Strategic Agility

Strategic Agility The modern strategist’s playbook on staying relevant in a turbulent world

Michael Erzinger Lukas E. Bär Samuel Loher

You are holding a handbook that will allow you to develop and implement strategic agility in a turbulent world, where strategy formulation and execution increasingly become one.

“Linear planning is a siren’s song that lures leaders to disaster with a seductive promise of control.”

Sull D., 2009

Imagine what could be possible if your organization had: t rue strategic alignment continuous focus on renewal and collective learning no gap between strategy design and implementation

7 Your notes of what could be possible:

Strategic Agility Preface

12 1 Concept 14

2 Mindset

The three levels of Strategic Agility on which you can build an organization’s strategic development. At the heart of it is the initiative portfolio.

An outline about the modern strategist’s mindset and the thinking that influenced the development of Strategic Agility.

A guide on how to make it happen.

Consider it a useful tutorial on how to implement and operate Strategic Agility.

Initiative Portfolio

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On renewal and growth

105

Prerequisites 148

Strategic Mandate

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On uncertainty

119

Initiation 154

On agility

131

Operation 169

Initiatives 71 Your benefits

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98

3 Operating Model

142

Capabilities 182 Jump-starts 185

13 4 Appendix

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More resources to broaden as well as deepen your understanding of dynamic strategic thinking.

How to manage portfolios across different organizational structures How to design REALLY long-term strategies in a turbulent world

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210

How to manage the program office

212

How to work with growth initiatives

224

How to quantify initiatives

232

Strategic Agility

Case Studies The case studies are an integral part of this book and designed to share our first-hand experience with Strategic Agility.

Your portfolio needs to reflect your ambition 40

One big bet blocks strategic development for years

128

Growing from USD 200 to 300 million in 4 years

Building a backbone for growth

136

46 Living in the here and now

150

Different growth ambitions

54 Building an innovation power house 164

How to ensure productive collaboration as well as collective learning between the board of directors and the executive management team

66

Freedom to operate the business can have its price

173

Alignment and focus is priceless

178

Growth ambition versus growth capacity 191

A large project can block corporate development and new business generation for years

88

Regain the right to grow – staircases to growth

110

Successfully broaden your growth footprint

116

1 Concept

15

Strategic Agility

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"The strategy process [in reality] is messier, with analysis, formulation and implementation activities going on all the time, thoroughly intertwined with one another." de Wit & Meyer, 2010

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In a stable, predictable environment, you determine your long-term goals and objectives, before cascading them into projects and eventually breaking them down into milestones. Such a process is strategic planning in a nutshell. It is not exactly rocket science to comprehend, but getting it to perform is arguably more difficult.

However, apart from the challenge of implementation (which we will address later), the formulation of long-term strategic goals and objectives is much more difficult in a dynamic environment. In today’s rapidly changing world, virtually no competitive advantage or strategic position is truly sustainable. Indeed, nowadays strategy is much more about identifying new opportunities early and then capitalizing on them quickly. So how does one make a strategic plan if the strategic choices of how and where to compete are increasingly subject to change and revision, as new opportunities and challenges arise? How does one embed change in a rigid strategic plan quickly

enough, if an entire cascading process should follow? Additionally, how does one plan individual initiatives, let alone single milestones, if the challenge or opportunity in question is blurred and not yet fully understood? The potential impact of 3D printing on various business ventures is one such example, although the same can be said of any new or unknown technology, distribution channel or customer segment.

The core problem is that management teams typically use rigid plans, inflexible tools and onerous processes to address dynamic and rapidly evolving challenges or opportunities.

“In highly uncertain, complex and fast-moving environments, strategies are about insight, rapid experimentation and evolutionary learning as much as the traditional skills of planning and rock-ribbed execution.”

McGrath R. G., 2010

Concept Introduction

If you are in an environment where you find it difficult to plan three to five years ahead, then chances are that it is dynamic and that the situation described above applies to you. This issue does not only concern the usual suspects, such as fast-moving consumer goods, high tech industries or cutting-edge technologies, but even traditional industries have trouble predicting how customers will make purchases in five years’ time, through which channels and based on what criteria. This actually applies to most of the traditional industries, from window manufacturing to insurance, from steel casting to utilities.

