On November 25th, the London Business School Human Capital Network and Molten Group www.molten-group.com hosted the fourth event of its Organisational Development Speaker Series – Lessons from the Storm: Maximising Organisational Performance in the Post-Crisis Environment - with Julian Birkinshaw, Professor of Strategic and International Management at London Business School, and Clair Carpenter, the Group Organisational Development Director at BUPA.

Following introductions from the Human Capital Network's Chair, Oxana Popkova, Prof. Birkinshaw and Clair Carpenter presented their thoughts on organisational innovation in the post-crisis environment from two complementary viewpoints – practitioner and academic.

Both speakers started their presentations with the names and images that have come to define the current downturn to the general public - the demise of Lehman Brothers, BP’s Deep Water Horizon oil spill in the Gulf of Mexico, volcanic ash clouding the skies. These were metaphors for the unpredictable and unexpected interactions of several volatile variables: technological, regulatory, competitive and macro‐economic.

The latest recession is a symptom not the cause of global turbulence. The bad news is that this turbulence is here to stay. The good news is that this turbulence is the best source of innovation of all kinds, including organisational innovation.

In the discussion that followed, Prof. Birkinshaw, Clair Carpenter and their audience agreed that the degree of turbulence is on the rise. In fact, volatility in the business environment has increased between two to four times since the early 1970's. Public firms are disappearing twice as fast as then; high performing firms are three times as likely to be “dethroned”; technology disseminates around the world at four times the speed it did four decades ago. Turbulence is a fact of life.

Recognising that turbulence is here to stay, Prof. Birkinshaw and Clair Carpenter explained that turbulence is required to create the environment where opportunities bloom – so “there is an upside to turbulence” and “there are things that you can do within your organisation that will systematically increase your odds of spying those opportunities and seizing them.”

Professor Birkinshaw presented his research and that of his colleagues at London Business School; they studied pairs of sectorally similar companies, one that has fared poorly (Lehman Brothers) and the other “consistently well at spying and seizing opportunities” (Goldman Sachs). Why did one falter while the other prospered in the same industry and exposed to the same variables?

Prof. Birkinshaw's central theme for the session was that it all came down to the two broad categories of agility and resilience. Agility (or nimbleness, adaptivity) is the ability to consistently spot and seize opportunities – it is often taken as the “beginning and end of the discussion,” but Prof. Birkinshaw identified another way in which firms have dealt with turbulence: resilience is an organisation's ability to absorb shifts in the market place, survive and live to fight another day. To illustrate the differences between agility and resilience, Prof.Birkinshaw chose to talk about something truly interesting, the sport of boxing.

The surprising reference focused on heavyweight boxing and Mohammed Ali's bout against George Foreman in the October 1974 “Rumble in the Jungle” in Zaire. Ali was the epitome of agility; he could “turn off the light and be in bed before the room got dark.” If agility had been all that was required to win the fight then Ali would have been the favourite by a mile, but he was a 6:1 underdog. Foreman was the example of resilience – big, strong, mean and with a jaw of steel. But he did not have agility. Typically he tired his opponents by taking their punches and then floored them himself. Foreman and his crew prayed that he would not hurt Ali too much in the fight. This was not pure hubris, Ali's team had a plane with running engines ready to take him to Madrid, the closest good neurosurgery, in case he was critically hurt.

Prof. Birkinshaw defined resilience as ‘the positive ability of a system or company to adapt itself to the consequences of a catastrophic failure.’ Too many companies have become efficient and lean, keeping costs low but at the same time eliminating the kind of intelligently implemented redundancy and slack that allows an entity to resist failure. There is an aspect of resilience that may be perceived as costly in the short term but, applied wisely, creates longevity in the firm. A potent analogy was made of occupations where lives are at stake and risk must be mitigated wherever possible. Thus, the military, nuclear power facilities, surgeons and aircraft pilots must all adopt the ‘inefficiencies’ of duplicated systems/roles to remain effective and guarantee safety.

Prof. Birkinshaw distinguished between two types of resilience:

• Operational resilience helps to effectively monitor, respond to and anticipate threats to the normal operations, and to minimise deviations from the plan. The key to operational resilience is the balance between formalisation and personalisation, as well as high efficiency and high reliability.

• An emphasis on formal procedures de-personalises work and leads people to lose sight of the big picture. The right balance between formalisation and personalisation must be sought in modern organisations. Personalisation, or a stress upon individual accountability, should result in actions/decisions taken up by the agents closest to the issues and most competent to deal with them; in the credit crisis, siloed financial businesses failed to understand how individual exposures changed the risk of the organisation as a whole.

• Efficiency versus reliability is another difficult trade-off. Efficiency means taking out buffers and slack resources to keep costs low. Reliability means building in redundancy and slack so that the system can withstand failure.

