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Strategic agility.

IN A WORLD WHERE SPEED, FLEXIBILITY, AND CUSTOMER VALUE PUT A PREMIUM ON ORGANIZATIONS ABLE TO REINVENT THEMSELVES OVERNIGHT IN RESPONSE TO GLOBAL DEMAND, AGILITY IS BECOMING THE NEW COMPETITIVE METRIC.

The nature of competition is changing. More than ever, Companies need to build maximum flexibility around their core competencies. Companies know they must be both fast and lean. Manufacturers must be able to mass customize and deliver at low cost. When all these abilities are harnessed, the enterprise can grow profitably, even during times of rapid change. Using an information-centered framework, strategic agility in its purist form permits a company to organize around customer needs to offer the right product or service at the right time in the right quantity. In the following roundtable, held in partnership with EDS, CEOs describe the steps both the organization and its chief need to take to achieve strategic agility on a sustained basis.

The roots of agility go back to 1991, when Congress directed the Department of Defense to create a task force to examine U.S. manufacturing competitiveness. When U.S. manufacturers realized in the early 1980s that they had fallen behind their Japanese counterparts, some recognized that merely adopting their competitors' techniques would leave them forever playing catch-up. A way had to be found to leap ahead - to anticipate change, to find a new way to compete and lead. Formative thinking was developed by Roger Nagel of Lehigh University's Iacocca Institute, which later spawned the Agility Forum to serve as a central resource for ideas and methods. Until recently, such worthy goals as TQM, lean manufacturing, just-in-time, CIM, mass customization, supply chain management, and customer satisfaction have been pursued more or less separately. An agile enterprise may choose to integrate some, all, or none of these. It is neither a consultant's quick fix nor a technique limited to manufacturing. A company becomes strategically agile when it can maximize the value of all its core strengths in a seamless way. The greater the agility, the more power a company has to reconfigure its ability to produce what's needed at the right margins at the right time to the right customer. It also brings with it a new way a CEO can size up the future, regardless of how it unfolds.

Heaven knows the business world does not need another buzzword, yet participating CEOs recognize that the imperative of speed and the growth of integrated information systems is driving change. EDS' Les Alberthal estimates that nearly half the current Fortune 100 may not find themselves listed in a similar ranking 10 years from now. Agility will require companies to assimilate information from customers sooner and better. Research, design, and set-up for production may have to be concurrent. Some companies may become totally virtual in the sense that all but the most vestigial competencies may be out-sourced. Agile Web, a corporation formed by 18 small-to-medium-sized companies in Eastern Pennsylvania and New Jersey, is virtually virtual today. It reconfigures itself by selecting from among member companies capabilities to meet the precise needs of each customer. As President and CEO Bill Adams, a former GE executive, suggests, future corporations may find it useful to morph themselves into information-linked strands of competencies.

AMP's Bill Hudson and JCPenney's Barger Tygart outline how the demands of fast-moving global technology and domestic retailing markets are driving the need for speed and flexibility. In a situation where a product is designed in Scotland and built in Indonesia for sale in Japan, there is no inventory pipeline, little room for error, and a very tight profit margin. "Increasingly we need to be agile," says Hudson, "but across borders and across corporate cultures."

- J.P. Donlon

ANTICIPATING CHANGE

Lester M. Alberthal Jr. (EDS): Strategic agility revolves around understanding your industry and market and being positioned to take advantage of change as it happens. This is particularly necessary in today's global world, which has tremendous economic development potential. China, for example, could do to the rest of the world in the automobile business what Japan did to the U.S. What happens to the American auto industry when the Chinese Lexus hits town? It's 30 percent cheaper, you can have any color or options you want, and it can be delivered in five working days. So why would you wait months for a Suburban or a Cadillac?

Technology will allow developing countries to more quickly move forward in developing their ability to create goods and services. Why? Because when you're starting from nothing, you're not encumbered by legacy systems and thought processes. Developed countries and their companies have automated processes that were conceived 75 or 100 years ago, but we haven't rethought the processes. We've just been creating technology and mapping it to the old thought processes.

