Building operational agility: Getting the right information

Leaders recognize the value of agility in turbulent markets, but are often less clear on how they can enhance their own organization’s ability to identify and seize opportunities more effectively than rivals.  Over the past decade, I have analyzed more and less successful firms in some of the world’s most turbulent markets, including China, Brazil, European fast fashion, and financial services. My research revealed three distinct forms of agility-operational, portfolio, and strategic agility.

Operational agility is a company’s capacity, within a focused business model, to consistently identify and exploit opportunities more quickly than rivals. Toyota, Soutwest, and Zara exemplify this form of agility at the corporate level. In diversified groups, operational agility occurs (or doesn’t) within discrete business units. Opportunities create economic value either by raising a customer’s willingness to pay (which translates into higher price or volume) or by reducing costs. The best firms exploit both types of opportunity with equal fervor. Toyota, for example, has consistently anticipated consumers’ shifting preferences-for quality, fuel-efficiency, and environmental impact-and introduced vehicles to meet emerging needs. At the same time, Toyota’s production system weeds out activities that do not add value for customers.

Toyota illustrates another aspect of operational agility. Firm’s should exploit revenue and cost opportunities with equal discipline throughout the economic cycle. Toyota introduced its lean system in the midst of a deep downturn, and continued to refine it after demand picked up again. Many companies, in contrast, veer between periods of undisciplined growth and brutal cost cutting. During a boom executives press the gas pedal to grow revenues, but when the economic cycle turns they slam on the brakes, abandoning growth to slash expenses. When the economy picks up again, they abandon their new-found cost discipline to chase growth. This stop-go approach causes organizational whiplash not operational agility. The best growth opportunities often arise as competitors stumble in a recession, while inefficiencies sprout like weeds during a boom.

Firms are most likely to achieve operational agility when several interdependent aspects of the organization–including information systems, incentives, and culture–work together to support agility.  My next few posts will discuss the actions managers can take to build greater operational agility into their own organization.

Information systems: RUSH data

Firms must spot opportunities to exploit them, and the best information systems provide data that are real-time, unfiltered, shared across the organization, and holistic (drawn from multiple data sources), which I call “RUSH” data.  In earlier posts, I have discussed these characteristics of data more broadly, but here will limit my discussion to how RUSH data can enhance operational agility.

My favorite example of RUSH data is the Spanish retailer Zara, which overtook Gap as the world’s largest clothing retailer in 2008. To serve its target customers–Europe’s fashion-conscious young women–Zara must spot trends as they emerge, design trendy products, and place them in stores before the fashion shifts again. Zara’s much-discussed supply chain delivers items into stores quickly, but the retailer’s information systems provide the RUSH data to spot market opportunities in the first place.

Real time: Zara’s cross-functional design teams pore over daily sales and inventory reports to see what is selling, what is not, and continuously update their view of the market. Twice-weekly orders from store managers provide further information on what might sell. You might think that real-time data is the norm in the retail industry. Surprisingly, some retailers can only piece together monthly reports despite significant investments in enterprise resource planning (ERP) systems.

Unfiltered: Managers should supplement standardized reports with periodic collection of raw market data to identify opportunities that do not fall neatly within existing reporting categories. In the summer of 2007, Zara introduced a line of slim-fit clothes including pencil skirts in bright colors. Daily sales statistics revealed the items were not selling, but remained mute on why not. Zara marketing managers visited the stores to explore the situation themselves, and learned that women loved how the slim-fit clothes looked, but couldn’t fit into their usual size when they tried the clothes on. Armed with this insight, Zara recalled the items, replaced the labels with the next size down. Sales exploded.

Shared data helps employees come to spot opportunities that might otherwise fall between the cracks of organizational silos. Zara co-locates designers, marketing managers, and buyers in the company’s A Coruna headquarters, where they work in open plan offices. Frequent discussions, serendipitous encounters, and visual inspection help teams intuit the overall market situation and see how their work fits into the big picture.

Holisitic ensures that information is collected from multiple sources to inform the big picture of the market situation. By pulling together information from various perspectives, including different functions, geographies, and external data sources, leaders decrease the odds that they will be surprised by an events. Zara design team members collect sales statistics, financial data, marketing reports, and tidbits of information picked up in conversation with store managers. Designers keep a close eye on what is happening on the catwalks of Paris and New York, the music scene, movies, and television to glean hints about emerging fashions. They also look for patterns across different stores, regions, and countries that might signal a rising fad.

Leading in turbulent times

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Don Sull is professor of management practice in strategic and international management, and faculty director of executive education at London Business School. This blog is dedicated to helping entrepreneurs, managers, and outside directors to lead more effectively in a turbulent world.

Over the past decade, Prof Sull has studied volatile industries including telecommunications, airlines, fast fashion, and information technology, as well as turbulent countries including Brazil and China, and found specific behaviours that consistently differentiate more, and less, successful firms. His conclusion is that actions, not an individual’s traits, increase the odds of success in turbulent markets, and these actions can be learned.