The New Rules of Engagement: Why Agility Paves the Path Forward for Your Business
First Publsihed July 1, 2019
There are two types of businesses in the world: Those that have recently experienced disruption — and those that are about to.
Survival in such a world demands that business leaders continuously reflect, and quickly act on one key question: Why will my company’s current business model lead us to a downfall?
Abstract
This paper examines the need for businesses to embrace strategic and organizational flexibility in order to stay relevant in a commercial landscape characterized by disruption. By prioritizing innovation goals above all others, businesses can take the initiative within their own industry — and even grow in surprising new directions. In order to succeed, however, such endeavors must be complemented by specific system and cultural changes within the organization. Agility requires bold steps towards organizational innovation using Futures Thinking and Design Thinking, as well as new metrics for measuring success internally, especially with regard to the rate of learning.
THE CONTOURS OF THE PROBLEM — THE DEMON OF BUREAUCRACY
Modern businesses face an unavoidable dilemma. They know that their customers have inherent expectations of quality and consistency, which can best be met through a stable internal structure and a predictable core business model. A reliance on incremental improvements ensures that each iteration represents a step closer to perfection for their existing product lines, while simultaneously guarding against the possibility of squandered investments.
This risk-averse strategy soon becomes hard to break out of, as inertia reinforces itself. The instinct to avoid failure leads directly to a posture of passivity, which then tends to solidify into a strategically slow bureaucracy designed to optimize the core legacy business. Such a structure creates a culture where decisions are made by committee or a small group of executives — and responsibility is therefore diluted, conveniently leaving no one exposed in case of mid to long-term failure.
In addition, a false sense of comfort and security arises from consistent performance over time. When left alone, companies seek and accept stable outcomes over variable ones, and people soon tend to prioritize “loss aversion” in their decision-making processes. Likewise, stockholders become reluctant to undermine a business model that seems to be working well, for fear of risking short-term returns that the core business has been optimized to produce.
The weakness of such a “business-as-usual” approach is that it leaves the company wide open to disruption as a result of advances made elsewhere. A strategy to rely solely on incremental improvements doomed Nokia, Blockbuster, and countless other businesses whose complacent strategic decisions made them incapable of making the necessary evolutionary leaps forward. If markets were static and competition negligible, then risk avoidance would be an ideal principle to follow. The real world, of course, is now volatile, uncertain, complex, and ambiguous (VUCA) — making this strategy wholly unsuitable to the present reality.
Industries are no longer predictable as they once were, and the speed of change shrinks the time horizons that can be adequately planned for. It took 75 years for the telephone to reach a user base of 50 million people.1 Facebook needed only 4 years to accomplish the same feat. For Pokemon Go, that level of penetration occurred in just 19 days.2
Industries are no longer predictable as they once were, and the speed of change shrinks the time horizons that can be adequately planned for. It took 75 years for the telephone to reach a user base of 50 million people.1 Facebook needed only 4 years to accomplish the same feat. For Pokemon Go, that level of penetration occurred in just 19 days.2
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1 From It Took the Telephone 75 Years to Do What Angry Birds Did in 35 Days. But What Does That Mean? (The Wall Street Journal).
2 From How Long Does It Take to Hit 50 Million Users? (Visual Capitalist).
This new reality reflects rapidly increasing technological advancement, highly agile competitors capable of growing exponentially, shifting margin structures due to new ecosystem business models, novel methods of engaging potential customers, as well as rapidly evolving customer needs and preferences. Each of these elements represents a poor fit for a top-down bureaucratic operational model.
Bureaucracies are furthermore anathema to outside-the-box thinking; they tend to seek safety in numbers and hierarchies, whereas radical innovation instead comes from experimentation and the pursuit of unknown outcomes. The failure to look deeply at the possibility of novel solutions for old problems can blind companies to threats from unexpected sources. As the pace of disruption increases across industries, such businesses will likely find that by the time a mortal threat is identified, the opportunity for action will have already passed.3
The repercussions for such unpreparedness are beginning to be felt in every area of the economy, according to an MIT survey in which board members estimated that 32% of their company’s revenues were under threat from digital disruption.4 A similar survey conducted by Vanson Bourne and Dell Technologies led to this finding as part of their executive summary:
First, the revolution is already here, and the pressure is on established companies to act. Over half (52%) of respondents have already experienced significant disruption to their industries as a result of digital technologies and 78% of respondents consider digital start-ups as a threat, either now or in the future … [and] the barriers to entry that used to protect established companies, are significantly lower, perhaps even non-existent. Strikingly, 48% of respondents said they don’t know what their industry will look like in 3 years’ time — a stark contrast to the past when established companies were stewards for their industry and the products and services they delivered to customers.5
Even for companies that are able to move beyond complacency and into Futures Thinking, further challenges remain. How should such businesses structure their investments in unproven methods and technologies? Which customer problems should they focus on solving? How should their departments direct process workflow and project execution, if not in a traditional hierarchical system? How can internal incentives be structured in order to encourage useful experimentation?
