By Ed Barrows and Andy Neely
As the economic recovery takes hold, managers might be tempted to breathe a sigh of relief and ease up on the pace with which they have been driving their organizations. However, doing so—although appealing—could have disastrous consequences.
While the economy is indeed improving, competitors have gotten stronger, the pace of change continues to accelerate, and customer demands keep advancing. Each of these factors creates turbulence—difficult to predict environmental discontinuities that cause jolts and shocks to performance. Even worse, this turbulence is increasing. To respond effectively, managers must build agility into the fabric of their organization. How? By using a simple process we call Fast Cycle Performance. In this article we’ll discuss agility, why it’s important, and outline the four steps any company can use to build Fast Cycle Performance.
According to Don Sull, Professor of Management Practice at London Business School, organizational agility is defined as “an organization’s capacity to identify and capture opportunities more quickly than rivals do.” This is a good definition, but it should be expanded to include the ability to sidestep threats—a major challenge for most businesses today.
How important is agility? An Economist survey found that 90% of managers interviewed believed agility was critically important to performance today . A similar study by McKinsey & Company found the same: nine out of ten executives ranked agility as both critical to business success and growing in importance. Yet despite a clear definition and ample evidence of its need, agility is anything but easy to find in practice. It’s hard to pinpoint exactly why, but based upon our research, we believe this is because traditional performance management systems do very little promote agility. In fact, they often do the opposite—they prevent it. Stodgy processes like traditional strategic planning, budgeting, and other forms of performance management take so long to complete and are so cumbersome to execute, that they slow down the organization when they should be speeding it up. This problem can be fixed, however, through the four steps of Fast Cycle Performance. Here’s how it works.
Step 1: Modeling Performance
Most organizations engage in some sort of regular strategic planning. This gives managers an opportunity to reflect on performance, discuss major issues, and chart a future path for the organization. Strategic plans, however, can take months to create and may sit on the shelf long after they’re completed. This practice hardly makes for agile organizations. Instead of conducting routine strategic planning, leaders should work to transform strategy making into a dynamic activity we call Modeling Performance.
Business leaders can enhance their agility by building a model of their strategy that reflects the key objectives they intend to pursue. There are many performance models that can be used to show strategy. For example, in his classic 1996 article, “What is Strategy?” Harvard Business School Professor Michael Porter introduced the concept of the “activity map” to depict how the key activities of a business relate to one another. More recently, Alexander Osterwalder and Yves Pigenur in their bestselling book “Business Model Generation” show how a business model can be drawn on a one-page canvas that shows nine blocks that reflect areas ranging from resources and customers to revenue streams and key activities. The specific model isn’t important; what is important is that managers choose a model that is easy to understand and use. Creating a performance model helps translate strategy into a set of objectives that can be seen graphically, communicated to employees, and then managed effectively. Through Modeling Performance leaders can improve their agility by imprinting the specific ways in which the business intends to create value in the minds of employees.
Step 2: Managing Projects
Projects are the key drivers of progress in virtually every organization. Vital projects are those that are directly linked to critical strategic performance objectives—ideally the ones articulated in the performance model. Because success is so tightly tied to these projects, they need to be managed carefully by members of the top management team themselves. Unfortunately, this is where many organizations experience real challenges. Too often vital projects are not aligned to key strategies; they are not managed actively nor are they resourced fully. The result is that project success is the exception rather than the rule.
According to a PwC survey of global project management practices only 2.5% of the 200 companies surveyed had 100% of their projects completed on time, within budget, to scope, and delivering the right benefits. Most project failures can be attributed to internal factors. Thus, effectively managing projects is a central feature of agile organizations. To improve high level project management in an organization is to improve overall agility.
There are simple steps that organizations can take to bolster project management. First, creating clear business cases for projects that are linked directly to strategic objectives ensures leaders will allocate resources and energies to the organization’s most pressing business challenges and opportunities. Next, by actively managing vital projects via the top team, leaders create accountability and ownership for the key drivers of progress. When this happens, obstacles to project progress can be quickly identified and removed, and completion rates will improve. Finally, leaders can start and stop projects quickly and realign resources in a dynamic way. Through and improved focus in managing projects, leaders can significantly enhance overall agility.
Step 3: Measuring Progress
With the advent of business intelligence and business performance applications, leaders can measure more areas of performance than ever before. One might be tempted to conclude that managers have all the information they need to assess business performance right at their fingertips. Yet when asked about the effectiveness of their measurement systems, leaders lament that too much data is financially oriented, historical in nature, and of limited value in providing true performance insight. While raw data can be collected quickly, it is the interpretation that counts. Interpretation is time consuming and organizations that have a difficult time interpreting performance data will be challenged when it comes to taking action. Agility is impacted again.
What is needed is an improved way to measure. To improve organization agility, business leaders need to reduce their measures so they can more closely and carefully gauge two dimensions of business performance: progress toward completion of strategic objectives (articulated within the performance model) and progress toward completion of vital projects (linked to strategic objectives). While measurement data can be captured for virtually anything, not all things that can be measured are of equal importance. Attention should be paid to those objectives and projects that compel strategic progress. Managers should summarize project plans, critical objectives, and review key milestones with leaders on a regular basis—ideally monthly. A tool like a balanced scorecard or a strategy dashboard is particularly useful here. When leaders focus on a few vital projects and strategic objectives, they drive the performance needed to keep pace with the changes in an organization’s operating environment.
Step 4: Making Decisions
The purpose of the first three steps: modeling performance, managing projects, and measuring progress is to help business executives accomplish one thing: making decisions. A major contributor to organizational agility is the ability to make rapid, informed decisions that move the organization closer to accomplishing its strategic objectives. Interestingly, research from consultants at Bain & Company indicates that the average organization has the opportunity to more than double its decision effectiveness . It should then come as no surprise that the better equipped leadership teams are to make thoughtful decisions the more agile they will be as competitors.
Fortunately, most executives know how to make decisions—choices among sets of alternatives. Unfortunately, many executives spend too little time thinking about the causes of the problems that created the need to make a decision in the first place. Structured problem solving is one of the basic skills lacking in organizations today, leading to decisions that don’t actually address the real problem.
Managers must improve the ways they assess situations, identify where performance gaps exist, outline the set of potential causes, determine—with data—what is causing the shortfall, and take action to improve results. This approach, called issue-based problem solving, is a proven methodology used by high performing firms to address significant challenges. Because of its effectiveness in helping frame and address major problems, this strategy should be a part of any agile performance management system.
Delivering Fast Cycle Performance
Simply implementing the four steps described above is only the beginning. To successfully impact performance, the four steps must be executed with increasing speed. Like a fighter pilot cycling through a decision and action loop faster than his rival combatant, a company’s leadership team must do the same when they accelerate the four steps of the Fast Cycle Performance process. When they do, information will flow better and decisions will be made more quickly and effectively. In short, they will become agile competitors able to tolerate the turbulence in their environment.
—Economist Intelligence Unit, Organizational Agility: How to Business Can Survive and Thrive in Turbulent Times, London, 2009.
—McKinsey and Company, Building a nimble organization: A McKinsey Global Survey, mckinseyquarterly.com, 2006.
—PricewaterhouseCoopers, Boosting Business Performance through Programme and Project Management,” June, 2004.
— Bain & Company, “The Decision-Driven Organization” Harvard Business Review, 2
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