies. They learned that when it comes to adapting to new external environments ideas weren’t the problem. There were lots of new ideas everywhere in all the organizations he researched. The problem was getting them put into play and scaled across the organization. And that, it turned out, was largely a social problem. Some businesses had highly effectively social networks, internally and externally and some did not, and that could make all the difference in determining how well an organization could adapt with speed and agility.

Today, Arena, a self-proclaimed “pracademic” with a career spanning both academic institutions and corporations including Bank of America, the MIT Media Lab, and the University of Pennsylvania, is chief talent officer for General Motors, where the learnings from his 15-year project inform the company’s highly regarded GM 2020 program. He has recently codified his findings in a new book, Adaptive Space: How GM and Other Companies Are Positively Disrupting Themselves and Transforming into Agile Organizations, which argues that a major part of the path forward is for companies to enhance the way that innovative, disruptive ideas flow into, out of, and within the organization.

In a recent interview in Boston with David Gillespie, a London partner with Oliver Wyman who leads the firm’s work in “scaled agility,” Arena brought to life the key themes of his research and described the path companies need to take to become more adaptive. That path begins with the crucial distinction between human capital and social capital.
 

“Think about it this way,” he explains. “Human capital is what you know; social capital is how well positioned you are to leverage what you know. Both are equally important, but we have paid very little attention to the latter."

“This part of our research was really surprising to us. We went in looking for the mechanisms and practices to create adaptation. And we discovered that adaptation has a lot less to do with brilliant strategy, brilliant innovative technologies, and even super-smart people. It has much more to do with the social arrangements of how you bring those things together to drive adaptation. And we ended up calling that ‘adaptive space.’”

An anecdote illustrates the point: Arena’s research team was looking at a large medical devices facility. The company had created a centralized innovation group of about 35 people. “It was kind of a prototypical innovation lab,” Arena says. “Very smart people, doing just brilliant work. But in three years they had a commercial hit rate of zero.”

The company did the logical thing: It disbanded the group and reassigned the staff throughout the organization. But then something surprising happened. “These people got pushed out to different influencing points,” Arena says. “They were influenced in different points inside the organization. They were coming together later – literally at Starbucks – and matching up their ideas and morphing them in such a way that the system was now more tolerant of hearing about them. And all of a sudden the very same ideas that got rejected before were starting to pop inside the organization.”

That company was lucky. The employees created the adaptive space for themselves that the company wasn’t able to create for them. For those who would like to leave less to chance, Arena has distilled what he’s learned to the “four D’s” — four kinds of connections that enable the adaptive space and help drive rapid, effective adaptation and innovation:

 Discovery connections. Companies need to take deliberate actions to open up access to new ideas and insights from both inside and outside the company. In part this is a matter of creating activities and procedures, but it is also important to identify and enable “brokers” who can connect people across the organization.

Development connections. When you’re coming up with ideas, diverse teams are the way to go. But when it’s time to develop, socialize, and apply them, tight, cohesive teams produce better results.

Diffusion connections. Once ideas have been developed, they need to be aggregated and moved beyond local development and into the broader organization to be scaled up.

Disruption connections. The final, and typically most difficult step is to build new ideas into the organization’s formal operational system.

All are important, Arena stresses, but the most important of all may well be discovery. An organization walled off from the realities of the world won’t feel the need to change—an attitude that could be fatal in today’s world. “The very first thing you need to do is get outside of your four walls,” Arena says.

He draws an example from General Motors, which sent small cross-functional teams out to explore how the younger generation feels about a crucial issue for traditional car manufacturers: luxury. “We were stunned with what we found, he says. “The younger generation feels something called luxury guilt. If they own a very expensive vehicle or a very expensive apartment or a house, they feel guilty about that. There’s the sense that if I sink $80,000 into a vehicle, that means I can’t invest in other things that are meaningful in the world — but they still want to have the access and experience the same luxury as anybody else. They want access over ownership. That became the impetus for a product that we call Book by Cadillac, which is a subscription service. And that whole insight could have never been discovered we didn’t get into the cities and you didn’t talk to you an emerging population of folks.”

The ideas are powerful, and implementing them in detail could be a major undertaking, which is why Arena stresses the simplest and most direct form of action. “If you want to find out what’s happening outside of your own insular social bubble, just go to the edge of it. You could do design thinking and empathy. You could go to a conference and engage with people and ask curious questions. If you want to bring something into the world, don’t go find a leader, find a friend — a buddy or two to help build something.

“And don’t be afraid of conflict. My favorite metaphor is if you want to get liftoff sooner, fly into the headwinds. A Boeing 747 needs 180 miles per hour for liftoff, but if you’re flying into a 30-mile-an-hour headwind, you can get there at 150 miles an hour. The same thing’s true for conflict. At the end of the day, it’s really simple. Go to the edge, discover, find a friend, build something, follow the energy and decide if this is worth pursuing, engage in the conflict, and then something could emerge that you can invest in.”