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The Adaptability Quotient (AQ)

Whether a startup has the potential to become a success very much depends on its founder(s). To assess the leadership of a startup most investors tend to assess their IQ (intellectual intelligence) while others prefer to test their EQ (emotional intelligence).

Natalie Fratto, VP Firmwide Strategy at Goldman Sachs, suggests a third option: testing one’s ability to adapt to rapidly changing circumstances, i.e., one’s Adaptability Quotient (AQ). While I’m not convinced AQ should always be regarded as the ‘single most important determinant’, as stated by Fratto, I’m willing to believe that one’s potential to adapt could be an important foreteller of one’s potential for success. And this applies not just for startups. An AQ strategy would allow us to measure, test and improve the adaptability potential of teams, organizations, and even governments.

In her TED talk, Natalie mentions three tricks to assess one’s AQ:

  • What-if Questions – “What would you do if a competitor offers a similar product half your cost price?”
  • Signs of Unlearning – Seek to learn what people presume they already know and are willing to override with new information, i.e., return to a zero mindset.
  • Infuse Exploration – Focusing on further exploiting existing product-market fits makes you blind for what’s around the corner. Previous success becomes the enemy of one’s adaptability potential.

Adapt or Die

According to Nathalie, we all have the ability to learn to adapt to change. However, not everyone seems to be willing to leave behind the comfort of business-as-usual. Afterall, history teaches us that (large) companies have a tendency to ignore change (Kodak, Blockbuster, etc.). You may remember IBM’s Transformation:

In 1993, IBM posted the biggest loss ever-recorded in corporate history, 8 billion USD. Bridget van Kralingen, general manager for IBM North America, explained: “We had missed a number of key technology shifts. Customers who had previously said “no one ever got fired for buying IBM” were abandoning us for faster, more nimble competitors. One major business publication labeled us a dinosaur. Another said our era had passed.”

Three weeks into his job as the newly installed chairman and CEO in 1993, Louis Gerstner Jr. was presiding over his first meeting at the company on the topic of strategy. Everyone in the room was actively sharing ideas. “After eight hours I didn’t understand a thing,” Gerstner recalled recently, in a talk for MBA students at HBS. “I was very depressed.”

“Transformation of an enterprise begins with a sense of crisis or urgency,” he told the students. “No institution will go through fundamental change unless it believes it is in deep trouble and needs to do something different to survive.”

In his talk on November 20, titled “IBM’s Transformation,” Gerstner Jr. made clear that he did not see himself as the white knight in IBM’s subsequent transition and return to viability. He had the advantage of being an outsider when he joined the company after working at McKinsey & Co., American Express Company, and RJR Nabisco. Beyond that, however, change came to IBM in large part due to the pride and energy of the employees themselves, he said.

His role was to kick-start the process: As an outsider, they let him.

Zero-based Thinking

Unlearning, as mentioned by Fratto, has similarities with zero-based thinking. Zero-based Thinking asks: “Knowing what you know now, what would you do differently, start, or eliminate in your life (or business)?” This principal comes from Brian Tracy, CEO of Brian Tracy International. Ask this question to help address your issues about business strategy, employees, new business ventures, existing relationships, and existing customer groups.

Albert Einstein was teaching at Princeton University and had just administered an exam to an advanced class of physics students. On the way back to his office, the teaching assistant carrying the exams asked him, “Dr. Einstein, wasn’t this the same exam you gave to this same class last year?”Dr. Einstein responded, “Yes, it was.” The teaching assistant then asked, “But Dr. Einstein, how could you give the same exam to the same class two years in a row?” Einstein replied, “The answers have changed.”

The zero-based organization lets companies design the organization from a clean sheet, shifting talent toward work that contributes to the distinctive capabilities, operating model, and outcomes needed to fuel growth. It challenges a company’s strategic ambition, choices, and distinctive capabilities without the biases of the past.

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