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Most companies are ill-prepared to facethese twin challenges and to rejuvenate theirstrategy process. Put simply, as with humanbeings at risk of a heart attack, manycompanies suffer from strategic sclerosiswithout their CEOs and strategy staffknowing it. Companies are often victims oftheir own success. They die not because whatthey did was wrong, but because they keptdoing it for too long.

Two major forces call for constantagility. The first, obviously, is speed.The more virtual, information-rich

and service-based a business model is thefaster change happens. The second, perhapsless obvious force, is change. Change is nowmuch more systemic among interdependentor convergent industries, where theconsequences of change in one industry mayhave ripple effects on many others.

How agile isyour strategyprocess?Some companies are more strategically agile than others. Of course there is no panacea, but recent research demonstrates the value of three key enablingcapabilities. By Yves Doz and Mikko Kosonen

www.sps.org.uk I Issue 15 I March 2008 7Strategy Magazine

Furthermore, the strategy process itselfmay well have decayed, from a healthysubstantive approach to strategic choices intoa routine yearly exercise where form winsover substance.

An extensive research programme withinleading incumbents in the information andcommunication technology industryresulted in the identification of three sets ofenabling capabilities in strategically agilecompanies: strategic sensitivity, leadershipunity and resource fluidity.

Each of these capabilities is rooted in aseries of management practices highlightedin figure 1 and summarised below.

Open strategy processStrategic agility requires superiorinformation, strong real-time insight andgood judgement. Active and purposefuldialogues with key stakeholders allowcompanies to borrow their insights. The moreparties that are involved in such strategicdialogues, the more opportunities there willbe for breakthrough ideas and well-informedjudgements. Practically, the companies weresearched pursued a variety of approachesto open their strategy process, both internallyand externally.

For example, over the past 15 years IBMhas used a variety of approaches to involve itscustomers more intimately in its strategydevelopment. It started with regularmeetings with CEOs of client companies andthen it began working directly with its clients’researchers to help them develop IT-basedsolutions to complex and specific innovationproblems.

Other companies have built significantinternal intellectual resources devoted tostrategy. SAP’s corporate strategy team, forinstance, is composed of about 30 seniorconsultants and investment bankers hiredfrom outside. After a few years supporting thestrategy process, they move into linemanagement positions and infuse them witha corporate strategic perspective.

As well as greater and more openintellectual strength, there needs to be a moreexperiential – and experimental – attitudetowards strategy development, as weobserved in the role of new venture groups atIBM and Nokia. In a fast-changingenvironment, characterised by systemicchanges that are hard to anticipate or even

comprehend, experiencing rather than justhypothesising becomes a must. Thoughtexperiments need to give way to trueexperiments.

Heightened strategic alertnessRemaining strategically alert while successfulis perhaps one of the most challengingcapabilities required for strategic agility. AndyGrove’s call to ‘be paranoid’ when he wasCEO of Intel and staying so in the face ofsuccess is well known. Some companies, suchas SAP or Cisco, have CEOs who keep makingpublic promises about new products andfunctionalities that they know will stretchtheir organisation to the limit (andoccasionally beyond). Beyond stretch goals,creative tension through contradictory goalshelps to keep people attentive, intellectuallymindful and intensely preoccupied.

At SAP or IBM, for example, providingmore services, and even distributing softwareproducts, through the internet has beenperceived as reflecting contradictory goalswith respect to customer intimacy andefficiency. Maintaining an active dialogueabout difficult choices and commitments,involving many in the organisation, cangenuinely lead to a ‘right vs right’ framingbecause they reflect contradictory goals. Thisis another way to help exploit externalconnectedness, learning from experimentsand playful modelling.

STRATEGIC SENSITIVITY

Open strategy processHeightened strategic alertnessHigh quality internal dialogue

Mutual dependency Working together as a team

CEO leadership style

Dynamic resource allocationMobilising peopleModular structures and processes

LEADERSHIPUNITY

RESOURCE FLUIDITY

STRATEGIC AGILITY

Figure 1: The vectors of strategic agility

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consequences. However, situated learningbased on insight is difficult and potentiallyhazardous in the absence of contextualsensitivity. (Situated learning is a model thatsuggests that all learning is contextual,embedded in a social and physicalenvironment.) Both contextual sensitivityand conceptual richness of language areneeded for high strategic agility.

Mutual dependencyEnhancing strategic sensitivity is of littleuse if top management cannot agree oncritical strategic redirections and makestrong, unified commitments. The mostbasic mechanisms for enhancing collectivecommitments are interdependent actionagendas and incentives. Most of thecompanies we studied have recentlyincreased shared corporate incentivesrelative to business unit-specific rewards.For instance, SAP’s top team members nowhave 100% common incentives, and seniormanagers of less fully integratedcompanies have around 50%. This fosters asense of ‘cabinet responsibility’.

