The Importance of Organizational Agility
Organizational agility is key to survival in the modern competitive market.
- Jul 22, 2019
- 10 min read
Competition between companies tends to work in favor of customers and clients. To help in a healthy competition, companies adopt either of the three types of agility: strategic, portfolio, or operational.
Organizational agility is the capability of a company to be fully aware of its environment, and to be swift at identifying and seizing opportunities. In turbulent markets, speed and efficiency is of utmost importance to do better than rivals, therefore making organizational agility invaluable. Not only is this type of agility critical to the success of a business, it is also growing in importance with the passage of time. Survey respondents have reported that improved agility results in greater customer satisfaction, satisfied employees, higher earnings, faster advertising, and enhanced operational efficiency.
Companies have emphasized on the significance of agility when it comes to succeeding in turbulent markets. Portfolio, operational, and organizational agility are the three different types. Sometimes one area of a business is more profitable than the other; in such cases, it is useful to shift resources and focus on the profitable area. The ability to move resources such as managerial attention, skills, and cash refers to portfolio agility. Operational agility, as mentioned above, refers to the ability to seize and exploit opportunities for operations and process improvement. Strategic agility is the ability of an organization to take advantage of innovations and technological advancement.
Companies are usually inclined towards a single type of agility. For example, airline companies focus on capturing operational opportunities, whereas private-equity groups tend to excel at the allocation and re-allocation of resources. However, overdependence on a single form can prove harmful for a business in a turbulent market. A company that focuses on seizing opportunities might face grave risk if the core of its business does not attract customers anymore.
Traffic, seismic activity, and weather patterns follow an inverse power law that refers to the inverse relationship between an event’s frequency and magnitude. With reference to turbulence markets, the inverse power law results in a constant flow of opportunities to companies. Many opportunities are small, some are mid-sized, and once in a blue moon, there is a massive opportunity that companies can greatly benefit from. Such rare opportunities include transformational mergers, emerging markets, major acquisitions, and launch of an innovative product.
Golden opportunities are unevenly distributed and have an unpredictable nature which is why companies must combine the right amount of patience and courage if they aim to capture a large market and make massive profits. Recognizing this perfect combination of patience and courage is quite easy in hindsight, but accomplishing it in the heat of the moment is quite a daunting task. There are three principles that can be deduced from observing organizations that have implemented strategic agility.
Delving into opportunities
Recent decades have witnessed massive success of companies that demonstrated excellent strategic agility. Some examples include European banks of the 1980s that are now highly valuable banks of the world. They did not get to their current position by sitting idle and accepting the status quo; they made it possible by seizing the opportunity to build a powerful presence in the market when there was an economic crisis and other banks were going out of business.
By carrying out small-scale probes, such companies were exposed to potential opportunities. In 1980s, these European companies looked into other markets within their region, as well as other regions around the world including USA and Latin America. They invested in minority stakes, alliances, and small acquisitions. Some investments paid off and some did not – that is just the way of business. However, these investments did bring about several opportunities that the banks greatly capitalized on to get to the position they are at today.
Keeping the current environment in view, most organizations require funds for supporting their balance sheets. Participation in joint ventures and minority stakes are useful investments that help companies gain information about future opportunities.
There is some degree of risk involved in all situations but there is also always a way to manage it. Companies can analyze potential acquisitions, and gain the benefits of energy, raw materials, and cheap labor to boost profitability in the long run. Price is not the only aspect – companies should also negotiate on other aspects so as to identify and minimize or eliminate potential risks.
Keep on playing
In cases where it’s not possible to get ahead, it is extremely important to stay in the game until an opportunity presents itself. For some managers, staying in business is equivalent to a strong balance sheet. However, cash is only one of the various attributes that helps a company stay strong. Cash flow diversification, customer retention, low fixed costs, and unique resources such as hard assets and brands that customers demand are some other attributes that help a business stay in the market.
Cash is sparse in the current environment and this requires senior management to create a plan of action. Lobbying and making an effort to minimize fixed costs are some actions that companies can take so as to stay in the market.
