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batten institute
v e n t u r e c a p i t a l
Briefing
transforming society through entrepreneurship and innovation // feb 2012
Workforce Agility: An Executive Briefing innovators' roundtable Series
from the University of Virginia’s Darden School of Business
Volatility is here to stay … The winners won’t stop focusing on quality, cost, and efficiency, but they’ll be paying a lot more attention to agility, too.” 1
C.K. Prahalad (1941—2010)
Everyone knows that truly agile employees enable an organization to innovate, create new markets and even lay the foundations for industries of the future. And yet, what
do we really know about creating an agile workforce? Despite a body of work on organizational agility, surprisingly little research has addressed individual and team-based
agility. This briefing examines the concept of workforce agility, explains why it is critical to enterprise survival, describes its attributes and provides a number of steps management can consider to foster it.
What Is Agility? contributors
Malgorzata Glinska Senior Researcher, Batten Institute glinskam@darden.virginia.edu
Sean D. Carr Director, Intellectual Capital, Batten Institute carrs@darden.virginia.edu
Amy Halliday Writer and Editorial Consultant, Batten Institute hallidaya@aol.com
In the 1950s, agility was a hot topic in the field of air combat and was defined as “an
aircraft’s ability to change maneuver state.”2 John Boyd—a legendary Air Force fighter pilot who flew combat missions against Russian MiGs in Korea, created innovative
methods of air and ground fighting, and helped develop the F-15 and F-16—believed that agility was even more important than power or speed.3
Later on, in the early 1990s, agility also became a popular concept in manufacturing.
First introduced by the Iacocca Institute in a 1991 report, “21st Century Manufactur-
ing Enterprise Strategy,” agile manufacturing was suggested as a response to the threat posed by the newly industrialized nations around the Pacific Rim—the so-called
“Asian tigers.” The aim of agile manufacturing in the United States was to outperform overseas competition and to help the country regain the preeminence it had enjoyed
prior to the emergence of Singapore, Hong Kong, Taiwan and South Korea as highgrowth economies.4
What Is Agility? [ c o n t i n u e d ] Although technical definitions vary (see opposite page), agility usually refers to a
company’s ability to take advantage of opportunities while countering competitive
agility noun
/ə-΄ji-lə-tē/
etymology
French agilité (14th cent.) Latin agilitāt-em
threats that arise from frequent and sometimes large and unpredictable changes in
the environment.5 In fact, a truly agile company is capable of not only responding to but also creating changes.6 Former Intel CEO Andy Grove relished disrupting the
semiconductor industry by routinely creating technological shifts that Intel, thanks to its agility, managed better than its rivals.7
The quality of being agile; readiness
A truly agile company is capable of not only responding to but also creating changes.”
for motion; nimbleness, activity, dexterity in motion. Source: Oxford English Dictionary
That’s company agility—but what about people, the human facet of agility within an
enterprise? Workforce agility is often defined as the ability of employees to respond strategically to uncertainty. Arguably, this ability is central to creating an agile or-
ganization.8 Business leaders have long known that their workforce can be a source of competitive advantage and that their companies’ financial success—if not sur-
vival—depends on the ability to mobilize employees to meet the demands of volatile markets with speed, flexibility and nimbleness.
But what about people, the human facet of agility within an enterprise?”
1
Prahalad, C.K. 2009. “In Volatile Times, Agility Rules.” BusinessWeek. (4147): 80.
2
Richards, C.W. 1996. “Agile Manufacturing: Beyond Lean?” Production and Inventory Management Journal. 37(2):
60-64. 3
Coram, R. 2004. “Boyd: The Fighter Pilot Who Changed the Art of War.” New York: Back Bay Books.
4
Kidd, P.T. 1995. “Agile Manufacturing: A Strategy for the 21st Century.” Agile Manufacturing, IEE Colloquium.
5
Qin, R., Nembhard, D.A. 2010. “Workforce Agility for Stochastically Diffused Conditions—A Real Options Perspec-
tive.” International Journal of Production Economics. (125): 324-334. 6
Gunasekaran, A., Yusuf, Y.Y. 2002. “Agile Manufacturing: A Taxonomy of Strategic and Technological Imperatives.”
International Journal of Production Research. 40 (6): 1357-1385. 7
McCann, J., et al. 2009. “Building Agility, Resilience & Performance in Turbulent Environments.” People & Strategy.