Businesses might experience different levels of uncertainty and dynamism, but they all find it somewhat difficult to predict what will matter in three to five years, at least regarding certain strategic aspects.

Some will argue that you can still plan one or two years ahead in most industries, but in reality, that is nothing more than short-term planning and budgeting rather than actual

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strategizing. So how does one strategically manage companies with a long-term orientation in times of rapid change and frequent turbulence? How does one maintain overall strategic direction and manage systematic growth and innovation without succumbing to unexpected events?

Rather than relying on even more planning procedures, agile models, flexible tools and dynamic processes are required instead.

These must provide a safe sense of direction for strategic management, without being rigid to the point of hindering learning or paralyzing adaption. Such models, tools and processes must allow one to react quickly and easily to changing circumstances, new insights, emerging opportunities or forthcoming challenges.

The structure we will introduce shortly might not seem completely unfamiliar, as it progresses from strategic choices to initiatives and then to actions. However, the design of each level and the links between

the different levels allow for considerably more dynamic management than your usual toolset.

But let’s be clear, Strategic Agility is all about a new understanding of continuity in strategy (work) and the corresponding mindset. We definitely need specific tools to operationalize our method, although without the corresponding mindset they won’t create value.

Using the analogy of palaces and camps, we prefer strategy to be more like a tent camp, which can flexibly adapt to change and automatically incorporates an element of mobility. A rigidly designed and firmly structured palace might seem very impressive at first sight, but is inflexible and costly.

Let us introduce these three dynamic levels: The Strategic Mandate consists of strategic choices such as what to achieve and how to compete in the marketplace.

The Initiative Portfolio consists of a set of initiatives, which are in line with the ambition and the strategic choices outlined in the strategic mandate.

The Initiatives consist of a set of actions with clear objectives of what to do, what to learn and until when.

These three levels are dynamic in nature and characterized by a feedback loop for making assumptions, putting them into practice and then learning from the results.

With each cycle, the company makes progress and continues to evolve.

In Part 1, we will now introduce these three different levels, including how to think about them and how to manage them dynamically.

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Three Threelevels levels

Strategic StrategicMandate Mandate

Concept Introduction

Consisting Consistingof... of...

All Allmanaged manageddynamically… dynamically…

…a …aset setofofstrategic strategic choices choices

G Geen nee Initiative InitiativePortfolio Portfolio

…a …aset setofofinitiatives initiatives

LLeeaa rrnn

Initiatives Initiatives

…a …aset setofofaction actionsteps steps

TT utte e eccu xe Ex /E stt/ ees

tete rara

40 Your portfolio needs to reflect your ambition

As a renowned sweets manufacturer, Candy Corp had the strategic goal of growing sales by USD 60 million in 5 years.

The executive management team had the shared understanding that growth in the existing business would only contribute to a maximum of USD 20 million. Therefore, the company had to generate new business worth at least USD 40 million, to reach its target. It quickly became clear, that this could only be achieved by entering new geographic markets or serving new customer segments. Enticed by our method, one year after the company had formally adopted these strategic goals, the CEO decided to visualize the “project landscape”.

He was confident that the strategy was well underway. After all, the company just had a successful year and his people were busy with many different projects. However, it had become difficult to maintain a good overview of all the different initiatives and activities that were going on, even with project management software and comprehensive inventory lists.

Indeed, over 400 projects and datasets

were listed in the company’s project management system, but after all the duplicate entries had been removed along with previously terminated projects and other junk files, a mind-boggling 281 projects remained. Many of them were merely daily orders or customer interactions and not exactly growth initiatives or transformational ventures. After purging the database once more, 76 actual projects remained.

However, 22 of them were only in the planning stage, leaving 51 active projects.

As it turned out though, from those 51 projects, most of them were of the ‘run’ type, including matters like software introduction, outsourcing, construction or the evaluation of new packaging materials.