What changes need to be made to reinforce a culture of learning within the organization? Solving these problems is perhaps the central challenge for businesses in our time. Moreover, no single ‘fix’ will be applicable to all types of organizations. As Rita McGrath of Columbia Business School argues:
In a world where a competitive advantage often evaporates in less than a year, companies can’t afford to spend months at a time crafting a single long-term strategy. To stay ahead, they need to constantly start new strategic initiatives, building and exploiting many transient competitive advantages at once. Firms that have figured this out … have abandoned the assumption that stability in business is the norm. They don’t even think it should be a goal. Instead, they work to spark continuous change, avoiding dangerous rigidity. They view strategy differently — as more fluid, more customer-centric, less industry-bound.6
At first glance, such a fundamental shift would seem to require companies to completely reinvent themselves from the ground up. Yet many of the necessary adaptations can be incorporated relatively easily following a deliberate change in mindset and a strategy around innovation. By understanding the forces at work, and how a few key choices can leverage massive differences in outcomes, businesses can make the necessary leaps and refinements to lead the way forward from a position of strength and sustainability.
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3 From Bureaucracy — Enduring, Vital, Indefensible: Drive for Greater Innovation thru Debureaucracy (Bizshifts-Trends).
4 From Thriving in an Increasingly Digital Ecosystem, p28 (MIT Sloan).
5 From Embracing a Digital Future: Transforming to Leap Ahead (Dell Technologies).
6 From Transient Advantage (Harvard Business Review).
DISRUPTION KNOWS NO BORDERS — THE PHONE BRINGS LIFE TO LIFE
In March 2019, the Singapore-based ride-hailing firm Grab announced a “comprehensive suite offinancial services for Southeast Asia’s micro-entrepreneurs and SMEs”. No longer content to merely disrupt taxi and other transportation services across the region, Grab is now expanding into several other industries at the same time. Its press release reads:
Grab Financial Group launches SME lending and micro-insurance in Singapore. In 2019, Grab Financial Group aims to become the region’s largest merchant network, insurtech policy provider and fintech lender, all within one platform.7
The company’s GrabPay system allows for simple and installment-based transactions for online sellers. Its micro-insurance products let Grab drivers insure themselves and their passengers on individual trips, via app activation. An additional set of ‘Grow with Grab’ offerings is likewise aimed at small businesses and micro-entrepreneurs, providing attractive SME lending options for their users.
Yet Grab’s ambitions go beyond even these new sectors. The company also hopes to enter the online banking industry in Singapore, pending approval by regulators.8
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7 From Grab Financial Group announces comprehensive suite of financial services for Southeast Asia’s microentrepreneurs and SMEs to ‘Grow with Grab’ (Grab press release).
8 From Grab eyes Singapore banking license as regulator studies virtual banks (Reuters). Other pioneering companies from various sectors are also considering expansion into the same digital banking market, such as Singapore Telecommunications Ltd, a carrier that is taking steps to compete for mobile payments and cybersecurity. Such moves are not without precedent, as Hong Kong has already approved digital banking licenses for affiliates of Alibaba and Xiaomi, among others.
These efforts represent the latest in a continuing string of disruptive products and services that pass over traditional industry lines with ease. Banking and insurance giants suddenly have a formidable rival to contend with, and even their best traditional market research and business strategy efforts may not have been able to detect such a development in advance.
Grab, after all, didn’t exist in any form until mid-2012 — when it began to occupy a similar niche as its recent predecessor, Uber. (Grab has since become the region’s first startup to be valued at over US$10 billion.) Yet by a certain logic, Grab’s decision to branch off into other areas made perfect sense.
By operating a successful online ride-hailing business, Grab gained access to voluminous quantities of data about transportation and safety, which it could put to use by offering micro-insurance for individual trips. By connecting with an extensive group of self-employed drivers as well as the entrepreneurs who used their services to deliver products to customers, the company could then offer a suite of new products aimed exclusively at this customer base.
