Developing Business Agility
Business leaders often use agility to describe their business plans and strategic initiatives, but it’s often little more than just a vision. Agility is something that requires planning and a full incorporation in business and management processes. It’s a philosophy and action. And, most of all, it requires courage and commitment. But what does agility really means to business, and how does it help achieve higher levels of efficiency and success?
Innovation once took years to result in new technologies and marketable products. The use of radio waves to detect metallic objects and enable long-distance communications was first theorized in 1904. Three decades later, the theory resulted in the first practical application of radio detection finding. By the beginning of World War II, the United States, United Kingdom, France and Germany had their own versions of radio detection and ranging – what we now call “radar.” Radar opened the door for the accidental discovery of using microwaves for cooking and, in 1947 the first microwave oven was installed in a Boston restaurant.
Contrast the evolution of the microwave oven with Google. The Internet juggernaut didn’t invent search technology, but did see the need for a better means for organizing and finding Web-based information. Founders Larry Page and Sergey Brin initially took their concept to Yahoo founder Jerry Yang, then the master of the nascent Internet, offering him a way to provide a better search service to his millions of users. Yang was impressed by the idea, but didn’t see the practical application. He told the Google boys to prove themselves independently; the idea that Yahoo would simply buy Google if it showed signs of commercial success. We all know how that story played out.
Constant change is the new dynamic of the global economy, and makes agility even more necessary than at any point in business history. Consider the following:
Only 74 of the original 500 companies in the S&P Index were still on the list 40 years later – a mortality rate of more than 10 per year. The average life span of an S&P 500 company has steadily decreased from more than 50 years to fewer than 25. Projecting forward, it’s likely that only about one-third of today’s major corporations will survive as significant businesses for the next quarter century.
Given such high stakes, it is not surprising such terms like agility, resilience, adaptability and innovation reverberate off the walls in corporate boardrooms and executive suites. Most people acknowledge that agility is the key to capitalizing on innovation and achieving success in the fast-paced and rapidly evolving marketplace. However, there’s no common definition for what agility means in practical terms. Some try to define agility in terms from the cold constructs of X percent revenue performance over the market or competitive set to the abstract of “never having to say you’re sorry.”
Agility probably has as many definitions as means for implementation. For purposes of our discussion, we define agility as the ability to see and seize opportunities in the marketplace. Resilience is the flip side of the same coin: the ability to react to unexpected changes. Agility is proactive and has a positive connotation. Resilience is reactive and has a negative connotation. The distinction is important. The evidence of agility and resilience is an organization’s survival, perseverance and, ultimately, success. It has the ability to move quickly to introduce new products, revamp business processes and create new business models. And it has the resilience to bounce back when unexpected threats take their hit.
Companies don’t survive unless they’re agile and innovative. Even multibillion-dollar powerhouses must recognize when a shift in their original knitting needs to evolve in order to adopt new technologies, products and businesses as the market changes to ensure continued growth. Agility is the catalyst. Survival is enabled. Success is the result.
Agile companies have what athletes and soldiers call “situational awareness.” They put themselves both in a position to observe what’s happening and have the wherewithal to act upon intelligence. Agile companies establish formal relationships outside of their walls with customers, partners, suppliers and the public. These relationships are their antennae on the world, sensors of change, either opportunistic or threatening. Internally, they tap the minds of their employees in ways other companies do not and use technology to track what is going on in near real-time.
Customers are the ultimate reality check. No company today would say that its customers were not its top priority. The reality is that most companies ignore their customers. The best example of that willful ignorance is the U.S. airline industry. Challenged by security requirements, rising fuel, equipment and labor costs, most of the major U.S. airlines have cut back on amenities and features while increasing fares and levying fees for everything from preferred coach seating to blankets and checked bags. Needless to say, passengers aren’t thrilled with these charges or the declining level of service.
Customer satisfaction ratings with the U.S. airlines have steadily declined since 2001.
While nearly all airlines are struggling, those that have paid attention to customer satisfaction and improvised ways of compensating for cutbacks are capitalizing the pain of their peers and attracting disenfranchised customers. Southwest Airlines, a company known for basic amenities but attention to customer service, outpaces the rest of the industry by a wide margin – 79 points on the American Customer Satisfaction Index; the industry average is 62 points in 2008.
