NET RESULTS: New theory proclaims the adaptive company as the most likely to succeed, writes Karlin Lillington

Here's a theory that no one in the business world really wants to hear right now: the topsy-turvy volatility of recent years may not be a phase but a marker of a permanently transformed business ecosystem.

Thus, vertiginous stock markets, company restructurings, political upheaval, consolidations, expansions, and a range of other internet-speed transformations are now the norm.

"What we're saying is that change is so frequent that it's actually permanent volatility," says Mr James Rankin, a vice-president in Cap Gemini Ernst & Young's (CGEY) projects and consulting business. If so, what is a poor company to do?

"Successful species are those which adapt to an ecosystem," says Mr Andy Mulholland, CGEY chief technology officer. In the business world, those species are what CGEY is calling "adaptive companies". The notion is at the centre of a new line of corporate theorising by the big consultancy, which believes adaptive companies are those that will also reshape the future of business.

Of course, the big consultancies like to put forth Big Ideas every now and then - indeed, their bread and butter depends on their ability to identify and define both major and subtle shifts in the business landscape and then advise companies around them.

In this particular case, however, CGEY may be onto something. There's no denying the volatility - a condition they believe is closely linked to the arrival of the internet as a business medium. While pundits were stating back in the mid-1990s that the Net would utterly alter the way businesses do businesses, "I think it's only now we are beginning to understand how and why," says Mr Mulholland.

Ask him to define that shift, and he offers one word: "agility". In the past, companies were considered stable and productive when they had lots of structure - carefully-determined ways of operating, making decisions, planning strategy. Now, he says, structure may well be a liability and lead to instability.

He points to the difference in corporate reaction by British Airways and Ryanair in the wake of September 11th. BA, he says, went ahead with announcing previously planned fare increases just days after the event while Ryanair, by contrast, cut fares. BA, despite later fare-slashing, suffered an enormous drop in passenger traffic, while Ryanair had a surge in passenger numbers.

"A company which is dictated by structure had to carry on as before. A company not dictated by structure could change," says Mr Mulholland. Ryanair thus fits the CGEY bill as an adaptive company because it responded quickly to a crisis and predicted accurately what consumers would demand - a financial incentive to get back in a plane.

The business environment is now driven by sequences of unexpected "events" to which companies must respond, they say. An event is any unexpected challenge to the way a company is doing business, and produces a situation where "companies have to respond rather than create", says Mr Mulholland. "The outside world is more important than the inside world of the company."

To put the idea another way, Mr Rankin notes that a corporate mantra for several years now has been to achieve a respectable ROI - return on investment - for investments in IT. But that idea focuses too much on the inside world of the company, rather than the outside world of events.

This might all seem rather self-serving for a consultancy ready to advise on technology purchases - aren't they moving towards the inevitable conclusion that companies should spend more, on different technology?

Not at all, according to Mr Rankin. Companies often have lots of useful technology, but it can be uselessly concentrated in "stove-pipes" that don't give management a full view of the organisation and its operations. That produces lots of stiff structure that impedes agile responsiveness.

Get rid of the stove-pipes, connect divergent systems and processes to get joined-up IT, and a company has the ability to become reactive. Then, big companies can respond as if they are small companies - a hallmark of an adaptive company, says Mr Rankin.

Ikea is a company that has proven that despite its size, it can be agile, says Mr Mulholland. "They don't do ROI anymore. They don't do things that are internal, around costs. Instead, they do things around the market, what the market is asking for. And look at their success."

Other "classic examples" of adaptive companies include firms such as Wal-Mart, Microsoft, and Dell Computer, all known for business agility. CGEY's list of emerging adaptive examples holds some surprises - in with CapitalOne and airline network Star Alliance are the British Ministry of Defense and the US Marines.

CGEY believes that three major technological developments will help companies become more adaptive - intelligent software "agents" that can dynamically manage business events; pervasive mobile computing; and technology infrastructure that is itself designed to support adaptive responses - web services, for example, or event-driven processes - rather than form a passive IT structure for the company.

But it all boils down to a relatively simple piece of advice. "What people should understand is they need to think about working in new ways," says Mr Mulholland. Easy to say, but much harder to implement, especially in a volatile business world.