Enterprise Agility as Corporate Strategy

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In a previous post, I explored Maxwell Health as an example of agile product development strategy in healthcare.  For small single-product companies the product strategy is the corporate strategy, but agile principles can yield profound benefits for larger multi-product business units and even entire firms.  This blog focuses on Agile Corporate Strategy, and specifically how a subset of companies in the right strategic context could greatly benefit from institutionalizing agility across the entire enterprise.

Agile corporate strategy

“Agility” is a term that gets thrown around liberally, often in a very loosely defined way, and most commonly as one of several operational effectiveness models anchored in iterative delivery and continuous process improvement. But Agile Strategy is about more than just operational effectiveness, which is an essential foundation to agile strategy but insufficient on its own to achieve sustainable advantage.  While Agile execution focuses on making more efficient use of people and resources to deliver high quality output faster and less expensively, Agile Strategy hinges on what an organization does with the added time and cost savings freed up by productivity gains.  Rather than assume efficiency is its own reward, an Agile strategist pairs faster speed to market and reduced development cost with better structural understanding of customers and markets to move fluidly from one coherent strategic position to another in rapidly changing markets.

The current US health insurance market is just one such market…after generations of relative stability, the Affordable Care Act recently introduced significant market changes that preclude some historic competitive options, and open up others. For example, insurers can no longer use a favorite strategy of catering to healthier populations by excluding patients with “preexisting conditions”, but they can offer limited or high deductible coverage to the newly created exchange marketplace. Ongoing interpretation of the law, evolving government guidance on how it will be enforced, and the perennial threat of repeal have all made the health insurance market dramatically more dynamic during the past five years than over the preceding 50 years.  In this shifting competitive landscape, the ability to anticipate and systematically respond faster to market changes can deliver sustainable strategic advantage.

To do this, agile firms need to employ a set of principles that allow them to respond faster than other organizations. These principles include:

  1. Iterative and regularly updated planning is more accurate and wastes less effort than exhaustive, static, upfront planning
  2. Defining key strategic assumptions as tests to validate in the field allows us to proceed with greater confidence in uncertain environments
  3. Deferring commitment to one direction until the last responsible moment has value if it keeps our strategic options open
  4. We must commit to configuring the entire organization and incentive structure to support these principles if we are to leverage them effectively

Rather than competing by occupying a static market position, an Agile competitor succeeds through their ability to move fluidly from one advantageous position to another over time.  In practice this means focusing cost-reduction efforts on change-over and variability costs rather than pure unit cost reduction.  For example, using a “modular” product or service design that supports multiple module configurations allows the product to evolve rapidly without being designed from scratch each time. On the organizational side, stable cross-functional teams can be redeployed to new projects faster than teams of domain specialists that are formed for each new project.

A concept at the core of a successful Agile strategy is the Plan Do Check Adapt[1] (PDCA) cycle, first proposed by W. Edwards Deming in the 1950s.  The PDCA cycle defines an approach to institutionalizing learning through repeated feedback cycles.  Each cycle has four parts:

Figure 1: The PDCA Cycle

PDCA Cycle graphic 2

  1. Plan – Develop a clear set of goals and objectives for the strategic positioning to achieve, and a working belief of how best to accomplish those objectives. For example, “We will be the preferred one-stop platform for small employers to provide a full suite of employee benefits.” The plan should include an explicit set of assumptions that address key uncertainties (such as unknown customer behaviors or potential competitor responses) and that can be tested concretely.
  2. Do – Start to implement the strategic plan one increment at a time. Each increment is designed to test one or more of the key assumptions of the plan, and increments are prioritized to resolve the most important strategic uncertainties first.
  3. Check – After each increment of “Do”, take time to measure the results, revisit core assumptions, and confirm whether or not they match the expected results included in the plan. For example, if our strategic plan depends on the assumption that all employees want to monitor their health data regularly, but only a small sub-segment of employees actually look at it more than once per year, then we will need to refine our strategic plan.
  4. Adapt – If the check stage confirms expected results, then continue with the next cycle of the same plan. If the check reveals an unanticipated result, the market understanding needs to be updated and this new learning incorporated into the plan.

These four steps create an iterative enterprise learning cycle. The faster an organization can repeat each cycle, the more rapidly its understanding can evolve.  The previous blog already discussed this learning cycle in the context of new product development that responds to changing customer needs, but the same thinking applies to an organization and its desired positioning in an evolving competitive landscape.  This mindset meshes well with a number of established strategy techniques, such as scenario planning or Roger Martin’s “discrete choice” analysis. (Stay tuned for a future blog post on discrete choice strategy techniques applied to agile strategy)

An organization that systematically learns faster and redeploys vital assets rapidly can consistently outmaneuver its competitors. An Agile competitor sustains this speed advantage by institutionalizing the ability to incorporate new learning into their strategy faster than industry competitors.  “Institutionalization” means creating a deliberate and self-reinforcing system of activities that support the four agile principles above and the PDCA cycle. (see the related post on “agile activity systems” for more detail on this) The tailored and highly interconnected nature of these activities makes it difficult for competitors to duplicate without copying the entire activity system.  Effective barriers to duplication, in turn, help defend an agile competitor’s strategic advantage from rapid erosion.

But context is critical. Unlike agile delivery methods that improve operational effectiveness in almost all strategic contexts, an Agile Corporate Strategy is extremely beneficial in contexts where maintaining optionality is important, but potentially disastrous in ones that require significant commitment to a single view of the future.  The short answer to when an agile strategy makes sense is that the market future needs to be uncertain enough to make preserving optionality valuable, while the required lead time for strategic investments remains short enough to allow incremental and iterative investment as the primary implementation path.  This context occurs much more often than people think, so please refer to the separate post on “when to use an agile strategy” for much more detail on this topic.

Conclusion

In a previous post, I discussed how the principles of agility can be applied at a product development level to ensure superior product/market fit in challenging consumer markets.  This post expanded on that theme by suggesting that the same principles that allow innovative product companies to develop uniquely successful product can also be applied at the broader business unit and corporate strategy level to drive companies able to stay one step ahead of their rapidly-changing competitive markets.  In the next post in this series, we will get granular again to share concrete examples of agile delivery processes (like Scrum) used in service delivery and other domains outside the traditional software development arena.

 

Footnotes:

[1] Deming’s version of the PDCA cycle used “Plan”, “Do”, “Check”, “Act” as the elements of the cycle, but “Act” is very easy to confuse with “Do” and thus I have substituted it with the hopefully clearer “Adapt.”

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