Creating Management Processes Built for Change
Good management processes help a company execute its strategy and exercise its capabilities. But in fast-changing business environments, companies also need agile management processes that can help the organization change when needed.
The word “agility” has entered the business lexicon like few other terms in recent memory.1 Today’s strategists extol the importance of strategic agility and resilience. IT professionals talk about the need for agile software development. Yet even as agility is mentioned more often and in more management contexts,2 we believe that the core concept is misunderstood. Agility refers to an organization’s ability to make timely, effective, and sustained changes that maintain superior performance.3
An essential feature of agility is repeatability. Agile organizations continuously adjust to changing circumstances by, for example, launching new products or eliminating old ones, entering new markets or exiting underperforming ones, or building new capabilities. This requires management processes that can support adaptability over time.
Agility Routines and Management Processes
To develop our ideas on agility, we studied performance data from the largest public global companies in 22 industries between 1980 and 2012. (See “About the Research.”) We also administered strategic change and organizational design surveys in more than 50 companies. We sought to understand the factors that explained sustained levels of high performance and concluded that organizational agility required four routines:
- The strategizing routine establishes the purpose, direction, and market position of the organization, and supports what management scholars James O’Toole and Warren Bennis referred to as a “culture of candor” that expects organization members to challenge the status quo;4
- The perceiving routine connects organizations to their external environment; they can accurately sense and interpret relevant shifts better than their peers do;
- The testing routine encourages organizations to experiment with different ideas, allowing them to learn on a continuous basis;
- And, finally, the implementing routine facilitates day-to-day changes in products, operations, structures, and systems, but more importantly, orchestrates the development of new capabilities, business models, and strategies.
1. Authors who have proposed definitions or descriptions of organization agility or adaptability include S.L. Brown and K. Eisenhardt, “Competing on the Edge: Strategy as Structured Chaos” (Cambridge: Harvard Business School Press, 1998); H.W. Volberda, “Building the Flexible Firm: How to Remain Competitive” (New York: Oxford University Press, 1998); D. Sull, “The Upside of Turbulence: Seizing Opportunity in an Uncertain World” (New York: HarperCollins, 2009); S. Haeckel, “Adaptive Enterprise: Creating and Leading Sense-and-Respond Organizations” (Boston: Harvard Business School Press, 1999); and M. Beer, “High Commitment, High Performance: How to Build a Resilient Organization For Sustained Advantage” (San Francisco: Jossey-Bass, 2009).
2. Researchers who have addressed strategic features of agility include Y. Doz and M. Kosonen, “The Dynamics of Strategic Agility: Nokia’s Rollercoaster Experience,” California Management Review 50, no. 3 (spring 2008): 95-118; and G. Hamel and L. Välikangas, “The Quest For Resilience,” Harvard Business Review 81, no. 9 (September 2003): 52-63. Researchers exploring agility and adaptability from a design perspective include J. Galbraith, “Designing the Customer-Centric Organization: A Guide to Strategy, Structure, and Process” (San Francisco: John Wiley & Sons, 2011); and C. O’Reilly and M. Tushman, “Organizational Ambidexterity: Past, Present, and Future,” Academy of Management Perspectives 27, no. 4 (November 2013): 324-338. Researchers exploring agility from other perspectives include J.D. Kasarda and D.A. Rondinelli, “Innovative Infrastructure For Agile Manufacturers,” Sloan Management Review 39 no. 2 (winter 1998): 73-82; S. David and C. Congleton, “Emotional Agility,” Harvard Business Review 91, no. 11 (November 2013): 125-128; and R.A. Heifetz, A. Grashow, and M. Linsky, “The Practice of Adaptive Leadership: Tools and Tactics For Changing Your Organization and the World” (Boston: Harvard Business Press, 2009).
3. C. Worley, T. Williams, and E. Lawler, “The Agility Factor” (San Francisco: Jossey-Bass, 2014).
4. J. O’Toole and W. Bennis, “What’s Needed Next: A Culture of Candor,” Harvard Business Review 87, no. 6 (June 2009): 54-61.
5. There are a variety of studies describing capabilities and dynamic capabilities, including S.G. Winter, “Understanding Dynamic Capabilities,” Strategic Management Journal 24, no. 10 (October 2003): 991-995.
6. W.A. Shewhart, “Economic Control of Quality of Manufactured Product” (New York: Van Nostrand, 1931).
7. The “freedom and responsibility” document has come under some scrutiny by those who correctly observe that the policies derived from the document apply only to employees who are not involved in the core DVD distribution and streaming business. What these shortsighted observations fail to acknowledge is that these are the missing pieces of planning, organizing, and controlling an “ambidextrous” organization. We know a lot about how to efficiently and effectively manage Netflix’s core business (and other similar business models), but we know very little about designing organizations for continuous innovation and change. The “freedom and responsibility” policy provides insights into how to make creativity and innovation routine.
8. I. Barreto, “Dynamic Capabilities: A Review of Past Research and an Agenda For the Future,” Journal of Management 36, no. 1 (January 2010): 256-280.
i. We adopted methods from Richard Foster, Sarah Kaplan, Anita M. McGahan, and others. See R. Foster and S. Kaplan, “Creative Destruction: Why Companies That Are Built to Last Underperform the Market — and How to Successfully Transform Them” (New York: Random House, 2011); A.M. McGahan, “Competition, Strategy, and Business Performance,” California Management Review 41, no. 3 (spring 1999): 74-101; A.M. McGahan, “The Performance of U.S. Corporations: 1981-1994,” Journal of Industrial Economics 47, no. 4 (December 1999): 373-398; A.M. McGahan and M.E. Porter, “What Do We Know About Variance in Accounting Profitability?,” Management Science 48, no. 7 (July 2002): 834-851.