That will change though, with the young generation entering the work force. These workers are computer literate - and they expect computers and equipment to be sitting on their desks when they take a job. They expect to be linked into all the databases and to be the decision makers. In this regard, the real issue for business is that such workers will become the major consumer band, meaning their buying habits will affect how goods and services are procured and moved around the globe. More and more, purchases will be made electronically, which will create a new demand process. The challenge for CEOs is getting their corporate cultures to accept that change and figuring out how to address it with customers. I don't know how to bring those disciplines and issues together. I'm not sure you can.

EDS is a $12 billion business, but some days, I'd rather run start-up company, because the agility ability is far stronger and greater. We have to recognize that there will be platforms and dynamics different from anything we've ever faced before. And the pace of change will be faster than we're used to. We predict that at least half the Fortune 100 won't be here 10 years from now because of lack of agility and missed market opportunities.

Michael K. Lorelli (Mobile-Comm): I think agility requires dismissing the past and starting with a clean sheet of paper. Our energy should be spent looking five car-lengths in front of us instead of looking in the rearview mirror.

A. Laurence Jones (Neodata Services): One of our challenges is finding out how to look at processes as if you had no legacy systems. Only then can you worry about how to get from point A to B. But if you know where B is, then you might be better off with the process that's in place than starting from scratch.

Alberthal: It isn't realistic to think you'll be able to trash legacy systems and start with a blank sheet of paper. Instead, you must decide where you need to be and what incremental steps you have to take to get there. This is an opportune time to rethink those old systems. With the right thought process, you can craft a plan that will migrate and accelerate, one you can take down the road and adapt in a way that is consistent with your long-term master plan.

Joseph J. Melone (Equitable Cos.): The rate of change today makes it difficult to have a great strategic plan that will still look good five years from now. We need to cultivate the capacity to adjust to the changes and developments as they come down the pike. We probably can't anticipate a lot of technology's impact on our business. We've re-engineered the back office, just like everyone else has. But what is driving our strategy on the insurance side is re-engineering the front office. Our greatest opportunities lie in refining our sales process and how we interface with clients.

Our business is risk management and asset management. People are living much longer today, and so they're less concerned about dying and their dependents, and more concerned about retirement and long-term care. We haven't scratched the surface of how much complication has been introduced by population aging and changing lifestyles. We will have to be agile, because we can't possibly figure out what to do for that person today in product design.

Robert L. Nardelli (GE Power Systems): We have a saying around the office that it's far better to challenge yourself and win than to be driven to the same point anyway. [Laughter] We keep trying to redefine our market. Instead of talking about how much share we have, we're trying to broaden the playing field. That forces us to come up with new, creative strategies. We're now focusing on service. Before, we weren't capitalizing on a huge installed base. We were still caught up in the old thinking about just selling more and more units. As these markets are developing and others are emerging, we are focusing on the extension - getting the total revenue flow and full capitalization from the investment.

To do that though, we first had to get through the denial period. We have to communicate to the entire organization that speed and agility are not about job elimination, but job creation, because as we become more agile, we are able to grow the market and capture new share.

Arnold B. Pollard (CE): How does agility relate to restructuring, mass customization, Total Quality Management, and other strategies?

Jay S. Sidhu (Sovereign Bancorp.): Re-engineering and process improvement assume you can do something better than what you're already doing. But they don't address the question of how to create new markets. I'm reminded of the old adage: Give a man a fish, you've fed him for the day. Teach him how to fish, you've fed him for life. I think if you teach a company strategies such as mass customization, re-engineering, process improvement, and downsizing, you can make it last a year or two more. But if you create a culture of agility, you've enabled it to last forever.

CUSTOMER CHOICE

Barger Tygart (JCPenney Co.): A few years ago, we redefined everything we did at JCpenney. First, we got out of some businesses we were not succeeding in. Then we went to a process that would allow us to sell JCPenney private national brands - a move dictated by our customers. In doing so, we had to energize a work force around the world - including employees at textile and fiber mills, buyers of cotton and wool, designers, manufacturers, and branders. Today, about 50 percent of our business is in private brands.