For its part, Uber’s launching of Uber Eats as a meal delivery service has disrupted the restaurant business by increasing the appeal of takeaway food for home dining. The success of Grab and Uber in these new market sectors is not a story of resources or investment capital, but of imagination.
The essential lesson was elucidated as long ago as 1960 by Theodore Levitt, publishing in Harvard Business Review. He wrote:
In every case, the reason growth is threatened, slowed, or stopped is not because the market is saturated. It is because there has been a failure of management. The railroads did not stop growing because the need for passenger and freight transportation declined. That grew. The railroads are in trouble today not because that need was filled by others (cars, trucks, airplanes, and even telephones) but because it was not filled by the railroads themselves. They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry incorrectly was that they were railroad oriented instead of transportation oriented; they were product oriented instead of customer oriented.9
As we will see, a customer-oriented viewpoint allows companies to make the necessary leaps forward during this time of upheaval in the business world. The key difference between 1960 and today is in the way that technology now allows for multiple industries to be disrupted in a single stroke. In Levitt’s time, trains were replaced by cars. In our time, hospitals can be replaced by phones.
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9 Excerpted from What Business Are You In?: Classic Advice from Theodore Levitt (Harvard Business Review).
A NEW WAY TO CALL THE DOCTOR — HOLISTIC MEDICINE
In an ambitious move to bring medical care into the digital realm, one group of hospitals has joined forces with six other corporations across several industries. Samitivej, a group of private hospitals in Thailand, now offers a ‘virtual hospital’ service through a new branded mobile app.10 Its three main service innovations are as follows:
- Teleconsultation — this remote telemedicine consultation service provides round-theclock medical advice via a video call with Samitivej’s doctors and nurses.
- Test@Home — patients can have their blood samples taken in the comfort of their home and blood samples will be sent to the laboratory immediately.
- Medicine Delivery — personalized medication will be delivered to patients with absolute data security as Samitivej adheres to the data protection standards mandated by the Health Insurance Portability and Accountability Act (HIPAA).
The stated aim of this service line is to extend quality medical care services to rural areas, but in practice it will be available to anyone with a mobile phone. Samitivej Virtual Hospital’s teleconsultation service costs users a modest amount (roughly US$1 per minute, in 15-minute increments), and unlocks a 20% discount on medications when the medicine delivery service is used. The home blood testing service is performed by nurses and multidisciplinary staff members, blending professionalism, convenience and comfort.
The new set of services by Samitivej is made possible by partnerships with six businesses in a wide range of sectors: Muang Thai Life Assurance Plc (claiming medical insurance), Advanced Info Service Plc (telecom connectivity and online payment), Line Thailand (platform app interface and community), Siam Commercial Bank Plc (wealth management and health experience), Sansiri Plc (wellness residences), and SCG Cement Building Materials Co Ltd (smart living platform). This ability to think laterally across industries has allowed for precisely the type of business model innovation that could establish Samitivej as a leader in its sector, spearhead wholesale social change, and potentially leave its less imaginative competitors behind in the dust.
10 From the Samitivej Virtual Hospital microsite.
A FORK IN THE ROAD — DO OR DIE
The ability of companies like Grab and Samitivej to integrate novel insights across widely disparate industries is becoming more the norm than the exception. This video 11 illustrates the latest advances in how auto insurance claims are beginning to be processed — and why traditional service methods have little hope of competing with them.
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11 From Insurtech, uploaded by IT News.
No industry is safe from tech-based displacement. With the help of only a few partners and a keen insight into market gaps, Elon Musk successfully disrupted three of the world’s most seemingly impregnable industries: banking (PayPal), automobiles (Tesla), and aerospace (SpaceX). These businesses — particularly Tesla and SpaceX — in turn have ambitions to further disrupt others, such as electricity generation and storage (Tesla), internet service providers, air travel and even space travel (SpaceX).
Even larger moves are presently taking place on a global scale, as Facebook prepares to launch Libra, an entirely new form of money capable of competing with established currencies. This move promises to outflank the more volatile cryptocurrencies now on the market, which had only recently created a brand new market for digital wealth.12
Disruption has rocked nearly every industry on earth in the past two decades, considerably widening the financial gulf between companies that invest in the pursuit of new possibilities, and those that focus instead on marginal improvements year after year. Indeed, imminent advances in AI, quantum computing, data exploitation, and other key technologies will further accelerate cross-industry systemic optimization in any realm that can be usefully connected to them.
