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8 Organizational Design for Agility Christina Wawarta and Loizos Heracleous Agility as a Dynamic Capability for Competitive Success It all began with a light bulb. Since then General Electric (GE) has come a long way during its corporate history of more than 100 years. It helped create, transform, and lead various industries from energy to aviation and healthcare to transportation. In his 20 years of tenure as CEO, Jack Welch led several initiatives intended to make GE a lean, agile, successful competitor. Jeff Immelt, the current CEO, is now leading GE towards becoming the worlds premier digital industrial company1 after realizing that digital disruption is fundamentally changing the way business is done. GE picked up these signals and reacted to them. It began investing in digital expertise, embedded a software analytics team in its global research center, and started the process of integrating its digital capabilities with its physical ones. The aim has been to take advantage of new technologies in order to increase asset reliability, reduce operating costs and risk, and accelerate operational performance. 2 Digitalization can be viewed as the most recent industrial revolution, reshaping industry boundaries by shifting traditional, linear industrial value chains to connected digital ecosystems and platforms; closed/industrial innovation processes to co-creation, open innovation and crowd sourcing processes; and product- or service-centric models to models based on cus- tomer experience. Add to the above current socio-economic challenges and it becomes obvious that environmental change is challenging organizations to become ever more agile, responsive and at times proactive in shaping industries. A key early assumption of the strategic management eld is that a sustainable competitive advantage can be attained. 3 Increased environmen- tal velocity and uncertainty, however, have prompted alternative perspec- tives such that there are dynamic sources of temporal competitive advantages4 Several related concepts have emerged, such as dynamic capabilities, 5 ambidexterity, 6 or strategic agility. 7 For many, becoming agile 114 terms of use, available at https://www.cambridge.org/core/terms. https://doi.org/10.1017/9781108545884.009 Downloaded from https://www.cambridge.org/core. IP address: 54.39.106.173, on 16 Apr 2020 at 01:51:18, subject to the Cambridge Core

8 Organizational Design for Agility · 8 Organizational Design for Agility Christina Wawarta and Loizos Heracleous Agility as a Dynamic Capability for Competitive Success It all began

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8 Organizational Design for Agility

Christina Wawarta and Loizos Heracleous

Agility as a Dynamic Capability for Competitive Success

It all began with a light bulb. Since then General Electric (GE) has come along way during its corporate history of more than 100 years. It helpedcreate, transform, and lead various industries from energy to aviation andhealthcare to transportation. In his 20 years of tenure as CEO, Jack Welch ledseveral initiatives intended to make GE a lean, agile, successful competitor.Jeff Immelt, the current CEO, is now leading GE towards becoming the“world’s premier digital industrial company”1 after realizing that digitaldisruption is fundamentally changing the way business is done. GE pickedup these signals and reacted to them. It began investing in digital expertise,embedded a software analytics team in its global research center, and startedthe process of integrating its digital capabilities with its physical ones. Theaim has been to take advantage of new technologies in order to increase assetreliability, reduce operating costs and risk, and accelerate operationalperformance.2

Digitalization can be viewed as the most recent industrial revolution,reshaping industry boundaries by shifting traditional, linear industrial valuechains to connected digital ecosystems and platforms; closed/industrialinnovation processes to co-creation, open innovation and crowd sourcingprocesses; and product- or service-centric models to models based on cus-tomer experience. Add to the above current socio-economic challenges and itbecomes obvious that environmental change is challenging organizations tobecome ever more agile, responsive and at times proactive in shapingindustries.

A key early assumption of the strategic management field is that asustainable competitive advantage can be attained.3 Increased environmen-tal velocity and uncertainty, however, have prompted alternative perspec-tives such that there are dynamic sources of “temporal competitiveadvantages”4 Several related concepts have emerged, such as dynamiccapabilities,5 ambidexterity,6 or strategic agility.7 For many, becoming agile

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is an essential dynamic capability that can help firms successfully addresstoday’s challenges.

Daimler, for example, has initiated a project with the tagline: “Agile,creative, inspiring. A new dawn for Daimler. We are combining our expertiseas a technology leader with start-up energy – and using this as our fuel to driveforward the mobility of the future”.8 PayPal has announced that the companyhas “undergone a major internal transformation to operate as an agile enter-prise. There have been fundamental shifts in how teams work and how theywork together, resulting in a PayPal that is stronger than ever. The flow ofinnovation has increased and many hurdles that teams had to navigate havebeen removed”.9

Agility has been variously defined. However, there are certain commonal-ities:10 Agility involves a “sensing” and a “responding” element. Organiza-tions sense, and then interpret, changes in the environment, before theydecide what to do and then take action.11 Further, agility is often achievedby actively taking actions which are different from regular or routine ones,aiming to increase organizational adaptability. Third, agility is characterizedby speed in terms of sensing and responding to unexpected environmentalchanges. Finally, agility is often associated with organizations operating inenvironments with rapid and unpredictable changes; which entails commen-surate speed in sensing and responding. We therefore propose the followingdefinition: Agility refers to an organization’s ability to be adaptable inresponse to environmental change. Management must be able to sense envir-onmental changes in a timely and ongoing fashion, and to respond effectivelyby reconfiguring the organization accordingly in a way that enhances itsadaptability.