32 (3): 45-51. 8
2
Batten briefing innovators’ roundtable series
Prahalad, C.K., Hamel, G. 1990. “The Core Competence of the Corporation.” Harvard Business Review. 68 (3): 79–91.
from the experts
definitionS of agilit y >>
“Ability to cope with unexpected changes, to survive unprecedented threats of business environment, and to take advantage of changes as opportunities.”9
>>
“Successful exploration of competitive bases (speed, flexibility, innovation,
proactivity, quality and profitability) through the integration of reconfigurable resources and best practices in a knowledge-rich environment to provide cus-
tomer-driven products and services in a fast-changing market environment.”10
>>
“Ability to respond to change, uncertainty and unpredictability in the business environment, whatever its source—customers, competitors, new technologies
>>
membership network of senior innovation executives from some of the world’s most innovative companies. The purpose of the network is to share best practices, discuss common challenges, and push the state of the art in corporate innovation in a highly interactive and candid forum. To encourage frank discussion and to motivate inter-disciplinary learning, members are selected from
suppliers, or government regulation.”11
among non-competing firms and diverse
“Ability to respond to and create new windows of opportunity in a turbulent
leading center for research in entrepre-
market environment driven by individual (bespoke) customer requirements
industrial sectors. The Batten Institute, a neurship and innovation at the University
cost-effectively and rapidly.”
of Virginia’s Darden School of Business,
“Agility is a capability; it is an organization’s capacity to respond rapidly and ef-
once or twice a year for conversations
12
>>
t h e i n n o v a t o r s ’ r o u n d ta b l e is a
convenes the Roundtable executives
fectively to unanticipated opportunities and to proactively develop solutions for
facilitated by the world’s top scholars in
together in ways that benefit the individual, the organization, and their custom-
included Siemens, Corning, Northrop
potential needs. It is the result of an organization and the people in it, working
innovation. Participating members have
ers.”13
Grumman, Bank of America, MeadWestvaco, CSC and Accenture. For further information about opportunities for membership, please contact: batten@darden.virginia.edu.
co p y r i g h t i n fo r m at i o n BATTEN BRIEFINGS, February, 2012. Special Edition, published by the Batten Institute at the 9
Sharifi, H., et al. 1999. “A Methodology for Achieving Agility in Manufacturing Organizations.” International Journal
of Production Economics. 62 (1/2): 7-22. 10
Yusuf, Y.Y., et al. 1999. “Agile Manufacturing: The Drivers, Concepts, and Attributes.” International Journal of Pro-
duction Economics. 62 (1/2): 33–43. 11
James, T. 2005. “Stepping Back from the Lean.” IEE Manufacturing Engineer. 84 (1): 16–21.
12
Ismail, H.S., et al. 2006. “Agile Manufacturing: Framework and Practice.” International Journal of Agile Systems and
Management. 1 (1): 11–28. 13
Nelson, A., Harvey, F.A. 1995. “Technologies for Training and Supporting Your Agile Workforce.” In: Creating the
Agile Organization. Proceedings of the 4th Agility Forum Annual Conference.
Darden School of Business, 100 Darden Boulevard, Charlottesville, VA 22903. email: batten@darden.virginia.edu www.batteninstitute.org POSTMASTER: Send address changes to Batten Briefings, P.O. Box 6550, Charlottesville, VA 22906-6550. ©2012 The Darden School Foundation. All rights reserved.
3
Why Does Agility Matter? Competing in turbulent environments requires organizations to spot and benefit
from changes in the market. Businesses that cultivate workforce agility can do that.
AGILITY VERSUS RESILIENCY A 2009 survey of 471 North American companies found that environmental turbulence is best managed by developing not just agility but also resiliency. While agility is the capacity for moving quickly to spot and exploit opportunities in fast-changing environments, resiliency is
In addition, they can produce and deliver new products efficiently.16 Businesses that
lack workforce agility, however, have difficulty keeping pace with markets and technological changes.17
While turbulent, hypercompetitive environments may damage or destroy less agile
and resilient organizations, they give rise to opportunities for innovation for companies with greater agility and resiliency. Thus, a lack of agility may result not only in significant real losses but also in lost opportunities.
the capacity for resisting, absorbing and
Change in the marketplace isn’t something to fear: it’s an opportunity 18 to shuffle the deck.”
responding to unexpected and disruptive change. As the study uncovered, companies exhibiting higher levels of agility and resiliency are more competitive and
Jack Welch, former CEO of General Electric
profitable, even with higher levels of turbulence.14
“While agility is the capacity for moving quickly to spot and exploit opportunities in fast-changing environments, resiliency is the capacity for resisting, absorbing and responding to unexpected and disruptive change.” London Business School professor Donald Sull found a different way to convey the importance of being agile and, at
It is, therefore, not surprising that nearly 90% of executives polled by the Economist Intelligence Unit in 2009 cited agility as central to global success.19 Research at the
Massachusetts Institute of Technology supports this notion, showing that agile firms grow revenue 37% faster and generate 30% higher profits than non-agile companies.20
What benefits would your organization be most likely to reap if its agility and speed increased?
the same time, having the strength and
39
stamina to weather market turbulence.
