Accenture outlook-corporate-agility-six-ways-to-make-volatility-your-friend


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You know your market is changing
when customers are buying things
they shouldn’t be. That was the case
in 2009, when managers at a leading
US retailer began to notice a steady
rise in sales of travel-size shampoos,
soaps and similar consumables.

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Accenture outlook-corporate-agility-six-ways-to-make-volatility-your-friend

  1. 1. This article originally appearedin the 2012, No. 3, issue ofThe journal of high-performance businessStrategyCorporate agilitySix ways to makevolatility your friendBy Walt Shill, John F. Engel, David Mann and Olaf SchattemanIn today’s chronically uncertain markets, agility is anexceptionally powerful competitive weapon—and it canbe wielded with considerable effect by enterprises ofall types and sizes.
  2. 2. You know your market is changing actions are the exception rather than when customers are buying things the rule. For many businesses in many they shouldn’t be. That was the case industries, the concept of agility has in 2009, when managers at a leading proved elusive indeed, particularly in US retailer began to notice a steady the implementation. rise in sales of travel-size shampoos, soaps and similar consumables. Restraining Gulliver It has never been easy for large, Their prompt analysis pointed to complex organizations to be nimble. something much bigger than a rush on Nearly half of the 674 executives tiny tubes of toothpaste. It revealed a surveyed globally in a 2010 Accenture nationwide trend that was barely visible study have little confidence in their to other retailers at the time: Consum- companies’ ability to mobilize quickly ers, hit hard by the global downturn to capitalize on market shifts or to serve and often living paycheck to paycheck, new customers. Half do not believe were buying the cheapest unit sizes that their culture is adaptive enough they could find. The trend had first to respond positively to change. And surfaced in the company’s urban 44 percent aren’t certain that their locations and quickly moved to the workforces are prepared to adapt to suburbs as the economic crisis spread. and manage change through periods of economic uncertainty. The company’s response was just as nimble as its early detection of the Results from a survey by the Economist trend. It piloted big changes to its Intelligence Unit echo these findings. assortments, expanding shelf space for More than a quarter of the EIU’s poll intermediate sizes, running sales on respondents said their organizations two- and four-packs of goods (not just were at a disadvantage because they the 12- and 24-packs) and tailoring its weren’t agile enough to anticipate mix and merchandising approaches to fundamental marketplace shifts. the wallets of cash-strapped shoppers. Positive results told executives all Even at very senior levels, decisions they needed to know to rapidly roll out can take forever—and are often the program nationwide. second-guessed. “We thought the big decision had been made months The move was a resounding success. before,” recalls one executive we The retailer gained market share in interviewed. “But apparently, when key demographic segments, boosting we had to act on it, it was still being its attach rate (the value of comple- debated. We were furious.” mentary goods sold for each primary product sold) and establishing a It’s time for those organizations—and reputation for offering good deals. many like them—to try again. From It saw double-digit sales increases— the swiftest startups to the slowest- levels unheard of in retail—in the moving government agencies, every non-discretionary categories it had organization needs to move the “agility targeted. What’s more, the company needle” to the right. has continued to benefit from many of the analytical techniques it pio- It’s no secret why organizations struggle neered at that time. mightily to do so: Gulliver-like, they are bound by a thousand tiny threads Here was a dramatic demonstration of hierarchy—compartmentalization, of agility in action: a large, long- interdepartmental conflict, risk aversion established corporation that was and miscommunication, to name just a quick to sense and then analyze few constraints. They also tend to view2Outlook 2012 important market changes, and then volatility as a limitation rather than anNumber 3 just as quick to act. But the company’s opportunity. At best, they gauge agility