Given that agility is a quality or competency of an organization, it canusefully be seen as a type of dynamic capability. Dynamic capabilities are a“firm’s ability to integrate, build and reconfigure internal and externalcompetences to address rapidly changing environments. Dynamic capabil-ities thus reflect an organization’s ability to achieve new and innovativeforms of competitive advantage given path dependencies and marketpositions”.12

Agility also has close affinity with the earlier concept of “strategic flexibil-ity” coined in 1959.13 Two dimensions are recurring in uses of this concept:First, a temporal dimension which describes the transformation from an ex antemode to an ex post model; second, an intentional dimension demarcating anactive seizing of opportunities.14 Strategic flexibility therefore “creates anddeploys flexible organizational processes that increase the firm’s capability togenerate the variety of responses required to maintain stability in a dynamicenvironment”.15

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How Agile Are Today’s Organizations? Results from a GlobalCross-Industry Survey

In this section we draw from a study conducted by Capgemini Consultingduring 2014 and 2015, which was headed by the lead author.16 Its aim was toinvestigate to what degree the concept of agility had been deployed across 10industries.

Agility in sensing was defined as the continuous monitoring of the externaland internal environment to identify relevant changes in order to assess theirstrategic implications. Important external impulses include socio-economictrends, competitive moves, and technological developments, while internalsources encompass outputs of research & development, big data analytics, orchanges in workforce composition.

Agility in respondingwas defined as the ability to accurately interpret environ-mental changes before deciding and acting upon them in an adequate and timelymanner with the aim to enhance the competitive position of the organization.

The Appendix offers more information on the survey data and on theoperationalization and analysis of the agility concept.

Agility in Sensing

The results for agility in sensing were generally lower than those for agility inresponding (Figure 8.1). Only 52 percent of the survey participants said thattheir organization continuously monitors its environment to identify and ana-lyze trends, competitive moves, and key technological developments in orderto assess strategic implications. Twenty-seven percent rated their firms asmoderately good at it.

48%

42%

Overallagility

10%

Agile

Moderately agile

Not agile

Agilitysensing

Good in sensing

Moderately good in sensing

Weak in sensing

Agilityresponding

Good in responding

Moderately good in responding

Weak in responding

21%

27%

52%15%

17%

68%

Figure 8.1 Survey results for overall agility, agility in sensing, and agility inresponding

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The in-depth analysis revealed a more differentiated picture. Seventy per-cent of the organizations said that they have mechanisms in place to stimulatean active exchange of information across departments (Figure 8.2). Suchexchanges are important for bringing different streams of information togetherso that novel insights can be generated and out of which the need for actionmight result.17 On the other hand, less than 50 percent of the firms confirmedother forms of agility in sensing. For example, a mere 44 percent said that theycollect large amounts of data and use them for forecasting purposes. Further,only half of organizations said that they find it easy to draw insights from theirdatabases; this may be linked to the fact that 40 percent consider thesedatabases to be vast and unstructured.

Academic theory and insights from consulting practice offer several explan-ations for why the concept of agility in sensing has not been fully deployed yet.First, organizations often prioritize the core processes of the value chainover support activities such as sensing, especially when resources arelimited. Second, some leaders rely significantly on intuition in addition tointentional, structured environmental scanning. According to psychologists,this is a fairly common way of dealing with the complexity of today’senvironment. In complex and unpredictable environments, a substantial partof cognition operates subconsciously and takes shape in terms of “intuition-as-feeling”18 providing an additional source of cues on environmental changes.Third, firms that lag behind the digital transformation curve tend to haveimpeded sensing capabilities in relation to competitors that are more advancedin this journey.

