What Zara, P&G, and Berlitz know about agility. These three companies exemplify agility best practices. Does yours?
The average lifespan of a company listed in the S&P 500 has shrunk by more than 50 years in the last century, from 67 years in the 1920s to 15 years today, according to Yale Professor Richard Foster. Today’s rate of change “is at a faster pace than ever,” he says. Foster predicts that by 2020, more than three-fourths of the S&P 500 will be companies we don’t know about today.Those that do survive will be agents of change, embracing it so much that they may be recognizable only by corporate name.
Look at Berkshire Hathaway—the conglomerate started as a textile mill in Rhode Island.To face the challenges of constant market change, business leaders must respond quickly. This calls for flexible, yet repeatable, management practices that apply to any enterprise, regardless of size or industry. Every enterprise must be agile enough to see and seize opportunities in the marketplace, introduce new products, revamp business processes, and create new business models.Agility is a means to achieve economies of scope. It allows business leaders to flex their management muscle and extend their longevity in order to stay in the game. What’s required to be agile? The ability to:
Sense and Respond
An agile enterprise discovers profitable opportunities—new market spaces or gaps in existing market spaces—by repeatedly considering:
- Shifts in product or service needs, customer tastes, technology, socioeconomic factors, and cultural mores.
- Competitors’ current and future strategic positions.
- The organization’s internal competencies.
- Competencies it might gain through access to partners, collaborators, or mergers and acquisitions.
To respond to changes in their environment, organizations must learn from various processes within different areas of the enterprise. Technology can enable these learning processes by supporting: (a) collection, distribution, analysis, and interpretation of data associated with business processes; and (b) generating response alternatives, decisions on appropriate courses of action, and implementing selected responses.
Spanish clothing chain Zara bucked the retail industry’s trend of transferring fast fashion production to low-cost countries, and it paid off. Zara responds rapidly to changes in consumer taste. The chain produces 300,000 stock-keeping units, or SKUs, a year in an effort to get the latest styles in stores as quickly as possible. Managers submit sales information to company headquarters weekly, both financial information and customers’ reactions to products. The company then reacts to that report by continuously designing and manufacturing new merchandise. An idea or a trend inspired by the managers’ report can show up in stores within 15 days, compared to the 6-month industry average. Zara has makes some trade-offs, such as investing in distribution at the expense of other functions, to implement the strategy.
Improve and Innovate
Business agility is about more than improving your company’s current operations or seeking greater performance through innovation. Even in mediocre organizations, improvements happen over time. Enterprises operating in dynamic environments must focus on the speed of improvement and innovation. There are three primary types of organizations:
Opportunistic organizations that emphasize improvements, but often fail to foster innovations. They follow best practices, listen to the customer, and are good at improving current capabilities.
Innovative organizations that 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 organizations that lack the ability to identify and explore opportunities, as well as the ability to innovate. When market pressures are high and the environment is turbulent, a fragile firm that combines improvement and innovation initiatives to constantly repositioning itself will thrive.
All enterprises typically engage simultaneously in the improvement of operations and the innovation of processes and products. The level of emphasis on these two activities will determine an enterprise’s ability to respond to changes in their competitive landscape. Speed is a key factor, and the combined level of emphasis on operational improvement and innovation is a direct reflection of it.
Procter & Gamble is widely recognized for consistently creating new categories of consumer goods, from Pampers, the first disposable diaper, to Crest, the first toothpaste with fluoride, to Tide, the first synthetic laundry detergent. But in March of 2000, P&G’s sales slid and an earnings warning sent its stock price tumbling, compelling the company to name new CEO A.G. Lafley to overhaul its corporate strategy and usher in new perspectives on innovation. An internal analysis revealed that just 15% of innovation projects were meeting success targets. Through a new Connect & Develop program, P&G began seeking product ideas from outside the company.
P&G set up “innovation assembly lines” by seeking growth from four major categories of innovation:
- sustaining innovations to improve existing products (Gillette Fusion)
- disruptive innovations that bring high-end services to mass markets (Crest White Strips)
- transformative innovations based on performance breakthroughs (Olay Pro-X)
- commercial innovations to enhance the consumer experience (BrandSaver events)
P&G is highly regarded as an innovator for its myriad brands and it has relied on a strategy of “create, operate, trade” to stay ahead of the competition.
Make Distributed and Collaborative Decisions
Agile enterprises adopt radically different forms of governance and translate their mission and objectives into information that can easily be interpreted. They replace traditional command and control approaches with mechanisms that facilitate coordination and collaboration within and across locales. These mechanisms provide individuals, groups, and units with the autonomy to improvise and act on local knowledge, while employing coherent behavior across the enterprise.
No enterprise operates in a vacuum. Every executive, manager, employee, and contractor potentially has a piece of the puzzle to create a new breakthrough business opportunity. Suppliers, partners, distributors, and customers are an equally valuable source of information and ideas.
Berlitz Corporation, a global leadership training and education company, operates on the belief that developing cultural agility starts with an open attitude, which leads to self-awareness, awareness of your relationship to the world, and the skills to apply this knowledge to learn and grow. Its leaders are agile enough to diagnose the team dynamics needed to exhibit change in order to continuously grow.
With more than more than 550 company-owned and franchised locations in more than 70 countries, Berlitz has taught millions of people new languages or improved their cross-cultural or leadership skills.
The company had been using separate internal websites for each of its geographic regions (Asia-Pacfic, Europe, Middle East/Africa, and the Americas), which made it impossible to communicate and easily share knowledge with employees around the globe. To help accelerate globalization initiatives, Berlitz established a structured process for sharing common information, strategic directions, and revenue goals to drive collaboration worldwide. The company instituted clearly defined guidelines that individual employees could identify and follow based on their experience, skills, and expertise in order to track performance for incentive purposes.
The Anatomy of Business Agility
An agile enterprise is able to sense and respond to a competitor’s strategic moves within existing product markets, as well as environmental signals arising from shifts in customer desires or in new technologies.
- Enterprises demonstrate strategic agility in four major ways:
- They continuously scan their environment to identify both threats to existing positions and opportunities to forge new positions.
- They regularly engage in strategic experiments by implementing small-scale strategic initiatives to challenge internal or external work environments to gain experience with emerging technologies, work practices, product or service concepts, customer segments, or product markets.
- They devise adaptive business architectures so that their competitive assets (as well as those of partners) can be realigned quickly—shutting down activities, commencing new activities, or shifting resources among activities.
- They learn to radically renew the competencies that characterize their competitive nature.
Today’s business leaders must learn to create and innovate amid challenging and often unpredictable conditions, such as sluggish economic growth in the U.S., ongoing fiscal and debt crises across the world, and new rivals that can spring up anywhere. Traditional business practices aren’t enough to sustain and maintain growth in a dynamic marketplace that demands constant rethinking and tinkering of products, brands, strategies, and business models. One must learn to adapt and be agile or face extinction.
[Image: Flickr user Arthur John Picton]
Original article @FastCompany.