Very few projects actually dealt with the development of new business! To make things worse, those projects that did, only had the potential of contributing new revenue worth USD 5 million, far removed from the ambitious goal of USD 60 million.

If Candy Corp wanted to grow sales by USD 40 million through new ventures, this ambition should have been mirrored in its

portfolio as well as the three horizons.

Growth in existing business can also originate from a company’s daily activities, so an initiative-based approach and affiliation is not always necessary. On the other hand, intended growth through new business ventures, such as new geographic markets, new customer segments or new product ranges, will probably only happen if the venture is linked to a specific initiative.

Candy Corp is a typical example of an organization where everyone was so busy with their everyday activities or legacy project work, that they collectively lost sight of their designated strategic goals and growth targets. The convoluted project management processes and overloaded software systems initially obstructed the management’s ability to conceive and achieve growth strategies.

Eventually, after drastically reprioritizing and reconfiguring the initiatives portfolio, we were able to align the company’s portfolio with a slightly revised but realistic ambition.

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Concept Initiative Portfolio

Build up private label for export market Turkey Build up private label for export market India ‘Run’ initiatives ‘Build’ initiatives

Familiar Build up customer segment GY (domestic)

Size indicates value contribution

Unfamiliar

Familiarity

‘Must’ initiatives

New packaging India Build up Latin American market Channel build up India

Uncertain

Timing Contributes to current earnings

Contributes in 2-3 years

Contributes in 3+ years

In portfolio reflected growth of new business: USD 5 million Aspired growth in new business: USD 40 million Growth gap in new business: USD 35 million

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Strategic Mandate A company’s senior management team and its board of directors need to have a common understanding of their organization’s future. Discussing and defining a strategic mandate means setting the stage and providing guidance for wide-ranging upcoming strategic decisions. In fact, each portfolio is based on a strategic mandate.

You might expect this to correspond with the strategic analysis component of a traditional strategic planning process, but it actually goes well beyond that.

The strategic mandate is called mandate because it is mandated in most cases by the board of directors to the management team.

The board expects the management to make strategic decisions in the corresponding context. Therefore, the strategic mandate should be concrete and precise, even in cases where significant risks exist. In our approach, inherent risk, precision and clarity are not contradictory9.

The strategic mandate is a composition of the following elements: ambition, strategic playing field and issues and positions.

With these elements, one sets the stage for ongoing portfolio discussions as well as for periodic strategy reviews.

The strategic mandate is an important interface between a company’s executive management team and the board. Therefore, the board of directors must focus its work on the strategic mandate and not on the portfolio. Once the board approves the strategic mandate, they hand it over to the CEO and the management team.

So, what about a company’s vision?

Certainly, most companies already have a formal or informal vision, describing the “purpose” of the organization, creating alignment and having employees rally behind a bigger goal. The modern strategist knows about the importance of such purpose and direction. The more agile the strategy process of a company is, the more important an explicit purpose becomes for providing guidance to all strategic and operational decisions.

Typically, the overall purpose is deeply ingrained in a company’s DNA and provides

the general direction and its reason for existence (the “why”). However, many companies lack the concrete translation into an operational mandate to help in day-to-day decision-making (the “how” and the “what”). Therefore, in Strategic Agility we focus on breaking down the overall purpose into the ambition, the playing field and the issues and positions.

9 Additionally, the term strategic mandate could be interpreted in a broader way, such as a company giving itself a mandate in a competitive market. What is our reason for existence? What do we want to achieve?

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Purpose

Ambition

Strategic playing field

Issues and positions

Concept Strategic Mandate

The overall purpose is typically deeply ingrained in a company’s DNA and provides general direction. However, many companies lack the concrete translation into an operational mandate to help in day-to-day decision-making.

The overall financial goal an organization wants to achieve, expressed in numbers and decomposed into its main drivers.

The area of activities to achieve the ambition.

The issues an organization is facing and its corresponding positions on these issues.

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Getting dynamic design

exec ut

e

rn

Design In this phase the setup and the planning

of the next concrete milestone are specified.