Past research has revealed systematic differences with regards to the digitalmaturity level of firms in different industries. While firms in the high

Ac�ve informa�on exchange across department and divisions 70%

49%Insights can be drawn from databaseswith ease

Use of large amount of data to createforecasts

Links between various data sources

44%

40%

Figure 8.2 Percentage of firms that apply specific measures to increase agilityin sensing

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technology, banking, and insurance industries lead the field, others, like thepharmaceutical companies, lag behind. This being said, digital championsnevertheless exist in individual firms in each industry.19 Overall, however,the digital maturity assessment of industries fits well with the results from theagility study. Financial services firms are significantly better at sensing (56percent rate their capabilities as well developed) than the pharmaceuticalindustry in which only 29 percent rate themselves similarly.

Although some industries and organizations still lag behind in their digitaltransformation, we can see from the study that all firms are by now at leastaware of the digital possibilities that exist as well as the necessity to respond.This can be inferred from the qualitative statements on digitalization, big data,and analytics that the respondents provided as a response to the question ofwhat the most important trends in the future are, for example:

The most important success factor for us going forward is having a well-thought-outstrategic plan with respect to data and analytics in place.

A key trend is the transformation of the industry, with a higher competition and themove towards a bipolarized industry (low cost vs. premium). Impact: need to be flexibleand to be able to respond quickly to market dangers (both on a creative and on anIT level).

Agility in Responding

Agility in responding is the second element of overall agility and refers tointerpreting accurately the sensed signals and acting upon them in such a waythat the competitive position of the organization is enhanced. Agility in respond-ing scores were generally higher than agility in sensing scores. Sixty-eightpercent of firms consider themselves good at this capability, while 15 percentsay they only respond moderately well to external changes. However, firms canonly respond to changes that they have sensed in the first place. If competitiveshifts or disruptive technologies are detected too late, being quick and effectivein acting upon them might not suffice. The discrepancy between agility insensing and agility in responding could be due to the definition of agility insensing as continuous monitoring of external and internal environments. Such acontinuous monitoring process sets the bar higher for firms than the receipt of adhoc signals, that may also be responded to, hence the higher percentage in theagility in responding category.

Why is the result for agility in responding so positive? According to Cap-gemini Consulting’s study as well as to other research, such as that on processand enterprise maturity models20 and the diffusion of management tools,21 theanswer can be attributed in large part to organizational maturation. By this term,we refer to the organizational improvements through experience and learning as

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well as inputs from management research, consultants, and study of bestpractices. As a result, today’s organizations overall are leaner, more efficient,and with more structured and defined organizational processes. The diffusion ofmanagement tools has been largely responsible for these developments.A survey comprising of 13,000 completed questionnaires and 300 interviewsglobally found that over the last 15 years, benchmarking and the balancedscorecard for example have been applied by more than half of all organizationsin the sample. Other tools such as business process re-engineering promote aradical re-design of core business processes in the light of key performanceindicators such as productivity, cycle times, and quality as well as other designcriteria such as modularity and flexibility. Decision-making tools yield a similareffect with regard to streamlining and accelerating the decision-making process,while making it clearer and more transparent.22

Figure 8.3 summarizes the results from the closed-ended questions whichconfirmed that clarity, transparency, standardization, and formalization areimportant levers to determine quickly what adjustments need to be made, forexample to market offerings, and what processes and decision-making com-mittees are required to decide on them.

In addition to the above measures, respondents further highlighted additionalrequirements in their qualitative comments, such as issues of autonomy andindependence:

Our company’s success depends on the ability to be flexible and responsive to markettrends. Having a large amount of autonomy, and therefore accountability, enablesemployees to act quickly and decisively. However, the appropriate training/mentoringin the roles is crucial to preventing costly mistakes being made.

Set-up of temporary teams across division and departments 79%

63%

51%

49%Formal defini�on of decision-making commi�eesand their power

Clarity about decision-makers avoids delays

75%

Quick adop�on of the most importantprocesses

Figure 8.3 Percentage of firms that apply certain measures to increase agilityin responding

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Striking a balance between formalization, standardization, and process rigidityon the one hand and autonomy and independence on the other, is crucial foragility in responding and agility in general. As a consequence, the “soft” or“human” aspects of agility need to be taken into consideration just as much asthe “hard” aspects (process design, governance structures, data and informa-tion systems, etc.).

For example, information flows (horizontally and vertically) within a firmand with its ecosystem need to be incentivized in such a way that criticalinformation and expertise can diffuse routinely throughout the whole organiza-tion. This requires a mindset shift at the management level to establish aculture of organizational learning and to let go of traditional top-down leader-ship approaches.23 Such a cultural change can be facilitated in various ways,including by means of a less restrictive approach to access rights. This way,employees and members from lower and middle management can retrieveinformation themselves more easily and take corresponding actions. Only31 percent of organizations which rated themselves as weak at agility have aliberal approach to access rights; and only 25 percent actively put measures inplace that foster an increased information exchange and cross-departmentalflows, which leaves large potential unutilized.