An organization is prone to facing several risks when reallocating resources into more promising areas or projects. In large companies, the process of shifting resources normally starts from the employees who spot opportunities and ends with senior management that puts the approval stamp on. However, in cases where this process starts with senior executives, there are often hindrances because middle management is hesitant to stop a project as it has the potential to affect their livelihood as well as their subordinates’.
Portfolio agility can also prove useless in cases where managers apply the same set of objectives to all opportunities, such as time to break even or a fixed percentage of gross margin. In some situations where senior executives are reluctant to delegate power and authority to others, many potential managers are deprived of leadership positions – this itself is a hindrance to progress and development. Progress comes with helping others utilize their skill set and move forward for the betterment of the organization as a whole.
Many businesses believe that the evaluation of its units is the way to make sure they are implementing portfolio agility. On the contrary, portfolio agility calls for managers to be logical and use available data to take decisions, and then be bold enough to take action.
Proper use of portfolio agility requires not just the reallocation of cash, but also of people. This is possible by allowing existing managers to become more skilled, knowledgeable and versatile so that they can apply their skills across a variety of areas. Investing in managers by handing them profit and loss responsibilities is a great way of developing them, and this enables such managers to use their skills in different opportunities.
Companies tend to spread their resources equally during a boom. One would think it only fair to do the same during a downturn. However, the wise step is to spread loss unevenly, and withdraw investment from less profitable areas so it can be employed in a more promising area.
Operational agility is a company’s ability to capitalize on opportunities to cut down on costs as well as those that enhance revenue. The future is unpredictable and there is no way of knowing what form these opportunities will take. Nonetheless, companies can improve their odds against rivals by putting such systems in place that collect relevant information for identifying opportunities, and then developing processes to exploit those opportunities.
Identifying opportunities by collecting relevant data
Established businesses, such as large clothing retailers, have a built-in system that collects real-time data from the market which helps them identify opportunities and also know which designs are no more in demand.
The example of large clothing retailers will be further used to explain this concept. The design teams of such businesses analyze inventory and sales reports daily to see what is in demand and what is not. This information helps keep them up to date with current market trends. The orders placed by store managers further provide information on products with a potential to sell. Regular field visits supplement these reports by collecting firsthand information that otherwise might be missed.
In recent times, organizations have increased their frequency of operational and strategic reviews so as to gain a better understanding of the wider market. This is an important practice that must be kept up. Businesses should actively participate in collecting data, supplementing it with direct field observations, and then circulating all that information throughout their organization.
Making the organization’s objectives your own
Where many executives are working together, it is but normal to face challenges because everyone has a different point of view. One example of such a challenge is when senior executives flood a company with conflicting objectives.
Conflicting priorities can be easily avoided if companies limit their number of objectives in any given year. Senior management must communicate these limited objectives clearly to middle management so that they focus all resources and efforts on those. It is equally important that the organization’s and its employees’ objectives are in line with each other. Collaboration is the key to success.
Colored tags are a useful method of checking the progress on each priority. Also, having an objective makes it easier to focus and work diligently towards it. To ensure the alignment of company and individual objectives, CEOs can invest some time in performance reviews which will help them identify any inconsistencies and acknowledge efforts to further motivate employees.
An economic decline puts forward complications and difficult choices to a company. Keeping current market in consideration, it is often worthwhile to make a list of top priorities and initiatives. All priorities are important to an organization but to compete wisely, it must only pick and work on those that are really critical. In addition to collaboration, communication is also pivotal to achieving objectives. If employees are not aware of what a company is working towards, they cannot play their part profitably. An organization’s priorities must be communicated to all its employees so they are clear about what to work for. Moreover, they should also be made aware of those initiatives that are not on the list of objectives anymore. This is important to prevent the wastage of time, energy, and other resources.
Although an economic crisis brings along many problems and losses, it also presents opportunities that calm and focused individuals can spot. There is a real opportunity for invigorating cultural transformation in a time of economic crisis. Such a situation is the time to put one’s skills to use and overcome the hesitance to accept change.
In the past, managers were considered as ship captains who had the ability to look into the distant future, set long term goals, and proceed steadily. However, that idea is of the past and today’s world demands managers to look and walk through a foggy tomorrow. To deal with this obscurity and unpredictability, organizations need to adopt strategic, operational, and portfolio agility. That is the only way to success.