To maintain momentum and ensure efficiency, the resources invested and the projected time until completion should correlate to the level of uncertainty. Then, it is important that the initiative team clearly understands the next target and knows what to do. It is often helpful to formulate a concrete hypothesis and apply it on a trial basis, in order find out what exactly has to get done in the next loop.

This process ensures pro-active learning and effective knowledge retention. So what are the expected results? What factors will have a significant impact? By translating the next milestone into a measurable target and defining an appropriate method for reaching the target, this process becomes quite efficient. In their book Lean Analytics, Croll and Yoskovitz even go so far as to define the One Metric That Matters for each iteration loop (2013). For example, an online platform for bird watchers will initially track user engagement by measuring the time spent on the website, rather than over-emphasizing revenues, as the creation of an engaging

lea

As with the initiative portfolio and the strategic mandate, each individual initiative is developed dynamically over a period of time.

On the previous pages, we described how an initiative moves within the portfolio, by running through the development process.

For this, we apply methodology from Lean Startup and Design Thinking to implement initia­tives dynamically. These methods have proven to be very effective and have flexibility and agility at heart. By structuring the initiative development process into fastpaced, dynamic loops from milestone to milestone, and by using highly focused experiments, good progress and significant advancement can be achieved. In the end, maximizing speed while minimizing costs is what matters most23.

In order to facilitate this dynamic method of milestone planning, rapid feedback and quick learning are crucial. Therefore, the Design-Execute-Learn loop is used to ensure systematic application24.

user experience will build the foundation for revenue growth in the future.

Depending on the type of milestone, it can be helpful to determine broader target ranges rather than fixed singular targets for the sake of further implementation and associated decision-making. For instance, the same online platform might define such a target range as the time a user spends on the platform before he converts to become a paying user. Optimization tasks would therefore focus on keeping this metric within the target range.

23 For more information about how we work with sprints to speed up cycle periods, please refer to How to work with growth initiatives (p. 224).

24 Of course, the “Design-Execute-Learn loop” is based on Eric Ries’ “Build-Measure-Learn loop” in his book Lean Startup (Ries, 2011). However, it was adapted to be applicable in all stages of an initiative and not just in new business situations, where prototypes are built and tested in every loop.

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Execute This step comprises the actual execution of the designed activities. These activities can range from small experiments in the explore phase, such as conducting customer interviews or setting up a prototype website, to clear-cut work steps and tasks, which usually happen in the exploit phase and may include examples like planning a rollout or expanding production capacity for expansion. In general, the focus has to be on speed of execution as well as quality of work, according to defined and measurable targets. To abide by this focus, it is important to ensure the collective commitment and shared alignment of the entire project team. Furthermore, cross-functional collaboration and rapid feedback within the initiative team will increase effectiveness during the execution phase. In order to proceed with the next step, it is important to collect relevant data during the implementation phase, thereby building the basis for further decision-making.

Learn In this step, the project team must evaluate the measured data from the execution step and see if it correlates with

the actual target or broader target range.

To gain new insights and make progress, an open and rigorous dialog about target fulfillment is necessary. Especially if objectives are not met as expected, a disciplined ‘after-action-review’ can provide valuable insights that help to determine the next project steps. Once the results and their implications are fully comprehensible, the initiative team can reevaluate the planned milestones accordingly. Based on the level of deviation from the originally anticipated results, small adaptations to the milestone plan or even major alterations might be necessary.

Concept Initiatives

From explore to exploit It is important to understand that by diminishing uncertainty, an initiative should successfully reach the exploit phase.

The dynamic development approach remains applicable in those circumstances.

In this phase, the goal is to quickly develop and deploy proven solutions that exploit the largely untapped potential of the initiative. Therefore, this approach helps realize and optimize the initiative’s impact on company revenue. Iterative loops may be more resource-intensive and time-consuming, although still dynamic. For instance, a company that has successfully proven its concept and starts to gain traction in the marketplace will still benefit from the dynamic optimization of its scaling processes.

Finally, with high frequency and short cycle-time in the design-execute-learn loop, as well as the use of suitable collaboration tools and structures, teams working on initiatives in the portfolio can advance effectively from milestone to milestone, moving systematically through the exploration phase and gaining even more momentum in the exploitation phase.

