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1. Industrial and Commercial Training
The challenges of organizational agility (part 1)
Steven H. Appelbaum Rafael Calla Dany Desautels Lisa Hasan
Article information:
To cite this document:
Steven H. Appelbaum Rafael Calla Dany Desautels Lisa Hasan , (2017)," The challenges of organizational agility (part 1) ",
Industrial and Commercial Training, Vol. 49 Iss 1 pp. 6 - 14
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2. The challenges of
organizational agility (part 1)
Steven H. Appelbaum, Rafael Calla, Dany Desautels and Lisa Hasan
Abstract
Purpose – Planned episodic change programs, rigid processes and traditional structures, optimized for
efficiency rather than agility, are no longer appropriate in a context where competitive advantage is fueled by
high-speed innovation, supported by a more entrepreneurial mindset. The purpose of this two part paper is
to offer a review of relevant research to provide an informed case for continuous strategic transformation
facilitated by enhanced organizational agility. The concept of agility is explored, defined and a framework for
categorizing agility-enhancing capabilities is presented. Specific aspects of this agility framework are
examined to better understand how these interrelated competencies contribute to overall corporate
performance in this fast-paced world.
Design/methodology/approach – A range of published empirical and practitioner research articles were
reviewed to study the concepts of organizational agility and transformation as critical factors contributing to
sustained competitive advantage, organizational performance and survival in the increasingly competitive
global context. This literature review explores how organizations are overcoming the challenges imposed by
their traditional structures, cultures and leadership models and identifies dynamic competencies to be
developed to achieve a greater level of corporate agility.
Findings – Increased organizational agility increases the ability to respond proactively to unexpected
environmental changes. The commitment to continuous transformation and agile strategies implies changes
at all levels of the organization from its structure, through its leadership and decision-making dynamics, down
to the skills and interpersonal relationships of the individuals implementing the agile mission.
Research limitations/implications – There is a gap in the literature with respect to agility, namely, that
most research focuses on the characteristics of agile organizations, with little attention given to how to
develop agile capabilities and embed the commitment to continuous change deep into the corporate DNA,
beyond the process level, into the psyche of the people driving the organization.
Practical implications – Managers should consider agility as an overarching principle guiding strategic and
operational activities. Fostering agility-enhancing capabilities will be paramount in ensuring the successful
integration of agility as a performance enhancing paradigm.
Social implications – For small- and medium-sized companies with limited resources, this reality makes
staying relevant an uphill battle but also opens windows of opportunity. The challenge of the next century for
large organizations will be to rekindle their innovative agile beginnings and for start-ups to continue to foster
their dynamic capabilities as they grow.
Originality/value – The paper provides practical and empirical evidence of the importance of enterprise
agility and specific dynamic capabilities on firm performance.
Keywords Performance management, Agility, Organizational transformation, Dynamic capabilities
Paper type Literature review
Introduction
This two part paper will explore how companies are attempting to achieve a fine balance
between operational efficiency and strategic agility in the current competitive context.
Transitioning from the twentieth century model, where competitive advantage was based on
economies of scale, hierarchy and control, to a more entrepreneurial mindset, has significant
implications for the entire organizational system. The ability to manage and reassemble, rapidly
and decisively, complex networks of resources and relationships capable of taking advantage of
short-lived opportunities is key to sustained competitive advantage in today’s volatile business
environment (Kotter, 2014; McGrath and MacMillan, 2009, cited in Leavy, 2014). Our review of
the literature will focus primarily on how organizations are overcoming the challenges imposed by
Steven H. Appelbaum is a
Professor of Management at
the John Molson School of
Business, Concordia
University, Montreal, Canada.
Rafael Calla, Dany Desautels
and Lisa Hasan are all based at
the John Molson School of
Business, Concordia
University, Montreal, Canada.
PAGE 6 j INDUSTRIAL AND COMMERCIAL TRAINING j VOL. 49 NO. 1 2017, pp. 6-14, © Emerald Publishing Limited, ISSN 0019-7858 DOI 10.1108/ICT-05-2016-0027
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3. their traditional structure, culture and leadership models in their quest to combine internal stability
with external agility and how these transformational change programs contribute to overall
organizational agility, operational performance and survival.
