The Path Towards Organizational Agility
In a dynamic business world, companies with static strategies are destined to failure. The concept of ‘organizational agility’ is essential in building a competitive business. What is a strategically agile company and how is it managed?
A survey carried out by The Economist revealed that 90 per cent of executives surveyed declared that organizational agility plays a critical role in a company’s success. Agile companies answer more quickly to market needs and are better at innovating, and consequently improve their ability to adapt to complex business environments.
Three types of agility
Don Sull, professor at London Business School and one of the first to do research on this concept, points that organizations require three types of agility: strategic agility, portfolio agility and operational agility.
Strategic agility. In turbulent contexts, companies are usually presented with different types of opportunities –while every day we find small-scale opportunities for improvement, great opportunities are not so frequent but add enormous differential value to companies that are able to detect and grasp the opportunity.
As a matter of fact, the strategic agility is the ability to detect and quantify those golden opportunities that could become real game changers. This requires implementing systems that help closely monitor the business environment and allow for the prompt formulation and execution of the strategy.
Portfolio agility. In most large organizations, the model of resources allocation is usually strongly established as a bottom-up process: employees detect the opportunities, middle management supports the most promising projects and the senior management approves those proposals that come from the most reliable collaborators.
Under this model, processes are generally slower and the incentives generated are counterproductive –it is hard to think of a middle manager recommending that a project be killed since it could damage his or her reputation or even risk other people’s jobs.
Portfolio agility is precisely the ability to quickly mobilize resources (money, talent and management focus) from the less attractive business areas to the most attractive ones.
Operational agility. It refers to the organization’s ability to seize the opportunities that appear inside the established business model, more effectively and quickly than its competitors. In order to do this, decisions need to be taken at the lowest possible level, by the right people and with adequate information and tools.
Each company is unique, and there are no general recipes that can be applied to every company in the same way. However, there are some practices that can help us think how agility works in different types of companies.
At Tandem, we have developed a model of Organization Efficiency that helps diagnose the situation of each company, and identify its main leverage points that could contribute to gaining more agility.
As a general overview, here are five specific practices a company can put into action:
- Having a clear understanding of the key decisions that add differential value. The first step is to establish a dialogue between the key members of the organization to determine which decisions are of utmost importance and will provide a competitive advantage when taken in an agile and reliable way.
- Optimizing tasks and meetings in critical processes. When a process is tiresome, decisions are delayed and meetings last longer than necessary. Companies with clear and efficient processes gain speed of action and improve their work environment. This does not mean oversimplifying processes, but getting to a point where they are bureaucracy-free but still analytically robust.
- Assigning clear roles to the people involved. It is important to eliminate grey areas and overlapping roles, to avoid quarrels as to who ‘owns’ a specific decision and who has the right to veto it. When responsibilities are clearly assigned, decision-making processes tend to be more agile.
- Revising decision-making styles. Every organization has its own decision-making culture. In some cases, it is the result of past doings that need to be revised and eventually adapted. In some companies, for example, it is customary to make decisions by consensus where everyone has to be in agreement before making a decision. Needless to say, this results in much slower reaction times.
- Having agile planning systems. Strategic planning processes are usually more oriented towards releasing resources and controlling results than towards strategic decision-making. Implementing an agile planning system serves to monitor the business uncertainties and be on the lookout for opportunities in order to be able to seize them. For the most successful companies, strategy is a dynamic practice. They do not settle with having an annual planning where they set the goals so that they can later devote most of the time to explaining why they failed to achieve them.
By putting these five organizational skills to work together, a company will be able to find adequate balance between reliable, properly made and effective decisions, and a more agile decision-making process that speeds results up.
An agile company is strategically more effective and better prepared to adapt itself to changes in the environment. Even more, it is a less bureaucratic organization, with more dynamic meetings and less frustrating for the teams involved. Companies that become ‘heavier’ as they grow, lose their potential down the road. And in an ever-changing and increasingly complex world, this usually leads to failure.
In a business environment where windows of opportunity open and close in no time, developing agile decision-making processes becomes a must for creating sustainable competitive advantages.
Partner at Tandem.