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(originally published by Booz & Company)


The Agility Factor

What Is Agility?

Agility is not just the ability to change. It is a cultivated capability that enables an organization to respond in a timely, effective, and sustainable way when changing circumstances require it. The management literature increasingly refers to this ability as a “dynamic capability”: the potential to sense opportunities and threats, solve problems, and change the firm’s resource base. This allows outperformers to maintain or enhance their relative advantages in ways their competitors fail to see or do not fully implement. Agility is also strategically relevant: Although agile organizations often change, they do not pursue change for change’s sake. They pursue it for the sake of competitive advantage.

Four routines, summarized in Exhibit 2, below, distinguish the high-performing organizations from the thrashers and underperformers. These companies have the ability to strategize in dynamic ways; accurately perceive changes in their external environment; test possible responses; and implement changes in products, technology, operations, structures, systems, and capabilities as a whole. Importantly, it is the whole system of routines, not the possession of one or two of them, that confers agility. Individually, these routines may simply seem like basic practices of good management. However, the hard work necessary to orchestrate them for consistent high performance is advanced and uncommon. By executing these routines in concert, over and over again, the outperformers consistently outpaced competitors.

Strategizing dynamically. Most business people would agree that a clear, relevant, and shared strategy is an important management practice. However, agile organizations don’t define strategy the way other firms do. For them, strategy has three explicit parts: a sense of shared purpose, a change-friendly identity that is nonetheless stable enough to ground the organization, and a robust strategic intent that clarifies how the firm differentiates itself.

The Capital One Financial Corporation, which since its founding in 1994 has grown into a $16 billion consumer finance powerhouse, demonstrates all three elements of strategizing dynamically. It has a widely shared and well-understood sense of purpose that is codified in its mission statement and business model. These articulate what the firm does (its products and services), define those it serves (its customers and stakeholders), and lay out how it delivers value in a differentiated way. It also provides employees with clear expectations about behavior.

Capital One’s change-friendly identity is embodied in a phrase that its managers often use in conversation: “test and learn.” No matter what the business activity—new product development, organizational innovation, adaptation to regulation, or advertising—the organization has an institutional way of experimenting (a “test”), drawing conclusions, and then applying them to new business. As it happens, the way Capital One has chosen to compete over time evokes one of the other agility routines (“testing responses”). Here it goes further, becoming an aspect of Capital One’s stated identity, unchanging even as it recognizes the need for continual change as a matter of course.

The company’s ongoing business strategy—its strategic intent—also enables it to embrace continuous change. Capital One is known for its willingness to rapidly shift its operations (for example, the range of customer segments served, channels used, or products offered); to adjust the aggressiveness of its marketing, customer support, new product development, or R&D; and to modify the features it offers consumers. Capital One seeks its competitive advantage not through a single product line or approach, but through an ongoing series of temporary advantages that exploit current business conditions.

Perceiving environmental change. Agile companies take special care to accurately sense what is going on in the environment. Managers and employees are put into direct contact with customers, regulators, and other stakeholders through multiple touch points, structures, and practices, and they are expected to gather intelligence. They communicate their perceptions of the external world to company decision makers who have the support and knowledge they need to interpret those messages as important or unimportant, opportunity or threat. All three elements of perceiving environmental change are essential. Sensing without communicating is wasteful; communicating without interpreting is just noise.

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