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Your benefits When Strategic Agility is first launched in a company, it marks the beginning of a shared journey for the entire management team. The actual voyage is just as important as the eventual destination, as agile management processes and a dynamic way of working with strategy start to shape the company culture. So how can you know whether this journey makes sense for your organization?

We conclude the first part of the book with a chapter about the value Strategic Agility can create for companies. First, there is information about the pains and symptoms companies might suffer from. Then you will find a description of what kind of relief a therapy with Strategic Agility might provide.

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Your benefits Your pain

Your pain Strategic Agility is a valid and proven therapy for organizations suffering from the following pains, with associated negative symptoms: · Little or no systematic approach to generating new business – In your organization, new business has been the result of coin­ cidence or luck, rather than systematic work. · Insufficient ability to develop momentum when implementing strategy – The organization has its strength in defining strategy, yet lacks the ability to deliver results and make it happen. · Facing high risks and significant uncertainties – The organization is paralyzed by a pattern of reducing risks through analysis instead of gaining experience through active learning. · Limited or no resources available for strategy work – The organization blocks all relevant resources in daily operations by choice or by deficiency in management. · Little risk capacity in the organization and lack of risk–taking attitude among employees – The organization or its leadership consistently avoid discussions or actions to overcome risks.

· Lack of strategic mindset and operational alignment among the senior management – The organization’s leadership team struggles with daily operations, by choice or by deficiency. · Long implementation cycles for growth initiatives – The organization runs important growth initiatives but needs a long time to produce initial results, as the dominant mentality of (project) management is “detailed planning” instead of “finding out quickly”. · Lack of innovative spirit and culture throughout the organization – new ideas do not pop–up at all, or they appear, but the company lacks the environment to nourish them. · Inconsequential or late disengagement from unsuccessful initiatives – Seemingly important but ultimately unsuccessful initiatives are not confronted, either due to bad management or due to a culture in which failure is a killer criterion for the internal career path. · Lack of capability and competency for effective strategy work – The critical question is whether a management team acknowledges this lack or not. Sometimes,

it is easier to analyze this from the outside or from the perspective of the board. · Rigid and non–agile strategy work – In certain organizations, strategy work is very dogmatic and part of a very strict planning scheme. There is very little freedom to think, to come up with new ideas or to create new opportunities.

A rigid strategy framework suffocates the air that is necessary for innovation to grow and blossom. In other words, lots of employee endurance or even a certain guerrilla mentality is required to push through innovative ideas and to overcome such a rigid company culture.

So, the diagnosis of your strategy doctor is clear! If your organization shows one or more of these symptoms, try Strategic Agility as an effective cure. You don’t even have to read a package leaflet or ask your physician or pharmacist for further information on possible risks or side effects. Entry costs as well as therapy costs are low, but a ruthless analysis of your own management style and the leadership culture in your company is definitely required.

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Your relief If conditions allow it26, you might want to get serious and implement Strategic Agility.

So what is in it for you and your organization?

Here are the features that make our approach healthy for your organization.

Strategic Agility: · Enhances an organization’s sense of reality – Most organizations struggle with the volume of initiatives on different corporate levels and for all business purposes.

Initiatives consume resources and absorb management attention. However, an integrated project management process is usually lacking. Therefore, Strategic Agility brings coherent structure to a world of chaos. · Induces dynamics – The periodic discussion of key initiatives and the frequent portfolio evaluation makes strategy work more dynamic. The rigorous alignment of the portfolio with the organization’s financial ambition enforces a continuous review of activities. You hardly ever observe similar dynamics in other strategy approaches.

· Aligns strategic thinking – Management teams working with Strategic Agility align their strategic thinking. Keep in mind that alignment does not mean uniformity. Instead, democratic portfolio discussions allow for better priority setting and risk evaluation.

