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Strategy

Strategic planning in volatility: The dance between agility and core strengths

Published 26 June 2024 in Strategy • 6 min read

Understanding your organizational capacity for agility and responding to events accordingly is the key to success in the new business environment, says Michael Yaziji.

 In today’s volatile business environment, traditional long-term strategic business planning is not going to do the job. The best-laid plans can be rendered ineffective by the kinds of unpredictable event that have been shaking the world with ever-greater frequency in recent times.

In response, many executives have taken steps to introduce the concept of agility into the planning process, a capacity and readiness to respond rapidly to external developments. But flexing to every gust of change risks organizational chaos, leading to distraction and dilution of effort and potentially undermining a business’s core strengths and competitive advantage. While attractive in theory, implementing a more agile approach to setting strategy is also fraught with difficulty.  

Striking the right balance between agility and core strengths is essential. This entails:

  1. Selecting a strategic approach that considers the organization’s ability to change and its sources of current and future competitive advantage. 
  2. Developing dynamic business capabilities.  
  3. Getting creative about maximizing business agility. 

1. Choosing an appropriate strategic approach  

The strategic approach an organization chooses should be based on its size, history, core competencies, and inherent agility. Two extreme scenarios help illustrate the importance of this framework: 

  • Case 1: The Goliath – a large firm with established core competencies 

Imagine a company that, over decades, has meticulously built up core competencies that are now central to its competitive advantage. Given its size and legacy, such an organization will exhibit a comparatively slow maximal rate of organizational change, meaning it struggles in circumstances that demand agility. 

Rather than pretending their organizational agility is greater than it is, leaders of such behemoths should acknowledge this reality. Instead of attempting to adjust the course of the “mothership” in response to every market ripple, a more judicious approach is needed. 

  • Case 2: The David the agile three-person start-up 

At the other end of the spectrum lies the nimble startup, in our example comprising just a trio of passionate individuals. Such an entity is not burdened by legacy overhangs, a complex hierarchical structure, or deeply entrenched processes. Its agility is its strength.  

With minimal historical baggage and less riding on the success of existing strategies, these startups can reinvent themselves and change strategic direction with relative ease. Their leaders can make swift decisions, iterate their offerings based on real-time feedback, and venture into new terrain without the fear of jeopardizing a long-established market position or diluting decades-established competencies. 

2. Developing dynamic capabilities 

The degree of agility assumed by any business strategy should reflect the dynamic capabilities of the business – that is, its capacity to develop new competencies. Dynamic capabilities include the ability to detect market changes, seize emergent opportunities, and adapt internal capacity in order to develop new competencies and competitive advantage.

owl
Instead of attempting to adjust course in response to every market ripple, a wiser approach is needed

Firms with strong dynamic capabilities can be highly agile, frequently revisiting and revising their strategies. They can swiftly pivot to new opportunities and ways of working without compromising their core competencies. Such firms have established systems and cultures that foster innovation and adaptability. Amazon is one firm often cited for its dynamic capabilities. From its origins as an online bookstore, its leaders detected opportunities in various sectors (such as cloud computing with AWS), and seized them, fluidly adapting the business model.

By contrast, firms with limited dynamic capabilities struggle to develop new competencies or adapt to their changing business environments. These organizations should be wary of attempting to implement strategic moves that require an agility for which they are not equipped. For these firms, stability and gradual evolution, rather than rapid pivoting, might be more appropriate.

Qualitative and quantitative feedback loops help senior executives measure the maturity of their businesses’ dynamic capabilities. Reporting should signal a failure to meet change initiatives early – and attempt to explain this failure.

Regardless of the starting point, executives should seek to refine and enhance their businesses’ dynamic capabilities in the following ways:

  • 1. Detecting opportunities and threats 

Market monitoring. Regularly scan the market to identify emerging trends, technologies, and potential disruption. Tools such as SWOT (skills, weaknesses, opportunities, threats) and PESTEL (political, economic, social, technological, environmental, and legal) analysis, as well as in-depth scenario planning, can be invaluable.

Feedback loops. Encourage customer feedback through surveys, focus groups, and social-media listening to understand changing preferences and requirements. 

Competitive intelligence. Keep a close eye on competitors, including potential market entrants, to anticipate and prepare for market shifts.

  • 2. Seizing opportunities

Rapid prototyping: Once you have identified an opportunity, use rapid prototyping to test new products or services. This allows for iterative testing and refinement based on real-world feedback.