Firm-specific Characteristics and their Implications for Agility:Organizational Size and Age

In addition to market- and industry-specific trajectories, individual firm charac-teristics such as size and age yield important implications for agility.

Not surprisingly, the results show that very small organizations (11–50employees) excel in agility. In figure 8.4 we can see that they exhibit thehighest level of agility with the lowest variance. In large part, this can be tracedback to the not yet developed bureaucratic structures, a “can do” attitude aswell as swift and short decision-making processes. Additionally, such firmsoften serve only a few customers. Consequently, they know them well and stayin close contact with them. Customer centricity is at the heart of their business.This can be considered a competitive advantage when preferences change ornew product opportunities arise, as they are among the first ones that can senseand respond to the change.

With growing numbers of employees, however, we see a drop in the level ofagility. Firms with 51 to 200 full-time employees, for example, rate theirorganizations as the most non-agile. On the one hand, this can be explainedby the correlation of the number of employees with increasing regulations andobligations that have to be met, e.g. relating to employment and environmentalmanagement as well as to tax. On the other hand, with an augmented numberof staff, work division increasingly takes place and leadership style may

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become more directive, which reduces individual autonomy, responsibility,and motivation. Unfortunately, these are also key success factors of agileorganizations as we will see later.

Greiner describes this phenomenon in his “five phases of growth” whichdescribe an organization’s evolution from its original emphasis on creativity tothe phase of direction and then to subsequent stages. During the creativityphase, when the firm is small in size, typical characteristics include a strongfocus on the product, informal communication and structures, as well asdecision-making that is highly sensitive to market feedback. With growingnumbers, however, formalized management aims to run operations efficiently,capture knowledge, and install additional accounting procedures and financialcontrols. According to Greiner,24 the next revolution is then one based on theincreased longing of employees for more autonomy, which leads to moredelegation and later to phases of coordination and collaboration. This isconsistent with the agility study which shows that the agility level increasesagain for firms with more than 251 employees even though the associatedvariance increases, depending on, for example, how much red tape persists.

With respect to organizational age, start-ups generally follow an entre-preneurial cycle where each stage poses different challenges. As nascententrepreneurs, founders are mostly concerned with issues revolving aroundthe establishment and the survival of their new firm. Although the foundersoriginally identified a market opportunity and seized it (exhibiting agility),the organization is at this stage functionally simple, with the owner(s) often

Number of employees

11–50 51–250 251–1,000 More than10,000

1,001–10,000

Leve

l of a

gilit

yhi

ghlo

w

Figure 8.4 Distribution of agility level according to firm size

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doing everything on their own. They may lack experience in how to sourceand channel resources, which internal processes, routines, and standardsneed to be set up, and how operations are efficiently run; all of which candetract from continued focus on market trends. Further, founders may notalways be good managers. This is why recently founded firms may notnecessarily display the highest levels of agility (see Figure 8.5). However,over time as various capabilities (operational, managerial, strategic) areeither built up internally or bought in via recruitment, the agility levelincreases. These capabilities require a significant learning process.25 Organ-izations beyond the age of 25 years deteriorate again in agility – yet with agreat variation, depending on their leadership competencies and organiza-tion culture.

The Journey towards Agility – Organization Structure, Culture,Processes, and IT

Independent of the industry trajectory and firm-specific characteristics, eachorganization can influence its own agility level. This has to be done actively;otherwise an organization might end up in a self-reinforcing organizationallock-in which is based on its historical path dependency.26

Capgemini Consulting has investigated the 34 agile firms from its study inmore depth to infer characteristics that they have in common. The top10 characteristics with the highest correlation to agility are shown inFigure 8.6.

Organiza�onal age in years1–3 4–10 11–25 More than 25

Leve

l of a

gilit

yhi

ghlo

w

Figure 8.5 Distribution of agility level according to organizational age

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Organizing for agility

Org. Structure & Governance

1. Complexity-free organiza�onal structure.

2. Quick decision-making due to flat hierarchies and few commi�ees.

3. Ac�ve informa�on exchange across departments and divisions.4. Alignment of the organiza�on,

business model, and strategy.