A sense of common understanding creates shared project ownership and enhances cooperation for the sake of success. ·C reates transparency – Putting all initiatives on the table and discussing them creates transparency. There is little or no room for hidden projects or nasty surprises. Every team member knows exactly what is going on, nobody can claim ignorance. · Focuses on execution – Strategic Agility avoids the common pattern of “we think – you execute” on two levels. First, it connects management and implementation. Second, the processes of thinking, evaluating and executing are brought closer together.

Only through hands-on implementation does one get the insights that are essential for effective decision-making.

26 We elaborate on relevant conditions for successful strategy work with Strategic Agility in Prerequisites (p. 148).

· Improves resource allocation and planning – Resources are scarce in most organizations. This circumstance becomes even worse when poor resource planning or insufficient development structures are in place. The mandatory portfolio discussion addresses and re-evaluates resource allocation on a continuous basis, thereby sharpening the understanding and awareness of all decision-makers. · Is a platform for leadership – Executives taking responsibility and ownership over key initiatives show true leadership qualities and empower middle management with a decision-making cascade.

Moreover, the struggle over corporate priorities and strategic contributions in the portfolio discussion requires special leadership skills. Executives who do not stand up in these discussions are likely to fail and take their entities down with them. · Ensures collective learning – Strategic Agility fosters collective strategic learning within management teams. Collective learning based on success stories is not

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a problem for most companies. However, talking about failure, outright defeat, bad judgment or human error is another matter. Strategic Agility enhances transparency, fosters real conversations and allows for a constructive dialog about lessons learned, rather than creating fear of failure or stoking the blame game. · Increases the throughput of initiatives – A regular discussion over initiative results, future steps or corporate re-orientation is at the heart of Strategic Agility.

It changes the way executives plan and implement initiatives. Simply said, less planning for the sake of more doing! This straightforward approach requires a high frequency of decision-making and a reliance on realistic project milestones that are easily digestible. This is especially important in the context of growth development. · Assures organizational renewal – Strategic Agility represents an agile understanding of strategy work. In sports, agility stands for the “ability to quickly change body position or direction of the body” (Wood, 2001). In business, it’s the

same. Organizations must constantly work on their capability to quickly change market position or alter strategic direction. · Tackles the termination and exit of initiatives – Many organizations lack the crucial competence of terminating failed initiatives or cancelling stalled projects. Strategic Agility puts all initiatives on the table and institutionalizes the critical discussions that are necessary to focus on the impact an initiative needs to deliver in order to justify its continuation.

This is an important prerequisite for institutional progression and collective learning. · Puts yearly budgeting in a strategic context – Strategic Agility closes the gap between the mid- and long-term strategy

Your benefits Your relief

discussion and the yearly budgeting process, by introducing the expected effect of the portfolio, both on the revenue and cost side. Strategic Agility is not an isolated, stand-alone toolkit, but rather a holistic approach.

These are the reasons why Strategic Agility can substantially improve your own strategizing. Where is the magic? To be honest, there is none. Simply apply core principles, enforce a certain minimum of process standardization, try to avoid waste and adapt existing management processes, if necessary. The most important change, however, must happen in a manager’s head!

Honestly, strategy is not “fancy stuff” but simply “plain work”. It’s all about ultimate success through initial failure, honest learning and corresponding adaptation.

2 Mindset

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Strategic Agility

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Modern strategy work requires adaptive walk and pogo stick jumpers Modern strategists understand what lessons from evolution theory also apply to strategy formulation in rapidly changing, highly uncertain environments. In his article On the origins of strategies, Eric Beinhocker provides the following timeless insights (Beinhocker, 1999). In traditional strategic thinking, the metaphor of climbing a mountain is often (over)used. In such a scenario, one makes an initial assessment of what position could be profitable in the future and then sets the singular objective of reaching that target, which is symbolized by a peak. Correspondingly, a plan on how to climb the mountain is devised. As a result, one focuses all energy and resources on this one expedition. However, what if the landscape is changing and the mountain is not there anymore tomorrow? Or what

if it is so foggy that you cannot even see the mountains, let alone the peak?

