Some companies seem to have a knack of embracing new ideas and innovations faster than others. In many industries growth and profitability is determined by speed-to-market with new product development. So what makes these companies better at seizing opportunities?
To answer this question I attended a great lecture on strategic agility by Professor Don Sull, from London Business School. He proposes that organizations start off as nimble and agile, but when they grow large it’s how they transition between agility and absorption that determines success.
- Agility - the capacity to seize opportunities faster
- Absorption - the capacity to sustain change and deliver long-term shareholder return
To use a boxing analogy, Mohammad Ali early on in his career had great agility to “float like a butterfly and sting like a bee” but later on lost some of that speed and had to absorb more punches from his competitors, eventually losing the title.
My research found Abercrombie & Fitch, the fast-fashion company, a great example of agility. While growing to over 1,035 stores worldwide they have developed processes to seize opportunities faster. Their new in-house Innovation Design Center produces flexible designs for quick approval and production, enabling reduced time to market for the latest fashion trends. While also reducing costs and limiting the competition’s ability to copy its designs. These capabilities has allowed Abercrombie & Fitch to post 16 years of earnings increases and deliver superior Total Shareholder Return over the last 5 years, vis-à-vis Gap their largest competitor.
When companies become larger, growth begins to stall as markets mature. Professor Sull suggests that firms can develop absorptive capabilities allowing them to seize opportunities when the perfect storm arises. Some examples are;
- Diversified cash-flow (General Electric)
- A war-chest of cash (Microsoft)
- Powerful tangible and intangible assets (Procter & Gamble)
- Excess resources and staffing (JPMorganChase)
- Lock-in via exclusive partnerships or integration (Oracle)
- Compete in protected markets (Royal Bank of Canada)
- Strong local market or low cost position (Cemex)
These absorptive capabilities mean companies can outlast others in a war of attrition or scale new innovations quickly. Diversification, strong brands or patents can provide the beachheads to reinforce and attack other customer segments. Strict government regulation and exclusive partnerships can limit new entrants. Finally, a strong local market or low cost position may allow you to absorb price volatility and downturns in international markets.
To increase agility in your business you can outsource or acquire it. Outsourcing requires you find the right partnerships that compliment your core business. Whereas acquiring agility involves you keeping the hardware and rewriting the software by changing organizational structure, key management personnel and culture.