How to incorporate strategic agility in your business
04 June 2018
By Loizos Heracleous and Christiane Prange
In today’s increasingly complex world, it has become ever more challenging for firms to achieve a sustainable competitive advantage. For instance, the 'topple rate' at which big companies lose their leadership positions has more than doubled, suggesting that 'winners' have increasingly precarious positions.
Product vitality rates, which measure the percentage of revenues coming from new products introduced over the previous three to five years, are going up, suggesting higher dynamism and industry change.
Finally, the average lifespan of public companies in the US has decreased from around 55 years in 1965 to 32 years in 2015; and there is currently a one in three chance that a public company will perish within a five-year period.
To survive under these conditions, companies need to react quickly to rapidly changing circumstances and accelerate activities on critical paths. They have to utilise highly dynamic procedures and processes in their operations to the extent that they invent themselves anew in some cases. In short, companies need to become more agile.
In a management world that has long held the belief that strategic planning in its different forms can anticipate future developments and make them more predictable and manageable, the very essence of how we deal with complexity and uncertainty has changed.
In times where actions and consequences are increasingly disconnected and unpredictable, people strive for solutions and tools for dealing with uncertainty. That’s why agility is so en vogue, seen as a capability that can help organisations deal with uncertainty; not necessarily by planning, but by nimbly adapting as needed. But is agility just a management fashion like many others?
Over the last few decades, we have seen wave after wave of management fashions, including total quality management, business process engineering, management by objectives, management by walking about, balanced scorecards, organisational learning, knowledge management, and the like. While these concepts have generated a lot of buzz in the business world, some were genuinely helpful, several were short-lived, and some were even discredited.
Management fashions are cyclical phenomena triggered by both endogenous and exogenous forces. Such triggers are likely to have been in place for the emergence of agility in management. Numerous new competitors have turned up on the global landscape, such as emerging market firms that have challenged the dominant players, as well as small niche market companies that have entered the market with accelerated speed.
New industry definitions require cross-boundary knowledge, for instance, in optoelectronics or multimedia, that are fertile grounds for agile processes. Endogenous triggers may have also spurred the emergence of agility in management.
Work priorities are changing. Companies are transforming employment contracts towards more fluidity. Project-based temporary work often substitutes for a life-long company affiliation.
Hierarchies are seen as less important than entire talent pools – both inside and outside of the company. Companies have to reinvent themselves or their focus more often, moving away from the notions of structures, to focusing on processes, communication, and cross-boundary collaboration.
What is Agile Thinking?
The concept of 'agile' can be traced back to several roots in sociology, educational theory, and manufacturing, but it began to gain attention in management through agile methods in software development, which date back to 2001 when several developers thought about new ways of software engineering.
Agile was seen as a set of values and principles, guided by self-directed, low-risk, and adaptable step-by-step development for the delivery of IT projects. Instead of suffering from time-consuming, inflexible, highly complex and inefficient procedures, agile methods (such as Scrum or extreme programming) provide more flexibility to adapt to changes over time. An agile approach is different from traditional processes, such as the 'waterfall approach', which follows a step-wise linear planning sequence.
The Agile Manifesto of 2001 suggests the following four principles:
- individuals and interactions over processes and tools
- working software over comprehensive documentation
- customer collaboration over contract negotiation
- responding to change over following a plan.
Still, despite the popularity of agility, there is no precise or commonly accepted understanding of the term. Researchers talk about agility as the ability of organisations to offer fast and effective responses to unexpected variations in market demands. Others mention that agility resembles adaptability and flexibility.
What all these definitions have in common is that something out there is so complex that firms need to be able to break free from their daily routines and inertia and incorporate ongoing change into their operations.
In order to increase its agility, a company should orchestrate a variety of options, reflect on them, and act on an ongoing basis rather than allowing inertia and sunk costs to define its trajectory. From this perspective agility is also the freedom and the capability to “act otherwise".
Since having different organisational configurations and capabilities from competitors is key to sustainable advantage, agility is of strategic importance.
Strategy consulting firm Bain and Company notes that “agile isn’t just one more approach to creative thinking or iterative prototyping. Rather, it’s a well-developed holistic system engineered to overcome more than a dozen common barriers to successful innovation”.
While it might seem at first sight to be simply a management fashion, agility has become influential precisely because it is able to facilitate not just innovation but also shape a variety of other organisational functions and even entire organisations.
The next step - what is Agility.X?
Agile has become far more than a management buzzword: It offers change and project methodologies; it challenges hierarchies and empowers individuals and teams; it puts customers' centre-stage and fosters ongoing collaboration; it uses methodologies such as design thinking, Scrum, or Kanban.
From its origins in software development, agile has become a corporate-wide approach for transforming businesses.
When the term first appeared in management, the focus was more on process improvements, speed, and adaptability. Agility was considered as more is better.
In recent years, with the integration of leadership and soft scale organisation change issues into strategising, and the increasing insight that complexity requires different tools and methodologies from those used in the past, a revised understanding of agility has emerged.
Rather than running after competitors, striving to always be first, and reacting to the hectic nature of daily business life, companies have now discovered what we call Agility.X, which incorporates the notions of less is better as well as different is better.
For instance, a company may decide to preserve some of its traditional values as well as change some others. It may decide to preserve its product but change its processes.
If such decisions are based on robust strategic thinking, they can reflect a high degree of agility. That is, a timely, effective, and sustainable response on an ongoing basis, that is not necessarily based on speed and radical transformation.
Further, truly agile companies are different from the masses of competitors, benefiting from the strategy insight that sustainable advantage comes not from imitation but from having unique organisational configurations or offerings.
As traditional, linear planning and decision-making tools are no longer enough, the ability to engage with and develop this type of flexible decision-making and adjustment capability is vital. It involves a higher degree of experimentation, playfulness, and tolerance for ambiguity.
Eventually, agility prepares executives for managing under uncertainty. Agile thinking helps to negotiate at least three tensions whose reconciliation is important for succeeding in volatile environments:
- Both individuals and organisations: Individual agility depends on organisational contingencies and vice versa. Agility requires motivated, engaged employees, together with leaders who can motivate and train the workforce in order to master timely knowledge and skills. At the same time, corporate development, design, and identity shape whether an organisation can engage with the transformation towards becoming more agile.
- Both method and setting: As agility is predominantly a process concept such as learning or knowledge management, it is potentially open for application in different settings (for example industries, types of companies, and functional areas). While agile methods are in theory applicable to various settings however, the predominant conditions in those settings may be consistent with or hostile to agile thinking. Both method and setting dimensions need to be evaluated and aligned to effectively implement agility.
- Both stability and change: While an important element of agility consists of accelerated action to benefit from first-mover advantages where relevant and to stay ahead of the competition, the concept is much broader. Agility requires companies to identify and to reflect on the degree of the desired and appropriate change. This could involve organisations maintaining a stable identity, or honoring continuity in the types of products and services that they offer. McKinsey, for example, has defined agility as a combination of “dynamic capability” together with “stable backbone” and found that only 12 per cent of organisations in their sample combined speed and stability.
This is an exclusive extract from Agility.X - How organizations thrive in unpredictable times edited by Loizos Heracleous and Christiane Prange and published by Cambridge University Press.
Loizos Heracleous, Professor of Strategy, lectures on Strategic Management on the DBA and Strategy and Practice on the Executive MBA and Executive MBA (London). He also teaches Strategy in Practice on the MSc Marketing & Strategy.
Follow Loizos Heracleous on Twitter @Strategizing.
Christiane Prange is Professor of Strategy at Tongji University, School of Economics and Management.
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