  3. 3. Business agility defined Few business topics are softer than agility. It’s one of those Sensing. This involves continual reviews of market concepts that everyone thinks they grasp. But it’s a different conditions, looking for trends and especially anomalies in story when it comes to deconstructing the concept and customer behavior, competitor moves, supply chain shifts, coming up with practical ways to put it into action. supply/demand changes, and macro- and microeconomic developments. It requires strong analytics capabilities. To anchor our understanding of agility, we should start with the dictionary. According to Webster’s Collegiate Dictionary, Responding. The key is to respond to market shifts faster the definitions are: 1. The ability of being quick and well- than competitors do. This includes rapid decision making, coordinated in movement; nimble. Active, lively. 2. Marked by testing responses on a pilot basis and then scaling for a an ability to think quickly; mentally acute or aware. broader response. It frequently includes preset “plays,” where management teams have agreed ahead of time how they will Here are the components of agility that matter most in a respond to certain situations—for instance, to a price drop business context. by a competitor or the merger of two rivals. Anticipating. This means developing a view of possible or likely Adapting. Once initial market changes have been identified, changes—not trying to predict actual changes. Anticipating organizations often find that they need to rework some of includes a rigorous review of customer needs and industry their business processes. Some may tailor their organizational forces, and an evaluation of likely scenarios of industry structures to better handle ongoing changes in their markets. consolidation, product development, pricing and customer needs. by how fast they follow moves made the reflexive urge to stick to tried- by their competitors. and-true ways of doing things or the sense of helplessness that market What’s new? turbulence has so often engendered. Plenty has been written about the Here’s how the chief financial officer virtues of agility. In 2007, Wharton of a global hospitality provider published Fast Strategy: How Strategic describes the new mood: “We had Agility Will Keep You Ahead Of to decide whether we were going to The Game. In the 1980s, Harvard avoid the market uncertainty with Business Review explored the topic, a hunker-down mindset or seize notably with its landmark article on it as an opportunity. I think muddling time-based competition. And decades in between is the most risky. With ago, then General Electric chief Jack the right mindset, this is a fantastic Welch was famously preaching about time to be in business.” speed and responsiveness. What previously were viewed as However, much has changed—and once-in-a-lifetime events have continues to change—to force companies become permanent features of the to institutionalize their approaches business landscape. As one utilities to agility. And much has happened executive recently told us, “This to enable them to do so: Witness the industry is not supposed to be rocked rapid advances in analytical software. by changes in technology—and then Yet when it comes to exactly how to shale gas emerged.” become agile, pragmatic advice is harder to find. Most business leaders can reel off myriad examples of volatility3 The good news is that many more from their own recent experiences.Outlook 2012 executives are now ready to accept But what is less obvious is the rateNumber 3 change. Gone—or at least going—is of increase of uncertainty.
  4. 4. In the past decade, the US stock A non-stop opportunity market has been much more volatile In his latest letter to shareholders, GE than in previous periods. Global chairman and CEO Jeffrey Immelt nicely commodity price swings have been summed up his team’s perspective on the vertiginous. And the list of Fortune need for agility: “When the environment 1,000 companies is turning over faster. is continuously unstable, it is no longer In their 2006 book Built to Change, volatile. Rather, we have entered a new organizational effectiveness experts economic era. . . . Nothing is certain Edward Lawler and Christopher Worley except for the need to have strong risk found that between 1973 and 1983, management, a lot of cash, the willing- an average of 35 percent of the top 20 ness to invest even when the future is companies on the Fortune 1,000 were unclear, and great people.” new to the list. The number rose to 45 percent in the next decade, then To be sure, the rise of volatility and soared to 60 percent the decade after market turbulence merits far more that. And it’s likely to top 70 percent attention to getting risk management in the decade that ends in 2013. right. But there is—or should be—more to it than that. Accenture has found that Yet few companies are agile enough several high performers view ongoing to successfully cope with the economic uncertainty as non-stop opportunity. turmoil around them. Some, perhaps, lack consensus among top managers That doesn’t mean that all high-per- about exactly what agility means formance businesses view uncertainty (see sidebar, page 3). But we believe in the same rosy light. The levels of that the real problem is less one of urgency and the potential for opportu- comprehension than of the far more nity felt by a maker of hard disk drives serious lack of readiness and capacity or mobile-phone handsets are very to act. In fact, in many cases, companies different from those experienced by a have actually become less agile during producer of forestry products. But there the recession. are consistent themes that come up time and again in conversations with The headlines are filled with names business leaders worldwide. of traditional companies that have failed to adapt to market volatility— Our experience reveals six lenses companies where the opinions of through which these exemplars view change-ready managers were quashed. volatility in “glass-half-full” terms. In