The question is not whether disruption will soon overturn the prevailing standards in any given industry (it will), but rather: What can businesses do today to stay on the right side of the technology curve?
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12 See Facebook’s New Competition: The US Dollar (New York Magazine).
IDENTIFYING THREATS MEANS KNOWING WHAT TO LOOK FOR — THEY ARE STARING AT YOU
Red flags can take many forms for businesses. A recent book by Allen Adamson and Joel Steckel13 identifies seven indicators which can signal danger for companies. Identifying any of these warning signs often means that your business is at an elevated risk of being overtaken by competitors. A quick summary of these key variables includes:
- Company financial trends. If your revenues are flat or on the wrong side of a bell curve, it may be time to reach for new product lines.
- No USPs beyond price. If your products are not different or better than those offered by your competitors, then sooner or later those competitors will use their own unique qualities to edge you out.
- Under-utilized resources. If you have plenty of customer or product data but aren’t leveraging that data to make improvements in quality or efficiency, you are leaving potential on the table.
- Deterioration of your core value offering. If you cut corners on what makes your products special, you will regress to the mean of your industry — and open the door for your rivals to steal your customers away.
- When opportunity strikes, you are unable to catalyze your organization into action. Internal variables related to culture and organizational structure may slow your business down when action is needed most. It is essential to be able to pursue new opportunities as they arise.
- Your brand is too inflexible to move with the times. Sometimes, identity can get in the way of necessary adaptation. Be sure to avoid any insistence that your brand must represent a static and unchanging product.
- Your talent is uninformed about internal strategy, and just along for the ride. Poor communication within the company is often characteristic of a hierarchical structure. Yet when employees are kept in the dark about the company’s changing strategy objectives, they are unable to contribute meaningful ideas that could otherwise help bring the business closer to its goals. Strategy execution hence remains a major performance problem and opportunity to pursue.
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13 Shift Ahead: How the Best Companies Stay Relevant in a Fast-Changing World, by Allen Adamson and Joel Steckel
HOW TO OVERCOME EMERGING THREATS — AN AGILE MIND CAN SEE AROUND CORNERS
In nature, animals in every ecosystem are constantly on the lookout for potential threats on all sides. In the business world, the absence of a clearly designated person or team for this task often prevents companies from spotting danger until it is too late.
The response from many businesses has been to bring in a Chief Strategy Officer (CSO) to maintain a responsible course in such an environment. Yet 93% of CSOs feel that their own industries will be disrupted within the next 5 years — while only 20% believe that their own businesses are well prepared to deal with this reality.14 This discrepancy is explained in large part by a lack of clarity surrounding the CSO position.
Well-defined roles are essential for the smooth operation of any complex system, but CSOs often find themselves without a clear mandate. Too often, they are crowded out by the corporate development officer, chief growth officer, chief digital officer, chief innovation officer, or any number of other positions. A study by PwC found that only 26% of CSOs thought that their company’s strategic plan clearly stated “how we are going to compete and what is going to make us successful,” and just 28% agreed that they “have a seat at the table equal to those of other senior executives.”15
A ship’s navigator can hardly steer the right course when the destination is undecided and several others have their hand on the wheel. Organizations can solve this problem by putting strategic future objectives first, ahead of more immediate concerns.
This far-sighted approach offers the ability to sense changing conditions and respond to them appropriately, guided by a wider view that lets businesses put each type of concern in its proper perspective. By defining a clear set of goals and hypotheses, and using them to form a plan of action in the medium term, a great deal of pressure can be taken away from short-term problems whose outcome will have only a marginal effect on future success.
An alternative solution is also possible, however. Decentralized organizational structures, along with an associated shift in incentives and responsibilities, can place strategy decisions in the hands of lower-level departments. As we will see, Futures Thinking and Design Thinking concepts allow businesses to embed their strategy initiatives within teams that are also responsible for executing ideation as well as innovation and experimentation.
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14 As described in Insurance Hasn’t Changed Much — But Everything Around It Has (Accenture).