Internally, we set up an organization to be agile with between 8,000 and 10,000 suppliers. The communication process was key: We had to communicate our strategy and objectives in a way that would be meaningful to everyone in the pipeline network. We keep enhancing that communication - through Netscape; through a direct broadcast system from us to our associates or suppliers; and through feedback from and interaction with customers, suppliers, and employees.

The customer is always our evaluation point. If our market share isn't growing, we know real quickly we're not offering the best goods or services. We target the whole process to middle-income consumer groups. We give them the opportunity to purchase merchandise through our store catalog, which is consistent in quality, pricing, and offering to the product category. For example, we offer customers the opportunity to buy Arizona jeans or Levi jeans. We offer them the choice to purchase by catalog and have the merchandise delivered to their homes or to shop in our stores.

We have to keep revising our game plan, while also making sure everyone knows about changes in tactics or strategy, including those in logistics. We all like to say we are cutting down on inventory, but that probably doesn't happen as much as we would like. We're aiming to use the available technology while working with all our supplier groups, either by securing capital and funds with them, holding workshops with them, creating sourcing offices, or having people worldwide who can supply information.

Wallace Barnes (Rohr): No matter how we restructure ourselves, if people in the organization don't get the message on the need for agility and flexibility, it won't work. You need to focus employee attention on the customer. For example, a few years ago, manufacturers began making engine cells out of composite materials instead of metal. That meant they were much more difficult to repair. As a result, my company had to get into repair work, despite misgivings about how much money it could make in the business. But sending teams all over the world to repair these cells at a moment's notice - because nothing focuses people's attention like a grounded aircraft became a sort of company adventure that was part of our culture. People would write about these episodes in the company publication, which helped to focus people's awareness on the importance of responding quickly to customer needs.

Charles A. Dickinson (Solectron): The question is, how do we change the mind-set of the people who really need to do the job? We have to get right down to the bench worker - most of whom don't want to change. They want to work in the same environment, with the same process, under the same conditions. We must be willing to spend an inordinate amount of attention on conveying the customer's need and want to those employees. But it must be accompanied by a different way of compensation.

Michael S. Levin (Titan Industrial): There is no doubt it's strategic to all companies in general to be agile in their businesses. But isn't there also a question about how agile companies are in being strategic? Everyone in this room takes it as a given that they've already dictated that the new strategy is going to go into effect. But how were you able to implement? For example, when you see a new business opportunity, do you simply tell your board this is what we're going to do? Or did it take months of analysis?

Barnes: I wish I could claim the management at Rohr was that smart. [Laughter.] Actually, our customers demanded that we fix their airplanes, because they couldn't.

Gary Butler (Automatic Data Processing): There is no perfect answer - it will depend on the segment size or marketplace you're dealing with. We're trying to decentralize our decision-making process, even as it relates to technology and process. We're working on corporate awareness, with decentralized decision-making qualities closest to the client - to where the work is purchased, analyzed, and delivered.

We offer our clients a variety of delivery choices. For example, our traditional payroll service is the service bureau approach. Today, 80 percent of our clients don't want a service bureau approach, they want service so,are or they want us to manage the systems and move the money or they just want our people to help them. Some companies have great products, but need to think about delivering them through a different means, platform, service, or software. You have to change the value equation or package equation.

James A. Alles (Global Melinex): We're trying to make units of teams small and customized, so they can see the consuming public eyeball to eyeball, and respond to and make decisions at the same time. However, we have to figure out how to keep this group together. That means we have to agree on a definition of the corporation in the future - whether it's outside alliances that become extensions of our corporations, or just one or two people sitting in China, Japan, or Malaysia doing something with us.

SPINNING AN AGILE WEB

William M. Adams (Agile Web): My firm comprises 18 small companies that can be configured in any given way, based on customer requirements for a project. We sit with a client who has an idea or has gotten beyond the research phase and wants to get into mass production within 12 months, and we write out a product diagram of what has to happen to do that. Then we line up the core competency pieces of however many companies we need from the 18 companies we have and shrink the time to four months. Thus, customers create from this core competency the company they need at the time they need it. We do everything from airborne radar for the military to chassis for Intel.

Suppliers can remain within the business they excel at and continue to compete with their competition, which benefits their core business. I give them additional work they wouldn't otherwise have gotten, and they finally have gotten comfortable with the fact that it's really our core competencies we sell - our people, machines, facilities, know-how.

