Monday, July 13, 2009

How to Thrive in Turbulent Markets
HBR February 2009
HBR Reprint #: R0902F
by Donald Sull

This is a great article and I strongly urge you order it for its full impact.

Donald metaphorically compares running a business today with a prize fight:

"Uncertainty is the defining characteristic of any boxing match. Fighters
and trainers can study the tapes of past fights or select sparring partners who
simulate an opponent’s style, but they cannot predict a blow-by-blow chronology
of a fight, foresee spikes in confidence, foretell the errant punch that splits
an eyebrow, or anticipate a wily foe’s deliberate shift in tactics…..
Uncertainty is also the defining characteristic of business competition today….
Many managers consider the recent global credit crunch and resulting economic
meltdown to be a one-off—that right hook they never could have seen coming.
Nothing could be further from the truth. In a report, the accounting firm
PricewaterhouseCoopers even summarized the decade ending in 2006 as “10 years of high-speed change” characterized by “unsettling twists and turns,” recounting a
series of events that confounded executives’ plans"

He defines two key characteristics that must be developed to win in this environment:

"Companies can, like the contender Ali, employ agility to spot and exploit
changes in the market. Alternatively, they can rely on their powers of
absorption to withstand market shifts. Some, however, combine both approaches
and display “agile absorption”—the ability to consistently identify and seize
opportunities while retaining the structural characteristics to weather changes.
In unstable times, cultivating and using both capabilities in combination can
help companies not only survive but emerge as true market leaders. "

Three forms of agility were identified:

"Operational agility: is a company’s capacity, within a focused business
model, to find and seize opportunities to improve operations and processes
Portfolio agility: is the ability to quickly and effectively shift
resources, including cash, talent, and managerial attention, out of
less-promising units and into more-attractive ones.
Strategic agility: is the ability to spot and decisively seize the game changers is the essence of strategic agility."

The author highlights 10 forms of absorption with a full description in the article:
"….firms can build absorption in several ways. The obvious levers include
size, diversification, and a war chest of cash. Other factors (high customer
switching costs, low fixed costs, and a powerful patron) can also buffer a firm
against environmental changes, although in less evident ways."

This analysis is reminiscent of an earlier positing highlighting the importance of companies being ambidextrous ( –the ability to run different processes for different reasons. Here, companies must be both agile and tough, skills that will impact the very culture of your company.

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