• Strategic resilience is all about monitoring and responding to changes in a strategic context, continuously adapting to ensure an organisation remains relevant to its customers over the long term. The balancing act of strategic resilience is about bureaucracy versus emergence, hierarchy versus collective wisdom and financial goals versus oblique goals.

• Bureaucracy, though necessary in large organisations, is also rigid and inward looking while ‘emergent’ organisational structures are fluid: they enable resources to be reallocated more quickly and flexibly.
• Hierarchy perpetuates the status quo, while collective wisdom encourages openness to new ideas.
• Short term financial goals drive greedy, herd-like behaviour, while long-term oblique goals help individuals to understand and identify with a higher-order purpose.

For a company to be resilient, i.e. to be able to absorb Foreman-like blows, it requires (among other things): cash on the balance sheet, size, diversity of cashflows, brand, people, latent slack (more people employed than required) and tangible assets.

Resilience factors like latent slack, powerful patrons and customer lock‐in are not compatible with agility while others such as cash and cashflow diversity need not affect it.

London Business School research into organisational agility has shown that there are three distinct ways in which organisations can be agile – it is not a single dynamic.

• Operational agility is the ability to consistently spot and seize opportunities within a defined business model. Those that can pursue growth and control costs throughout the cycle.
• Portfolio agility is the ability to take resources out of stable business units and redeploy them to more promising opportunities. A McKinsey study showed that when comparing the top 20% of firms in a sector against the average firms over a ten year period, two thirds of the gap was due to portfolio agility. But this is difficult to achieve; recent London Business School research of over 450 firms’ executives, assessed that their organisations were struggling most at portfolio agility. It’s not just a factor of cash but talent allocation as well.
• Strategic agility is the ability to spot “golden opportunities” when they arise. Those chances that create disproportionate value to the initial investment often outside the core business. Opportunities to create disproportionate value occur infrequently and strategic agility is the capacity to spot and seize them when they occur.

Back to boxing. Before the fight Ali was aware that his ability to take punches did not match his agility. For six months he trained with big, strong parole prisoners from his local State Penitentiary – taking punches from them, but not giving any back. In addition, and against all conventional wisdom, he allowed himself to go against the ropes having worked out that this would lessen the impact of the blows, thereby enhancing his resilience. In this way, he allowed Foreman to tire himself before he seized his “golden opportunity” in the eighth round to win the “Rumble in the Jungle.”

It is not simply the case that resilience is about large and powerful companies and that agility is for nimble start‐ups. They are not substitutes but complements and most powerful in combination: “agile resilience.” Apple suffered for 15 years (1989 to 2004) until the iPod was launched. Its earlier success and the astonishing loyalty of Mac users enabled it to survive until the “golden opportunity” appeared. In contrast, two examples of spectacular failure demonstrate the inability to reach ‘agile-resilience:’

• Lehman Brothers was characterised by poor risk management processes, perverse incentive systems and lack of higher order purpose in the firm. The firm’s collapse was “not just a failure of policy or regulation but, a failure of management.”
• General Motors was described as the definitive example of management success in the 1950s. However, GM was focused on bureaucracy rather than success, of conforming to the ‘GM system’ which was no longer appropriate and caused the company to lose touch with its market from the 1970s onward. GM is a powerful lesson in the need to remain adaptable and of the commercial price that can be levied by too rigid processes in an organization. The excessive formalisation of a GM tends to de-personalise work and lose the macroscopic picture. 

Agility is good. Resilience is good. But they are most powerful in combination.

There is also a dynamic element to this process, that overtime resilience tends to deplete agility. It happened to Ali and it has happened to the likes of Microsoft.
 
The sources of resilience such as size, defensiveness and complexity often bring bureaucracy, conservatism and clumsiness. It is a leader’s role to re‐inject agility into organisations. Vikings and farmers can be used as a metaphor to illustrate this process. Initially Vikings are fast, opportunistic and agile but overtime when they settle and start to till the land they lose their lust for the challenge of new opportunities, preferring the comfort of the status quo.

The London Business School Human Capital Network has created the Organisational Development Speaker Series in order to facilitate discussion between HR practitioners and line managers. The series promotes an open debate on cutting-edge issues in strategic organisational change and talent management.

Please join us on Wednesday 16 March for our next speaker and networking event - Organising for Customer Experience, hosted by London Business School Alumni Club and sponsored by Molten Group (www.molten-group.com). Three Group Organisational Development Directors from customer-centric industries - Retail & Consumer, Retail Banking and Telecommunications - will share their insights into how to best align organisations with market demands, not only to win over customers, but to sustain their loyalty in the long term.

The panel will be moderated by Oxana Popkova, the Chair of London Business School Human Capital Network.

The registration link and some thought pieces on the topic will soon appear on http://humancapitalnetwork.blogspot.com. If you have queries about the event, please contact Oxana Popkova on opopkova.mba2006@london.edu.