Competing through Organizational Agility
Market turbulence did not begin with the fall of Lehman Brothers, and it will not end when the global economy recovers. Indeed, a variety of academic studies—using measures such as stock price volatility, the mortality of firms, the persistence of superior performance, the frequency of economic shocks, and the speed of technology dissemination—have concluded that volatility at the firm level increased somewhere between two- and fourfold from the 1970s to the 1990s. In turbulent markets, organizational agility, which I define as the capacity to identify and capture opportunities more quickly than rivals do, is invaluable.
Over the past decade, I have analyzed more and less successful companies in some of the world’s most turbulent geographical and product markets, including China, Brazil, European fast fashion, and financial services. This research underscores the importance of agility for success in turbulent markets. My findings also revealed three distinct types of agility: strategic, portfolio, and operational. Strategic agility consists of spotting and seizing game-changing opportunities. Portfolio agility is the capacity to shift resources—including cash, talent, and managerial attention—quickly and effectively out of less promising business areas and into more attractive ones. And operational agility involves exploiting opportunities within a focused business model.
Many organizations rely on a single form of agility—companies like Southwest Airlines or Tesco excel at seizing operational opportunities, while private-equity groups like TPG Capital or Kohlberg Kravis & Roberts (KKR) succeed through active portfolio management. In turbulent markets, however, overreliance on a single type of agility can be dangerous. An operationally agile company, for example, is at risk if its core business becomes less attractive.
Many complex interactive systems—such as weather patterns, seismic activity, and traffic—follow what mathematicians call an inverse power law: the frequency of an event is inversely related to its magnitude. In turbulent markets, an inverse power law implies that companies face a steady flow of small opportunities, periodic midsize ones, and the rare chance to create significant value. Examples of golden opportunities include major acquisitions, transformational mergers, the opening of booming markets such as China or India, launching a breakthrough product like the iPhone, or securing hard assets on favorable terms during an economic crisis.
Given the unpredictable nature and uneven distribution of golden opportunities, a combination of patience (to wait for the right time to strike) and boldness (acting when that time arises) is crucial. Carnival, for example, entered the cruise business in 1972 but didn’t build any new ships until the late 1970s, when CEO Ted Arison recognized that airline deregulation would reduce the price of flying to Miami just as the television series The Love Boat was serendipitously educating consumers on the merits of cruises. As Carnival commissioned the industry’s first new ship in nearly a decade, the industry leader, Royal Caribbean, enlarged two existing ships by carving them in half with welding torches and inserting a new midsection. By the time Royal Caribbean ordered new ships, Carnival had seized a large chunk of the growing market.
An effective combination of patience and boldness is easy to recognize in hindsight. But pulling it off in the heat of battle is no mean feat. Observing a sizable number of organizations that have demonstrated strategic agility has highlighted for me three principles that may prove useful for other companies.