Companies also enhance mutualdependency by distributing corporate rolesamong key line executives. This helps shiftthe criteria for team participation away fromthe size of the units a person represents to thequality of that person’s contribution. The keyprinciple in designing these roles is to make aclear distinction between a person’s unitresponsibility and corporate-wideresponsibility. Adoption of a true corporateperspective is not possible if the corporaterole is subordinate to the ‘primary’ line role.

Organisational interdependency givessubstance to a shared strategic agenda: all topteam members become deeply dependent oneach other in practically all matters. Theybecome interdependent contributors to anintegrated corporate strategy, instead ofindependent subunit ‘barons’ pursuingseparate business strategies and agendas. Theshared agenda may be fully operational,strategic or centred on learning andexperience.

Creating a multidimensional organisationinto which multiple perspectives arestructurally embedded is a way to break theblind alignments of the strategic and theoperational. Combining customer-facing andchannel-management organisations, product

High-quality internal dialoguePeople of different sensitivities, areas ofexpertise, cultural origins, age, gender andtypes of intelligence need to be broughttogether in a structured, purposeful dialogue.By dialogue (as opposed to debate), we meana conversation where participants articulateassumptions and explain the logic of theirthoughts, rather than defend conclusions andpresent arguments. This, of course, is not easyin a corporate context. Corporate leaders areused to, and trained for, oratory tournaments,where the most forceful argument – notalways grounded in the most thoughtfulconsiderations – wins.

Expressing difference or dissent in acorporate hierarchy is often difficult, andpotentially costly, yet it is essential to strategicsensitivity. When divergent and differentviews are suppressed without beingexamined, or self-censored before they areeven expressed, valuable perspectives aresilenced and sources of insight are lost. Bycalling for participants in a strategy dialogueto systematically reveal their underlyingassumptions, and ensuring othersunderstand them, the dialogue builds oncommon ground and fosters thedevelopment of a common language.

Language also conditions whatmanagement sees or doesn’t see, how itinterprets what it sees, and whether or notwhat it sees provides a useful relationship toreality. The quality of language is aprecondition for the quality of dialogue. Ahighly contextual language may preventcompanies from registering weak signals andinterpreting them correctly.

Anticipation based on foresight is difficultin the absence of a concept-rich language; alanguage that allows systemic modelling oftrends and the ways they unfold, and ofpotential discontinuities and their

“Companies are often victims oftheir own success. They die not

because what they did was wrong,but rather because they kept

doing it for too long.”

www.sps.org.uk I Issue 15 I March 2008 9Strategy Magazine

groups, platforms for areas of technology,core competencies, standards and so on,provides a way to embed multipleperspectives that have to be reconciled andorganisational units that have to workharmoniously together to achieve results.

Working together as a teamIntegration of responsibilities at the top canquickly prove dysfunctional if the rightcollaborative processes and practices are notin place. Unfortunately, a constructive, opendialogue is not natural for many well-established top teams. The main way tocontain the risk of public agreement andprivate dissent is to embrace conflicts andaddress them via substantial dialogue in thetop team. Senior executives in integratedcompanies need to become comfortable withdirect, informal dialogue.

Beyond substance, the transparency of topteam members’ personal motives has a bigimpact on the quality of dialogue. One of themain reasons for misunderstandings andpersonal mistrust among top team membersis that they do not fully understand eachother’s deeper motives, personal values anddrivers in life. This may even be the casebetween top team colleagues who haveworked side by side for years.

Getting a deep enough understanding andappreciation of these differences takes time,and this is difficult to achieve in the course ofnormal management team work. Takingextra time as a group to share each other’spersonal values and drivers strengthens thebasis for dialogue. Henning Kagermann, CEOof SAP, for example, makes a point of holdingquarterly offsite meetings with the executiveboard.

CEO leadership style Like instinctive team behaviour, ‘adaptiveleadership’ skills are rare among typical topteam members. Senior executives are used to‘knowing better’ and thus when approachedfor advice they make decisions using theirwide experience and expert judgement. Thisworks when operating within a known andstable market, but not when the companyfaces increasing ambiguity and needs tochoose a new course, or perhaps evenconstruct a new business model, in the face ofunforeseen discontinuities.

Leaders in this situation should not try to

provide answers, as nobody is likely to knowthese for sure, but rather set a context for andguide the search for a feasible answer to thechallenge at hand. The role of the leader inthis situation is to provide a foundation forcollective work. In the search process,individual members transcend their initialposition, reframe their understanding andgain personal commitment to the collectivelydeveloped solution. This applies to all workthroughout the organisation, from top tobottom, when in search of strategic agility.

Adaptive leadership starts at the top, andthe behaviour of the CEO makes thedifference between a real team and a ‘non-team’ at the top. CEOs set the context,provide meaning and pick the leadershipteam they want to work with in differentroles. It is hard for the rest of the top team toadopt new kinds of interaction patterns androles if their CEO does not appreciate andpractise collaborative behaviour.