Organiza�onal Culture

5. Apprecia�on of employees that proac�vely take on responsibility.

6. Smooth changes of roles due to a flexible and versa�le workforce.

Business Processes

7. Quick adop�on of changes in business processes by employees.

8. Con�nuous challenging and adjustment of exis�ng business processes.

IT & Data (Infra) Structure

9. Well-aligned and consistent IT interfaces.

10. Databases that are well maintained, easy to access as well as to navigate.

Figure 8.6: Top ten characteristics of agile firms

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Organizational Structure and Governance

Organizational structure provides lines of accountability and guides inter-actions within a firm, thereby shaping the use, and also development, of itscapabilities and resources. Tightly linked with structure is a firm’s governance,which describes boundaries, guidelines, and rules necessary for steering anddecision-making. With four out of the ten total characteristics of agile firmsbelonging to this category, organizational structure and governance are acentral influencing factor for accomplishing agility.

1 Agile firms aim for a non-complex, often standardized, transparent organ-izational structure. This requires an easy to comprehend set-up that ideallyapplies a similar logic across business units and subsidiaries, with clarity inthe dependencies across units. Such a design allows an organization to beadaptive by quickly identifying which aspects of structure need to changeand how. A complexity-free, transparent, and formalized structure can beachieved by analyzing the as-is organizational structure along its vertical(i.e. number of management layers, average span of control) and its hori-zontal dimensions (i.e. set of tasks, overlap of accountability, interfaces).Further areas of the analysis cover its underlying role structure and hierarchyin comparison to the size of the firm. Following the analysis, guidingprinciples should be applied in accordance with the desired target pictureto define the organizational blueprint. Finally, this blueprint needs to berolled out across the whole organization, keeping deviations, e.g. due tolocal peculiarities or politics, to a minimum.

2 The second characteristic of highly agile organizations is their flat hier-archies and a minimal number of decision-making committees. Eventhough no optimal number of hierarchies can be recommended universally,it should be as low as possible in relation to factors such as the size of thefirm, its regional distribution, the type of industry it operates in, and itsdominant organizational structure. Flat organizational structures make com-munication more direct and efficient and consequently prevent informationdistortion and loss of valuable insights. Flatter structures further improveempowerment and motivation and foster solution-oriented thinking and aproactive search for alternative solutions. An organizational analysis canhelp to identify hierarchical structures that might have too many layersrelative to factors such as number of employees, span of control, industry,and environmental context. Similarly, a processual analysis of decision-making committees can reveal waste of resources and undue red tape. As aguiding principle, the lowest possible number of committees should beaccepted to prevent delays, reduce bureaucratic costs, and empoweremployees.

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3 Another lever for increased agility with regard to organizational structure isthe enablement of cross-departmental and cross-divisional exchange viaboth permanent as well as ad hoc structures. Over time this orientation canalso be enshrined in a company’s culture. By bringing originally dispersedpieces of information together, insights can be gained (for example aboutmarket opportunities and how to pursue them) that individual informationpieces cannot deliver. Such information exchange enables swift assessmentof environmental signals and identification of coordinated potentialresponses. As a respondent from a medium-sized telecommunications,media, and entertainment firm notes:

In order to keep up with smaller and therefore more flexible competitors, we need toorganize in such a way that we: 1) can make decisions quickly whether a product willbe developed or not, 2) promote exchange across departmental borders and 3)empower individual units to reduce decision-making processes even further duringexecution.

There are various ways in which such cross-functional and cross-divisional exchanges of information may be established. One way is toinstill such exchange in the culture and foster it through such things as adhoc project teams and company-wide events. The organizational structurecan help to institutionalize such exchanges and collaboration throughaspects such as job rotation or matrix design.

4 Finally, the organizational structure should be built in such a way that itis aligned with the business model and the underlying strategy. Albeitthis seems obvious, research from Capgemini Consulting shows that thisis often not the case. In this study, data were also collected on congru-ency or, in other words, alignment. The results showed that only 43 per-cent of the respondents agreed that their organization is very wellaligned. This is not surprising, as organizations develop organically overtime and may accumulate attributes that become taken for granted but areno longer relevant. This may result in blurry lines of responsibilities andgoals, redundant capabilities, and competing units that may be either inthe formal or informal structures of firms. There are various frameworksthat may help managers diagnose and improve alignment, such as theESCO model.27

Organizational Culture

Culture is the set of values, beliefs, assumptions, and symbols that shape theway in which a firm conducts its business and how it interacts with itskey stakeholders.28 As such, culture underlies all other organizational elementsof a firm. Agility often involves a cultural shift from a control-dominated

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to an autonomy-oriented culture. The latter arguably requires an enablingmanagement style that empowers individuals, spurs creativity, and fostersfast responses. This is especially important as the new generation of Millen-nials, or the Generation Z, expect such working environments.29,30 Thefollowing two cultural levers were identified to be closely linked with a firm’slevel of agility:

5 The appreciation of employees that proactively take on responsibility can bea powerful means for firms to create an agile culture as the followingstatement from an employee of a small firm in the financial services sectorshows:

The most important factor for success in this [financial services] or any otherindustry is to create an atmosphere where the workers feel that they belong thereand their opinion is heard and considered, especially, if they bring forward newideas. The feeling of belonging, the team spirit, is what drives people to work toimprove and to innovate. This is what encourages them to go through stressfulperiods [. . .], to accept changes and to support each other during those. Thisspecific psychological factor is a very strong kicker to a person’s will andperformance.

