This is the last post in my blog for the Financial Times. I will take a break from regular blogging, but I will from time to time post new materials on my website.
A bias for action counts as a cardinal virtue in business. In turbulent markets, however, a bias for action can cause companies to chase every opportunity as if it were the chance of a lifetime or responding to every threat as if it could destroy the company. Frantic activity dissipates an organization’s war chest and focus and leaves it poorly positioned to seize golden opportunities when they do arise. (There are other risks to a bias for action, as I argued in an earlier post). Managers require discipline to say no to potential distractions to maintain reserves for golden opportunities and major crises when they arise.
When conducting research on Brazilian multinationals, I learned about the sport of spearfishing, which serves as a graphic metaphor to illustrate the importance of disciplined opportunism. Spearfishermen dive underwater without oxygen tanks, armed only with a gun with a single spear. Once submerged, they surround themselves with kelp, which both attracts fish and hides the fisherman from his prey. Then he waits, motionless in the murky water, conserving oxygen and energy while waiting for the right fish to approach. A good fisherman can stay underwater for up to four minutes, and during this time needs the discipline to let the small fish swim by, while preserving his spear for the big prey, which can be as large as a person. At the right time, the fisherman shoots his spear with deadly accuracy. If he succeeds in spearing the fish, he must then reel it in and quickly kill it before surfacing with his catch.
Not a sport for the impatient or faint of heart, spearfishing provides a graphic metaphor to illustrate the process by which companies can effectively wait for, identify and seize opportunities in a turbulent market. The
Execution is critical to success, yet the majority of companies struggle to translate strategy into action. Recent studies, including a survey of over one thousand organizations globally, reveal that 60% of organizations fail to execute their strategy effectively. One of the most widespread obstacles to execution is the gap between the nature of work in turbulent markets and the techniques managers use to get things done.
A century ago, much economic activity could be standardized. It took place inside the bounds of a strict hierarchy. Ford Motor Company produced the Model T along an assembly line, with activities from production of components through distribution of cars within the confines of the Ford hierarchy. Such work could be managed through power-employees followed the bosses orders or left-and well specified standard operating procedures.
In recent decades the nature of work in developed countries has changed along two dimensions. First, much of
Anomalies are gaps between reality and the mental maps we use to guide our actions. My last few posts identified anomalies that often point to opportunities. People can further increase their odds of spotting an opportunity if they understand obstacles that dull our attention to incongruous data. I discuss four important impediments below.
The seduction of routine. “Routine,” according to the English philosopher Alfred North Whitehead, “is the god of every social system.” Standardizing an ad hoc process-from cooking hamburgers at McDonalds to assembling cars at Toyota-increases efficiency, reduces waste, and paves the way for continuous improvement. During the past sixty years, a series of process management tools, including total quality management and lean manufacturing, have spread rapidly. These tools all aim to identify defects, such as burnt Big Macs or defective radios in a Camry. Six sigma, and similar techniques, make perfect sense for improving high volume activities such as fast food preparation and manufacturing, where deviations annoy customers. Striving for zero defects in all activities, however, discourages experimentation and hampers learning. More subtly, it dulls sensitivity to anomalies, which are coded as as defects to be eliminated rather than clues to be explored. Process
The Counter-Reformation bred a host of new religious orders, but within a few decades the Jesuits rose above the others newly-formed religious orders in terms of size, global spread, and influence. My last post described how the Jesuits attracted talented priests and allocated them to the most promising opportunities, and the post before that introduced the remarkable success of the early Jesuits as depicted in John O’Malley‘s outstanding history The First Jesuits. O’Malley demonstrates that Ignatius of Loyola did not have a clear master plan to guide the Society of Jesus in its early years. Rather the early Jesuits explored multiple ministries, pulled back from those that didn’t work, ramped up those that did, built a cadre of priests who could be deployed against any opportunity that arose, all without losing sight of their overarching mission to save souls.
The Jesuit’s approach is best characterized as “strategic agility,” or an organization’s ability to seize opportunities to achieve long-term goals as they arise and build the resources–including people, cash, and brand–to exploit unforeseeable opportunities. Strategic agility combines clear long-term mission (saving souls for the Jesuits) with a recognition that the best opportunities cannot be planned in advance. Strategic agility describes how organizations including Chinese food leader Tingyi and the U.S. Marine Corps proceed into a foggy future. The early Jesuits illustrate key principles of strategic agility in action:
- Plunge into the fray. In uncertain situations, plunging into the fray is a better way to spot opportunities than contemplating the situation from a far. The early Jesuits emphasized “the world is our
I recently published a McKinsey Quartlerly article and video interview on how organizations navigate turbulent markets. The article, in a nutshell, argued that organizations can be agile in three distinct ways: Operational agility (think Wal-Mart or Tesco) refers to a company or business unit’s ability, within a focused business model, to consistently identify and seize opportunities more effectively than rivals. Portfolio agility (think P&G or GE in its prime) is an organization’s capacity to quickly and effectively shift resources out of less promising businesses and into more attractive opportunities. Finally, strategic agility describes an organization’s ability to identify and seize game-changing opportunities at they arise, and helps explain the long-term success of companies like Oracle and Banco Santander.
Along with the article, McKinsey Quarterly conducted an on-line survey whereby readers could assess their own organization in terms of the factors that foster operational, portfolio, and strategic agility. The survey consisted
Or so Bertrand Russell wrote in his autobiography. And being a good patient, I will follow the doctor’s advice, and resume blogging in early January. Best wishes to all for a festive and relaxing holiday season.
Market turbulence increases the value of agility–an organization’s ability to identify and seize opportunities to create economic value faster and more effectively than rivals. Organizations must align several features, including information systems, culture, and priority setting, to achieve agility. This post focuses on how incentives can help promote agility, using the case of consumer goods maker Reckitt Benckiser (RB) to illustrate the argument. If executives want to promote agility, they should ensure that their performance management system achieves the following five objectives.
1) Attract the “right” people in (and weed the “wrong” people out). Companies (including RB) often state that their incentive system attracts the “best” people, but this is not quite right. “Best” implies a rank ordering of
Organizational hydraulics translate corporate priorities into coordinated action throughout the organization. Hydraulics include processes to select overarching priorities, translate them into individual performance objectives and cascade them down the chain of command, monitor progress, and reward performance. When a firm’s hydraulics are broken, top executives must exert heroic effort to get things done, while well-functioning processes allow an organization to execute effectively on priorities, even when these priorities shift in response to changing market conditions.
In recent decades, few markets have been more turbulent than Brazil, and few firms demonstrated greater agility than Garantia Bank and its affiliated companies, including the brewer AmBev, retailer Lojas Americanas,