The argument for organizational transformation
While “the driving forces for change are well known: new technology, new types of competition,
economic uncertainty, evolving customer needs, deregulation, globalization and fragmentation of
markets” (Drew and Coulson-Thomas, 1997, p. 163), how to react to this extreme volatility is still
the subject of great debate. Recent research on the subject tends to refute the principles
of structural inertia theory that associated core structural and strategic changes with higher risk of
corporate failure (Dobrev et al., 2001). This two part paper will demonstrate how major
organizational change programs and their unpredictable breadth, depth and duration were
often charged with preventing organizations from functioning efficiently and reliably and were
deemed responsible for thrusting organizations into a downward spiral of poor performance,
with little or no promise of recovery (Barnett and Carroll, 1987; Miller and Friesen, 1984; Dobrev
et al., 2001).
Though the challenges associated with implementing transformational change remain great in the
short-term, the new reality is that refusing to adapt to environmental changes comes at the much
higher price of certain failure in the long term. An empirical study, conducted in the context of
deregulation in the banking industry, showed that “not only did organizational transformation not
increase the risk of failure […] [it] played a crucial role in enabling organizational survival. Almost all
(94.4%) of the 18 firms that […] [survived the period of deregulation] had engaged in
transformation one or more times during the observation period. Furthermore, 61% of these firms
undertook at least two transformations. In contrast, almost 61% of the firms that exited the
industry before 1995 had not undertaken any transformations” (Wischnevsky, 2004, p. 372).
This study even makes the case for an increased frequency of fundamental organizational
change, as recommended by supporters of the punctuated equilibrium model (Romanelli and
Tushman, 1994; Wischnevsky and Damanpour, 2005), based on the significant positive
correlation between the length of inertia spells and the risk of failure (Wischnevsky, 2004).
These findings corroborate the earlier body of research as cited by Romanelli and Tushman
(1994, p. 1142):
Miller and Friesen (1982, 1984) showed that organizations that radically and quickly altered their formal
structures, decision-making routines, and information-processing devices performed better over their
lives than organizations that changed gradually or incrementally. Similarly, (Virany et al., 1992) showed
that organizations that accomplished transformations discontinuously and in response to basic
changes in their environments performed better over their lives than organizations that were either
never transformed or were transformed excessively without the clear stimulus of environmental
change.
In essence, the “liability of newness,” as described by Hannan and Freeman (1984), has become
part of the cost of remaining competitive in an environment that calls for continuous reinvention
and in which inaction, in the face of external changes, poses a far greater threat to market share
and, ultimately, firm survival.
So what is organizational agility?
The blanket solution, most often proposed for dealing with the woes of the fast-paced present, is
employing organizational agility. The problem, as described by John P. Kotter (2014), in both his
book and articles, is that most well-established companies are “optimized much more for
efficiency than strategic agility,” and the, “hierarchical structures and organizational processes
that we have used for decades to run and improve our enterprises are no longer up to the task of
winning in this faster-moving world” (Kotter, 2014, cited in Leavy, 2014, p. 7).
Defined broadly by the Advanced Research Programs Agency (ARPA) and the Agility Forum (AF),
as “the ability to function and compete within a state of dynamic, continuous and often
unanticipated change” (ARPA and AF, cited in Sarkis, 2001, p. 88), organizational agility promises
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4. to bridge the relative inertia gap between the speed of organizational learning and the speed of
environmental change (Wischnevsky, 2004). The devil, however, is in the details of how to
transform corporations, having grown complacent as a result of long standing market
dominance, into highly adaptive, flexible, learning organizations having the skills required to
effectively implement strategically driven waves of change and renewal (Trahant et al., 1997;
Meredith and Francis, 2000).
The multitude of definitions and models attempting to capture the concept of agility brings to light
the true complexity hidden behind this deceptively simple seven-letter word. Yang and Liu (2012)
synthesized the work of several researchers (Atuahene-Gima, 2003; Vokurka and Fliedner, 1998;
Goldman et al., 1995; Li et al., 2008; Sambamurthy et al., 2003) into the following definition:
Enterprise agility is a complex, multidimensional, and context-specific concept, comprised of the ability
to sense environmental change and quickly respond to unpredicted change by flexibly assembling
resources, processes, knowledge, and capabilities (Yang and Liu, 2012, p. 1023).
