Lord of the rings.

Competition today demands more than flexible manufacturing, operational efficiency, and rapid response time. Fixing a company's problems involves more than improving quality, cutting costs, and empowering employees. What's needed is a new system for adapting to changing challenges, evolving markets, and increasing demands - working along with employees, customers, suppliers, and competitors. Holistically. Synergistically. Agilely.

* In Ohio, Columbus-based Hamilton Bancshares has replaced 40 percent of its existing branches with small, full-function, but remotely staffed banks. Realizing that the bulk of its profits comes from young and middle-aged ATM customers, Hamilton decided to establish workerless banks that provide not only ATMs, but 24-hour interactive video access to remotely located personnel.

* At its assembly plant in Kyushu, Japan, Nissan has invested in very flexible, high-technology production. The objective: very rapid assembly to customer order, regardless of model, configuration, or sequence. Profitability is achieved at 10,000 units of any given model. On the other hand, Toshiba, in Ome, assembles all its portable computer models - more than 20, each with many different customer-selected options - on a single production line in batches of 20 per model and can afford to do it in batches of 10. At each work point, a notebook computer provides instructions for assembling the next model, the configuration of options for each unit, and the number to be assembled. Toshiba President Fumio Sato explains: "Every time I go to a plant, I tell the people 'smaller lots!'"

* Panasonic has now reduced its consumer electronics product cycle time to three months. That means the lifetime of any given model of CD player, TV, VCR, cassette deck, or stereo receiver is just 90 days. During that time, a model's successor is being designed, tested, and put into production.

* At its St. Louis aircraft manufacturing facility, McDonnell-Douglas reduced its economic order quantity by linking what had been 100 individual computer numerical control machine tool cells to a single production-scheduling computer. This allowed the company to achieve direct numerical control of machining operations.

* Across America, Barnes & Noble, once a large but local New York-based bookstore specializing in academic texts, has become one of the book industry's leading superstores nationwide, not only because it offers substantial discounts and stocks its shelves according to data provided through a sophisticated data collection system, but because the pleasant surroundings and coffee-house atmosphere it has built into many of its locations provides a quiet atmosphere for relaxing and browsing: It's become part of its customers' lifestyles, not just a place for buying books.

All these companies - and many others - are reacting to a new environment characterized by a range of rapidly convening and colliding forces, including:

* Market fragmentation

* Production to order

* Information capacity that allows companies to treat masses of customers as individuals

* Shrinking product lifetimes

* The convergence of physical products and services

* Global information and production networks

* Simultaneous intercompany cooperation and competition

* Distribution infrastructures for mass customization

* Corporate reorganization frenzy

* The pressure to internalize prevailing social values

The convergence of these forces has created a demand for a new system of corporate behavior that can best be described as agile. Not simply reactive, not just about improving efficiency, cutting costs, or battening down the business hatches to ride out fierce competitive storms, this new "agility" is a deliberate, comprehensive, companywide, cooperative, and continually evolving response to constantly changing requirements for competitive success. It's a new mind-set about making, selling, and buying. It reflects an openness to new forms of commercial relationships and new measures for assessing the performance of companies and people. Most of all, perhaps, it represents a new way of understanding the company and its relationships to the world at large. No longer a collection of silos, of separate functions pulling this way and that, the company is, and must be, an integrated whole, a strong link in an even stronger chain.

THE AGILITY MANDATE

In recent years, many, if not most, companies have undertaken limited and sporadic programs of total quality management, employee empowerment, just-in-time logistics supply, reduced cycle time, and more. Becoming agile certainly requires these improvements. But many of these companies have seen little bottom-line return for the investments they've made. This is partly because their efforts have often been seen as ends in themselves, not as means to a more general goal; they've been primarily tactical responses to marketplace pressures, focused on individual pieces of the puzzle rather than the whole picture.

Because it looks at what companies ought to be doing, not just how they can do a better job of what they already are doing, and because it approaches the enterprise as an integrated system, agility challenges the prevailing paradigms of organization, management, production, and competitiveness. It is explicitly strategic rather than tactical, taking no established practices for granted. Agile competition demands that the processes that support the creation, production, and distribution of goods and services be centered on the customer-perceived value of products and services. It requires knowing a great deal about each individual customer - and about all the other links in its chain, suppliers as well as competitors - and interacting with them routinely and intensively.

In an agile competitive environment, there is no one right way to organize and operate a company. Management can adopt the mix of multiple and concurrent strategies that will be most profitable for that company, given the variety of customers it serves and the changing marketplace.

A company must have the right core competencies with which to create new customer opportunities and to respond to customer opportunities that present themselves - often unpredictably. A company must be able to move from "concept to cash flow" in a fraction of the time it now takes.