Cross-functional teams: Create agile teams that combine members from different departments. Their diverse skills and perspectives can fast-track the development of new solutions.

Investment: Allocate resources, both financial and human, to capitalize on identified opportunities. This might also involve partnerships, acquisitions, or joint ventures. 

  • 3. Transforming and reconfiguring 

Continuous learning. Invest in training and development programs to upskill employees, ensuring they are equipped to handle new challenges and technologies. 

Organizational flexibility. Adopt flexible organizational structures that can be reconfigured as needed. For instance, matrix structures or flat hierarchies can be more adaptable than rigid traditional hierarchies. 

Culture of adaptability. Cultivate a company culture that values adaptability and resilience. Encourage employees to embrace change, take calculated risks, and learn from failures. 

 

Transformation into a learning organization, where feedback loops are short and robust, is crucial to developing dynamic capabilities. In such organizations, information flows freely and purposefully, ensuring that insights gleaned at one end of the business inform decisions made at the other. This information ecosystem fosters an environment where businesses view mistakes as learning opportunities and analyze successes meticulously for replicable elements. 

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Recognizing the different ramifications of decisions can help you apply them at different speeds

Furthermore, by embedding a culture of continuous improvement, firms signal a commitment to evolution and growth, which acts as a magnet for forward-thinking talent. When employees at all levels value adaptability, they not only respond to change, but often become proactive agents of it, driving innovation from within. Combined with an external focus on market dynamics, this positions companies to better anticipate shifts in the business landscape, allowing them to adjust pre-emptively, not only remaining competitive but often setting the pace for their industry.

Artificial intelligence (AI), especially generative models, have become increasingly instrumental in setting strategy. They offer unparalleled capabilities in analyzing vast datasets, providing insights into emerging market trends and customer behaviors. The technology can also simulate a wide range of business scenarios, allowing firms to prepare with greater strategic flexibility and precision.  

With the continuous learning ability inherent in machine learning (ML) models, businesses can adapt their strategies in real-time, ensuring they remain agile and responsive to the dynamic market environment. As AI technologies become more sophisticated, their role in aiding businesses to strike the right balance between agility and core focus will grow.

3. Get creative about maximizing agility 

Regardless of size and current level of maturity, agility can be nurtured through the following approaches: 

  • Acquisitions and ring-fenced internal ventures

For larger, more established organizations, acquisitions can provide access to new technologies, markets, or competencies that might be time-consuming to develop organically. Meanwhile, ring-fenced internal ventures – think Google’s “moonshot” projects or IBM’s Watson – operate semi-autonomously, shielded from core business processes and internal politics. This compartmentalization allows them to innovate at a faster pace, unencumbered by the legacy structures of the parent firm. 

  • Different clock speeds for different strategic decisions 

Strategic decisions vary in scale and implications. While group-wide decisions might require a more deliberate approach, local product-market decisions can afford to be more agile. Recognizing that not all decisions are subject to the same ramifications allows organizations to apply different clock speeds. For instance, decisions around brand identity or corporate acquisitions might require more extensive deliberation and stakeholder consultation. In contrast, tactical decisions involving, say, promotional campaigns or tweaking product design, can be made more swiftly, based on real-time market feedback.

  • Lower-cost, rapid strategic probes

Instead of committing vast resources to untested strategies, organizations can deploy “strategic probes:” that is, small, low-risk experiments to test assumptions and hypotheses. These probes, whether they are pilot projects, prototype products, or market surveys, provide invaluable insight with minimal investment. By continuously testing and learning, companies can refine their strategies, ensuring they are always aligned with, and even anticipating, new market realities.

 

As the boundaries between industries blur and new technologies continue to emerge, strategic planning will, necessarily, become even more fluid. Organizations will need to be adept at merging their foundational strengths with innovative approaches, be that through acquisitions, internal ventures, or harnessing the potential of technological breakthroughs.

In this struggle to incorporate agility without weakening core strengths, the future will belong to those who master the art of strategic dexterity. As businesses evolve, those that embrace both their organizational realities and accept and respond to the winds of change will lead the next wave of business evolution, setting benchmarks and writing success stories in the annals of corporate history. 

Authors

Michael Yaziji

Michael Yaziji

Michael Yaziji is an award-winning author whose work spans leadership and strategy. He is recognized as a world-leading expert on non-market strategy and NGO-corporate relations and has a particular interest in ethical questions facing business leaders. His research includes the world’s largest survey on psychological drivers, psychological safety, and organizational performance and explores how human biases and self-deception can impact decision making and how they can be mitigated.

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