15 From Memo to the CEO: Is Your Chief Strategy Officer Set Up for Success?, strategy+business (PwC).
By empowering strategy formulation teams to make their own investment and portfolio decisions, surprising developments can occur over time. These may continue even to the point where the CSO role itself becomes obsolete, because the same teams are closely connected to customers and innovation efforts, letting them plot future business plans autonomously from a position of knowledge. The recent organizational achievements demonstrated by the global Chinese company Haier provide ample proof that this approach can deliver on its promises.16
Such an important shift in thinking remains elusive for many organizations, in part due to external driven investor factors. Stacey Haas, partner at McKinsey & Company, summarized the difficulties well, stating:
I’ve seen a number of companies where the metric for innovation is accretive gross margin from day one. Well, you will never create anything disruptive if that’s the metric by which you’re going to measure an innovation. But the big companies have a reality. Most of them are public. They have EBIT [earnings before interest and taxes] targets they have to hit. There’s a real issue there to solve.17
Yet investors in today’s climate know the importance of innovation as well as anyone, and should not be presumed to value small wins today over big wins tomorrow. Simple and timely communication about the importance of R&D and Futures Thinking in the present climate can head off questions about quarterly performance. Indeed, however uncomfortable it may be to scale back earnings during a time of internal regrouping, it is far better than the alternative. Companies do their stockholders no favors by embracing strategies and metrics that will increase the likelihood of their own obsolescence.
The business case for corporate foresight was strengthened by a 2018 study showing that futureprepared firms outperformed average firms, with the former achieving 33% higher profitability. In addition, future-prepared firms with the ability to “see around corners” outperformed average firms by an extraordinary 200% higher growth.18
To create a more durable path forward, the CSO (or multidisciplinary strategy formulation teams) should ensure that the business continues to:
- Monitor the markets in all relevant industries, in addition to conferences and academic research, to evaluate the new opportunities that the company (or its rivals) could exploit
- Detect any signals — however weak — indicating that disruption is coming from external sources, and identify the nature of the disruption
- Assess the likely effect of this disruption on business activities within the organization, as well as the mitigating effect of potential countermeasures
- Determine the most effective new types of initiatives the company could embark on, given the state of technology in the private sector
- Direct the company’s future thinking teams to pursue the most promising opportunities for significantly re-thinks and re-designs of its products and services, in light of recent breakthroughs
- Refine the internal business model and strategy to reflect the most consequential threats and opportunities now present
These final two steps must be given priority throughout the company, in order for the previous ones to have any meaning. Nevertheless, many businesses fail to follow through where it matters most, preferring instead to defer their leadership decisions to elements of the company that are focused on short-term thinking. To avoid such an outcome, businesses should place explicit strategy development and execution policies at the heart of their planning efforts.
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16 See The Haier Road to Growth, strategy+business (PwC).
17 From How to Move Fast: Innovation at Speed and Scale (McKinsey & Company).
18 From Corporate foresight and its impact on firm performance: A longitudinal analysis (Aarhus School of Business and Social Sciences and Deloitte).
STRATEGY EXECUTION 4.0 — AGILE WORK COORDINATION
At present, businesses often fail to carry out the very strategies that they have decided to implement. The result is an alarming gap between what is proposed and what is carried out. Poor strategy implementation costs the world US$2 trillion per year in lost value.19
In many cases, the failure to execute a new strategy stems from the lack of a complementary change in organizational structure and performance metrics, among other issues. Attempts at innovation tend to stall when conducted within a traditional, top-down working environment — or when progress is determined through traditional metrics related to the core business.
For real progress to be made, a set of guiding principles and decision-making criteria must be created with the aim of facilitating innovation execution. Contextual solutions for organizational systems and leadership should be tailored to fit the company’s own needs, so that they can effectively accommodate and/or integrate the existing people, systems, and structure within the organization.20
Moreover, in a fast-moving economic landscape, real scrutiny should be applied to the underlying assumptions that inform basic strategy guidelines. As Richard Rumelt of UCLA has observed, budgeting and strategy are distinct variables which should not be confused with one another. Budgeting essentially “coordinates the deployment of resources — but it’s not strategy,” Rumelt said.21
Indeed, companies often stagnate when budgeting replaces genuine strategy planning. As business knowledge, capability and ideation develop, environmental factors — including the state of technology, competitor activity, and consumer demand — also take new forms. For companies to capture new opportunities as they appear, they must be prepared to pivot internally at a moment’s notice.
A recent report by Harvard Business Review found that a plurality of leading businesses engage in continuous strategy development, while over 60% update their plans every 6 months or less.22 In a commercial landscape filled with shifting environments and fast-moving targets, businesses with a nimble and decentralized internal structure have a clear advantage over their slower-moving counterparts.