Doing all this demands more than flexible manufacturing, operational efficiency, or rapid response time. An agile company must be able to synthesize new productive capabilities very quickly. As a result, it is increasingly advantageous to develop new products and services cooperatively with other companies, including direct competitors.

In becoming increasing agile and a successful multi-company player, the following appear to be four strategic dimensions on which companies need to concentrate:

ENRICH THE CUSTOMER

Customers perceive the "products" of an agile company as solutions to their individual problems. The agile competitor needs to rethink just what products are, how they should be made and sold, who buys them, and how much buyers should pay. The goal is strategic relationships with customers: stable, long-term relationships that can survive constant marketplace change. The means is selling multidimensional solutions to individual customers' problems, rather than selling products that then have to be fashioned into solutions by the customers.

For example, Unisys has recognized that its best opportunity to add value for customers will not come from selling them computers, but from selling management- and operations-related information, data processing, and information-processing services. Thus, Unisys' commitment to "customerization," its version of creating individualized solutions for companies with information management and management-services problems.

COOPERATE TO ENHANCE COMPETITION

Cooperation - internally and with other companies - is an agile competitor's operational strategy of first choice. The goal is bringing agile products to market as rapidly and as cost-efficiently as possible. One strategy is utilizing existing resources regardless of where they are located and who owns them. Cross-functional teams, empowerment, reengineering of business processes, virtual companies, and partnerships - even with direct competitors - are all being used to leverage resources through cooperation.

By entering into cooperative relationships, each company can focus its efforts on those activities for which its human and technological resources are best suited. Alliances among companies with complementary resources and expertise reduce sunk costs and risks at the same time they reduce development time, increasing the probability of success and creating interdependencies on which to build future collaborations.

One of the many forms cooperation can take is the "virtual organization" - an opportunistic alliance of core competencies distributed among a number of distinct operating entities within a single large company or among a group of independent companies. If a company is so staffed, equipped, organized, and motivated that the option of creating a virtual organization structure for a project is routinely available to it, then all the other elements of agility are likely to be present and functional in that company.

Almost all bicycle vendors, for example, have created what amounts to global "virtual" products. Frame manufacturers create finished bicycles by selecting from an enormous variety of specialty components manufactured by companies located around the world. Like the manufacturers of audio equipment, they benefit from "plug compatibility," which means that virtually all components and frames will fit together. Unlike the manufacturers of automobiles, bicycle companies trade heavily on the virtuality of their products, advertising to an increasingly aware group of consumers just which component parts were used.

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What bicycle manufacturers have learned is that there is a mutual advantage to building "virtual" bicycles instead of complete systems. Only a small number of companies can succeed when they compete on the basis of closed, proprietary systems; a large number of companies can create an enduring win-win situation if they build a broad customer base for evolving component technologies designed for open systems.

ORGANIZE TO MASTER CHANGE

An agile company is organized in a way that allows it to thrive on change and uncertainty. Its flexible structure permits rapid reconfiguration of human and physical resources. It can support multiple, concurrent organizational configurations keyed to the requirements of different customer opportunities.

An agile company is designed to optimize its ability to exploit rapidly and unpredictably changing market opportunities for information- and services-rich, high-value-added, short-lifetime products. For each customer opportunity, management can answer the question, "What is the best way for us to be organized to exploit this particular opportunity?" Internal teams, inter-enterprise teams, peer collaborations, hierarchical collaborations, lattice structures, and flattened pyramids all have applications that are appropriate if they are the best means of achieving a particular project's ends.

Perhaps the most dramatic role-change is in what the agile organization asks of its leaders. In the old days, leaders were asked to be "doers," to tell the people "below" them in the managerial hierarchy what to do and to police their performance. The job of leaders today is to determine what businesses the organization should be in, to assess its competitive situation, to develop resources and strategies, and to set appropriate goals and objectives.

LEVERAGE PEOPLE AND INFORMATION

People and information differentiate competitors in the world of agile competition. What a company sells is its ability to convert the knowledge, skills, and information embodied in its personnel into solution products for individual customers. As Chrysler Chief Executive Robert Eaton has put it, "The only way we can beat the competition is with people."

What customers really are paying for is access to people who are capable of synthesizing profitable customer-enriching products out of the knowledge they possess and the information and technologies their company makes available to them. Therefore, the first task of an agile competitor is to create a company environment that leverages the impact of people and information on its bottom line. This means expecting people to think about what they are doing, authorizing them to display initiative, and supporting them to be innovative about what they do and how they do it.

A surprisingly large number of companies lack a systematic inventory of the expertise their employees already have, the expertise a company needs to move into the markets in which it has to compete, and a map of how its people can move from the expertise they currently possess to the expertise the company needs to have them possess. A growing recognition of this ignorance underlies the current interest in core competency inventories and in continuous education and training programs.

