Estimated reading time: 10 minute(s)
Agility may be the single most important attribute for businesses that want to thrive in a changing and unpredictable world. We examine the case for agility, why so many businesses struggle to become agile, and the implications for business leaders.
The case for business agility: A VUCA World
In 2020 COVID-19 has caused unprecedented disruption to the world’s economy. Many businesses have been lost to the immediate economic shock while others may struggle to come to terms with the longer-term implications of the coronavirus.
The businesses that prove to be the most resilient in this environment will be those that can adapt most quickly and efficiently to new business conditions. In other words, those that respond with agility.
This year’s crisis is unprecedented. Not only has coronavirus cranked up levels of volatility, uncertainty, complexity and ambiguity (VUCA), but its impact is truly global. However, if you find yourself longing for ‘normal’ times, just ask yourself when the world was last normal. Was it before the global financial crisis of 2007-8? Before 9/11? Earlier?
Economic volatility is becoming the norm
In 2018 Oliver Wyman and the IESE Business school predicted that we were entering an ongoing phase of economic volatility. They pointed out that the world’s most devastating financial crises; in 1772, 1929, 1973, 1997, and 2007; have become increasingly frequent. We can now add 2020 to that list, which means that as many of these events have occurred in the last twenty three years as in the two centuries before that.
Climate change and technological innovation go hand in hand
Of course, it would be wrong to focus narrowly on economic crises or a pandemic (however awful) as markers of volatility. We’re in the midst of a global climate crisis and that alone has and will account for huge amounts of disruption and indeed innovation. Necessity is the mother of invention, but the rate of change has taken many industries, such as automotive, by surprise. Characterised by relatively little change in the last century, the motor car industry is being turned upside-down. Not only are electrical, autonomous and connected technologies fundamentally changing the vehicles we drive, but ownership and business models too.
Technological or business model innovation and the failure of household names such as Kodak, Blockbuster and Blackberry to anticipate or respond to it, stands as a warning that firms must adapt or die and automotive is an example of an industry where climate change is driving technological change and established brands are scrambling to meet the challenge of Tesla and other upstarts.
How much of a competitive advantage is business agility?
PA Consulting’s research suggests that the top 10% of financial performers are approximately 30% more agile than other firms. MIT, meanwhile, suggest that agile firms grow 37% faster and post 30% higher profits than their less agile counterparts.
In a highly competitive environment, these numbers add up to a matter of survival. In 1964, companies on the S&P 500 had an average tenure of 33-years. By 2016 this had shrunk to 24 years and is predicted to be just 12 by 2027.
It’s no surprise, therefore, that 72% of CEOs responding to PA Consulting’s survey said that business agility was their top strategic priority.
The business agility challenge: Adapt, innovate or die
Not all businesses that lack agility will fail quickly or spectacularly; but most will fail, even if it’s by gradually becoming less competitive or attractive as customer needs change.
As the world changes business leaders are essentially faced with two basic choices:
- Anticipate and get ahead of (or lead) the change by innovating first, or
- Become highly responsive and following fast.
These are not necessarily mutually exclusive choices. Businesses that are both innovative and responsive will perhaps be the most resilient and hold the greatest competitive advantage.
Our view: Taking a lead on innovation means taking risks, knowing that some bets will pay off and others won’t. Following fast may feel like a less risky strategy, on its own, but comes with the potential to be caught napping.
Yet business agility remains an elusive quality
You might imagine, if it is recognised as being so important, that more corporates would have mastered business agility by now. According to McKinsey, Oliver Wyman and other consulting firms’ research you would be wrong. McKinsey found that 22% of ‘performance units’ (e.g. business unit, function) could rate themselves as agile. Oliver Wyman suggest similar numbers, with 26% or respondents rating their agility as ‘high’.
The combination of strategic desirability and a lack of progress suggests that business agility is an elusive quality and the challenge of developing it is one that many struggle to meet.
What exactly is business agility?
Business, or organisational, agility can be defined simply as, “the ability to remain flexible in the face of new developments, to continuously adjust the company’s strategic direction, and to develop innovative ways to create value” (Weber & Tarba, 2014).
Of course, behind a relatively simple definition lies complexity and difficulty.
As Nold and colleagues point out, organisations are not traditionally structured for speed and tend to struggle to adapt quickly, for a variety of reasons. Agility is not just something that can be put into practice. It must be cultivated and developed.
Why is business agility so hard to achieve?
The general agreement, it seems, is that business agility refers to both speed and flexibility. However, it isn’t as simply as being fast. You can’t simply throw everything up in the air and see where it lands. As with any transformation you have operational commitments to keep up.
So, perhaps the single biggest reason why agility remains elusive is simply historical baggage: Historical structures, business practices and, most certainly, leadership styles and attitudes that don’t fit with the new reality.
However, let’s unpick that a little.
