Even in the most volatile environment, companies do not face a constant rush of golden opportunities. Instead, periodic golden opportunities are interspersed among many smaller chances. The trick is to keep in the information flow, talk through alternative scenarios, and keep discussing possible opportunities as a management team to decide identify the most attractive.
In the case of Itaú, the golden opportunity came with the privatization of state-owned banks beginning in the mid-1990’s. The Federal Government decided to privatize most public companies in telecommunications, energy, and banking to attract capital to these sectors after years of underinvestment. Roberto Setubal – a member of one of the families that controlled the bank – was appointed Itaú’s CEO in 1994 in the midst of this privatization. In addition to a variety of operational positions in the bank, Roberto Setubal had received a masters degree in engineering from Stanford University, and apprenticed under John Reed, the legendary former CEO of Citibank. Setubal’s breadth of experience helped him to quickly realize that the privatization process was a decisive opportunity for the bank’s future.
Between 1995 and 2002, Itaú purchased eight large banks. Major competitors, including Banco Bradesco and Unibanco, were less aggressive in acquiring assets during the privatization period. Itaú’s ability to see this opportunity was not the result of luck. Rather, the top management team had actively gathered and processed data to identify and evaluate potential opportunities:
- Stay in the flow of information. In a constantly changing environment the top management team must
Anomalies, as I argued in an earlier post, are gaps between reality and the mental maps we use to guide actions. Incongruities often point to opportunities to create economic value.
5. This could work in our industry (but we don’t do it). In 1976, Dr. Govindappa Venkataswamy retired at the age of 58 as a practicing ophthalmologist, and opened an 11-bed clinic in Madurai, India with two other ophthalmologists. Dr. V. was frustrated that existing procedures could not clear India’s backlog of 20 million blind. The “aha” moment came for Dr V. while passing a McDonalds on a trip to the United States. Amazed that McDonalds could serve millions of hamburgers daily, at low cost and with uniform quality, he wanted to learn whether a standardized approach could be used to remove cataracts, the leading cause of blindness in India. After visiting Hamburger University in Oak Brook, Illinois, Dr. V. refined an assembly-line model of screening, preparing and operating on patients, that allowed staff at his Aravind Clinic to conduct nearly ten times as many operations per year compared to doctors in the state-owned hospitals.
4. We should have this at home (but we don’t). In the early 1990s, a Swedish business student tried to store his belongings, but found that all the local self-storage facilities were full. Surprised by the demand for a
In their 1982 bestseller, In Search of Excellence, Tom Peters and Robert H. Waterman, Jr. listed eight themes that explained, in their estimation, the success of the companies they studied. A few of their principles, including “stick to the knitting” and “stay close to the customer” entered business parlance, and one–maintain “a bias for action”–entrenched itself as a fundamental dogma of management practice.
Like all dogmas, “bias for action” captures an important truth. Peters and Waterman defined the principle as a tendency toward speedy decision making–”getting on with it,” rather than getting bogged down in endless meetings. Their exhortation to accelerate decision making provided a much needed fillip to the excessive bureaucracy that slowed action in many large corporations in the early 1980s.
In volatile markets, however, executives often use a bias for action as an excuse to skip the hard work of assessing a messy situation. In an earlier post, I argued that navigating turbulent
Geography shapes destiny. Bordered by oceans to the East and West, the United States has tended towards isolationism through much of its history, while Poland’s position between Germany and Russia has invited invasion from both. Geography, or more specifically the physical layout of organizations, also shapes employees’ ability to make sense of turbulent markets.
The topography of most large organizations-where finance occupies one floor, for example, and marketing another-reinforces the functional fiefdoms that arise naturally among colleagues who read the same professional journals, speak the same jargon, and crunch the same numbers. Geographic dispersion of operations often frustrates executives attempts to foster a shared world-view.
An open office, in contrast, can foster and maintain shared situation awareness among team members. Some of the most agile organizations I have studied, including Zara, Mars, and AmBev rely heavily on open offices, which confer several advantages:
- Frequent discussions, overheard snippets of conversation, and visual observation of who is working on what help employees intuit the overall situation and understand how their own work fits into the bigger
My last post presented findings from a survey on organizational agility that I conducted with McKinsey Quarterly. This post explores findings from two earlier surveys on agility. In June 2006, McKinsey Quarterly conducted a survey, collecting responses from 1,562 executives from public and private companies across a range of industries. The Economist Intelligence Unit (EIU) survey, conducted in December 2008 and January 2009, included responses from 349 executives with 49% from three European countries (UK, France, and Germany), 19% from the United States and Canada, and the remainder from Singapore, Australia and New Zealand. The EIU respondents represented eighteen industries, and nearly one-third had revenues in excess of $5 billion.
The precise definitions of agility varied between the two surveys. For McKinsey, agility is linked to speed and defined as an organization’s “ability to change tactics or direction quickly…to anticipate, adapt to, and react decisively to events in the business environment.” while the EIU defines it as how firms “respond quickly and nimbly to the changing environment.” Both definitions share a focus on how well a firm anticipates and responds to environmental changes.
- It’s not about IT. Information technology factors were ranked as the three least important
People use mental maps to guide action. In turbulent markets, however, these maps quickly grow outdated. To update their maps as circumstances change, leaders need information that has four critical characteristics. My last three blogs have discussed the importance of real time, unfiltered, and shared data. This post argues that holistic data is critical to spot opportunities and threats in volatile markets.
Holistic data integrates information from multiple sources, functions, or perspectives to present a
Execution begins with a mental map to guide action, but these maps represent the underlying competitive terrain imperfectly. Turbulence, moreover, renders once useful maps outdated as market conditions shift. Leaders must update their mental map as circumstances change. They require the right type of data to do so,
We need mental maps to guide action in an uncertain world, but these maps are always imperfect. They reduce complexity to simplicity, omit critical variables, underestimate rivals’ ingenuity, and tend toward stability in a volatile world. The more turbulent the market, the faster maps grow outdated. Keeping a map fluid requires the right data-i.e., real time, unfiltered, and shared. My last post discussed real time data, while this one describes the importance of unfiltered information.
Many organizations deluge employees with more data than they could possibly read, let alone digest. To
Execution starts with when a team or organization forms a shared understanding of the overall market situation. A start-up’s business plan and an established company’s strategy are both examples of what I call mental maps, shared models that represent reality and serve to guide action. Mental maps can range from detailed plans in thick binders to a simple insight sketched on a cocktail napkin. Differences in form should not obscure similarity in role–all mental maps represent the environment, highlight important variables, and suggest a way forward.
During the boom, many companies invested heavily in enterprise resource planning (ERP) systems to consolidate all of their organization’s information into a single data base. In the retail sector, for example, an investment of $100 million for an SAP installation would qualify as modest. A single integrated data base sounds great in theory. In reality, these systems rarely lived up to their advance billing. Senior executives blame the shortfalls on buggy software or flawed implementation. Heads roll, often the manager who championed the new system or oversaw its implementation.
Firing a scapegoat satisfies the corporate need to pin blame on an individual to exonerate everyone else. It does not, however, address the deeper issues of why ERP systems disappoint. These systems fail to meet