24 Aug 2021
The frequent failure of established businesses with powerful resources accumulated over decades, like distribution networks and reputation—businesses that crumbled under the emergence of startups with no assets—proves the limits of this logic: Netflix vs Blockbuster; Airbnb vs century-old hotel chains; Spotify vs mighty record labels; Amazon vs entrenched retail stores. Different companies, same drama. The strongholds fell under swift, small schemes that have managed to seize opportunities in their making, to move from market to market at breakneck speed. Even occasional setbacks come with minimal losses and are on a reson to move swiftly to the next opportunity. One of the problems with traditional/mainstream strategy is that, until the plan has been setup and the internal planning has been approved, the window of opportunity has closed and the competition has already positioned itself and the best you can do is to just sit and watch.
The pandemic has crystallized a new competitive environment where change is fast, volatile, and complex. Welcome to this brave new world where opportunities are brief, the competitive advantage fleeting, and success lies in creating and destroying your competitive advantage before your competitors have a chance to do it. This complex, rapidly changing world that emerges, a world of constant surprises due to technological innovations, demanding customers and new kinds of disruptive competitors, has given rise to a need for quick decisions, immediate coordination and agile execution – in other words, strategic agility. Businesses can improve their strategic agility provided they rely on two basic pillars: customer-centric experimentation and simple rules of action.
1. Customer-centric experimentation: What the lean startup methodology in the startup industry (Ries 2012) and agile movement (Denning 2016) in the software development industry have taught us is that the best way to predict the future is to create it by small steps engineered as experiments. The experiments help to test various opportunities instead of long-term, irreversible investments. Instead of long-drawn-out plans, the idea is to formulate hypotheses about the product, the target customer, the competition etc. Experimentation is frequent and sometimes fails, however the cost is controlled because it rests on the Minimum Viable Product (MVP). Simply put, instead of wasting time to perfect the product in the lab, we create an early version of the product with as many features as the early users need to express an opinion. While usually we launch the final product early on, halfway or in the end to test whether the customers are going to buy it, the lean startup model proposes that it is more effective to create frequent MVPs, increasingly mature, based on the users’ realistic suggestions. Instead of certainties, experimenting with MVPs is customer-centric and offers reliable responses from the users who serve as compasses for decision-making with respect to the product’s further development. More specifically, the more realistic MVPs become, the more reliable the data collected from the users are – such data may include the extent to which the product offers a solution to the problem they face, how they use it, the benefits of using it, how it measures up to competitive products and whether the users would buy it at a different price, what distribution channels the product will be sold through, etc.
What forms can an MVP take? It can be a design, a video, even a piece of wood, as in the case of PalmPilot that followed the failed GRiDPad, which had been hailed as a miracle of engineering in the palmtop category, an opinion a lot of end users didn’t embrace as they found it too big to purchase. In the case of the PalmPilot, Jeff Hawkins, the inventor behind both products, now determined to not fall victim to self-deception again, designed a simple MVP: he cut a piece of wood small enough to fit in his shirt’s pocket and assigned his engineers with the task of decreasing the size of the materials accordingly.
MVPs are behind the success of many popular businesses, like Dropbox. In 2009, Dropbox relied on a video to display the value of a cloud storage application, which offers common access to the user’s documents from all devices. Before becoming an online streaming service in 2017, Neflix tested the—at the time—innovative DVD renting model via mail, by mailing a DVD to the home address of Reed Hasting’s co-founder in Santa Cruz. Nick Swinmurn had this idea to sell shoes online; however the endeavor seemed too risky, since, as a rule, customers wish to try out the product before buying it. To test the attractiveness/appeal of his idea, Swinmurn asked the owner of a brick and mortar store to take pictures of the store’s façade and to advertise it on the website he had created. In return, he promised to buy the stock from the owner in case there were online orders. His hypothesis was checked and verified and this was the beginning of a now great business, Zappos!
2. Simple decision-making rules. However attractive, experimenting involves risks and failures that can wear down even the most creative employees, especially in large companies relying on hierarchies, processes, and controls that undermine every aspiration for strategic agility. To speed up the conception and implementation of strategy, companies rely on guidelines or simple rules for easy communication and coordination of teams operating in a decentralized manner, instead of constant reporting and control, with decisions being transferred to frontline employees. According to research (Eisenhardt and Sull, 2012), simple rules are clear instructions regarding different decisions on how to seize opportunities, how to set priorities, response time to the competition’s moves, or withdrawal time from an opportunity or investment. Simple rules that speed up a business’s operation should be limited in number in order to be memorable – up to 3-5 rules should do the trick. They are connected to a specific activity and focus on the obstacles a company can find on its way while pursuing its goals. Lego, for instance, offer an elucidating example on how simple rules enable new product development teams to make decisions about a product’s features based on the following questions: Will the parents approve? Does the new product have high quality standards? Does it encourage the kids’ creativity and imagination? Is it consistent with Lego’s look and feel?
Such rules are specific enough to allow immediate action, but at the same time they create space for flexibility. They stand above trivialities like “improve the quality” or “seek innovation” or “the customer comes first” which confuse and derail action. Simple rules should stem from the company’s vision and mission and be translated to measurable objectives with respect to the specific activity to which they are implemented. They demand another leadership culture which is ready to hand over a part of its privileges as well as employees who are ready to accept responsibility and embrace accountability.
Although agility has its origins in small businesses in the software industry, with the necessary adjustments, it is applicable to every company. Strategic agility reminds us of the legendary boxer Muhammad Ali, whose quote “float like a butterfly, sting like a bee” encapsulates the new technique he introduced in boxing: arms hanging low, he used his body with speed and agility to avoid his opponents’ blows without losing his balance, instead of adopting the until then established passive defense. Although it would be an exaggeration to say that competition is a boxing fight, let us not be oblivious of the fact that markets are like boxing rings where businesses take multiple “blows”. But besides strength, just like Ali, businesses must add speed and agility to their game in order to avoid “blows” and seize fleeting opportunities.
- Birkingshaw, J. (2019), What to Expect From Agile, MIT Sloan Management Review, 8-11.
- Denning, S. (2016), Explaining Agile, forbes.com,September, 8, 2016.
- Eisenhardt, K. & D. Sull (2012), Simple Rules for a Complex World, Harvard Business Review, September, 3-8.
- Ries, E. (2014), The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, Crown Business.