Business agility is paradoxical
McKinsey highlight what this implies, that an agile organisation manages to be both dynamic and stable. This paradoxical aspect of agility makes it challenging. They propose eighteen agile practices, nine of which are stable and nine are dynamic. As Aaron de Smet (senior partner) put it:
“Imagine a spectrum: on one end, fast, nimble, agile; on the other end, stable, slow, efficient, more centralized. Many large companies try to find where they want to be on the spectrum. And that’s the wrong way to think about it. You need to be both. You need stability and this dynamic capability”
Our view: Start by accepting that we’re in a messy, complex world and that established management practices that overvalue linear planning, predictability and control are obsolete.
There’s a chicken & egg problem with agility
While much of the research reports point to mixed results in agile transformation, some of the barriers to agility are the very things that the organisation is setting out to change. For example, Oliver Wyman highlighted:
- Slow decision-making
- Conflicting departmental priorities
- Risk-aversion, and
- Information silos.
This is what we mean when we say that there’s a chicken and egg problem (or paradox) to overcome for businesses that want to be more agile.
Oliver Wyman’s research focused heavily on the use of ‘innovation units’ (e.g. incubators, excubators, accelerators) as vehicles for agile transformation.
Our view, however, is: If you’re thinking of adding an innovation unit of some sort, as the basis for business agility, think carefully. Sooner or later you will have to confront the reality that at some point your “core business” needs to embrace agility. Using an innovation unit may, however inadvertently, be a way of kicking the can down the road.
Start your transformation with existing business units or functions that are willing to be early adopters. At the same time invest in a transformation office that provides expert support and co-ordination to business units rather than ‘doing’ the change.
The Sinatra paradox (do-be-do-be-do?)
Mike Cottmeyer, CEO and founder of LeadingAgile, wrote that:
- Transformation is about changing the ‘agile being’ side of the equation
- Adoption is about changing the ‘agile doing’ side of the equation
This highlights the difference between adopting Agile and being agile. Agile is a methodology for delivering products (originally software) and projects, based on the Agile Manifesto principles.
This is an example of what Steve Carter, Senior Partner at Apter Development, also once described to me as the Sinatra Paradox also applies: Should you ‘do’ or ‘be’ agile?
Four fundamental tensions underly agile business leadership
We are guided by Reversal Theory, which suggests that there are four fundamental, paradoxical, tensions that organisations and their leaders need to navigate to be effective in a changing and unpredictable world:
- The long-term and the short-term
- Structure and flexibility
- Individualism and collectivism
- Relationships and robustness
These are not mutually exclusive choices, but tensions to be navigated. Black and white thinking is often seductive but, ultimately, unhelpful in today’s business environment.
Our view: It is essential to embrace the idea that we can hold competing or paradoxical values. Understanding how these competing values manifest themselves in our day-to-day motivations, emotions and behaviour, helps to make sense of complexity and manage tensions.
The agility challenge is a human one
This might be the most fundamental reason why agility is difficult for many organisations to achieve.
While Agile methods may help organisations to become more agile, we’d argue that they’re neither necessary nor sufficient in themselves because business agility is a fundamentally human capacity. In other words being, rather than doing.
Whichever methods, processes and technologies you plan to use, you must be able to mobilise people to be collaborate creatively, unlock their inherent adaptability and develop their resilience.
Mindset is key to unlocking agility
Anyone can ‘be’ collaborative or creative. This is first and foremost a question of mindset. Only then does it become a question of tools and technologies. Most CIOs would testify to wasted investment in collaborative tools and platforms because people’s minds didn’t change. Compare that to how suddenly many people have embraced virtual working under lockdown.
Many people also leave their creativity at the door because at work they simply do not have the headspace they need, or it doesn’t feel safe to share new ideas. How many of your best ideas have come to you on holiday, while jogging or in the shower?
Resilience, too, is a combination of mindset, skills and the work environment. Research (e.g. Wagstaff et al) suggests that environments that are both highly challenging and highly supportive help to develop resilience. Underlying resilience, which is about dealing with challenging situations rather than necessarily ‘bouncing back’ from adversity, is a critical skill: adaptability.
All of this emphasises that it’s adaptable people that drive agility; and tools, technologies and the work environment can either help or hinder them.
We use motivational states, which are ‘ways of being’ or lenses through which we see the world, to understand mindset. As these motivations change, so do our emotions and behaviours. This innate dynamic helps us develop people to become more adaptable and resilient.
Our view: Start by putting a disproportionate focus on people. If you can change hearts and minds you’ll get far more from the methods that you introduce.
Culture change is a daunting prospect (so start with climate)
PA Consulting’s view is that 80% of the effort in agile transformation should be on culture.
Culture change can be intimidating to many leaders because it is often made to feel like a huge undertaking. In the same way that an organisation’s culture is first established, norms and values emerge over time and some persist more than others.
When something is so deep-rooted and pervasive, how do you change it? Perhaps it’s more pertinent to think about how people need to ‘be’, what mindsets they need, to deal with a dynamic environment.
