As a state-owned enterprise, Embraer had long suffered under stifling bureaucratic processes. One long-time employee recalled, “Embraer was subject to many procedures, norms and government audits, which contributed to bureaucratizing the company, setting barriers to its efficient operations.”
Founder and long-time CEO Ozires Silva initially wanted to establish Embraer as a private firm, and resorted to government funding only after failing to persuade private investors to finance such a risky enterprise. Under Silva’s leadership, Embraer was not as bad as many other state-owned enterprises in Brazil: bloated infrastructure, over-politicized appointments and lack of long-term financing. But it still suffered from the bureaucracy that often plagues state-owned enterprises.
However, government influence prevented Embraer from promoting employees based on merit, responding quickly to changing market conditions, or developing sophisticated financial engineering strategies. Nevertheless, his successor dramatically increased the organization’s agility through a number of steps.
- Delayer and organize around customers. To reduce the distance from the top to the bottom of the organization, Botelho reduced the number of managerial levels from seven to five. By 1996, Botelho
How can managers survive and thrive in unpredictable markets? To shed light on this question, I and my co-author Martin Escobari, who is now a managing director of Advent International in Brazil, analyzed ten Brazilian companies that managed to survive and thrive amidst the turmoil of the Brazilian market during the 1990’s. In several cases these companies emerged as world-class competitors in global industries including aerospace, brewing and banking.
We published our findings in the book Success Against the Odds. My posts through the rest of the summer will draw on our research and this book to bring to light some of the impressive success stories and the broader principles they illustrate about thriving in turbulent markets.
These firms’ success is an impressive accomplishment, because Brazil is one of the most unpredictable markets in the world. Brazilian managers during the 1990’s faced volatile exchange rates, sporadic availability of capital, inconsistent industrial policy, unpredictable rates of inflation and interest, and sharply increased levels of foreign competition, in addition to the competitive threats, shifting consumer preferences, and potential technological disruptions common to every country.
An elite group of Brazilian companies not only survived this turmoil, but actually emerged stronger at the end of the last decade. They responded quickly and effectively to shocks that threatened their very survival and
Managers and employees spend much of their time in discussions, but too often conversations bog down in an endless series of unproductive meetings in which the usual suspects cover the same ground without making progress. Frustration mounts as participants “spin their wheels” or “talk in circles.” This frustration often occurs when managers lead the wrong kinds of discussions at the wrong time in the wrong way.
My last post introduced the agility loop as a simple framework to helm managers and employees structure and lead discussions in a more effective manner. The first step in structuring and leading discussions through the agility loop consists of deciding which discussion to have when, who should be involved, and how to lead these conversations. The following questions can help managers improve their discussions.
1. What are we talking about? This simple question often surfaces a disturbing lack of focus about the objective of a discussion. Discussions, particularly those that take place in large groups, often derail when participants pursue multiple strands simultaneously and end up talking past one another. To focus their brainstorming discussions, the design firm IDEO enforces a rule that a team can only discuss one idea at a time.
2. Are the right people in the room? Conversations often fail before they begin, when team leaders fail to bring
How can managers build organizational agility in turbulent markets? My recent posts have discussed how fighter pilots, software engineers, entrepreneurs, scientists, and venture capitalists achieve agility by proceeding into the future through a series of iterative loops. It is easy to envision a fighter pilot going through a series of iterative loops of observing the situation, orienting himself, deciding what to do, acting, and then repeating the cycle over again. Leaders in large organizations must coordinate complex activities across diverse units where people have different world-views, values, time-frames and priorities.
The complexities of achieving agility in large, complex organizations raises a series of thorny questions: How can a managers from different functions and geographies develop a shared understanding of a situation is in flux? Given uncertain outcomes, how can they decide which initiatives to pursue and which to kill? How can they prevent priorities from proliferating? How can they agree on what to stop doing? How can they execute against objectives that shift as new information comes to light? How can they make mid-course corrections in light of new information?
To understand how to enhance agility in large, complex organizations it helps to go back to basics, and remember that management, at its heart, consists of getting things done through discussions with other
Entrepreneurs can pursue an opportunity much as scientists pursue knowledge–by following a disciplined process of identifying an anomaly in the market, formulating a plan to fill the gap, testing their plan in the real world, and revising their assumptions in light of new information. Menlo Park based ONSET Ventures, a venture capital firm focused on fledgling start-ups, has codified a set of practices that increase the odds that entrepreneurs formulate, test, and revise their working hypothesis in a disciplined fashion.
Since its founding in 1984, ONSET has backed over 100 early stage start-ups, 80% of which have gone on to receive subsequent rounds of financing, a much higher success rate than the average for investments in raw start-ups. When they co-founded ONSET in 1984, Terry Opdendyk and David Kelley (who also founded IDEO) conducted a systematic study of 300 seed stage ventures, with an eye to understanding the factors that influenced their ultimate success or failure. They found that a few factors accounted for most of the variation between successful and failed start-ups, and codified these findings into a set of principles for incubating new ventures.
