BOOK SPECIAL...A Structure for Strategic Agility

A Structure for Strategic Agility

Accelerate: Building Strategic Agility for a Faster-Moving World, by John P. Kotter, the Konosuke Matsushita Professor of Leadership Emeritus at Harvard Business School, is primarily about the ability to adjust strategy quickly in response to changes in the global business environment. This is a ripe topic for discussion (as well as one in which Kotter, a noted change expert, specializes).

Navigating the tension between maintaining a stable business model that has produced consistent results and embracing reinvention is a difficult challenge for most companies. Strategic stability can be quite rewarding and is the hallmark of great companies such as Wells Fargo, Southwest Airlines, Walmart, and Walt Disney. But there are also many once-dominant companies whose strategies became obsolete faster than they were able to respond to shifting market and competitive conditions—for example, Blockbuster and Research in Motion, two companies cited in Accelerate.

In Kotter’s view, businesses today cannot afford to be complacent. (Can they ever?) Yet he offers a convincing portrait of a typical organization’s life cycle to demonstrate that, despite their best intentions, most companies naturally lose their innovative edge as they evolve. As he depicts it, successful startups have a strong, market-focused vision, delineated initially by the entrepreneur founder. The company is more of a network than a pyramid. At the center is the entrepreneur and his or her closest advisors; linked to them like planets in a solar system are people managing various initiatives, often associated with developing and testing new products and services. At this stage, the organization chart is relatively flat and the company is fluid; a once-promising initiative can be dropped on the fly in favor of a better idea. “This kind of agility can enable a successful young firm to run circles around more mature competitors,” Kotter writes.

Most companies naturally lose their innovative edge as they evolve.

With success, however, come formal processes and a management structure—an operational hierarchy to ensure that the company can satisfy its growing market. At the same time, the original entrepreneurial system does not fade away. The hierarchy and the network coexist to drive efficiency and innovation, respectively. This period, Kotter contends, is extraordinary, marked by widening profits, an excellent culture, and favorable capital markets. Unfortunately, the phase is usually short-lived. As growth escalates, operational needs expand, and before long, the hierarchy, which increasingly controls company resources, begins to dwarf and minimize the network. At the end of this evolution, the company may have a strong market position, great brands, good relations with customers, and economies of scale, but it will have lost its agility and innovative edge. In other words, it is now vulnerable to attack from a nimbler startup.

Given this inevitable progression, Kotter argues, the only way to sustain market share and simultaneously beat the competition into new markets is to re-create the dual operating system that the company had when it was at its best. The left side of the company would consist of the traditional business and its hierarchy; the right side would be populated by a “volunteer army” led by a “guiding coalition” overseeing a dynamic network, free of bureaucratic layers, whose job would be to drive strategic initiatives that would stall if relegated to the left-side bureaucracy. Kotter’s five principles for forming and managing this network are the accelerators of the book’s title.

To support his point of view, Kotter tells the story of an unnamed B2B technology company whose global market share was tumbling primarily because it lagged behind competitors in Asian expansion and new product development. Within two years of implementing the dual-operating approach, the company experienced a marked turnaround: Annual revenue growth more than doubled, to more than 60 percent, and the company rose from fourth to second in market share. Moreover, the company’s market capitalization ballooned 155 percent, to $10 billion-plus.

Because Accelerate delivers such a potentially valuable message, the fact that it does not address the significance of coherent strategy as a prerequisite for successful innovation creates a big hole. Absent that discussion, it’s unclear, for example, how the right-side network’s purpose—to make strategy and its implementation more agile—is aligned with the company’s strategy itself. Some aspects of strategy, such as pricing the value proposition or changing the portfolio, can be remixed relatively quickly and frequently; but other elements, such as the capabilities that differentiate a business or the types of customers it chooses to target, cannot be altered overnight.

Nevertheless, as a new way of looking at agility and flexibility, Kotter’s thesis is extremely appealing. It presents a valuable course of action that speaks to a particularly challenging conundrum for maturing companies—that is, how to combine the dexterity of the startup years with the knowledge gained from experience. For this reason, I choose Accelerate as the best business book of the year on strategy. It brings much-needed insight as to why big companies struggle with implementing strategic innovation, and it recommends a practical approach to solving that problem. In doing so, it has the potential to bring inside the walls of our most successful enterprises the benefits of creative destruction.

http://www.strategy-business.com/article/00287?pg=all