One of the benefits of collapsing internal hierarchies into independent and autonomous teams is that the bureaucratic bottleneck between strategy and execution at last falls away, opening the door to immediate action in pursuit of available opportunities. Hypotheses which are tested and found to be worthy of investment can quickly enter the company’s pipeline of planning and execution.
In a similar fashion, innovation execution also depends on networks of accountable teams within an organization, each with their own clearly defined objectives and rules of governance for both planning and implementation. For continued smooth operation, structural rigidity within the business should be avoided at all costs. Such hierarchical barriers slow down the momentum of decision-making around worthwhile ideas, blocking the timely transition from thoughts to action. Only a decentralized internal structure can allow for agile coordination both within and between working teams.
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19 From Closing the Gap between Strategy Design and Delivery (World Finance).
20 See Who Do You Need to Lead an Agile Organization? (Open Minds).
21 From Strategy’s Strategist: An Interview with Richard Rumelt (McKinsey & Company).
22 From Testing Organizational Boundaries to Improve Strategy Execution (Harvard Business Review).
AGILITY AS THE CURE FOR INERTIA — HAVE YOUR CAKE AND EAT IT
Agile organizations are made up of “a network of teams within a people-centered culture that operates in rapid learning and fast decision cycles which are enabled by technology, and a common purpose that co-creates value for all stakeholders,”23 to take one succinct definition. As a contrast to the traditional hierarchical business structure, agility allows for the quick adjustment and acceptance of new ideas, a large number of inexpensive trials and tests, as well as the rapid adoption of the most promising solutions.
These achievements are made possible by a set of internal shifts which allow the company to pursue its own specific needs and goals. First and foremost, a customer-centric focus must be adopted throughout the organization. Businesses should remind themselves what needs they serve (or have the potential to serve), and then rethink anew how best to satisfy their customers both now and in the future. Innovations elsewhere across commerce and society may well allow for a complete reimagination of old concepts, just as Airbnb leveraged advances in communication to introduce a radical alternative to the hotel industry.
Yet the necessary changes must, if only for practical reasons, begin at small scales — with half-formed ideas rather than detailed blueprints. Dan Toma made the necessary point about how to properly guide the evolution of ideas: “As you can’t predict the future, you need a system that will help you test the future and respond to change.”24
By focusing on customers rather than existing product lines and guiding internal research to align with well-defined company objectives, businesses can design and initiate a plan for agile investment. Industry data indicates that in many cases, the ideal ratio for investment involves allocating a golden ratio of 70% of investment funds to the company’s core business, 20% to adjacent pursuits, and 10% to transformational concepts. If managed well, this strategy can lead to a neat inversion over the long run, with 10% of the ROI coming from core investments, 20% from adjacent ones, and fully 70% from transformational pursuits.25
With the strategy formed and the investment portfolio determined, businesses must focus their internal efforts on operational agility. As far as is practicable, vertical hierarchies should be phased out in favor of horizontal and collaborative teamwork across departments. Such efforts facilitate direct and speedy communication between specialist groups, allowing each team to benefit from the vast quantity of “learning capital” that already exists within the organization.26
Operational agility also involves embracing systems for ideation, design and experimentation, so that original concepts can be tested quickly, cheaply, and on an ongoing basis. By staying active and learning from continuous trial and error, the cost of failure remains small and the likelihood of success grows ever larger. Although brainstorming and testing are to be encouraged, all activity in a properly agile environment must nevertheless stay tethered to agreed-upon business goals and time boxes. Uncontrolled and unguided activity quickly devolves into chaos, while carefully channeled inspiration is ideal for producing genuine breakthroughs.
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23 From The Five Trademarks of Agile Organizations (McKinsey).
24 From Dan Toma, An Innovation Ecosystem.
25 From Managing Your Innovation Portfolio (Harvard Business Review).
26 See Innovation Capital Lies Within Organizational Learning (Business Innovation Brief).
AGILITY IN ACTION — FUTURES THINKING AS THE OLDER TWIN TO DESIGN THINKING
Success in a fast-moving economy means staying ahead of the technology curve. Incremental improvements are no longer adequate to the task at hand; only the more ambitious leaps forward can keep businesses ahead of their rivals in this age of accelerating Artificial Intelligence and transient competitive advantage.
