How to Thrive in a World of Disruption
By: Mit Ide
Tags: Business Agility, Innovation, Digital Transformation

How to Thrive in a World of Disruption

Agility may sound simple, but it’s critical and complex for many organizations to achieve. These tips can help them stay nimble

Image: McKinsey

By Irving Wladawsky-Berger

Looking back upon my long career, it’s frankly sobering how many once powerful IT companies are no longer around or are shadows of their former selves, e.g. Digital, Wang, Sun Microsystems, BlackBerry. The forces of disruption might have been more powerful in the fast-changing IT industry, but no industry has been immune. In less than two decades, the global recorded music industry has lost over half its revenue, while the drop in newspaper advertising revenue in the U.S. has been even steeper. Retail has undergone major changes with the rise of e-commerce, as has telecommunications with the transition to mobile phones.

Why have so many companies been done in by disruptive technological and market changes? Is it that in spite of all their efforts in strategy formulation, their management was unable to anticipate them and were caught by surprise? Or it is that, as if actors in a kind of Greek tragedy, they see the changes coming and understand what needs to be done, but are somehow unable to make the needed strategic and cultural transformations?

“Evolutionary fitness of organizations is determined by their ability to effectively respond to environmental changes,” write Leo Tilman and Charles Jacoby in their recently published book Agility: How to Navigate the Unknown and Seize Opportunity in a World of Disruption. “Extinctions generally follow a familiar pattern. Environmental signals — both positive and negative — are undetected or ignored. Leaders fail to recognize the new reality and accept it for what it is. No viable strategic vision for the new environment is developed. Instead, a myriad of tactical activities is deployed, without amounting to a coherent strategy. Existential risks remain hidden until it’s too late.”

“To thrive in the years ahead, all organizations, both public and private, will need to make a concerted and ongoing investment in the knowledge, capabilities, processes, and cultures that foster a distinctive and all too rare organizational quality — agility. Only then will they be positioned to adroitly respond to change, exploit uncertainty deliberately and decisively, and seize the unprecedented possibilities of this new age.”

The term agility is used in a variety of contexts. In competitive sports like tennis, agility implies the ability to shape a winning strategy during the game based on understanding the strengths and weaknesses of the opponent. Agile software development is based on the early availability of experimental prototypes, user feedback, continuous improvements, and rapid responses to technology, market and user requirements.

But, what does agility mean when applied to business, government and other institutions? Tillman and Jacoby define agility as “the organizational capacity to effectively detect, assess, and respond to environmental changes in ways that are purposeful, decisive, and grounded in the will to win.” Given the uncertainty and complexity of the competitive environment, an agile culture and mindset is a particularly important strategic advantage to all organizations— from the largest to the smallest, regardless of industry or geography.

One of the central messages of the book is that agility is achievable. To help organizations do so, the authors deconstruct agility into its fundamental components: detection, assessment, and response.

Detection. In today’s fast changing environment, every company — no matter how large and powerful— should consider itself but one asteroid away from oblivion. You never, ever want to first learn about the incoming asteroid when it’s about to hit, and then have to improvise your survival strategy in the middle of a crisis. Talented people should have spotted the incoming asteroid — that is, the transformational technologies and market disruptions— as early as possible.

“The organizational ability to detect environmental changes that warrant a response requires a deep understanding of the competitive landscape in all its richness and complexity… Instituting a robust organization-wide detection process is challenging, and it’s made more so by the pressing challenges of the day-to-day execution… Stepping back to think deeply about the nature of our environment, broadening and deepening our field of vision, and sharply questioning what we do and don’t know is often viewed as a luxury. Adopting the agility mindset fundamentally transforms this perspective, turning a nice-to-have ‘luxury’ into a mission-critical priority.”

Assessment: How can a company, not only survive the forces of creative destruction, but be able to leverage those very forces to help transform and propel itself into the future? How can you turn survival into the driving force of innovation?

“For the process of detection to be effective, senior leaders must continually assess and explain to the whole of the organization what information is needed to shape strategy, manage risk and direct execution.… Once potential risks and opportunities have been spotted, the quality, reliability and completeness of the information must be carefully studied… To be meaningful and practically useful, the environmental changes that have been detected must be placed in our unique organizational context. This requires that the entire set of risks inherent in our business model is identified and aggregated in ways that are both rigorous and intuitive.”

Response. The authors argue that there are two kinds of responses to organizational change. Senior leaders are responsible for the strategic response to a major disruption — which involves adjustments to the overall strategy, business model and financial objectives. Empowered employees are responsible for the tactical response to changes encountered during strategy execution, which involve smart risk-taking, innovation and on-the-job improvisation. They both require a thorough understanding of the operating landscape, while leveraging the execution dexterity required to deal with each unique situation.

To be successful, all stages of the detect, assess, respond process must be enabled by three key organizational competencies:

Risk Intelligence, that is, the ability to recognize and assess major changes affecting the overall organization in real time. Risk intelligence helps uncover hidden connections among seemingly unrelated risks, aggregate a variety of different risks and align the response to risk with the organization’s goals and resources. “Instead of ‘avoiding,’ ‘controlling’ and ‘mitigating’ risk, agile organizations exploit, manage and channel risk and uncertainty in pursuit of their goals.”

Decisiveness — i.e. a bias for deliberate action— positions the organization to act in a timely manner when opportunities and challenges arise. Decisiveness requires a common understanding of the actions to be taken and clear communications across the whole organization of what must be achieved and why.

Execution dexterity, that is, the ability to make effective use of all the organization’s resource and capabilities as required by the circumstance at hand. Execution dexterity plays a vital role in strategy development “because our realism about the strengths and weaknesses of our capabilities and our ability to effectively deploy them is a critical aspect of shaping an effective strategy.”

“To thrive in the years ahead, all organizations, both public and private, will need to make a concerted and ongoing investment in the knowledge, capabilities, processes and cultures that foster a distinctive and all too rare organizational quality — agility. Only then will they be positioned to adroitly respond to change, exploit uncertainty deliberately and decisively, and seize the unprecedented possibilities of this new age.”