Lorelli: So you find the energy for agility in the customer instead of internally.

Adams: That's the only reason it works. We're working from the customer's words, and we just reconfigure the company - though it's really a virtual company, one that only exists in cyberspace. Agile Web provides additional business to the 18 companies, but they have to be 18 real companies. Agile Web Inc. is a separate company - a business development and marketing organization that looks at the core competencies of the 18 and works with the customer to create the company they want. Top management now can look at their core competencies and say, "I want that applied to the market now at 5 percent of each one of their microbusinesses within that company." And it can happen in hours.

J.P. Donlon (CE): Being a "virtual" company, how do you establish the faith with your customers that you can deliver?

Adams: You do it in phases. Clearly, if we don't perform, we're gone.

Donlon: Could an Agile Web idea be created for large companies?

Alberthal: So long as the customer gets performance and quality and the correct price, I assume the desire would be there. But it would be difficult to make it work. Who would you "web" into? In addition, it all comes down to people and the company environment.

Pollard: With the world changing so much and so quickly, aren't agile partnerships outgrown by changing circumstances?

Alberthal: It depends on if you've brought together the right people. The real question is, in the case of technology, can an individual company be all things to everything? And that goes to the degree to which we can add value and build trust.

Butler: While you don't really ever own a client, you certainly can own the relationship. In a service business or long-term relationship business, the control of the client relationship in helping to guide and service the product is very important. I'm not sure this web environment allows you to best serve yourself in terms of growing your relationship with that client as opposed to needing a product at a point in time he happens to want to buy.

Adams: I worked for GE Aerospace for 14 years. The customers only wanted to deal with us; we managed their supply base, and they wanted that relationship. Then things changed on us. People came up with better ways of doing it. And what we thought customers were buying - i.e., the relationship, the trust - wasn't it. They were more interested in their bottom line, like we were. That's when the industry unraveled. As companies outsourced, merged, and reconfigured themselves, they had to figure out how to manage the supplier base. Suppliers don't talk to each other; they talk vertically through you and you vertically down to them. With Agile Web, we just made that internal relationship external within these 18 companies that don't compete with each other.

Butler: I'm not contradicting what you're saying. Clearly, if you don't respond to your client's needs on cost, service, and value, you'll lose. That doesn't mean you're client-centric, merely client-sensitive.

Jones: One problem is that the strategic planning process doesn't work in a distributed, web-like company. It used to be that everybody brought the information to the altar, and then you decided on the strategy, executed it, and told them to go away for a year and do it again. The strategic planning process now has to be dynamic, day-to-day, out in the street in front of the customer.

Charles Klatskin (Charles Klatskin Co.): One of the big problems is the process by which corporate America makes decisions. When I went to college, the shortest cycle was seven years. Today, it is three months - and in many companies, it takes longer to make a decision than it does to go through a cycle. Customers are telling you what they want, but corporate America is fighting it, because we are still entrenched in bureaucracy.

ACROSS BORDERS

Donlon: We also must think about strategic agility across borders. How do you make agility work both inside and outside the U.S.?

William J. Hudson (AMP): We first invested overseas in 1952 in France. In 1957, we invested in Japan. We used to have different pricing arenas. I could sell a product for $1 per 100 in Asia, $1.70 in Europe, and $1.20 in the U.S. Then production started to move overseas. We went from having 100 competitors to having 1,500 competitors worldwide. Suddenly, prices began to level, because people were networked. So someone in Europe knew his or her Asian counterpart paid only $1 for the same product. We ended up recognizing that our customers were driving us to be globalized, and we got into global contract situations.

That meant we had to beef up our information systems and communication vehicles so we could pass information and knowledge very quickly. We also had to share the productivity things we could do to make a product in Taiwan versus what we could do to make that product in Switzerland. That developed into an internal benchmarking.

The other key strategy is efficient asset utilization. Let's say my assets are sitting in Singapore and Scotland, for example, and I have common tooling. If I don't have the capacity to jump to 70 percent share in one place, I can run more from the excess sitting in the other country. That meant we had to have what I call "SWAT teams" of people who could immediately take their knowledge to the country, work with the people there to ramp it up, and make that product with the same delivery capability and zero defects of the home site.