Futures Thinking provides the tools and perspectives that companies need to develop such a radical re-imagining of their own products and the commercial ecosystems they inhabit. Instead of taking the company’s current slate of products and services as a starting point, Futures Thinking allows the business to reframe its approach from the very beginning, using a Strategic Foresight team to examine previously made decisions in light of new technological, social, economic and environmental possibilities.
1. Imagination and Insights: Futures Thinking begins with a customer-centered mindset, drawing ideas from an understanding of past and current unmet needs — whether explicitly expressed by consumers or not. These needs can be highlighted when they overlap with new concepts for products or services that have recently become possible as a result of advancing technology or another type of change in the environment.
2. Opportunity Identification: The next step is to identify the most promising business model opportunities and potential ecosystems revealed thus far, particularly when they relate to possibilities that are especially within reach — or at least within the wheelhouse — of the company, given the physical, informational, and skill-based resources at its disposal.
3. Investment Decisions: Matching capability with opportunity allows the company’s Strategic Foresight team to make the company’s key investment and portfolio decisions moving forward. These resource allocations will form the backbone of the company’s innovation objectives throughout the following steps.
4. Execution Planning & Zones: With the goalposts set in place, innovation teams can set in motion the practical planning and execution of the most promising new ideas. Of particular importance at this stage is to make the necessary distinctions between investments that are aimed at near-term improvements of the core business, those that advance an emerging business model for the company, and those that set out to forge an entirely new business direction to drive transformational change. These varying targets, sometimes labeled Horizon 1, Horizon 2, and Horizon 3 respectively, involve different methods of operationalizing their initial investments.
5. Understand and Frame: Futures Thinking remains a dynamic and ongoing process for blue-sky ideation. Yet from the perspective of an individual idea that has been greenlit for action, this is the point at which the Design Thinking team takes over the process. Here, Design Thinking is used with the objective of understanding and framing the practical problems that require current attention when bringing the new idea to life.
6. Ideate and Design: A subsequent period of ideation and design focuses on proposed solutions for these challenges, along with functional prototypes that fulfill the key goals that the company is aiming to achieve with its new innovation. These early models can be built quickly and in rudimentary form, in order to see how they respond to real-world conditions.
7. Test and Validate: Laboratory and market research testing can filter out the less promising models, while generating new insights into both tried and untried methods that may show a new way forward. The key organizational priority should be to ensure that testing occurs as quickly as possible for each idea that merits close consideration. The results and knowledge gained from this testing and validation process should be plugged back into the Design Thinking process — whereupon a new iteration of conception, construction, and validation can then take place.
8. Deploy and Scale: With a working model that has been established and finalized for each new product or service, the time soon comes to bring it into the world. Market research can provide further guidance on any refinements that may be necessary before entering full production mode. Meanwhile, questions related to implementing mass production and distribution processes should also be given priority.
9. Strategy Execution: A genuinely novel innovation will need to be introduced to the public in a way that is easily understood, using a project-centric delivery method that is similarly natural and intuitive. Much depends on a successful launch, and the greatest splash tends to be made by products whose value is immediately obvious and straightforward. Simple messaging and a well-planned project launch period can help greatly with the transition from business execution to benefit realization.
10. Benefit Realization: It is not enough to introduce a new product and then let it sink or swim on its own merits. A continued push is needed to help establish the product within the wider culture. These efforts may come in many forms, including with the help of social media campaigns or influencers, as well as partnerships with other prominent companies whose products or services can be made to complement the new offering.
11. Sustained Growth: Only after it has truly taken root can a new innovation become the profit engine that its inventors, manufacturers, and marketers intended. Further integration of your product within its environment can lead to a prolonged period of profitability. These additions and refinements may take the form of an expansion of services, upgraded capabilities, new interface, or other general improvements to stay ahead of the competition.
GOING AGILE? — GET SMART ABOUT TEAMS
It’s been said that there are only two kinds of futures — the one you inherit and the one you design. Yet inherited fortunes have a shrinking half-life in today’s world, and it is increasingly apparent that the future will be owned by those who disrupt the present. Every business is capable of taking a leadership position in its industry, with its success or failure in this regard depending almost entirely on how it uses its own resources. A primary focus on agility can alert businesses to the activities of their rivals, while creating the conditions necessary to outflank them.
In most cases, this transformation begins by conditioning the entire company to embrace an agile mindset. A new emphasis on strategic innovation can lead to vital breakthroughs for the organization as a whole, by determining its area of focus moving forward. But such an effort also requires followthrough from employees at all levels, who must understand and buy into the company’s new direction.
