Preface

Wherever we are, it is but a stage on the way to somewhere else, and whatever we do, however well we do it, it is only a preparation to do something else that shall be different.

—Robert Louis Stevenson

This book is about organization agility and its performance consequences. Despite the volume of writing on the subject, the business and academic press rarely connect these two issues in any meaningful and concrete way. There is a lot of discussion about agile software development in the technology community; agile culture and leadership, among management gurus and in the blogosphere; agile manufacturing practices, among operations experts; agile supply chains, among logistics professionals; and agile organizations, among executives and academics. But there is little in the way of a demonstrated connection between any of these forms of agility and organization performance. The connection between agility and performance is often implied but rarely established.

Moreover, there is considerable debate over what “good per­formance” actually means. Does a high stock price today mean the organization is performing well? If the stock price falls tomorrow, is it suddenly not performing well? How long must an organization sustain high levels of profitability or stock price to be called successful?

Over the past seven years, our research and experience with large corporations has unearthed two key findings concerning agility and organization performance:

1. In every industry, there are three long-term patterns of profit performance. Some firms have profitability that is consistently below industry average, a larger proportion of firms have profitability that thrashes below and above average, and a few firms consistently outperform the industry.
2. The best explanation for the outperformance pattern is a capability we call agility—a system of routines that allows a company to make repeated organization changes when necessary. These consistently high-performing companies do a better job of revising their strategy, perceiving and interpreting environmental trends and disruptions, testing potential responses, and implementing the most promising changes. Agility of this type cannot be developed overnight, and it is not likely to emerge by accident. An agile organization must be built on an integrated foundation of management practices that create an adaptable organization.

Origins of the Book

The stories, data, and conclusions in the following pages are the result of a long-term collaboration—the integration of two streams of thought that came together about six years ago. One stream of thought originated at Booz & Company (now Strategy&, the former commercial part of Booz Allen Hamilton). While working there, Tom Williams and Steve Wheeler wondered what light research might shed on helping organizations transform more quickly and reliably. As management consultants, they typically dealt with organizations that were in trouble. They found their clients in one of four states, only one of which was desirable. Companies were (1) “behind the curve,” hurtling toward a crisis that demanded a performance transformation; (2) facing inconsistent execution of change initiatives that were not delivering expected results; (3) coming out of a transformation exhausted and frustrated; or (4) anticipating the need for the next transformation to take performance to a higher level. Booz & Company's efforts to improve execution—guiding client top management to establish clear objectives, to design a sequence of campaigns, and to execute those campaigns under tight control—usually delivered results. However, they also believed that there was something missing and that more could be done to improve the success rate of campaigns and to institutionalize new capabilities.

The other stream of thought originated at the Center for Effective Organizations (CEO), a research center within the Marshall School of Business at the University of Southern California where Sue Mohrman, Ed Lawler, and Chris Worley were thinking about the state of practice and research related to organization change. At the time, most writing began with impressive statistics about the percentage of change efforts that failed to meet expectations despite a large base of empirical studies and years of interventions. There was a strong feeling among academics and practitioners that organization change was misunderstood, and the usual remedy was to call for better tools and intervention processes.

Ed and Chris asked a different question. What if the failure rate of organization change was the result not of bad change management practice, but of time-honored design principles and assumptions that produced organizations that valued stability? The result of their inquiry, the book Built to Change, represented a vision of what an organization might look like if it replaced the stability = effectiveness assumption with the assumption that changing = effectiveness.

Jim O'Toole, a research scientist at the Center for Effective Organizations and a longtime advisor to Booz & Company, saw the parallels between the two streams and orchestrated a meeting. As the groups explored their different models and frameworks, the overlapping concepts and interests became clear. A key insight emerged when the groups realized that if executives viewed campaign implementation and capability building as the same thing, the ability to change could be institutionalized. An agile organization would not engage in periodic transformations with campaigns that were seen—and usually resisted—as “not invented here” intrusions. The organization would see change as normal.

The insight became a purpose: to understand if there were organi­zations that possessed such a capability and if that capability delivered sustained results.

The purpose spawned three streams of work. In the initial stream, the team reviewed the literature on strategic change, adaptation, and evolution. CEO's O'Toole, Worley, and Lawler worked with Booz's Williams and Adrienne Crowther to describe what was known. The review suggested that change was indeed possible but problematic. A few well-documented, popular, and successful cases of large-scale transformations stood in the shadow of a much larger number of failures. Similarly, empirical articles consistently found a few key predictors of successful change but rarely found the same key predictors.

Clearly, something was missing. On the one hand, no single change theory seemed to work in all cases. A wide variety of successful and unsuccessful organization changes were going on, and the existing theories and frameworks were struggling to account for these activities. As a result, managers were left holding the bag. Their only option was to choose their favorite approach from among a set of inadequate theories. On the other hand, most studies focused on a single change and, at best, short-term performance improvements. The link between change and long-term performance was not established, and the only good data asserted a negative relationship: change was associated with an increasing risk of failure. These two observations drove the second and third streams of work.

The second stream inquired into the possibility of sustained performance. Using prior research as our jumping-off point, we looked at the long-term financial performance of large public companies. In the end, our sample included 424 firms in twenty-two industries over thirty-two years (1980–2012). The findings of this research were summarized earlier in this Preface and are reported in Chapter One. It shows that consistent, above-average profitability, although rare, is possible.

In the third stream, we wanted to understand whether the high-performing organizations possessed an agility capability that other firms did not. Toward that end, we developed an organization survey and interview protocol. Questions for the survey and interview were developed by Tom Williams and Adrienne Crowther from Booz & Company and Ed Lawler, Sue Mohrman, and Chris Worley from CEO.

In the end, the core of the survey consisted of fifty-one items. The items rated an organization’s strategies, structures, systems, and culture on a five-point scale, where 1 = not at all and 5 = to a great extent. The fifty-one items rolled up into fourteen initial scales. Based on the interview data, the fourteen scales eventually were grouped into the four routines of agility: strategizing, perceiving, testing, and implementing. For the interested reader, the e-book Assessing Organization Agility describes the survey and interview questions in more detail. It also provides access to a short form of the survey as well as assessment guidelines.

Over the next five years, Chris led the effort to gather data from large public corporations in different industries as well as data from nonprofits, privately held companies, and other types of organizations. Rather than accepting a single survey response from a senior executive to represent the whole firm, our approach was to work closely with an organization. We typically collected surveys and/or interviews from a top management team, a sample of senior managers, or a sample from a function or business unit. The data were then fed back to the organization for discussion and action planning. This allowed us to gain a deeper understanding of the survey and interview findings and to understand whether the data represented the traditional way an...