Imagine a tennis player waiting for the opponent’s serve. He knows that the serve is coming but doesn’t know how fast, with what spin, or exactly where the opponent will place it. He is up on the balls of his feet, ready to react quickly…with agility, in order to return serve to stay in the point, position to win the point or to hit an outright winner.
It’s easy to see how a lack of agility would make it impossible for most athletes in most sports to function, let alone succeed. But what about businesses? How important is the ability to quickly adjust strategies and operations in response to shifts in the market and business climate? Very important—academics who have studied the matter have found that organizational agility matters A LOT. If rising material prices and interest rates put the brakes on a builder's mid-range home sales, the ability to quickly shift the mix toward higher density, lower priced units will yield faster inventory turns, better use of capital and higher profits. The inability to make this shift will likely cost the builder lots of money.
In their 2014 book The Agility Factor, Christopher Worley, Thomas Williams and Edward Lawler do a great job documenting this link between agility and profitability. They studied the performance of 424 firms over 22 industries for the period from 1980 to 2012 (32 years). Using Return on Assets as the benchmark, the authors found that 18% of those firms outperformed their industry mean at least 80% of the time, 13% underperformed 80% of the time, and the remaining 68% "thrashed" between periods of over and under-performance. [This adds up to 99% so one of the numbers is off.] They also noted that the out-performers had agility built into their business processes, organizational designs and cultures.
The problem is that making a company agile can be very difficult, which is why a mere 18% of firms in the study excelled. If agility were easy, more of us would be basketball players, football players or industry-leading CEOs. In business, as in sports, agility requires focus, training and dedication, and sheer grit. And it doesn't happen overnight.
As with most change efforts, the journey to becoming agile will be a lot smoother if you have road map to guide you. Building on The Agility Factor and other current research, Continuum Advisory Group provides such a road map. This book organizes the journey into four phases: Agile Strategizing, Agile Perceiving, Agile Testing and Agile Implementation. We’ll start with an overview of The Agility Factor model and dive into the four.
Agile Strategizing. This phase includes looking at how you currently make strategic decisions and how you might change strategies to take advantage of your business environment. Strategic decisions include things like which customers you serve, where you operate, what types of homes you build, how you deliver those homes, and how you interact with customers and suppliers.
Questions you need to answer include:
- Who makes these strategic decisions?
- What resources do they use?
- What process do they follow?
- How often do you change your strategies?
- What would cause your company to shift strategies in any of these areas?
The truth is that home builders rarely change core business strategies or embrace truly new business models. As home sales heat up or slow down, they simply shift from growth to contraction mode, increasing and decreasing the size of the operation.
By contrast, an agile company makes real strategic changes. It's the kind of company that responds to rising prices and disappearing workers by shifting from stick building to a turnkey offsite system, or that commits to a comprehensive BIM program, perhaps using new service providers who make it simpler and easier to implement BIM.
It's the kind of company that sees beyond what is, to what can be.
Agile Perceiving. This step combines information gathering and analysis. The aim is to help you understand what's changing in your market and how those changes will affect your business.
For example you may have read that, according to a recent Bank of America Study of current renters, 78% of the Millennial generation aspires to home ownership. You may also have seen a survey of recent buyers reporting that that 68% of recent Millennial homebuyers were unhappy with their homes, a rate double that of other age groups. Many hadn't properly budgeted insurance, maintenance and utilities. If you're an agile-thinking homebuilder who wants to sell to this age group, this data will suggest opportunities. You might look for ways to help buyers calculate all-in costing. Or you might take a hard look at your options. For instance when compared to Baby Boomers, most Millenials put a higher value on energy efficiency and home automation systems, things that might not be central to your current business.
Agile Testing. If you have identified a new strategy that seems promising, you will want to test it on a limited basis before rolling it out company-wide. But while this may sound like a conventional pilot program, it's not.
Agile Testing does share characteristics with pilots. Both are designed to evaluate the viability of something new, and both mitigate risk by limiting the cost of failure.
The difference is that a pilot runs its course then either succeeds or fails, while an Agile Test includes a number of decision points, or "gates," at which company leadership decides whether or not to continue. It also includes a learning component: the test is structured so the company gleans lessons from it and sees ways to make use of those lessons even if the test results don't support a full implementation.
An Agile Testing routine:
- Is built around key metrics
- Enjoys executive sponsorship
- Has appropriate financial and human resources assigned to it
- Relies on excellent project management methods
- Provides insights for the organization to learn and benefit from, whether the initiative is carried forward or killed
The decision gates also ensure that an Agile Test can be killed more quickly than a pilot. It's the idea of failing fast—making sure that a minimum of time is invested in ideas that won’t work, so energy can be focused on efforts with a more likely payoff.
Agile Implementation. This is the most difficult step. Any effort to implement a new strategy will run up against inertia and resistance. The Agile Strategizing and Agile Testing routines help overcome these by building the case that the change is vital to helping the company stay competitive.
However, these forces don't disappear once implementation begins; humans by nature resist change, and won't let go of old ways unless there's some benefit to doing so. A company that I used to work for had no budget for new ventures, and no incentive structure to reward individuals or teams for developing new business ideas. Consequently, there was no meaningful change. My desire to embrace innovation was one reason that I left to start my current company.
In a home building company, inertia and resistance can manifest in any number of ways. For instance, if a builder of traditional single-family homes wants to venture into low-rise hipster apartments, it will have more success by creating a separate business with new people and processes than by relying on its existing architects, interior designers and production crews.
If the builder has decided to reconfigure the core business—for instance by switching from stick building to off-site production—it needs to create management structures and incentives that help employees commit to the change. The company and its employees need to continue profiting from the old model while the new one is gradually put in place.
Change is Inevitable
As I mentioned, this column is just a bare-bones outline. Subsequent columns will take a deep dive into each of these four areas. Meanwhile, if you're interested in becoming more agile you can start by asking a few questions.
Does organizational agility make sense for your company? How agile do you think that your organization is today? How prepared are you to lead agile teams and an agile transformation?
The Greek philosopher Heraclitus is quoted as saying "change is the only constant in life." That was 2,500 years ago, and it's even truer today. The answers to these questions will be the first indicators of your company’s prospects as the business environment continues its inexorable path to change.