Employee behavior that exhibits such internalized commitment withrespect to their role and tasks can result from a more empowering leadershipstyle.31 Such so-called “high performance work systems” evoke increasedcommitment to and involvement with the organizational goals and strategy,so that employees’ behavior is self-regulated rather than controlled bysanctions and pressures.32 When employees develop such a mindset, theircommitment will likely enable the firm to make decisions in a more decen-tralized, and hence, more agile way.

To effectively accomplish a decentralized mode of operation, a firmhas to institute management support for decentralized decision-making,open and understandable communication of the values and the overallstrategy of the firm to all employees, a corresponding incentive system aswell as some formal controls that ensure that decisions are in line withthe overall strategy. Finally, employees need to be selected and trained insuch a way that they feel comfortable to make (the right) decisionsthemselves.33

6 The second aspect of organizational culture most related to agility involves aflexible and versatile workforce which enables smooth changes of roles.Firms that do not take active measures to prepare their staff for other rolesand tasks than the originally assigned ones, might simply be too slow torespond to organizational changes. Employees who have a broad skillsetand exhibit the ability to rapidly build proficiency in a new set of tasks cantherefore be considered a competitive advantage of a firm.34,35

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Organizations can actively build such a flexible and versatile workforceby having the right criteria in selection and recruitment; selective staffingand comprehensive training for a broad set of potential roles and tasks. Jobrotation as well as a broad training curriculum can expand the formal andinformal networks of employees, instill a mindset of curiosity, and create aflexible workforce capable of ongoing learning.36 In addition, developmen-tal performance appraisals and reward systems that incorporate such values,as well as performance-based pay, further help to establish the desiredorganizational culture.37

Business Processes

Business processes constitute a firm’s set of value-adding activities that areperformed in coordination to realize a business goal. They can be explicit(i.e. in the form of written procedures and process documentation) orimplicit (i.e. expressed in routines) and be shaped by different managementfashions over time, such as just-in-time, Total Quality Management, lean,and Six Sigma.38 From Capgemini Consulting’s study, two businessprocess-related characteristics were identified with a strong link to increasedlevels of agility.

7 First, quick adoption of changes in business processes by employees as aresponse to external requirements or a new strategy. This idea is rooted incontingency theory, which argues that there is no standard best processdesign but that the latter must always be contingent upon the external andinternal environmental factors of a firm. Approaches that offer standardprocess methodologies in which the organization must fit could be harm-ful as they potentially impede process customization and the developmentof dynamic capabilities that can help to effectively and swiftly adjust toenvironmental changes.39 The process management approach of a firmand its implementation effectiveness can determine the level of agilitywith respect to business processes. While processes should be standard-ized as much as possible and documented in an adequate way to fosterefficiency and make changes easier, too much standardization can alsofoster inertia.

Another lever for accomplishing process agility is de-coupling; that is, todivide lengthy business processes into smaller chunks and document suchsub-processes in a firm’s process model. Such a de-coupled, modular logicof processes helps to quickly identify which sub-process requires adjust-ments in the light of a change instead of having to analyze the overallprocess. In order to gain the benefits associated with such a slicing techniquefor business processes, the process model should also incorporate the

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corresponding interfaces as well as the hand-over process. Depending onwhich IT system is used for documentation purposes, it can not onlyfacilitate the business process management, e.g. by automatic updates ofprocesses and interfaces, but can also create the necessary transparency forprocess owners, process users as well as the leadership and auditing bodies(i.e. for ISO 9001).

8 Such business process management systems and adequate process docu-mentation not only provide the basis for a quick adoption of changes, butalso for a continuous challenging and adjustment of existing businessprocesses. This can enable continuous improvement of processes, whichconstitutes another critical factor for accomplishing agility.40 The followingstatement of a middle manager of a large pharmaceuticals firm put it thefollowing way:

In my opinion all processes should be designed in a lean way with strong consider-ation of the components of time and quality. Operational processes should bestandardized as much as possible so that the focus of our work can be laid oncreative and conceptual tasks again.