21
36
He called it agile absorption. As he put it,
19
16 none of above
faster time to market
23
greater employee satisfaction
26 increased market share
higher revenues
ers. 15
greater operational efficiency
times—they emerge as true market lead-
greater customer satisfaction
don’t merely succeed during turbulent
more innovation
29
companies that cultivate agile absorption
1
All data weighted by GDP of constituent countries to adjust for differences in response rates from various regions; excludes respondents who answered “don’t know”; respondents could select up to two answers to each category. Source: McKinsey Quarterly
4
Batten briefing innovators’ roundtable series
What Are the Attributes of an Agile Workforce? In 2002, researchers at Cranfield School of Management in the U.K. conducted a study to determine the attributes of an agile workforce. Their research focused on
managers and non-production workers—those members of the organization whom Peter Drucker called “knowledge workers.”22 Analysis of their survey data collected
from 515 U.K. companies discovered ten key attributes of workforce agility, clustered into five broad capabilities:23
Intelligence refers to the collective ability of a workforce to perceive and
interpret external change (such as in customer needs, market conditions, emerging business opportunities and competitor strategies), to respond by adjusting
objectives accordingly and to act fast in line with the resulting strategic direction.
Competency refers to the
acquisition of skills, in particular IT and software
skills, management and business process integration skills, and their continuous alignment with an evolving business direction. Researchers identified the
combination of intelligence and competencies as the strongest determinant of workforce agility.
Collaboration is the workforce’s capability for working together effectively across project, functional and organizational boundaries.
Culture refers to the development of an internal environment that empowers employees and rewards local decision making.
Information refers to the deployment of a flexible information technol-
ogy infrastructure that supports the assimilation of new systems rapidly and effectively.24
McCann, J., at al. 2009. "Building Agility, Resilience & Performance in Turbulent Environments." People & Strategy. 32(3): 45-51. 14
Sull, D. 2009. “How to Thrive in Turbulent Markets.” Harvard Business Review. 87 (2):80-88.. 15
Swafford, P.M., et al. “The Antecedents of Supply Chain Agility of a Firm: Scale Development and Model Testing.” Journal of Operations Management. 24 (2): 170–188. 16
Qin, R., Nembhard, D.A. 2010. “Workforce Agility for Stochastically Diffused Conditions—a Real Options Perspective.” Int. J. Production Economics. (125): 324-334.. 17
Noel, T., Charan, R. 1989. “Speed, Simplicity, Self-Con fidence: An Interview with Jack Welch.” Harvard Business Review. 67 (5):112-120.
18
19 2009. “Organizational Agility: How Business Can Survive and Thrive in Turbulent Times.” A Report from the Econo mist Intelligence Unit. 20
Ibid.
21
“Building a Nimble Organization: A McKinsey Global
Survey.” The McKinsey Quarterly. The survey was conducted in June 2006 and received 1,562 responses from a representative worldwide sample of executives at publicly and privately held businesses across a full range of industries, as well as nonprofits and government organizations. The survey defined “speed” as a measure of how rapidly organizations execute an operational or strategic objective and “agility” as the ability to change tactics or direction quickly. 22
Drucker, P.F. 1959. “The Landmarks of Tomorrow.”
London: Heinemann. 23
Breu, K., et al. 2001. “Workforce Agility: The New
Employee Strategy for the Knowledge Economy.” Journal of Information Technology. (17): 21–31. 24
Ibid.