Biologists like to use so-called fitness landscapes for visualizing similar circumstances. These are imaginary 3D grids with surfaces of peaks and valleys. Each point on the landscape layout represents a different gene combination and the height indicates the level of fitness for that species to survive.

Applying the fitness landscape to a business strategy context means that each point represents a different business strategy, while the height stands for the profitability of that business strategy. So how would a business strategist find the highest peak (most profitable) strategy if he cannot see through the fog or the landscape keeps changing? Biologists have developed a set

of rules to understand how evolution finds those highest peaks. The first is keep moving. No matter how successful your current strategy is, because the terrain is constantly shifting, you must experiment to find something better. The second rule is parallelism. Not the entire expedition should take the same route (single search).

Sending out several search parties is more promising (parallel search).

Certainly, the most successful way of parallel searching is the application of two different modes. The first mode is known as adaptive walk. These search parties look through the fog as far as they can see (even if visibility is only a few feet) and then walk step by step on a path that takes them upwards (or at least not downwards).

Adaptive walkers will find a local optimum,

123 A fitness landscape Each point on the grid represents a possible strategy; height equals fitness

Single search

Mindset On uncertainty

Mix short and long jumps Short jumps only

High fitness

Long jumps only

Mix short and long jumps

Parallel search Low fitness

but once they find such a local peak they will be stuck there, because every further step will lead them downhill. These parties will never find the higher peak that might lie just across a small valley. Therefore, some search parties should engage in another strategy. Let’s suppose they had powerful pogo sticks that would allow them to hop to more distant places. Although they will not know where they will land, and some might land in places with lower fitness, others from the search party will eventually find higher peaks. So the combination of adaptive walking combined with occasional medium or long-distance pogo jumps is the most successful strategy to search through a rugged fitness landscape. It is a method that makes intuitively sense and can also be proven mathematically.

So how do all of these theories relate to the practical development of business strategies? Well it means that organizations should have balanced strategies and initiative portfolios that embody a healthy mix of small steps and long leaps, as depicted in the familiarity axis of the portfolio.

Beinhocker also points out that resources are rarely the constraint on parallelism and experimentation, but instead the real problems are different mentalities or cultural limitations. Rather than asking if you can afford to do something, ask if you can afford not to do it.

“The implicit metaphor and mind-set of strategy has been military: you set a clear objective and then focus all your energies on ‘taking that hill’.

In this view, strategy is about setting objectives, narrowing options, and making choices. But complexity theory teaches that, in reality, the hill might not be there tomorrow. In an uncertain world, strategy is really about creating options and opening up new choices, not shutting them down. True, resources are finite, so trade-offs and commitments are inevitable” Beinhocker, 1999

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Prerequisites We have introduced Strategic Agility in more than 30 organizations over the last 10 years, thereby gaining our fair share of experience about those corporate conditions in which the approach works best.

Of course, a general precondition is the willingness of the senior management team to work with an ongoing strategy process in which strategic issues are discussed and dealt with collectively on a regular basis.

The more open and dedicated the management team is towards such an approach, the faster and better the benefits of Strategic Agility can come to fruition.

However, besides this basic precondition, we’ve learned that our approach does not suit all organizations, management teams or circumstances. We’ve found that the reasons for incompatibility are predominantly rooted in a few specific issues regarding leadership culture and management style.

To assess the aptitude of a company to successfully implement Strategic Agility, we have established an assessment with

four specific questions. Only if all four questions can be answered positively, will Strategic Agility show its full potential.

We call it the ‘4x-yes-rule’. Please note that these questions are often not as easy to answer as they seem. To find the correct answers, one must dig deeper into the culture, structure and leadership of an organization.

Does a company or a management team want to invest dedicated resources into horizon 3?

Organizations that answer this question with “no” are primarily happy with living in the here and now. They see long-term strategy mainly as emergent. “Emergent” in this case is just another term for “opportunistic”. Investing into horizon 333 means that a management team is willing to proactively identify, qualify and capture business opportunities on a continuous basis. Management teams that are unwilling to do so believe that systematic exploration

of business opportunities in horizon 3 is not necessary at an early stage.