such situations, it’s often about This list of lenses is not comprehensive. turf—the fears of some executives Nor are the lenses themselves mutually that they will lose power or influence exclusive; there are many ways they or both if they don’t resist disruptive overlap with and reinforce one another. innovation. Taken together, though, they point to actions that business leaders can take In other cases, organizations, in sooner rather than later. Here are quick their bids to become hyperefficient, glimpses through those lenses. In an have actually become sclerotic. upcoming issue of Outlook, we will Consider the legions that reflexively explore each in more detail. cut headcount when their current quarters’ fortunes sag—spreading the pain over each department without 1. he strategic lens: T properly weighing the value of Opening up more options the skills lost. Or look at the many companies that have trimmed their It’s time to welcome back scenario plan- supply chains to the bone, reducing ning—this time as an agility lever. Once4Outlook 2012 their agility, sometimes to the point seen as a rather academic tool used byNumber 3 of embarrassment. the C-suite to set a course in industries
  5. 5. Questions and answers about agility Q: How is agility related to volatility? Q: How do we avoid losing control as we strive to Agility refers to a company’s capacity to anticipate, sense and become more agile? respond to volatility in its markets to its advantage. Market Increasing agility does not mean having less control; in fact, volatility is a tremendous source of opportunity for companies many companies find that standardizing processes and that have developed the capabilities to not only manage risk defining exceptions increases agility and control at the same but also respond to it more effectively than their competitors. time. Agile companies tend to run more experiments and tests, many of which are not market successes. Such tests Q: I hear lots of terms being used interchangeably. and experiments should not be ad hoc; they need to take What are the differences between agility, adaptability, place in a controlled environment. versatility, flexibility and resilience? Each term touches on a company’s ability to respond successfully Q: What is IT’s impact on agility? to change. Agility encompasses the broadest range of abilities. IT systems are essential to helping organizations turn volatility Adaptability applies to organizations that are agile over long to their advantage. They must be able to quickly gather periods and can switch to radically new market paradigms, as market and operational data internally and externally and Fujifilm Corp. has done repeatedly. Versatility typically describes analyze the information in real time. Internal reporting companies such as that embrace a wide range systems need to be flexible and provide historical, real-time of business models. Flexibility is used for companies that can and predictive performance indicators. IT systems must easily change their supply chains and use multiple customer support greater collaboration and visibility across functions, channels. Resilience refers to a company’s ability to absorb and business units and geographies. bounce back after strategic, financial or operational shocks, as Cisco did after the 2000–2001 tech downturn. Q: Does risk management inhibit agility? Corporations need a robust risk management capability Q: Is agile really just another term for innovative? to fulfill their obligations to shareholders, customers and Innovation is certainly one element of agility. Agile companies employees. Leveraged appropriately, risk management not are better at sensing new market needs and quickly developing only identifies vulnerable areas where an organization must products or services to meet those needs. To innovate to their protect itself but also identifies areas where a company can fullest potential, they draw on broad and deep strategic, financial, create opportunity and take appropriate amounts of risk. organizational and operational capabilities. that run on long economic cycles, it’s customers and supplie rs, thus giving now becoming a regular white-boarding themselves additional options by approach used by managers at many redefining traditional competitors as levels to pinpoint the handful of best potential partners and some of their options for responding to new situations. suppliers and customers as rivals. “Frenemies” and “co-opetitors” are High performers are reviving the part of their corporate ecosystems. discipline not only to mitigate risks but to quickly sound out opportunities that may not be opportunities for long. 2. he leadership lens: T These companies are investing more Ensuring that agility starts so they can deeply understand their at the top industries’ drivers, the new technologies available to them, and the economic Companies that can thoughtfully and market factors that could disrupt respond to new opportunities and their industry networks. make rapid decisions in uncertain environments share one common trait:5 At the same time, many top performers Their top managers make decisionsOutlook 2012 are rethinking the boundaries between quickly and those decisions stick—noNumber 3 their organizations and those of, say, second-guessing.