Process change must be balanced with continuity, and innovation must bebalanced with efficiency. Different approaches have been developed foraccomplishing such ambidexterity. One is structural separation of units,where one test unit implements the improved process first while others stillrun the old version. This way, potential problems can be identified and fixedbefore the firm-wide roll-out and success stories can be used to facilitate thechange management process. Parallel structures offer a different approach.The new process, in this case, is available to all departments and can beadopted at any given time. Finally, temporal balancing refers to the continu-ous shift between phases of process change and process stability.41 Eachfirm has to identify the ideal implementation approach depending on itsorganizational culture, the sensitivity and stability of its processes, as well asits risk appetite.

IT and Data (Infra) Structure

IT capabilities and the necessary infrastructure of systems and data are criticalenablers of agility, as the following statement from a manager in a largefinancial institution illustrates:

For me, it is most important to have consistent and standardized systems and a datamanagement that feeds into them across international borders. Fast access and user-friendly interfaces are crucial, too. Otherwise those systems are not used and theirpotential for improving our operations and change remains untapped.

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However, if not managed well, they can quickly turn into inertial factors. On theone hand, IT can facilitate cross-functional communication, bring togetherdistinct strings of data, mine it, and share the resulting intelligence in a fractionof the time that would be needed for these processes without it. On the otherhand, it may be difficult, if not impossible, to adjust or replace legacy systems orintegrate them and their data seamlessly and swiftly. In order to overcome this“IT-agility contradiction” the following two aspects are of special importance:42

9 Well-aligned and consistent IT interfaces effectively link differentsystems. This refers to the compatibility of systems and the data thatthey contain, meaning that changes in one system are automaticallyreflected in others and that data from various sources can be drawntogether and analyzed in one integrated system. A typical exampleconcerns the implementation of an Enterprise Resource Planning tool,such as SAP, during which all third-party tools, custom-built solutions,and legacy systems have to be integrated into one. Such integration canincrease the analytical and processing power of a firm due to moreconsistent and unified data, and also offer increased functionality andtransparency. Integrated systems can enable a higher number of users toaccess the system, as opposed to departmental or self-built solutionswhich may be even stored locally. By means of this access, the prob-ability of detecting environmental changes early on and formulating anadequate response in a short time is increased. Users may access datathat they were not aware of before; for example, because they fell intothe domain of another business unit.43

A first step towards IT interface alignment and data standardization is anassessment that creates transparency on systems, components, interfaces,information objects, and supported business processes, and documentsthem accordingly. Then a target landscape needs to be defined and theinterfaces clearly described by means of detailed requirements. Finally, atransformation strategy for implementing the target picture can bedeveloped and realized while ensuring system continuity at all times.

10 The backbone of such integrated systems and aligned interfaces are data-bases that are well maintained and easy to access as well as to navigate.Only if both aspects – infrastructure and data – come together, can agilitybe facilitated from a technological perspective. The agility in sensingcapability, for example, can actively be improved by an integrated databaseinfrastructure which contains consistent and reliable data. Furthermore, thedatabases should be characterized by user-friendly interfaces and an inclu-sive access management. This can facilitate decentralized decision-makingand stimulate agile responses.

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Big Data & Analy�cs

Hyper-compe��on

Future of work Regula�ons & Poli�cs

Digitaliza�on

The collec�on & analysis of large amounts of data to uncover deep insight about markets, customers, and prospects that enable companies more accurately to predict behaviors and outcomes to shape their plans and ac�ons accordingly.

An increasingly dynamic and compe��ve environment that creates the need for firms to change on a con�nuous basis resul�ng from new innova�ons, technological advancements, globaliza�on, disrup�ve new business models, etc.

New ways to collaborate, communicate & organize work influenced by new technologies (E 2.0), flexible office solu�ons, and a genera�onal shi� in values, expecta�ons, priori�es and approaches to work in general.

Uncertain�es about prospec�ve regula�ons & poli�cs create major challenges for firms. Especially the low-interest policy and compliance to cyber security are hot topics as are recent developments like Brexit & the US presiden�al change.

Rapid technology develop-ments, increasing connec�vity, and the Internet of Things are just few examples of digital technologies that change business models and provide new opportuni�es for firms throughout the whole value chain.

12%

10%

10%

8%

8%

Figure 8.7: Top trends for the near future44

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Concrete measures for this lever are an active communication of data-bases and transparency about their content, their purposeful integrationinto a firm’s knowledge management as well as employee training on theirusage. Furthermore, granting access to a wide array of information for asubstantial amount of employees is important. User-friendliness can beenhanced by tests and clear standards on how to structure such databasesand the data they contain. All of the above enhance the agility in sensingcapability of a firm and facilitate agile responses as information and theinsights it provides can be drawn together quickly throughout the wholefirm. Finally, changes can be implemented quickly and on a large scale asinformation on process changes is shared and available in all systemsinstantly.

