Authors: Jeff Shuman and Jan Twombly
A Business Week cover story makes the observation that “Suddenly, running GE is a whole new ball game.” Of course they’re right. But let’s be honest, in our increasingly interconnected, customer-centric global economy, successfully running GE, or for that matter, any company, is a whole new ball game. And it’s a game with new rules and new players. But most importantly, to win in this new game of business you have to be agile.
But what is meant by agility and how do you create an agile business?
Although Webster’s Dictionary defines agility as “marked by the ready ability to move with quick easy grace,” current business use modifies the definition in a subtle but very important way. As it is commonly used, agility is viewed as the ability to quickly respond to changed conditions. Which makes sense since change is, in and of itself, reactionary in nature. You respond to new or different but nevertheless changed circumstances. Consequently, change is a surprise and no matter how much one learns to tolerate it, because it is unexpected, change causes stress on the individuals involved and on the company. With this understanding of change we can see why the language used in business makes agility an internal ability driven by external events. The idea is that the company needs the agility to adapt to change as quickly and as seamlessly as possible. However, we must also point out that because of the surprise and the stress aspects of change, it is viewed as a frequent but unwelcome guest.
Unfortunately, this reaction and negative attitude toward change does not help to reduce business risk. Businesses need to be proactive not reactive. They need to be anticipatory not reactionary. They need to view change positively not negatively.
In today’s business environment managers must cope with a set of factors that make business riskier than ever. Disruptive technologies, low-cost global competition, and formidable competitors like Dell, Wal-Mart, or Amazon can enter new markets and wipe out incumbents nearly overnight. Few customers have loyalty to any one company and happily switch affiliations when presented with a better experience.
Indeed, the very fact that customers are increasingly served by a network of partners, not a single entity, presents a whole new set of risks. Companies risk losing essential skills or expertise to their partners.
Proprietary know-how is more valuable than ever, yet it is harder to protect and even harder to determine its useful life. And failure by one party can have a domino effect on the other parties’ reputations in the customers’ eyes.
These are risks that can’t be hedged with financial instruments. Instead, they require agile strategies that manage the downside while positioning the company to reap the benefits from the opportunities it pursues. This proactive approach to risk management requires knowledge, insight, access, and trust that only come through relationships. Thus, agility is not an externally driven ability. It is an internal condition rooted in the company’s ability to put in place at any one time the right relationships to create the monetary and non-monetary currencies that provide the sources of value needed to produce desired financial outcomes.
Agile businesses have rhythm. They sense order within chaos, make decisions, and take action with quick, easy grace. They balance risk and reward. They’re process driven organizations that get the right information to the right person at the right time to deliver true business value. They are leaders in innovation.
Agile businesses view their businesses as a set of core business processes supported by an information infrastructure – the information flows and enabling technologies – that permit them to get the right information to the right person at the right time to make informed decisions and deploy resources appropriately. Unlike a traditional hierarchical and siloed model, this more dynamic model requires the agility – speed, nimbleness, and grace – to assemble and reassemble resources as required to take advantage of opportunities and mitigate risks.
As part of the transformation taking place in business, companies are working to integrate their core business processes with strategic partners, rather than build world-class operations in-house. This increased use of partnerships not only causes a shift from a high fixed cost structure to a more variable cost infrastructure, it also increases inherent agility. As a result, agile companies are better able to profitably execute against their strategies and capabilities since they are organized as a set of core processes designed to validate critical assumptions about how to satisfy customers and the optimal business model for doing so profitably. For every iteration of core processes, there is a unique infrastructure and resource requirement to operationalize them.
Achieving and maintaining success in today’s business environment requires that you put into place a process that allows your business to incorporate agility into the very fabric of your company. Every successful company must continually satisfy its customers’ evolving needs and wants, and to do that requires every company to iterate. Webster’s defines iteration as “… a procedure in which repetition of a sequence of operations yields results successively closer to a desired result.” And that’s exactly what your company must do. Iterating your business model, core processes, and relationships is the underlying process through which successful businesses are built as a result of moving closer and closer, iteration after iteration, to profitably satisfying your customers’ needs and wants. And to iterate successfully your business must be agile, that is, it must “move with quick easy grace.”
What is the iterative process? Most simply, it can be thought of as a “honing-in” process. The intent of every iteration of your e business model, core processes, and relationships must be to allow your company to get progressively closer to profitably satisfying your customers’ evolving needs and wants. For example, when you put your business model into practice, you have assumed that customers are going to buy your product or service as you have structured it. However, when you interact with your paying customers, you quickly find out how many of your assumptions are right, how many are wrong, and how many are partially right and partially wrong.
In other words, interacting with your paying customers provides you with information and when you compare that information against your assumptions, you realize your business needs to iterate. Wherever your assumptions are not valid or only partially valid, you revise your assumptions and iterate your business model. Then you repeat this process again and again and again. But, as valuable as the skill of iteration is to achieving business success, unless your company has the agility to iterate in real-time where needed, it will not succeed.
Make no mistake about it. To be successful in today’s real-time business environment companies must be agile. But being agile isn’t the end game. You must use your agility in support of iteration. That is, only an agile enterprise can iterate its business model, core processes, and important relationships by quickly collecting, absorbing, and transforming information into new models, processes, and relationships closer to the needs and wants of its ever-evolving customers.