  6. 6. Twelve-point agility checklist 1. oes your organization have at least three scenarios for D 7. id you make such big cuts during the recession (particularly D how your industry is most likely to evolve over the next in terms of talent) that your agility and ability to grow 36 months? Does it have good options for responding? have been damaged? If so, how are you compensating now for those cuts? 2. hat three big opportunities would your company be W pursuing if it were more agile? 8. n what areas should you be collaborating with your I competitors to drive changes in the market? 3. magine three possible sources of competition that you I haven’t thought would be likely until now. How will you 9. Who among your organization’s new leaders will be most respond to them? effective at taking advantage of volatility? What makes them different from your longtime leaders? 4. Put yourself in your top competitors’ shoes. What could they do to disrupt the market in the next year, and what are your 10. Which of your customers are the best leading indicators plans for outsmarting them? of future market opportunities? 5. ow is your company augmenting its ability to quickly sense H 11. here would faster decision making be of most benefit W new market anomalies? Are you taking full advantage of the to your company? new capabilities of today’s analytics tools? 12. ave you been able to cut your company’s fixed costs in H 6. hat are the three biggest factors preventing your W the past few years to improve its agility? organization from being more agile? How do you plan to overcome them? The companies achieve this by mation, creativity, flexibility, candor investing over the long term to align and curiosity. their top management teams with their markets, their positions within Collectively, these leaders will constitute those markets, the strategic levers a highly experienced, assertive, receptive they can pull and their readiness to and flexible team that can accelerate pull them. This ongoing exercise in decision making because the big issues organizational alignment—typically have already been debated. The range reviewed regularly with the board— of options, arguments, trade-offs and involves much more than risk man- implications has been largely worked agement or crisis management. It through. There’s widespread agreement means working through a wide array that such traits are key. One-half of of probable scenarios and gauging the CEOs and CIOs polled by the EIU how well the top team can deal with agreed that rapid decision making and the most likely of them. execution are essential to a company’s competitive standing. The ideal outcome: the development and promotion of leaders who dem- onstrate a range of skills, who are 3. he organizational lens: T clearly comfortable with ambiguity Overcoming “transformation and who are respectful of but not fatigue” slaves to process. They will understand the difference between influence and The best performers have realized authority, and as such, will be entirely that they can no longer count on6 at home influencing and participating short-term sacrifices and superhumanOutlook 2012 in teams. Their focus won’t be on efforts from all-too-human workers.Number 3 hierarchy; it will be on ideas, infor- So they hit “transformation fatigue”
  7. 7. For further reading head-on by increasing organizational When consumers can use social media alignment, doing more to bolster to rise up, en masse and almost literally“Examining the Euro: Why Does It the caliber of their workforces and overnight, corporations do not haveMatter?” emphasizing collaboration. Their the luxury of ignoring the clamor orus-en/Pages/insight-examining-euro- success is gauged by how easily they taking their own sweet time to determinewhy-does-it-matter.aspx can overcome organizational inertia if the complaints are serious. and how smoothly and quickly they“Managing the Unthinkable: Scenario- can make good decisions.Based EPM”: 5. he operational lens: Tcom/us-en/Pages/insight-managing- High performers work hard to bolster Avoiding the “lean is good,unthinkable-scenario-based-enterprise- their entire talent roster—not just leaner is better” trapperformance-management.aspx their leadership ranks. They do far more than average companies to map Last year’s earthquake in Japan high-“The New Realities of ‘Dating’ in their current and future talent lineups lighted the constraints and vulner-the Digital Age: Are Your Customers against their business needs, seeking ability within many companies’ supplyReally Cheating, Or Are You Just many of the traits they look for in chains. In the quest for lower costs,Not Paying Enough Attention?” their leadership teams. And they craft companies have stretched supply incentives and compensation plans chains globally and made them morePages/insight-acn-global-consumer- that recognize and reward those traits. efficient. However, many now questionresearch-study.aspx