Agility as an Imperative for Survival and Competitive Success

Capgemini Consulting’s study showed that 52 percent of the investigated firmscan still increase their agility level. A fast-changing and hypercompetitiveenvironment has been anticipated as one of the top five trends for the nearfuture by the study participants (Figure 8.7). Three of the remaining four toptrends (big data and analytics, future of work, digitization) are driven byadvances in information technologies, indicating that value chains will be re-shaped and value will be captured by firms that are able to adapt effectively oreven lead industry change. Adapting and leading change is not just down tohaving updated IT and data infrastructure, but, as we noted above, to a gestaltthat includes organization design and governance, business processes, andorganization culture. Agility, even more in the future than now, will be crucialfor survival and competitive success.

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Appendix

Survey Data

The data for Capgemini Consulting’s survey were collected through amixed-method approach. An internet-based, self-completed questionnaireled to 53 responses, and 18 responses were collected via structured inter-views. Each response provided detailed information on the respondent’sorganization. The combined number of 71 responses covered differentindustries, organizational sizes, and ages, as well as hierarchical levels, andwas gathered in Germany, Austria, Switzerland, the United Kingdom, andFrance. Figure 8.8 below provides information on the sample. Figure 8.9then shows how the agility concept was operationalized.

Operationalization and Analysis of the Agility Concept

The concept of agility was operationalized in the questionnaire by means oftwo constructs – sensing and responding – and measured on a 5-point Likertscale. It had been tested in a short pilot survey which showed satisfactoryresults for measurement validity and conceptual validity. The study appliedunivariate and bivariate statistical analysis including various graphicalrepresentations and quantitative measures of dependencies such ascorrelations.

132

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Age of Company

Number of Employees

> 10,0001,001–10,000

36%

51–2501–50

Level of respondents

251–1,000

25%4%18%

17%

54%

15%

31%

Financial services

Consumer goods & retail

Telecom, media, & entertainment

Automo�ve

Other

Pharmaceu�cals

Consul�ng

Chemicals

Energy & u�li�es

Public sector

15%

15%

25%

3%

3%

6%

1%

10%

11%

11%

No answer 1%

>25 years

1–10 years

11–25years

Industry sector

Senior management 65%Middle management 34%

Figure 8.8: Overview of survey data

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NOTES

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5 E.g. Eisenhardt, K. M. and Martin, J. A. (2000). Dynamic capabilities: what are they?Strategic Management Journal, 21(10–11): 1105–1121; Helfat, C. E. and Peteraf,M. A. (2003). The dynamic resource based view: capability life cycles. StrategicManagement Journal, 24(10): 997–1010.

6 E.g. O’Reilly, C. A. and Tushman, M. L. (2013). Organizational ambidexterity:past, present, and future. Academy of Management Perspectives, 27(4): 324–338;Papachroni A., Heracleous, L., and Paroutis, S. (2015). Organizational ambidexteritythrough the lens of paradox theory: building a novel research agenda. The Journal ofApplied Behavioral Science, 51(1): 71–93.

7 E.g. Doz, Y. and Kosonen, M. (2008). The dynamics of strategic agility: Nokia’srollercoaster experience. California Management Review, 50(3): 95–118; Weber, Y.and Tarba, S. Y. (2014). Strategic agility: a state of the art. California ManagementReview, 56(3): 5–12.

8 Daimler (2015). Corporate Profile. www.daimler.com/documents/company/other/daimler-corporateprofile-en-2015.pdf. [Accessed October 17, 2016].

Agility concept

Agility in sensing

Forma�ve indicator Reflec�ve indicators

Agility in responding

Forma�ve indicator Reflec�ve indicators

My organiza�on is able to sense relevant changes in its environment in due �me

In my organiza�on various data sources are linked so that Business Analy�cs generates new insights on our customers, channels and processes

My organiza�on increasingly uses a large amount of data to create forecasts

My organiza�on alwaysresponds too late to externalchanges and is thus runningbehind compe��on

Our most important business processes can be quickly adapted, if required

If necessary, our employees are versa�le enough to take on tasks outside their normal ac�vi�es

Figure 8.9: Operationalization of the agility concept

134 Christina Wawarta and Loizos Heracleous

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44 The percentages refer to the number of times that the respondents named the trendcluster. The numbers are relatively low due to the open-ended nature of the questionwhich led to a wide bandwidth of responses.

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