The Donald Sull article on “ Competing Through Organizational Agility” cites three distinct types of agility-- strategic, portfolio, and operational to be able to navigate turbulence in the future. Market turbulence, did not, as popularly believed, begin with the fall of Lehman Brothers and it will not end when the global economy recovers. A variety of studies have concluded that the volatility of firms has increased somewhere between two and four fold from the 1970s to the 1990s with no signs of slowing down. Given the uncertain nature of the markets, all three types of agility are critical to business success, and over-reliance on one type alone can be dangerous. For example, an operationally-agile company like TPG Capital has succeeded through active portfolio management but may be at risk if its core business is less attractive.
While the article had much to say on various effective combinations for growth, he did not address the issue of growth under pressure. Even if we avoid a new economic crisis, hopes for a desirable V-shaped recovery that would deliver annual medium-term GDP growth of 2 to 3 percent in the developed world are not realistic. What does this mean for firms trying to ensure their growth? What role does organizational agility play? Today the situation is more dire than anticipated, and the real issue is whether the developed world’s GDP will grow a modest 1 percent, stagnate, or decline. Only 31 percent of all CEOs believe that the developed world will return to strong growth over the next decade. Despite the headwinds ( due mostly to the developed world’s debt load compared to emerging market), large multinational companies still have large corporate earnings and cash flows. Most companies have used this financial strength to build large cash reserves and focus for growth strategies at the macro level. Growth will require fostering private investment and savings, an orderly process of deleveraging and decreasing structural deficits. However, at this point agility has to be accompanied by working alongside government, for example, by expanding the use of private equity to support critical new infrastructure investment.
The study reinforces Stull’s point that profit comes from exploiting pockets of opportunities at the industry and sector level rather than waiting for a widespread recovery. Resilience, flexibility, and preparation are the hallmarks of companies that thrive, especially during difficult economic times. Executives will be expected to test out the assumptions at the foundation of their business models and master the tools of decision-making under uncertainty. It will also be imperative to develop all three types of agility and skills from financial resilience to a diverse talent base.