Robust Adaptive Strategies

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Strategy development requires that managers predict the future in an inherently uncertain world. Many mistakenly do so on the basis of perceived historical patterns that, according to recent scientific understanding of complex systems, do not have great predictive value.

Complex systems consisting of many dynamically interacting parts are difficult and often impossible to predict because they exhibit punctuated equilibrium (periods of relative quiescence interspersed with episodes of dramatic change) and path dependence (small, random changes at one point in time that lead to radically different outcomes later). What, then, is a strategist to do?

Beinhocker recommends cultivating and managing populations of multiple strategies that evolve over time, because the forces of evolution acting on a population of strategies make them more robust and adaptive. Because both biological evolution and business evolution are complex adaptive systems, to better understand business strategy, managers can employ a tool that scientists use to better understand biological evolution. An imaginary grid called a fitness landscape is an aid to comprehending how evolution increases the odds of survival in nature. In general, the rules for success in fitness landscapes also apply to business problems, though their specific application differs significantly by company and situation.

The lessons of fitness landscapes offer an untraditional picture of what a company needs to develop a successful strategy. Because shifting an organization to this way of thinking about strategy is not easy, a company can take six actions to reinforce the robust, adaptive mind-set:

• Invest in a diversity of strategies.

• Evaluate strategies as real options that may open future possibilities, and remove biases that undervalue experimentation and flexibility.

• Diversify strategies along three dimensions — time frame, risk, and relatedness to current business.

• Ensure that the strategies include sufficiently diverse initiatives in promising areas.

• Check that selection pressures on the firm's population of strategies reflect those operating on the population of strategies in the marketplace.

• Use venture capital performance metrics.

Eric D. Beinhocker is a principal at McKinsey & Company, Inc., and a coleader of its Strategy Theory Initiative.

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