Ultimately the necessary breakthroughs will be made not by executives, but by the body of workers and teams throughout the company.
Each department tasked with innovation must therefore be encouraged to take risks, experiment with new ideas, and follow their instincts — all in the pursuit of clearly articulated company objectives. As we have seen, this imperative is best carried out through teamwork within a clear system of incentives and procedures where cognitive biases are checked and new ideas are tested early. These precautions allow teams to function effectively under a non-bureaucratic structure, where hierarchies fade in importance and incentives are adjusted to reward initiative rather than outcome.
Businesses that hesitate to make such a move may want to consider the potential rewards that await those with the courage to act. IBM is among the companies making a deep commitment to Design Thinking in recent years, going so far as to remake its entire ideation and product development process.27 To evaluate the results, IBM later commissioned the services of Forrester Research.
Among its key findings:
Forrester has determined that teams that are applying IBM’s design thinking practice and are adequately staffed with design talent are getting to market twice as fast as without. These teams are seeing as much as a 75% reduction in design and development time.
As a result of this faster pace of work, Forrester discovered that design thinking teams are consistently cutting costs, reducing risks, and ultimately increasing profitability. One health and human services organization slashed their number of defects by well over 50% through effective use of design and design thinking. This more efficient workflow is resulting in a calculated ROI of more than 300%.28
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27 As described in IBM’s Design-Centered Strategy to Set Free the Squares (The New York Times).
28 From The Business Value of Design Thinking (IBM). Emphasis in original.
THE CRITICAL X-FACTOR OF AGILITY — A SYSTEMATIC ABILITY TO LEARN FASTER
More so now than ever, at the heart of all structures and processes is the primary driver of success in an innovation-based economy: The ability to learn. Data collection and analytics are only useful insofar as they provide opportunities to gain new understanding and make adjustments accordingly. Indeed, a study by Korn Ferry Institute identified learning agility as the top-ranking predictor of leadership success.29
Throughout the journey from brainstorming futures to prototype models to testing, the process and fruits of learning bring strategic value to a company at every stage. By adopting a culture of open communication, businesses can promote a fluid exchange of ideas between departments, which in turn allows learning to proceed at an exponential pace. Mastering this phenomenon of “learning agility”, more than any other factor, unlocks the organization’s potential for sustained innovation, problem solving, creativity, and growth.
Fundamental ideas regarding the direction and capability of the business — together with similar insights about industries ripe for disruption — can be developed only through an inquisitive mindset that values deep understanding. Every step of the innovation process, in particular the successes and failures of new designs, should add to an accumulating body of knowledge that businesses can use to improve their efforts.
Special initiatives can ensure that the relevant data and information are collected, organized, and learned from — so that experiments are logged, and errors are not repeated. Impartial debriefs on successes as well as failures are necessary to turn abstract information into applied wisdom. If performed in a timely manner and communicated through internal channels, these postmortems can generate powerful new questions and ideas to spur the next round of progress and experimentation.
Failure to carry out these post-hoc learning initiatives often reduces experimentation to the realm of trial and error; as potential insight is lost, guesswork takes its place.
For these reasons, it is imperative to maintain clear communication channels within the company at all times, particularly as many of the new norms and expectations will go against the business culture that employees are accustomed to following. An atmosphere of safety and encouragement is essential to dispel fears, while the promise of exciting new products and services, developed through organizational innovation using practices such as Futures Thinking and Design Thinking, will help motivate the workforce toward its new goals.
With so many organizational, technological, and cultural shifts to navigate during this age of disruption, companies must become experts at adaptation. It may take time for innovation teams to get used to making errors and miscalculations as they try new approaches to old problems. But when learning is treated as a central benefit of each idea, strategy and design iteration, those same teams can quickly turn mistakes into new and revolutionary achievements. Fail fast, fail cheap.
Simply put: Learning agility dictates the maximum speed of business innovation over time. In the race to capture market share, improving the speed of learning is analogous to a car increasing its acceleration. As Boston Consulting Group and others have observed, future dominance in industry will be achieved by those companies that optimize for faster rates of learning — and then leverage that knowledge to create a new generation of disruptive products and services.30
So given all this, why not use Learning Agility as a competence to plan and execute your strategy?
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29 See The Organisational X-Factor: Learning Agility (Korn Ferry Institute).
30 See Competing on the Rate of Learning (Boston Consulting Group).