Evolution or revolution?
Regardless of how you define organizational agility, it is undeniable that transitioning from more
static models to truly adaptive learning organizations is a “multiyear endeavour with major
challenges and setbacks along the way. The effort require[s] systematic, ongoing change to help
organizations transcend existing product-based or geographic silos and, in some cases, replace
them with customer-oriented ones” (Gulati, 2007, p. 100).
The organizational evolution and revolution model proposed by Greiner (1998) plots fundamental
business revolutions as a function of the corporation’s age, size and industry growth rate
(see Figure 1) and provides a visual representation that hints at how, in a hyper-growth/hyper-
volatile context, certain periods of evolution and revolution might merge into what may be
perceived as a single event; a multidimensional, meta-transformation resulting in a new type of
corporation defined by the dynamic capabilities that allow it to respond, not just to a single vision
of the future, but to its’ new ever-evolving nature.
Dynamic capabilities
How organizations develop and successfully integrate agility-enhancing “dynamic capabilities”
(Sune and Gibb, 2015; Schuiling, 2014) such as coordination, cooperation, capability
development and connection (Gulati, 2007) into their corporate activities is at the heart of the
matter at hand. Goldman et al. (1995 as cited by Yang and Liu, 2012, p. 1024) groups the
capabilities of agile organizations into the following four strategic dimensions: enrichment of
customers, competitive enhancement by cooperation, mastery of uncertain change and leverage
of key people and information.
Meredith and Francis (2000) believe that “organizational strength in turbulent situations requires
proactivity, adaptability, flexibility, speed, learning and skills to provide strategically driven and
effectively implemented waves of change” (p. 138). According to their research, competitive
advantage increasingly rests upon a dynamic capability to compete successfully in an environment
of frequent, challenging and, often, unpredictable change. Sustaining competitive advantage
through price alone is no longer a viable strategy for most firms particularly in markets where a
range of non-price advantages are expected by customers. Order-winning criteria include rate of
innovation, fitness for purpose, volume flexibility, variety, extreme customization and above all, rapid
responsiveness. Increasing global and local competition means that companies unable to respond
to these new customer demands are unlikely to survive. Deployment of the principles and practices
of agile enterprise appears to offer a solution (Meredith and Francis, 2000, p. 137).
The agile wheel reference model also presented by Meredith and Francis (2000) (see Figure 2)
provides a useful framework for understanding the multiple interdependent components that
contribute to organizational agility. A wheel is weakened if any spoke is absent, broken or fragile.
The same is true for organizational agility. If any of the 16 components, grouped under
four categories, is under-developed, the firm’s agile capability is weakened (Meredith and
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5. Francis, 2000, p. 139). This paper will concentrate on a few specific aspects of each of the four
quadrants: agile strategy, agile processes, agile linkages and agile people and examine how
these quadrants contribute to overall corporate performance.
Organizational agility and performance
Now that organizational agility has been defined and a framework for categorizing agility-enhancing
capabilities provided, the more pressing questions can finally be posed: what factors play a role in
determining the level of agility within a company? How are they supported? And to what extent do
these actions directly impact organizational performance?
Figure 1 Five phases of growth
large
small
Size
of
Organization Company in
high-growth industry
Company in
medium-growth industry
Company in
low-growth industry
evolution: stages of growth
revolution: stages of crisis
mature
Age of Organization
young
large
small
Size
of
Organization
evolution: stages of growth
revolution: stages of crisis
mature
Age of Organization
young
Phase 1 2 3 4 5
collaboration
coordination
delegation
direction
creativity
autonomy
control
red tape
“?”
leadership
Source: Greiner (1998)
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6. Agile strategy
Strategic commitment to agility
Given the increased intensity of competition and speed of adoption of new technologies,
organizations must embrace continuous strategic change if they are to remain relevant
and retain their competitive advantage. This is not to say that companies should embark
on change for the sake of change, nor that they should stray from their core competencies.
In fact, it has been recognized that “a management feature in successful firms is a
commitment to the organization’s original arena of expertise” (Appelbaum et al., 1998, p. 289).