5
What Can Managers Do? Achieving workforce agility requires motivated, cooperative employees who can
change their capabilities and leaders who can motivate and train them to master
timely knowledge and skills. But, of course, that’s easier said than done. When sur-
veyed, many business leaders admit that their organizations fall short when manag-
ing and deploying their workforce as an asset. They often fail to ensure that the best talents and skills of the entire workforce are fully utilized and that employees are shifted dynamically to where they are needed when they are needed.
case in point When Fujifilm saw its core business threatened by the advent of digital photography, its employees explored innovative ways to apply their expertise to new markets. “We are a photo-imaging company, but we realized that human skin shares similar properties to thinfilm photo processes,” said Stefan Kohn,
So, what’s to be done? When it comes to management actions that can promote workforce agility, here are some suggestions gleaned from several surveys:
FOCUS Encourage employees to focus on what is truly core to the business. By strengthening or redefining the core, employees can find new ways to spur
growth. By minimizing time and money spent on non-core programs, organiza-
tions and employees can direct their limited resources more efficiently to satisfying customer expectations and creating superior customer value. As a result, they will
head of innovation management at Fuji-
be positioned well not only during downturns but also during periods of growth. 26
film Europe. The employees recognized
TOLERANCE Foster tolerance for change and ambiguity. Use scenarios to explore possible
that the oxidation control mechanisms the company invented to prevent photos from deteriorating could be modified to produce creams that preserve the skin. In 2007, the company launched a line of skin care products, called Astalift, based on technology it had developed for film.”25
futures and encourage individual employees and teams to build hypotheses and
models about what is happening and what they are experiencing. Get your employees to read broadly and explore new ideas together.27
FLOW Improve the flow of information. Managers should regularly share with em-
ployees information on the company’s overall operating results, the business unit’s operating results, new technologies that may affect employees, business plans and goals, and competitors’ relative performance. Employees need relevant and timely information in order to respond to changing organizational needs.28 Often, com-
munication and collaboration become trapped in functional, geographic or other 25
Glenn, M. 2009. “Organizational Agility: How Business
Can Survive and Thrive in Turbulent Times.” A Report from the Economist Intelligence Unit. 26
Ibid.
27
McCann, J., et al. 2009.
28
Sumukadas, N., Sawhney, R. 2004. “Workforce Agility
Through Employee Involvement.” IIE Transactions. (36): 1011-1021. 29
6
McCann, J., et al. 2009.
Batten briefing innovators’ roundtable series
silos. By breaking down silos, business leaders can improve collaboration inside
and outside their enterprise and better align departmental goals and performance measures with overall strategy.
ACTION BIAS Create an action bias throughout the organization. Set clear priorities and
deadlines and hold people responsible for meeting them. Avoid paralysis in decision making; work on streamlining and clarifying roles and responsibilities in decision-making processes.29
KNOWLEDGE Integrate and automate knowledge-sharing processes. Such integration will
enable IT to strengthen organizations’ ability to solve problems, improve their use of critical data and help employees make better decisions.30
TRAINING Cross-train your workforce. Training is essential for employee involvement.31
Employees can perform a range of tasks only if they have the necessary skill sets, such as group decision making and problem solving; leadership; understand-
ing the business; quality and statistical analysis; team building; and job-specific
case in point 7-Eleven Japan, the most profitable Japanese retailer, has an IT-enabled business model in which its information system links stores, head office, supplier and distribution centers. Each store makes local decisions based on centrally designed systems and processes. Thanks to digitized processes, stores can order
capabilities. Cross-trained workers are even better: they can be easily deployed
and receive fresh foods three times a
a higher performance—or the same performance with a smaller workforce—than
communication technologies are funda-
where they are needed when they are needed. As a result, they are able to achieve
day. At 7-Eleven Japan, information and
specialized workers.32
mentally intertwined with a workforce’s
REWARDS Reward agility-promoting behaviors. Compensation systems are important in
flexibility. As CEO Toshifumi Suzuki said,
supporting workforce agility. Even traditional systems, such as “pay for performance,” profit sharing and Employee Stock Ownership Plans (ESOPs), align
individual goals with company goals. Team-based production incentives encourage
ability for speedy action and operational “It’s not enough to exchange information. The information has no value unless it’s properly integrated by the franchisees and makes them work better.” 38
teamwork, promoting acquisition of different skills. The non-traditional approaches appear even better suited to promoting workforce agility. All-salaried pay fosters an egalitarian environment. Minimizing wage loss due to change minimizes
resistance to change.33 Financial rewards and career incentives for innovation and
continuous improvement help create and sustain an openness to change.34
POWER Encourage power sharing. Power sharing, which moves important decisions into
the hands of individuals and teams, is crucial for employee involvement. There are two types of power sharing practices: low-power practices for generating employee suggestions and problem solving, and high-power practices for decisions about such major areas as work redesign.35
Among all the practices mentioned here, power sharing appears to have the most positive effect on workforce agility.36 However, power sharing, which researchers
classify as a higher-order employee involvement practice, needs to rest on a supportive foundation of lower-order practices, such as training, salary- and skill-based pay, improvement incentives and various non-monetary incentives.