Dynamic resource allocation Without resource fluidity, strategic sensitivityand leadership unity are useless. Intelligenceand commitment without rapid resourcedeployment in fast-developing strategicsituations bring no advantage. Yet in manycompanies both capital and human resourcesare often locked in support of existing activitysystems, leaving little leeway forredeployment.

In established companies whereleadership unity has decayed, rapid changesin resource allocation patterns are difficult toachieve. Continuous resource constraints andcreeping doubts about the fairness ofcorporate-level resource allocation leadmanagers to hoard resources within theirunits. The more successful, powerful andautonomous the business units are, the moreof a problem this becomes.

Of course, portfolio management modelsaddressed this issue long ago, suggesting thatstrategic business units should be decoupledfrom operating business units. Ironically,though, conventional planning systems andbudgeting practices only deepen resourceimprisonment in many companies.

Formal bureaucratic managementprocesses leave little room for adjustment andchange. Instead of challenging, they protectthe interests of core businesses by seldomquestioning the history and existence of the

The main way tocontain the risk ofpublic agreementand private dissentis to embraceconflicts andaddress them via substantialdialogue in the top team.”

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potential, in the same way as products. Inpractice this means that business processmodules originally designed for a specificactivity, but with flexibility in mind, can bereused in another business configurationwith the same activity.

Modularity enhances innovation andadaptability at both the subsystem andsystem levels. At HP, for example, corporate-wide councils for balancing resources allowthe company to differentiate ‘horizontal’corporate-wide and ‘vertical’ business-specific activities.

The principles of modularity can also beapplied at the job design level. In manycompanies, intranets are being transformedinto comprehensive workflow and peoplemanagement environments. Whenformalisation of tasks is possible, and rolescan be well defined, these new workenvironments enable individuals todisassociate themselves from roles and tasks.This kind of structured working environmentallows companies to dispense with many ofthe local hierarchies and controls linked toroles and tasks that were previously neededfor managing individuals.

Good news ... and badSo how agile is your strategy process, really?The good news, based on our research, is thatachieving strategic agility is not black magic.First, it is attention to strategic sensitivity.Second, it is collective commitment anddiscipline in the working of a top team and aCEO who has the courage to lead. Third, it isbuilding organisational infrastructure,resource allocation processes, peoplemanagement, and modular structures andbusiness processes that can be reconfiguredfast and provide resource fluidity.

Now for the bad news: strategic agility isnot a piecemeal ‘to do’ list. All threedimensions – strategic sensitivity, leadershipunity and resource fluidity – are important.Being good at one, or even two, or workinghard to rebuild selectively some capabilitiesand not others, will not help much. It mayeven lead you to a dead end. ■

legacy. Management systems in hierarchicalorganisations often compound this problemas they are typically designed to supportresource allocation within divisions, notacross them.

To overcome these shortcomingscompanies need to establish more strategicand dynamic resource allocation processes.Nokia, for instance, has replaced annualplanning and budgeting with a moreadjustable, assumption-based planningprocess. To increase the flexibility of itscapital resources allocation, instead ofconventional budgeting the company usescontinuous planning with six-month, short-term plans supported by monthly latestestimates. Most people’s incentives are tied tothe six-month plans, but they can also be tiedto longer-term projects.

Together the strategic planning, short-term planning and individual incentiveplanning make up what is called the‘Integrated Planning Process’ at Nokia. Themain benefit of this process is improvedtimeliness of actions, but it also helps thecompany to allocate capital resources in amore flexible way.

Mobilising peopleLike investment resources, people can also beimprisoned in ‘silos’. Tough performancetargets make it difficult for managers to lettheir best people go as this might have anegative impact on their performance.Individuals may also be afraid of moving outof their comfort zone.

Many companies, including IBM, Nokiaand Cisco, have developed lists of behaviourand value-driven attributes describing theway in which performance is expected to beachieved. In such companies managers’values-based behaviour is regularlymeasured. To support personal developmentIBM, for instance, has established specialimprovement programmes, such as ‘help mymanager to become a better manager’, toaddress the behavioural elements ofperformance management.

Modular structures and processesAn organisational design consisting ofmodular business processes and IT systemsenables greater agility in establishing andscaling up (and down) new businesses. Thisoffers higher and faster redeployment

BOOK DISCOUNT

This article draws on research

presented in Fast Strategy by

Yves Doz and Mikko Kosonen,

(Wharton School Press, 2008,

£22.99). SPS members are

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ABOUT THE AUTHORS

Yves Doz is the Timken chaired

professor of global technology

and innovation at INSEAD and a

visiting professor at Helsinki

School of Economics.

Mikko Kosonen is executive vice-

president at SITRA, the Finnish

Innovation Fund, and was

formerly chief strategy and

information officer at Nokia.

+33 (0)1 60 72 42 43

strategicagility@insead.edu

www.strategicagility.com