Management must, therefore, be committed to adopting agile strategies, across the
entire organization, that promote the development of innovative ways to leverage existing
areas of expertise to anticipate and fulfill changing customers’ needs (Meredith and
Francis, 2000, p. 140).
This commitment to agility goes well beyond simply proposing new policies and
procedures, it requires that management rethink organizational structures, functions and
time-honored management practices such as planning, budgeting, incentive and measurement
systems that have embedded deep within them a bias toward the status quo (Hamel, 2009,
pp. 4-6).
The importance of environment scanning
Hay (2006) supports this reinvention of traditional functions and proposes that market research
(MR) and organization development (OD) functions “unite […] in order to accelerate the speed
and impact of [their] contributions to strategic planning” (Hay, 2006, p. 55). According to Hay
(2006), MR fills the strategy with content and promotes efficiency while OD humanizes the
strategy by gaining the valuable commitment and engagement of those responsible for
Figure 2 Agility wheel
Agile
Strategy
Agile
People
Agile
Processes
Agile
Linkages
I II
III
IV
Agile
Scoreboard
Flexible
Assets
and
Systems Fast New
Product
Acquisition
Rapid
Problem
Solving
Rich
Information
Systems
Agility
Bench-
marking
Deep
Customer
Insight
Aligned
Suppliers
Performing
Partnerships
Adaptable
Structure
Multi-Skilled
/Flexible
People
Rapid,
Able
Decision
Making
Continuous
Learning
Wide-Deep
Scanning
Strategic
Commitment
Full
Deployment
Ic
Ib
Ia
Id IIa
IIb
IIc
IId
IIIa
IIIb
IIIc
IIId
IVb
IVc
IVd
IVa
Source: Meredith and Francis (2000, p. 139)
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7. its implementation. These recommendations are in line with the observations of other scholars
citing the need for wide scanning, so as not to miss changes which can occur anywhere across
the global competitive landscape and deep scanning, in order to fully understand their business
implications (Meredith and Francis, 2000, p. 139).
“Steadily delivering additional value to customers, rather than just fine-tuning the value chain for
the existing portfolio of products and services requires an organization-wide capability to deal
with unexpected shifts in customer expectations” (Denning, 2013, p. 5). Discovering these deep
customer insights and rapidly adjusting product offerings, production methods and even entire
business models to meet ever-evolving target market demands requires “a degree of nimbleness
that can’t be achieved by the hierarchical bureaucracies that prevail in most large organizations
today” (Hamel, 2009 as cited in Denning, 2013, p. 5) and has been the impetus behind many
restructuring efforts over the past decade and will be at the center of many more such projects in
the years to come.
Adaptable organizational structures
Dual structure
Flatter, decentralized organizational structures, emphasizing cross-functional team-based
work (Drew and Coulson-Thomas, 1997) are ways of working around the rigidity imposed by
overly complex hierarchies and centralized decision-making authority. In an effort to bridge the
gap between existing hierarchies and truly flexible models, Kotter (2014) proposes a dual
structure, where a “strategy operating system” runs in tandem with the traditional “performance
operating system,” in order to ensure that renewal can be continuous rather than episodic
(see Figure 3 – dual operating system). In theory, the strategy operating system, involving
5-10 percent of the employee population, functions as a network, free from bureaucracy and
heavy controls over decision-making, allowing it to “mimic successful enterprises in their
entrepreneurial phase […] [leaving] the hierarchy less encumbered and better able to perform
what it is designed for: doing today’s job well, making incremental changes to further improve
efficiency and handling those strategic initiatives that help a company deal with predictable
adjustments” (Kotter, 2014, p. 10).
