24 March 2020

 

The Difference Between Operational and Strategic Agility

By Biase De Gregorio, Managing Partner at IQbusiness

 

In order to make things sound more important, all you need to do is put the word ‘strategic’ in front of it. Strategic meetings. Strategic workshops. Strategic planning. So on and so forth. However, this not the case for Strategic Agility.

In early February this year, I presented a talk titled ‘The Difference Between Operational and Strategic Agility’ at the inaugural Business Agility Conference Africa. The occasion brought together a group of seasoned practitioners and thought leaders of business agility who shared their insights.

Firstly, Operational Agility is about making existing products better, faster and cheaper for existing customers. This is the core focus on most Agile transformations. How do we make our existing delivery better, faster and cheaper?

Strategic Agility is leveraging off the Operational Agility and introducing new products and services to new markets and clients. This is referred to as market-creating innovation and the goal of Strategic Agility.

This is what INSEAD Professors, W. Chan Kim and Renée Mauborgne dubbed this concept in their classic book, Blue Ocean Strategy, ‘the blue ocean’. Like a boundless blue ocean, the potential for growth in this space is massive because it presents a completely unsaturated market.

Think about the evolution of candles to light bulbs, the horse to the car, DVDs to streaming and dumb phones to smart ones.

Today, many industries are facing massive disruption to decades or even century-old business models. Telcos are under threat by Over-The-Top (OTT) services, automakers are being disrupted by electric and self-driving technology, and even healthcare is being impacted by wearables like smartwatches that can detect health issues long before they require medical intervention.

Simply put, in the 21st Century, Operational Agility is no longer enough to ensure business success. To thrive, businesses need to shift their focus to Strategic Agility, which involves creating new markets with new products that reach new customers.

 

Balancing efficiency and stability with the speed of innovation

 

The reality is that in order to enable Strategic Agility, businesses also need to focus on Operational Agility. That requires balancing efficiency and stability with the speed of innovation.

This is supported in the book, Accelerate: Building Strategic Agility for a Faster-Moving World, where author John P. Kotter says that most businesses start as a network – nimble, connected and customer-centric. As the business grows and hires more people, we start introducing a hierarchy for stability and execution. Over time, the hierarchy completely replaces the network and the pace of innovation grinds to a halt. Kotter, therefore, suggests that what businesses need is a dual operating system for business agility, which combines the speed of innovation with efficiency and stability.

 

Driving innovation

 

At the heart of Strategic Agility is innovation, and a useful model for driving innovation in any organisation is software engineer and agile pioneer Kent Beck’s 3X methodology. When he was working at Facebook, Beck noticed that the company’s success in innovation was due to the way it split innovation into three phases: Explore, Expand and Extract. The Explore phase is all about experimentation and searching for multiple options to solve business problems and meeting changing customer needs. Then we move onto the Expand phase, which is about scaling the selected option. This phase is about overcoming bottlenecks and ensuring that the idea can scale. This is typically the most challenging phase and where organisations struggle to deliver innovative products to market quick enough. Finally, the Extract phase focuses on operational efficiencies where there are repeatable processes that are required to sustain growth and increasing profitability.

 

An agile operating model

 

Most organisations undergo rigorous strategy development that currently have common themes of Customer Centricity, Agility and Digital transformations. This strategy is enabled by generally good value propositions. And Operational Agility focuses on the operational execution and delivery. For me, the challenge in achieving Strategic Agility is the enablement of an Agile Operating Model. Without changing the processes, people and technology, Operational Agility will only get you so far.

Therefore, four elements need to be considered in implementing an Agile Operating Model: structure & governance, technology enablement, people and culture.

When it comes to structure and governance, the challenge is that most modern organisations use a matrix organisation structure, which makes things challenging when an innovative project requires many different organisational units to coordinate. Organisations need to create small product-based teams that can operate in interconnected teams structured to deliver on a value stream. These teams should ideally be long-lived, mostly stable structures with an understanding of fixed capacity. Once this is established, it is recommended that organisations adopt Lean-Agile budgeting whereby we fund these value streams based on what the customer value is that we are trying to focus on.

Technology enablement is another critical element that impacts every single organisation. Today, even your average motor vehicle contains more lines of code than the whole of Facebook! As American entrepreneur, investor, and software engineer Marc Andreessen said, “Software is eating the world.” Organisations have immense opportunities to apply new tech developments like continuous delivery, micro-services and cloud-based architecture to give themselves a competitive edge and accelerate their ability to innovate. As organisations are relying more and more on IT, this becomes even more imperative.

Of course, an organisation is only as good as its people and how it puts them to work. That’s why organisations are starting to apply the Agile mindset to Human Resources, ensuring that they can attract, retain and develop the right talent. Over and above, the way we track and incentivise performance also needs to change. For example, if your employees are measured by a scorecard, why should they focus on anything that’s not already one of their stated objectives? Agile organisations, therefore, need to find new ways to reward and recognise innovation.

Finally, there’s culture. Change management expert Torben Rick says, “The most important thing about culture is that it’s the only sustainable point of difference for any organisation. Anyone can copy a company’s strategy, but nobody can copy a culture.” Because an organisation’s culture is usually established by its first 200 to 300 employees, it’s an incredibly powerful asset. The challenge is how to change an organisation’s culture when it’s been entrenched for many years, and this is where leadership needs to act to carefully guide and foster the culture they envision.

The only way to change the culture of the organisation is to adopt new practices that will foster the right behaviours and only once we have reached a tipping point, will the organisation be successful in adopting Strategic Agility.

I’ll conclude with a story about a company that thrived by matching its words about cultural values with actions and behaviours.

Victorinox is a 136-year old company, founded by Carl Elsener Sr. with the express purpose of creating more employment opportunities for the people of Ibach in Switzerland. The September 11 attacks in 2001 had an unexpected consequence for Victorinox: Suddenly, their flagship product, the Swiss Army Knife, was no longer allowed as a carry-on item, and their sales immediately plunged by 30%.

Instead of retrenching staff, Victorinox immediately started accelerating their investment into new products: watches, fragrances and luggage. They also expanded aggressively into new markets like Russia, India and China. Through their strategic agility, this century-old business managed to save hundreds of jobs and not only adapt but thrive in a disruptive market.