Organizations that answer “yes” recognize the need of proactive initial investment into potential future opportunities. They do not want to rely on mere opportunism or random luck, but prefer to develop ideas that will allow them to anticipate as well as seize new ventures in the future. In this context, Strategic Agility creates added value.

Does a company or a management team work in an environment with uncertainty?

If the answer is “no” and the future of the organization is very clear, the management team might also go for a strategic planning approach. In a very certain environment, a clear strategic plan can be implemented rather easily and there is little need for ongoing discussions of strategic issues.

If the answer is “yes” and the management team finds substantial levels of uncertainty in their business environment, Strategic

33 Horizon 3 refers to the a company’s long-term business opportunities, according to the concept of growth horizons introduced in the previous chapter Sustained growth and renewal needs to be managed across three horizons (p. 108).

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Agility will be very effective. In the face of uncertainty, this approach can really develop its virtues. Keep in mind that Strategic Agility works perfectly fine in situations with clear predictability as well.

Nevertheless, its strength lies in a more uncertain environment.

Is the management culture of a company based on trust and shared decision-making?

Strategic Agility is deeply rooted in collective decision-making and trust within a senior management team. If the answer is “no”, this approach will hardly develop its full potential. In such a leadership environment strategy work is often dependent on one or just a few managers that obstruct open discussions on collective responsibility and do not allow shared decision-making.

As a result, the process runs at half throttle and creates frustration among the other members of the management team.

The problem is that only very few management teams would answer this question with a straightforward “no”. It is hard to admit that there is a lack of trust and that

the leadership style is rather authoritarian.

Therefore, a closer look at the management team’s culture is important, even if the answer is “yes”.

We have experienced cases in which the management culture was not ideal from the beginning, but in which Strategic Agility helped transform it towards greater trust and collective commitment. However, in each of these cases there was a strong CEO leading the transformation process thereby creating a strong foundation to build on.

Does the management team acknowledge the importance and potential of bottom-up initiative generation?

One of the fundamental features of Strategic Agility is the creation of new initiatives. In most cases, a top-down pattern for the ideation of new initiatives is in place.

However, such a top-down idea-funnel becomes thinner over time as senior management will often simply run out of ideas or fail to generate fresh concepts for genuine innovation.

Therefore the management team must tap into new sources for the generation of

Operating Model Prerequisites

new initiatives. Relevant ideas and starting points for business initiatives can pop-up anywhere in the organization and at every hierarchy level. Therefore, the ability to identify and develop bottom-up opportunities is mission-critical for success. However, this ability requires time to develop.

In order to apply Strategic Agility successfully, the organization does not need to have the necessary structures in place. However, in order to answer the question with “yes” and tap all potential, the management team must be aware of the energy, creativity and knowledge of its employees throughout the organization.

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Jump-starts Strategic Agility is first and foremost an integrated strategic management approach that develops its full potential when implemented with all of its elements and on all three levels. At the same time, Strategic Agility is also a well-structured mindset on strategy in a modern context, using selected as well as proven tools. This allows an organization to select individual elements of the methodology and get started with improving agility and focus. By doing so, any organization can get acquainted with this different way of strategizing. It allows them to complement their existing strategic setup with a comparatively small investment of time and effort.

The following chapter highlights several elements from our approach that are easy enough to use on their own or in combination with other components. These “jumpstarts” to Strategic Agility tend to have lower entry barriers and can already have a substantial impact on certain aspects of the business.

The following jump-starts have proven useful: ∙ Drawing the portfolio – The company’s activities are illustrated in the initiative portfolio, creating transparency about resource allocation and clarity about strategic alignment. ∙ Assessing your growth targets – The overall growth ambition requires explicit as well as differentiated formulation, thus enabling an effective discussion about new business opportunities and pro-active growth generation. ∙ Setting up a growth program – In a pragmatic five-step process, companies learn to grow systematically by continuously aligning growth targets with specific actions, resource allocation and management attention. ∙ Generating new growth opportunities – This efficient exercise for the management team is a top-down effort to identify growth opportunities and consequently create new business initiatives.

Operating Model Jump-starts