Figure 3 The Dual operating system: key characteristics
The Dual Operating System
Management-Driven
Hierarchy (The “Left ”)
Strategy Acceleration
Network (The “Right ”)
No.1 Function No.1 Function
Other Functions Other Functions
Eight Accelerators
Action Through
Management Tools
Reliability and efficiency
(Meet today’s numbers)
•
Incremental or
predictable change
•
Agility and speed (Leaping
into the future)
•
• Constant innovation
• Leadership Development
• Plans/Budgets
• Compensation
• Metrics
• Problem Solving
• Job Description
• Urgency on Big Opportunity
• Guiding Coalition of Volunteers
• Change Vision and Strategic Initiatives
Sources: From accelerate by John Kotter. As published in Leavy (2014, p. 7)
• More and more volunteers
• Barriers knocked down
• Wins Celebrated
• Relentless Action
• Changes
Institutionalized
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8. In reality, achieving “a truly reliable, efficient, agile and fast enterprise, [where] the network meshes
with the more traditional structure [and] […] is not some sort of ‘super task force’ that reports to
some level in the hierarchy” (Leavy, 2014) is an enormous challenge even for the largest, most
successful companies. Nike’s attempt to impose a customer-focused, collection-based
approach on a product-driven company to address the needs of the women’s fitness market is a
compelling example. The champions of the initiative, a group of highly motivated, relentless
volunteers, determined to breakdown the testosterone-driven cultural barriers and
institutionalized ways of working, exemplify the dual structure and accelerators proposed by
Kotter (2014). Though deemed a strategic and financial success, the category-driven approach
was not extended to the entire organization and footwear was removed from the women’s
collections because the operational, cultural and leadership barriers where deemed
insurmountable (Burgelman and Denend, 2007).
Network structure
Despite the difficulties associated with more flexible structures, Yang and Liu (2012) take the
concept of adaptable structure one step further by proposing that a firm’s agility capability, as
exemplified through a company-wide network structure, can be an enduring source of
organizational competitive advantage. Their empirical study employed a survey method and data
collected from 250 companies in Taiwan’s glass industry using structural equation modeling
technology. By considering the contagion effect of a strategic network, this study confirms that
enterprise agility and network structure contribute positively to firm performance.
Interestingly, the study goes beyond the direct effects of agility and the network structure on firm
performance and explores the mediation effect of both network structure and enterprise agility on
firm performance. These results indicate that enterprise agility is a major determinant for
managing and maintaining the network relationships. In addition, firms with superior enterprise
agility have, according to their findings, been better able to exploit the network structure as a
mechanism allowing for rapid, flexible access to critical and valuable resources, capabilities and
information in order to improve their competitive edge and overall firm performance (Yang and
Liu, 2012, p. 1039). All of these competencies, nourish the complex web of agile linkages
between performing partners, aligned suppliers and satisfied customers and confirms the
interrelationship between the various agile-building capabilities described by Meredith and
Francis (2000).
According to Crocitto and Youssef (2003), these interpersonal, cross-functional and
organization-spanning relationships are critical elements of the agility paradigm. Their
research and resulting agility model (see Figure 4) proposes the integration of advanced
information technologies as a means to strengthen connections between organization
members, suppliers, customers and other partners provided the human side of the equation is
thoughtfully taken into consideration. These connections rely on the ability of leadership to
create and support an agility mission and vision, to move agility beyond enhanced market and
environment scanning, to focus on the creation of true learning organizations capable of
harnessing the most powerful resource in today’s global economy, knowledge through a
deeper appreciation of the human behaviors and motivations of all stakeholders (Crocitto and
Youssef, 2003).
Though hierarchy is bound to remain a feature of most organizations, the new customer-driven,
outside-in orientation and decentralized decision-making requires that this model be reinvented
along with management roles, practices, values and communication channels to ensure
successful transformation. According to Denning (2013), “veteran managers trained to respect
hierarchical systems are daunted by the fundamental changes in thinking and culture that are
required to implement the agile approach” (p. 7). This statement highlights the need not only for
new structures, policies and procedures, but also for a new breed of socially savvy, influential
leaders capable of “leveraging the power of shared values and aspirations […] [and] mobilizing
others despite a lack of formal authority” (Hamel, 2009, p. 3).
Part two of the paper will cover agile leadership style, agile people and sustainability as key variables
in the quest to design, develop and maintain agile organizations in the quest of transformation.
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Figure 4 Organizational agility model
ORGANIZATIONAL AGILITY
QUALITY SPEED
RESPONSIVENESS
SUPPLIERS CUSTOMERS
Manufacturing
Agility
Organizational
MEMBERS
Leadership,
Culture and
Reward
Systems
FLEXIBILITY
ADVANCED MANUFACTURING and INFORMATION
TECHNOLOGIES
COST
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Corresponding author
Steven H. Appelbaum can be contacted at: steven.appelbaum@concordia.ca
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