BARRIERS TO AGILITY

Becoming more agile is difficult not only because change itself is inherently difficult, but also because administration and legal systems, as well as habits and established patterns of thought, date back to the era of mass production and mass marketing and have yet to reflect the concepts of agility. This includes both internal measures and systems, such as management accounting systems, performance measurement systems, budgeting procedures, and information systems, as well as such external forces as antitrust and product liability laws and trade agreements.

Moreover, a hostile social environment, whether internal or external, precludes agility. A company cannot routinely reconfigure itself to meet changing market opportunities if it must fight battles continually over the environmental and community impact of its products and operations. It cannot achieve a culture of universal accountability and mutual responsibility if unresolved workplace health and safety or work/life quality and job security issues alienate its work force. It cannot routinely collaborate with other companies if it is not worthy of the trust that intensive collaboration requires.

An agile company deals with change as a matter of routine. Its strategic plan deals not with the product but with enhancement of capability, which, in turn, leads to products and services that were unpredictable when the plan was made. It is critical that a company link the evaluation of agility directly to concrete corporate goals and to specific, strategic initiatives for accomplishing those goals.

THE NEW RULES

Agility-based competition and the mass-production system are like two different games, each with its own rules and strategies for winning. The question is not which game is better; it's which game is being played now. The answer: Agility. To compete in today's market, players and coaches will have to learn the new game.

This type of evolution is not without precedent. As the more-developed world adopted the modem industrial corporation model of mass-production competition at the turn of the 20th century, many companies went out of business or lost their independence. Some experts estimate that the number of U.S. companies that vanished at that point through failure, mergers, or buyouts was as high as 80 percent. Many of those had tried to avoid the changes that the nature of competition in their time required. Many assumed the new technologies, models of production and competition, and the quest for national and international markets were the affairs of others and posed no direct threat to their own local or regional competitive objectives. They were wrong. Smart companies won't stand by and watch history repeat itself as we move into the next century - and the next era of competition.

RELATED ARTICLE: Full Circle

A brief history of company competition since the Middle Ages

Form One: The Guilds

Driven by the sharp increase in agricultural productivity and in population, as well as the explosive spread of water- and wind-powered machinery, craft guilds began to dominate in the 12th century. Life in western Europe was marked by increasing urbanization, heightened industrial activity, and the expansion of local commerce and long-distance trade; the craft guilds thrived, thanks to newly created universities, alliances between widely dispersed merchants, central governments, liberalized attitudes toward lending money at interest, the beginning of standardized production, and the growth of double-entry bookkeeping.

For Two: Mercantilism 

In the 16th century, as commerce with non-local markets - as well as cities - grew, guild-based industrial competition gave way to more open competition among entrepreneurial craftspeople. The entrepreneurs acquiesced in some of the guild-era institutions and values, such as the master-journeyman apprentice hierarchy, while agitating for the establishment of other institutions that would serve their needs better. Fragile medieval banking services were replaced by robust financial, investment, and insurance service; checks, drafts on foreign banks, stocks, and negotiable securities all existed. The commercial corporation expanded, functioning as a "fictitious person" that could engage in business activities on behalf of "real people" who were thereby sheltered from many liabilities.

Form Three: The Factories

With the introduction of mass-production machinery and increasingly effective steam power in the late 18th and early 19th centuries, the dominant form of industrial competition shifted from craft production to factory-based industrial production. Again, social, political, legal, and economic values and institutions changed in ways that protected and reinforced the emerging forms of production, distribution, and above all consumption.

Form Four: The Modern Corporation

The integration of improved versions of existing production, power, communication, and transportation technologies in the late 19th century made new forms of competition possible. Companies that were reorganized or newly created to exploit the economics of scale made possible by vertical integration, central administration, and hierarchical organization became the economic, political, and social power centers of the 20th century. The competitive advantages they achieved came from the systematic coordination of production, marketing, and distribution, which, in turn, was made possible by rapidly maturing technologies. During the 1980s, however, the principles that had guided the modern industrial corporation began to unravel. At the same time that it was becoming more and more difficult to earn large enough profits from mass-production-based operations located in First-World countries, increasing numbers of companies found they could operate profitably with shorter production runs, build to customer order instead of to marketing forecasts, and achieve dramatic reduction in new product development time. These companies set the stage for.

Form Five: The Agile Corporation

Coming full circle, corporations, like the guilds, have a customer focus. But while the old craft methods could deal with only a few customers, modern technologies, especially information systems, now allow companies to accommodate the unique needs of many customers. And those aren't the only borders that have shifted. Rather than function as stand-alone entities, today's agile corporations have forged strong links with suppliers, customers, and even competitors, creating a coordinated value-adding network.