Breaking Habits

Updated Wednesday 8th April 2009

Brian Smith compares BA's and Intel's ability to adapt to changes in the market in a recession.

If there’s one constant in these turbulent times, it’s change. The huge shifts in political, economic and social factors that strategists call the “remote environment” are changing the behaviour of customers and competitors, the so-called “task environment”.

To survive, companies have to adapt to their new conditions. People like me study how some do and why some don’t, so we can help companies survive in the business equivalent of the great extinctions that led to the demise of the dinosaurs.

Two recent and contrasting news stories illustrate both the need for change and the barriers to it. British Airways, along with most of its rivals, has reported an 8.2% drop in passengers and an operating loss of £150m. The main cause of this is a decrease in the profitable long-haul, premium customers in business class. As I know from the firms I work with, many executives are now discouraged from travelling unless really necessary and, when they do, have to fly economy. Worse still for the airlines, this doesn’t look like a short-term market blip but a permanent shift in customer behaviour.

 

BA planes at Heathrow [image by Matt Hintsa, some rights reserved] Creative commons image Icon by Matt Hintsa, some rights reserved under Creative-Commons license
BA planes.

This compares with Intel, the big chip-maker. It too has suffered from the economic conditions, reporting a huge reduction in profits and announcing the closure of 5 plants as both firms and individuals buy fewer computers. Unlike BA, however, Intel is showing some signs of adapting to the future by looking for new markets. One example is its recently announced tie-up with General Electric’s medical division. Together, they plan to create new technology that will reduce healthcare costs by allowing doctors to monitor and diagnose patients remotely.

Since most healthcare spending is on patients with chronic (that is, serious, long term but not life-threatening) conditions who are at home, this looks like a business opportunity that will only grow and be relatively immune to market conditions.

BA and Intel, both global businesses staffed by bright people, seem to have very different abilities when it comes to adapting to the market. In the jargon of academics, they exhibit different adaptive capacities. Why  is this so complicated and interesting? Simply put, adaptive capacity is a combination of obvious practicalities and less obvious embedded habits.

For instance, BA’s primary assets are its planes, routes, airport slots and brand. Intel has some of these “fixed assets” of course but it’s really a “knowledge-based” company. Its biggest asset resides in the kilo or so of grey mushy cells that sits between the ears of its employees. In practice, this means that, whilst Intel can switch where to apply its assets relatively easily (from one area of computing to another in this case). It’s much harder for BA. To attack a new market, they would need to scrap or adapt planes, sell slots and routes and reposition the brand, all of which is difficult and expensive. And those are just the obvious difficulties.

A computer chip [image courtesy of Intel]
A computer chip. [image courtesy of Intel]

Adaptive capacity is also the result of organisational culture, the embedded habits of the whole company. Intel, for example, is committed to technical excellence but cares less about where it applies that excellence. BA’s culture is all about a premium service, especially on long-haul. This shows in everything it does and would be difficult to change.

Academics have studied the idea of adaptive capacity for many years. They identify as important things like having time to think about change and the ability to make sense of the market. However, as even the best companies find, the complex mix of fixed assets and organisational culture make changing to fit the market a very difficult challenge.

Further reading

BA to Miss 2008 Revenue Targets 

Intel works with GE on healthcare

Formulating adaptive marketing strategies in a global industry, an article by Tung-lung Chan in the June 1995 issue of International Marketing Review.

 

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