One note of caution: when used by themselves, many well regarded practices—such as a participative environment, a culture that values change, job redesign and teamwork—may enhance workforce agility sporadically. True workforce agility can be achieved only when these practices are developed in concert.37
30
Glenn, M. 2009. “Organizational Agility: How Business
Can Survive and Thrive in Turbulent Times.” A Report from the Economist Intelligence Unit. 31
Sumukadas, N., Sawhney, R. 2004. This suggestion came
from a study, involving 58 plants from various industries, that examined the impact of several management practices on workforce agility in the context of employee involvement. 32
Hopp, W.J., Van Oyen, M.P. 2004. “Agile Workforce
Evaluation: a Framework for Cross-Training and Coordination.” IIE Transactions. (36): 919–940. 33
Sumukadas, N., Sawhney, R. 2004.
34
McCann, J., et al. 2009.
35
Sumukadas, N., Sawhney, R. 2004.
36
Ibid.
38
Ross, J., Westerman, G. 2006. “The Agility Paradox.” A
37
Ibid.
Presentation at the MIT CIO Summit on June 22, 2006.
7
Velcro Organizations
41
The shifting tectonics of today’s business landscape mean that survival calls for agil-
Whose Job Is it to Foster Workforce Agility? HR? As several surveys indicate, CEOs and human resource leaders agree HR departments should have
ity, flexibility and speed. As the late C.K. Prahalad said, in today’s turbulent environment, companies should strive to become “Velcro organizations” in which employees and capacity can be quickly reconfigured in creative ways to respond to rapidly
evolving customer demands.42 However, building and sustaining such an organiza-
tion is not easy. Business leaders who undertake the task need to be comfortable with chaos, ambiguity and unexpected change.
an organization-wide role in improving workforce agility. Many top executives believe that their HR departments have the right set of skills and the right understanding of corporate strategy to move their companies in the direction of workforce agility. What they lack, however, are the data and the tools.39
CFO? There may also be a signifi-
Essential Reading “Agile Innovation: A Footprint Balancing Distance and Immersion.” Keeley Wilson and Yves L. Doz. 2011. California Management Review. 53 (2):6-26.
“Agile Workforce Evaluation: A Framework for Cross-Training and Coordination.” Wallace J. Hopp and Mark P. Van Oyen. 2004. IIE Transactions. 36 (10): 919940.
cant role for chief financial officers (CFOs) to play in building an agile workforce. Since a company’s lack of workforce agility can affect topand bottom-line results, as well as shareholder value and even market share, CFOs should get on board and make sure that HR executives have both the tools and the data they need to ensure that the workforce is sufficiently agile to deliver on corporate strategy.40
“Agility Training for the Learning Organization.” Craig Mindrum. 2008. Chief Learning Officer. 7 (12): 36-87.
“Building Agility, Resilience and Performance in Turbulent Environments.” Joseph
McCann, John Selsky, and James Lee. 2009. People & Strategy. 32 (3): 44-51.
“Competing through Organizational Agility.” Donald Sull. 2010. McKinsey Quarterly. (1): 48-56.
“Organisational Agility: How Business Can Survive and Thrive in Turbulent
Times.” Marie Glenn. 2009. A Report from the Economist Intelligence Unit.
“Workforce Agility: The New Employee Strategy for the Knowledge Economy.”
Karin Breu, Christopher J. Hemingway, Mark Strathern and David Bridger.
39
Beatty, R.W. 2005. “Workforce Agility: The New Fron-
tier for Competitive Advantage.” White Paper. Convergys Corporation. 40
Hackett, I. 2008. “Manager@Work: Workforce Agility
Needed for Competitive Advantage.” The Edge Singapore. 41
The term “Velcro organization” was coined by professor
Joseph L. Bower at Harvard Business School. 42
8
Hackett, I. 2008.
Batten briefing innovators’ roundtable series
2002. Journal of Information Technology. 17 (1): 21-31.
“Workforce Agility through Employee Involvement.” Narendar Sumukadas and Rajeeva Sawhney. 2004. IIE Transactions. 36 (10): 1011-1021.