Organizational agility

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By Invitation: Insights and opinion from outside contributors

Competing through organizational agility
Three distinct types of agility—strategic, portfolio, and operational—help companies navigate turbulence. Each of them has its own sources and challenges. Donald Sull Market turbulence did not begin with the fall of Lehman Brothers, and it will not end when the global economy recovers.1Indeed, a variety of academic studies—using measures such as stock price volatility, the mortality of firms, the persistence of superior performance, the frequency of economic shocks, and the speed of technology dissemination—have concluded that volatility at the firm level increased somewhere between two- and fourfold from the 1970s to the 1990s (see sidebar, “Recommended reading”).

Don Sullis a professor of management practice at the London Business School and author of The Upside of Turbulence, which introduced the concept of operational, portfolio, and strategic agility.
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In turbulent markets, organizational agility, which I define as the capacity to identify and capture opportunities more quickly than rivals do, is invaluable. Executives know this: a recent McKinsey surveyfound that nine out of ten executives ranked organizational agility both as critical to business success and as growing in importance over time.2 The benefits of enhanced agility, according to survey respondents, include higher revenues, more satisfied customers and employees, improved operational efficiency, and a faster time to market. Over the past decade, I have analyzed more and lesssuccessful companies in some of the world’s most turbulent geographical and
I define turbulence as a measure of the frequency of unpredictable changes affecting the ability of companies to create and sustain value. 2 “Building a nimble organization: A McKinsey Global Survey,” mckinseyquarterly.com, July 2006.

Competing through organizational agility

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product markets, including China, Brazil,European fast fashion, and financial services. This research underscores the importance of agility for success in turbulent markets. My findings also revealed three distinct types of agility: strategic, portfolio, and operational. Strategic agility consists of spotting and seizing game-changing opportunities. Portfolio agility is the capacity to shift resources—including cash, talent, and managerialattention—quickly and effectively out of less promising business areas and into more attractive ones. And operational agility involves exploiting opportunities within a focused business model. Many organizations rely on a single form of agility—companies like Southwest Airlines or Tesco excel at seizing operational opportunities, while private-equity groups like TPG Capital or Kohlberg Kravis &Roberts (KKR) succeed through active portfolio management. In turbulent markets, however, overreliance on a single type of agility can be dangerous. An operationally agile company, for example, is at risk if its core business becomes less attractive. By detailing how companies have enhanced each type of agility, this article seeks to help other managers do the same.

Recommended reading
Theworks below present evidence on rising market turbulence, which can be measured in a number of ways: Firm-level volatility Diego A. Comin and Thomas Philippon, “The rise in firm-level volatility: Causes and consequences,” NBER Macroeconomics Annual, 2005, Volume 20, pp. 167–228. Probability of exit George P. Baker and Robert E. Kennedy, “Survivorship and the economic grim reaper,” Journal of Law,Economics, and Organization, 2002, Volume 18, Number 2, pp. 324–61. The speed with which industry leaders fall from their thrones William I. Huyett and S. Patrick Viguerie, “Extreme competition,” mckinseyquarterly.com, February 2005. Robert R. Wiggins and Timothy W. Ruefli, “Schumpeter’s ghost: Is hyper competition making the best of times shorter?” Strategic Management Journal, 2005, Volume 26,...