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
Most managers (90% according to two recent surveys) agree that agility is important to succeed in turbulent markets. There is less agreement on precisely what agility is. My research on companies competing in turbulent markets reveals three distinct types of agility: operational, portfolio, and strategic. Operational agility is a company’s capacity, within a focused business model, to consistently identify and exploit opportunities to create economic value, and do so more quickly than rivals. Toyota, Wal-Mart, Southwest Airlines, and British grocery chain Tesco are good examples of operational agility.
Opportunities are not defined by their novelty, per se, but by their ability to create economic value. Economic value is the gap between a customer’s willingness to pay for a good or service,
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