The Adaptive Entrepreneurial Method
Effective entrepreneurs recognize and, indeed, embrace continuous change: customer preferences change, competitors’ actions change, markets change, technology changes, prices change, business methods change. New knowledge is continuously created and accumulated. Effective entrepreneurs equally recognize that their businesses must change in response: capital combinations change, supplier and customer relationships change, organization structure changes, business portfolios and value propositions change. Continuous change is required — which is something business has not traditionally been designed for. How do businesses manage continuous change?
In the current digital age, the rate of change in the external business environment is accelerating, largely as a consequence of rapid technological evolution and the ways in which customer behavior and preferences change in response.
When a firm as a network of individuals, knowledge, ideas, tools, processes and resources works with clients and customers and their systems, all should be better off as a result of their coordinated action. The better the capacity to learn and make adjustments together, the better the capability to recognize and seize opportunities, and to act at coordinated speed. Those who can handle the rate of change fastest will be the most successful. The key to this is a sound understanding of the concept of OODA.
OODA is the axiomatic process of human action, learning and adaptation that draws from several disciplines; including, but not limited to, physics, biology, history, philosophy and cognitive psychology.
The originator of OODA, the late Colonel John Boyd, USAF (Retired), synthesized thinking from multiple sources about the challenges of human action in conflict and competition. Applied to business, we call it the Adaptive Entrepreneurial Method.
The need for OODA is triggered by constant change and uncertainty; or what is commonly referred to as VUCA:
Volatility — circumstances change abruptly and unpredictably;
Uncertainty — knowledge is incomplete and the future is indeterminate;
Complexity — we are individuals in a dynamic interconnected whole with emergent outcomes;
Ambiguity — multiple interpretations from multiple observers, and multiple conclusions.
VUCA becomes apparent to us as we interact with the ever-changing external environment or market, as information and data coming into the company, and as unfolding circumstances, whether these are the company’s own sales trends and customer relationships or the activities of competitors.
VUCA is the state of the universe. It’s the normal condition that entrepreneurs should assume as the basis for action. It also creates an exciting state of opportunity in which dynamically adaptive entrepreneurial businesses can thrive.
OODA is a feedback loop, and often depicted and understood as “OODA Loop.”
OODA stands for Observe, Orient, Decide and Act — a continuous process, thus a “loop.”
Orientation is the key component and is critical to successful operation through the continuous loop. For a firm or for an individual entrepreneur, orientation is a wide collection of inputs: mindset, personality, our way of thinking and interpreting, previous experiences and how we’ve processed them, our ability to process new information, our ability to handle change, our ability to analyze and break things down while simultaneously piecing things together and synthesizing them into an insight or construct that never existed before.
Orientation houses all our biases, and all our cognitive models. It’s how we perceive and how we experience the world. It determines how we process all the information we observe.
Decisions are hypotheses.
From our orientation-determined analysis and synthesis of incoming data, we envision a future state: what could happen if we did something? In other words, we imagine what it would be like in the future if we were able to adjust our current situation in order to improve — if we were to change our current state and trade it for another one. Any action that follows must be preceded by a decision, a hypothesis of what we think might happen.
Action is an experiment to test the hypothesis.
In the effective understanding of OODA, entrepreneurs demonstrate a bias for learning and a bias for action. They learn by testing what happens when they decide and act; and in making new observations of the outcomes of their decisions and actions. These outcomes will give them new signals to employ in re-orienting to ensure that their decisions and actions are aligned with reality.
Effective understanding of OODA is consistent with an “Explore and Expand” approach to business strategy.
Effective entrepreneurial firms abandon conventional, outdated thinking and replace it with an “Explore-And-Expand” approach, running many fast, low-cost exploratory experiments, in order to quickly expand investment and focus on methods that work, discarding others that don’t. In OODA, experiments are decisions and actions, and re-orientation results in expanding application of successful measures.
In OODA, entrepreneurs continuously build and re-build their perception of the VUCA world in order to attempt to match their perception with reality through exploration and expansion. They aim to ensure their orientation is attuned to the way the world is and not to the way they want or imagine it to be.
The more they learn, the more they build and re-build, the faster they can advance and adapt. Speed of learning is important, so long as it is based on well-processed information.
Guidance and control.
In Boyd’s graphic depiction of OODA, there are two areas designated “implicit guidance and control,” pointing to actions and observations. One’s orientation implicitly guides and controls both. The orientation of an entrepreneur will always affect how they perceive things. Where some might see an obstacle, others see an opportunity. That’s orientation at work. On the action side, orientation implicitly guides and controls actions. There are some things entrepreneurs can do automatically, employing heuristics or procedures that they don’t stop to think about. This also is orientation at work — and with speed!
OODA, processing VUCA information into decisions and action via continuous reorientation, is a test. An entrepreneur is always being tested. As time moves unstoppably forward, new challenges continuously emerge. It’s the ceaseless flux and flow of the Universe.
If entrepreneurs maintain an open and flexible or agile approach or orientation to this continuous testing, they will improve their capacity for free and independent action. .
Focusing on a well-understood purpose will eliminate wasted time and wasted action.
The Adaptive Entrepreneurial Model has three major elements: VUCA, the way the world is; OODA, as described above; and IOT.
IOT stands for “In Order To”: the purpose or mission. As entrepreneurs deal with VUCA, and continuously change their orientation as they learn from their decisions and experiments, quickly finding out what works and what doesn’t, they must never lose sight of purpose and intent:
What are we trying to accomplish?
Everyone in a firm, or on a team, must share the same purpose and be able to articulate it in the same way. When that’s the case, creative and coordinating action can move forward without instruction: No one has to be told what to do when they’re in the middle of VUCA so long as they have the same shared purpose in mind. Everyone focuses on what needs to happen and why. There’s never action for action’s sake; it’s always with a shared purpose. If team members do not share the same understanding of purpose, then they’re creating more opportunity to increase friction, unnecessarily magnifying the cascading effect of VUCA. If they do align in their understanding, the orchestration of their individual efforts produces harmony, to the benefit of all involved.
People, ideas, things — in that order.
All action is human action, all decisions are human decisions, all teams are human teams. When orientations are aligned, harmonious coordinated action is possible. There’s a high priority on relationships — with teammates, colleagues, customers, vendors, partners.
In a business utilizing the OODA model, people always come first because they are the ones who act. Ideas follow, judged through the lens of helping people to decide and act. Things — technology, property, money — are at the third priority level to ensure they support people and enable their ideas.
“A sound understanding in application of these comments will yield geometric results.”
Ultimately, following Boyd, “the improved capacity for free and independent action” is the repayment for the effort expended in the study of OODA and the application of the Adaptive Entrepreneurial Method. This is how entrepreneurs can effectively adapt. This is how entrepreneurs can effectively compete. This is how entrepreneurs can thrive in VUCA!
About the Authors
Mark McGrath is the Founder of Chaos and Oceans, Ltd, a consultancy, that trains and advises leaders and teams how to improve their capacity for free and independent action. His primary emphasis is in the areas of strategy, decision-making, the application of free market economic theory to business and entrepreneurship.
He served as an officer in the United States Marine Corps and spent almost twenty years in asset management. He earned his Bachelors in History at Marquette University and his Masters in Economics from the University of Detroit Mercy.
Hunter Hastings is a member of the “Economics for Business” program team at the Mises Institute, a business education program that combines advanced economics research and business management for the digital era. His professional track is global brand management, which he has practiced at CMO, CEO and Board levels.