Agile companies turn customer dissatisfaction into a competitive advantage. And smart companies are using new and innovative methods and tools to measure customer affinity and satisfaction. FedEx, for example, launched a Web-based tool that allows customers – both senders and receivers – to track in real time the progress of package delivery in its system. Netflix, the Web-based movie rental company, and Amazon, the world’s largest online bookseller, both use user complex algorithms to determine customers’ preferences, community recommendations and user interaction with the Web site to predict movie interests and make recommendations.
The public is increasingly a source for inspiration and agility. In traditional product and marketing models, companies would assemble focus groups in their target marketplace to determine if they had the right look, features and messaging to sell the product. In today’s Web-based economy, companies are leveraging Web 2.0 applications and social networking tools—such as Linked In, Facebook and MySpace—to solicit consumer feedback and input during the design and marketing phases.
Savvy companies are even using social networks and the general community to solve some of their most perplexing problems during product design and development. Others are using open forums, such as TechTarget’s Information Knowledge Exchange and the Linked In professional community, to pose questions to peers to solve immediate tactical and operational problems.
Employees often are the best source for intelligence that leads to innovation and agility. Google, for instance, encourages its employees to explore new ideas by providing them time and funding for side projects. Unfortunately, most organizations are structured and have cultures that discourage employees from contributing from the bottom up. In the Information Age, when more and more employees are knowledge workers and are better educated than ever, this is a waste. Employees are closest to the customer and know intimately the strengths and weaknesses of business processes. Moreover, today’s employees are networked with peers in other companies as never before. It is a reality at many firms today that their most important resource walks out of the door every weekday at 5 p.m.
Agility, then, begins with awareness. What are competitors up to? How is the market changing? What new technologies are coming along? Most importantly, what are customers thinking? What do they need?
Success requires innovation in services and products. It also requires the continuous improvement of business processes within and across firm boundaries. These two mandates are mirror images. Innovation of services and products cannot occur without well-defined and aligned processes; nor can business processes be improved without attention to changes in customer needs.
Agility is a new paradigm for the production and distribution of services and products. It achieves economies of scope rather than economies of scale. To be agile, firms must serve ever-smaller niche markets and individual customers without the high cost of customization. Being agile requires the ability to sense-and-respond, and those capabilities are shaped by designing and managing business processes and technology enablers together. Enterprisers have three requirements for achieving agility.
Sense-and-respond capability. To respond to changes in their environment, firms must facilitate learning from various processes. This learning must operate at different levels and within different areas of the firm and should be based on recurrent sense-and-respond cycles. Business technology can facilitate these learning processes by supporting the collection, distribution, analysis and interpretation of data associated with business processes; and generating response alternatives, decisions on appropriate courses of action, and orchestrating selected responses.
Improvement and innovation emphasis. Business agility combines improvement and innovation responses. Opportunistic firms emphasize improvements, but often fail to foster innovations. They follow best practices, listen to the customer, and are good at improving current capabilities. Innovative firms, by contrast, are focused on innovating processes through new technologies, services and strategies. They generate “next” practices, but have a limited focus on fine-tuning current operations. Fragile firms lack both the ability to identify and explore opportunities, as well as the ability to innovate. When market pressures are high and the environment is turbulent, the ideal is an agile firm that combines improvement and innovation initiatives to constantly reposition itself. Agile firms are able to improve existing practices and innovates new ones.
Distributed and coordinated authority. Agile firms must adopt radically different forms of governance and translate their mission and objectives into information that can easily be interpreted by constituents. These firms must replace traditional command and control approaches with mechanisms that facilitate coordination within and across locales. These mechanisms must provide individuals, groups and units with the autonomy to improvise and act on local knowledge, while orchestrating coherent behaviour across the firm. Processes—the assignment of task and responsibilities—must be supplemented with personal accountability.
Regardless of where one begins the journey toward agility, a converged management of business and technology often plays a critical role in establishing the strategic position required to adjust or change, based on unforeseen market circumstances. Agile organizations have the processes and structures that indicate what is going on both internally and externally, as well as the mechanisms established to act quickly on that knowledge, as needed. Such actions incorporate agility as part of an organization’s DNA.
Faisal Hoque is an internationally known entrepreneur and author, and the founder and CEO of BTM Corporation (www.btmcorporation.com). His previous books include Sustained Innovation and Winning the 3-Legged Race. BTM innovates business models and enhances financial performance by converging business and technology with its products and intellectual property. © 2009 Faisal Hoque | firstname.lastname@example.org