whether they have gone too far, and The exemplars also put a premium on ask how they could restore flexibility,“Preparing for the unpredictable,” rich collaboration—which shouldn’t transparency and redundancy—withoutOutlook 2012, No. 1 be confused with slow consensus- loading up on inventory. building. Truly effective collaborationFor these articles and other involves the wide distribution and free Agile companies have developedrelated content, please visit flow of information, quick sharing dynamic supply chains and of perspectives from across the orga- support systems. They build deeper, nization, and rapid decision making more transparent supplier relation- that can, when needed, jump hierarchies ships—effectively extending the enter- in a single bound. prise beyond the traditional boundaries and ensuring greater visibility and tighter management of the supply 4. he market lens: Sensing fast T pipeline and the demand cycle. and responding faster Truly agile companies also have more Top performers like the retailer discussed nuanced views of resource allocation— earlier have more finely tuned antennae moving away from a “peanut butter than their average peers. They can spread” approach and toward making predict, sense, respond and adapt at quicker decisions to pursue the most speed—in much shorter cycles and in promising opportunities. The best per- more dimensions than ever before. They formers excel at incremental investment use real-time market data and advanced coupled with rapid and well-documented analytics to spot unexpected and incip- test-and-learn cycles. They will run ient shifts in customer behavior, sense numerous pilot programs concurrently, competitor moves and predict likely but their spending will soon shift toward trends. “We look for anomalies in the the initiatives that start to show better data—what products are growing fast or faster returns. that shouldn’t, which campaigns are not working that should,” explains an execu- tive at a leading retailer. “Those nuances 6. he financial lens: Saying T tell us something. We just have to be goodbye to the annual budget smart enough to listen very carefully.” Large cash balances clearly open up7Outlook 2012 Companies also have to be ready to options. But they are only one agilityNumber 3 respond to assaults on their reputations. lever. The most agile companies,
  8. 8. regardless of size, have also adapted About the authors the role and activities of their finance functions. In addition to improving Walt Shill is a senior managing director the risk management capabilities, the with Accenture Management Consulting. finance executives at those organiza- He is based in Washington, D.C. tions are changing their budgeting and planning processes to provide greater insight and flexibility. Many John F. Engel is a Chicago-based are accelerating their budget planning managing director with Accenture cycles and deemphasizing annual plans Management Consulting. in favor of rolling year-on-year or year- plus budgets. Finance’s proactive efforts to manage inventory, credit terms, David Mann is a managing director payments and cash are vital not only with Accenture Management Consulting. for mitigating risk but for capturing He is based in London. upside opportunities. Olaf Schatteman is a Sydney-based The lenses described above do not managing director with Accenture constitute an exhaustive list of all it Management Consulting. takes to be truly agile. For example, they don’t touch on the information systems—particularly the analytics The authors would like to thank tools—that will be necessary to support Meg VanWinkle, who leads Accenture agility efforts. Our intent here is Management Consulting Offering Devel- simply to spark fresh discussion about opment Thought Leadership, and Rakhee what it takes to achieve “institutional Sheth, a manager in Accenture Strategy,Outlook is published by Accenture. agility” and to encourage the leaders of for their contributions to this article. large, complex organizations to viewThe views and opinions in this article agility as well within their grasp. Asshould not be viewed as professionaladvice with respect to your business. one bullish executive told us, “It’s only volatility if you don’t understand it or don’t know how to respond.”The use herein of trademarks that maybe owned by others is not an assertionof ownership of such trademarks by In fact, agility is an exceptionallyAccenture nor intended to imply an powerful competitive weapon. It’sassociation between Accenture and the an innate advantage for small, newlawful owners of such trademarks. organizations. But it can also be wielded by the largest of enterprises.For more information about Accenture, The question for business leadersplease visit everywhere: How nimble can your organization be—and how soon?Copyright © 2012 AccentureAll rights reserved.Accenture, its logo andHigh Performance Deliveredare trademarks of Accenture.