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(originally published by Booz & Company)


The Agility Factor

DaVita HealthCare Partners Inc., a Fortune 500 kidney care organization with more than 1,840 dialysis centers, has an effective, institutionalized perceiving routine. To keep all employees focused on the external environment, DaVita abandoned the organization chart. According to the company's point of view, structure focuses too much attention on the hierarchy and not enough on understanding the local marketplace and broader environment. DaVita’s management system orients each local dialysis center to the needs of patients, physicians, and the community. Meanwhile, central management concentrates on activities that deliver future value for the corporation—they charter teams to build leaders, research the implications of healthcare reform, identify M&A prospects, and develop new business. One of these teams identified and pursued a recent merger with HealthCare Partners. This process also identified international dialysis as a potential business opportunity.

This external focus is supported by a hard-and-fast rule that moves information up the hierarchy: “Whenever there is a director and three or more team members in a room, there’s a town hall meeting.” In these meetings, any question can be asked about any subject. If the director doesn’t have an answer, the question goes into his or her email and has to be answered within 48 hours.

All that information—from dialysis centers and initiative teams—gets funneled to top management for consideration. But if you ask who’s on the top management team, you’ll get a puzzled look. At DaVita, different top management teams are accountable for different purposes. That allows the company to assign people with the right expertise to various questions and issues, and improves their ability to interpret signals from their externally focused organization.

Thrashers and underperformers, with inward-looking and politicized management, find this level and intensity of communication congenitally difficult. They are too busy vying for turf, resources, and position to dispassionately consider the implications of outside signals. The external focus of agile companies enables them to face up to brutal facts and separate wheat from chaff.

Testing responses. Agile organizations refine their insights from the perceiving routine with a relatively high number of low-cost experiments. They encourage innovation and tolerate a good deal of failure. Effective testing and innovation activities range from gathering further intelligence, to trying out new ideas on a small scale, to implementing full-scale product development programs. In most cases, there are explicit risk management processes—with valid success criteria so the plug can be pulled if the test fails—and continuous learning efforts so that the insights gained from the tests spread to all relevant parts of the company. Agile organizations invest significantly in learning and continuous improvement, never resting on their laurels or believing they have “cracked the code” once and for all.

The Limited Brands has both informal and formal testing routines that help the apparel retail chain keep pace with fashion trends and competition. Managers get in the habit of asking one another, “What’s new, what’s next?” This connects everyone in the organization, from senior managers to store merchants, to the observations and data they’ve gathered, whether the subject is supply chain innovations or the latest trends in lingerie or healthy products, and pushes them to consider what they are going to do about it. The “what’s new, what’s next” mantra keeps them on their toes. At the store level, small-scale testing procedures make it easy to try out new concepts, point-of-purchase displays, and product extensions. Consumer responses to small-scale tests are vetted by managers, and investment decisions follow successful ideas. Two of the Limited’s blockbuster retail brands—Victoria’s Secret and Bath and Body Works—got started this way. Their success as small experiments inside existing retail stores caught management’s attention and led to big commitments from CEO Les Wexner.

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