This is where organisational climate can be a more helpful concept. Climate, or the psychological environment, is more tangible, dynamic and manageable than culture. The biggest impact on climate is leadership behaviour. You’ve been there when “that” leader walks into the room. This is what Senn Delaney described as the “shadow of the leader”.
Our view: In a world that demands agility, it’s important not to get hung up on culture change. We see culture as being a bit like the organisation’s personality. It’s can change in time, but it might be more important to change attitudes and behaviours. As a leader, you can create a psychological environment that might ‘nudge’ people to think or behave in a particular way.
Transformation occurs in a historical context
The culture of an organisation often comes with a long history, and when you’re embarking on the journey towards greater agility (rather than agility as an end in itself), it’s very tempting to think purely in terms of current (as is) and future state (to be). But this understates the influence that history will have on your transformation effort.
Should you be more ‘start-up’?
Going back to McKinsey’s paradox of dynamism and stability, they also point out that different companies are coming from different places. Recent start-ups tend to be highly dynamic and face the challenge of adding stability as they scale, not replacing one with the other.
Established business have a history of stability. Their ‘stability’ practices that have focused on efficiency, planning, minimising risk and maximising predictability have long, deeply embedded roots. These can act as a barrier to dynamism: Hierarchies that disempower, bureaucracies that bind their people in rigid and suffocating processes, that over-plan and measure, that put people in competition with each other and put silos between them.
Our view: Established businesses should be wary of mimicking start-ups who, while dynamic, lack organising structures and processes. Every business should take the time to understand its own context and challenges before looking for solutions.
The value of storytelling
Every organisation has its stories. In these stories lies a richness of information about the forces and personalities that shaped the organisation and how it got to where it has now. That includes successes and failed attempts to change. According to our co-collaborator Susanne Evans (Feldspar Consulting), who’s PhD research formed the basis for her ChangeStoriesTM approach, “engaging employees in solution finding.. ..in mutually creating the organisation/team story has been shown to be very valuable in creating positive outcomes during change”.
Our view: Transformation shouldn’t whitewash the past by only focusing on the current and future states. Acknowledge how deeply ingrained some elements of the culture might be, and encourage people challenge some, find strength in others, and co-create a compelling Vision and Case for Change. This will give them a greater sense of ownership of the future state of the organisation.
Embracing the business agility challenge
Your mission, therefore, if you choose to accept it, is to cultivate the psychological conditions and capabilities that enable your people to operate with agility; that is by being adaptable, creative, collaborative and resilient.
Four levers of agility
Our research suggests four fundamental levers of business agility and four enablers that underpin them all.
- Strategy: What we plan for, what we pay attention to (measure), and how we analyse risk. This involves being responsive to change while creating a clear sense of direction.
- Operations: Our processes, management systems and information flows. These must be simple and effective, providing flexibility within a framework.
- Relationships: The trust that exists between people, based on shared values and the ability to reconcile individual needs with those of the collective.
- Change capability: How we support and enable change, how effective our social networks are, how we develop skills and capabilities.
The enablers of agility, that support the levers are leadership, communication, methods and infrastructure. However, we don’t believe that these are equally weighted, with leadership being disproportionately important. Without leadership, communication channels, change methodologies and infrastructure will have limited impact.
The agile leadership challenge
The challenge for leadership in building an agile organisation is recognising and navigating the inherent tensions and paradoxes that exist, navigating them and creating the conditions for people to adapt to, initiate and embrace change.
The idea of servant leadership is that you are there to help people to be at their best. It means giving them what they need, not what you want them to have. It means empowering them, not showing how great you are. It means helping them find answers, not telling them.
We define the leadership challenge, based on the four basic paradoxes we described earlier, as navigating:
The long-term versus the short-term
Maintaining focus on the long-term vision while handing short-term challenges without putting excessing pressure on results. This will create the safety and space for people to be open and responsive to change, and to take risks.
Structure versus flexibility
Providing efficient structures and processes while allowing freedom for people to challenge and voice their opinion about change. People are more likely to embrace change if they feel that they have been listened to, and to initiate it if they understand how.
Individualism versus collectivism
Emphasising collective performance through collaboration and teamwork, while recognising the needs and accountabilities of individuals. For the whole to be greater than the sum of its parts, you still need people to step up and bring their best game.
Relationships versus robustness
Making a genuine commitment to people and demonstrating that you care, while simultaneously being ruthlessly focused on delivering the mission. People will respond well if they trust that you have their interests at heart and believe they can ‘win’ with you.
Conclusion: The business agility challenge starts and ends with leadership
Our final view is that business agility starts and ends with leadership. It starts when leaders accept that they need to “go first” and focus on building the environment (climate) that will encourage people to respond quickly to and embrace change.
This requires a different kind of leadership; one that recognises people’s inherent ability to adapt, collaborate and create; and works with humility to facilitate and support them. It also means developing the self-awareness and social awareness needed to adapt your leadership style to the needs of your team in specific situations
Conversely, agility ends when leaders get in the way; by leading with their egos, focusing on the wrong things, being unable to take risks, or by failing to trust their people.