- Simplify the working hypothesis. When selecting potential investments, ONSET partners use a set of
My last post described Karl Popper’s cycle that explains how scientists spot anomalies in existing theory, formulate a working hypothesis, submit it to rigorous testing, then revisit their hypothesis in light of new information. Entrepreneurs, it turns out, can exploit opportunities much like scientists pursue knowledge, by spotting a gap in the market, formulating a business plan to fill that gap, and then running experiments in the market, and revise their plan in light of new information.
- Notice a gap in the market. In the first step, the entrepreneur or manager notices an anomaly in the market that may point to a potential opportunity. Typical anomalies include a product that shouldn’t sell but do or customers using a product in an unexpected way. Consider Noodles & Company, a chain of
In the early Twentieth Century, most people viewed scientific hypotheses as theories that had not yet been proven. The philosopher of science Karl Raimund Popper flipped this view on its head, and argued that any theory-even one as well–established as Newtonian physics–was simply a hypothesis that had not yet been disproved.
Popper viewed science as a Darwinian struggle for survival between competing theories. Every theory is an imperfect representation of reality and vies for preeminence by surviving experimental scrutiny in the real world. Rigorous testing weeds out weaker theories, leaving only the strong to survive. Eventually, further experiments expose the flaws of the survivors, and yet stronger theories replace them as well. Science, for Popper, was a permanent battle for survival.
The engine that drives scientific progress, in Popper’s view, was an unending cycle that iterated between spotting an anomaly, formulating a working hypothesis, and submitting that theory to empirical and logical scrutiny to identify defects, steps elaborated below.
- Notice an anomaly. The cycle begins when a scientist bypasses a theory’s strong points to search out its
My last post argued that a linear approach of predict, plan, and proceed is a dangerous way to advance into an uncertain future. This approach locks into a plan prematurely without the benefit of information that emerges later. Linear planning also increases the risk of escalating commitment to a failed course of action, whereby leaders stick to their initial plan–despite mounting evidence that the plan is flawed–to avoid admitting to they were wrong.
A more robust approach bends the line into a loop by incorporating regular revision of assumptions and mid-course correction. Colonel John Boyd introduced the OODA loop to describe how combatants observe a situation, orient themselves, decide what to do, and act, before observing the changed situation and moving through the entire loop again. Viewing combat as a series of successive loops underscores the importance of reassessment and readjustment as circumstances change, and the cumulative benefits of many small wins in successive iterations.
Boyd’s OODA loop is a vivid example of an iterative loop to guide action under uncertainty, but it is far from the only example. Indeed iterative loops have emerged independently in diverse domains, including science, new product development, and venture capital, all endeavors where practioners must act in the face of uncertainty.
- Experimental loop. The philosopher of science, Karl Popper, viewed the process of scientific inquiry as an
Turbulent situations produce opportunities for victory, and agile competitors succeed by consistently identifying and exploiting opportunities more quickly and effectively than rivals. But how do they do so? If agility confers success, what confers agility? This was the question that US Air Force Colonel John Boyd tackled when he analyzed the surprising success of the American-made F-86 Sabre fighter against the MiG 15 in dogfights during the Korean War. Boyd discovered that the Sabre had two structural advantages–a bubble canopy and full hydraulics–that largely explained their success. Looking through the bubble canopy, pilots could develop and maintain a fuller understanding of battle as it unfolded, and the plane’s full hydraulics allowed them to shift quickly from maneuver to maneuver to stay one step ahead of their adversaries.
If Boyd had ended his analysis here, he would have provided a compelling answer to a specific question. Instead Boyd generalized his findings by viewing the dogfights over the Korean peninsula as the distilled essence of a much more general phenomenon–competition to seize opportunities in any rapidly-changing, turbulent situation. Boyd’s breakthrough occurred when he conceptualized air battles as taking place in loops, where the pilots cycled through four steps–observe, orient, decide and act.
The cycle begins when a pilot observes the situation, including the hundreds of readings from the cockpit instruments and outside signals-the glint of sunlight from an upturned wing or an unexpected vibration. The bubble canopy expanded the Sabre pilots’ vista and allowed them to form a more expansive view of the unfolding situation. In the second step, the pilot oriented himself by forming
Entering the Korean War, experts predicted the Communist alliance supporting the North Koreans would dominate the skies. The alliance of Soviet, Chinese, and North Korean pilots flew the MiG 15, a plane considered superior on most dimensions to the F-86 Sabre flown by the United Nations forces. Not only did the Communist forces have better planes, they could deploy more of them, at least in the early stages of the war. They also enjoyed superior position. The Communists massed large formations of MiGs on the Chinese side of the border with Korea, where they waited to attack the UN fighters. When the MiG pilots were losing, they could retreat to their base behind the Chinese border, which UN pilots were forbidden to cross.
Despite their disadvantages, the UN pilots won ten aerial battles for every one they lost during the Korean War. Prevailing military doctrine could not easily account for the Sabres’ unexpected success. Success, according to existing theory, came from either superior resources or better position. The UN forces enjoyed neither. The lopsided victory in dogfights over the Korean peninsula inspired more pride than understanding for decades, until Colonel John Boyd analyzed these battles while trying to design a new fighter plane.
Boyd discovered that early comparisons with the MiGs overlooked two structural attributes of the Sabre that