We developed the sockets Intel needed when it first came up with the Pentium processor. Intel told us ahead of time that it was going to simultaneously ramp up in Asia, Europe, and the U.S. As we developed the product, we tooled it in three sites, so we were ready to supply Intel and its customers everywhere.

Melone: The transferability of the knowledge bases from different continents is the common denominator. Knowledge is convertible, and it is the driving force.

Donlon: How do you manage the cultural exchange of knowledge with Equitable's French investor, AXA?

Melone: We've tried to integrate some of our systems efforts to create a common architecture that will improve efficiencies. On the investment management and asset management side, money is fungible and flows easily across borders. We're making the most progress in creating a global asset management company out of four different companies. We siphon off global best practices from our 10 synergy groups comprising middle managers. But it's difficult, because insurance is a local business, governed by local regulations. Our French counterparts now are trying to transfer some of our management techniques to other parts of the operation.

Nardelli: There is global intelligence and global brains. We tried to hire global brains. You can learn globalization, you can be exposed to it, but you need it in the fabric of your organization. You need people from Asia, Europe, the Middle East, and Africa who are part of your organization day in and day out, who can do the localization, provide the right cultural spin as you approach the market, and quickly interpret and respond to changes in market dynamics.

GEARING UP FOR THE FUTURE

Donlon: As CEOs, what is your biggest agility challenge?

Nudson: It's getting the organization to stop protecting the hierarchies, the fiefdoms, and the tribes, and start changing the mind-set of what I call the "gelatinous mass" to embrace best practices. You must be consistent and persistent, because you're going to create change whether employees resist it or not. Just stay with it.

William Shaw (Volt Information Sciences): Management has to create the ideas and identify the areas that need expansion, but the real challenge is finding the individual talent to pick up the ball and run with it.

Levin: A friend of mine always says, "Your suppliers and customers aren't your enemy; you can work with them and come to a rational solution. Your employees are your real enemies, because they're always telling you that you can only do it a certain way." His solution is not having any employees. He outsources everything. [Laughter.] The answer is that agility stems from the core people working for you.

Nardelli: As we think strategically and try to act operationally, it boils down to leadership and people. We try to attract people with wonderful experience and high levels of education and exposure, but it comes down to whether they have the edge, the necessary level of competitiveness in their souls, the tenacity to compete day in and day out. The only thing that keeps GE Power Systems from realizing its full potential is us. The tools are there, but we must have a unifying strategy that we focus on every day.

Daniel J. Altobello (Onex Food Services): You can get people to change, but damn few people will come forward and risk leading that change. We have to find those who will take that risk.

Melone: We must retain the best of the traditions and strengths of an old company without being a captive to our past. It's leadership's job to bring our people together, lay out a vision, and convince them of a common set of goals and values. We must communicate what we are doing, why we are doing it, and why it is in their best interest.

Joseph H. Stegmayer (Clayton Homes): As a smaller company, we've heard a lot of talk about bureaucracy - and we fear it. But that fear sometimes can slow us down. For example, our employees probably should be equipped with laptops. But we've never done anything like that. We don't provide company cars or club memberships for executives. Giving everybody laptops sounds good, but we worry that it will become a status thing in that everyone feels they need a laptop whether they use it or not. So we have to become more agile about that.

Barry N. Naft (Environmental International): My main challenge revolves around having the right manufacturing capacity in the right place at the right time amid changing paradigms.

Alles: If it's true that less than 50 percent of the Fortune 100 will still be around in 10 years, we worry about being associated with the right customers and being agile enough to let new customers or companies drive us strategically.

Sidhu: We must coordinate our tactics to achieve our vision and ensure that everything we do is selling that solution. At the same time, we must ensure that we serve our three constituents - shareholders, customers, and team members - simultaneously.

Alberthal: As the CEO of a professional services company, my challenge is to create an environment whereby 100,000 people every day do something that adds value for our customers and addresses their needs. That means dealing with cultural diversity, teamwork, motivation, agility, and empowerment issues.

Harry E. Gould Jr. (Gould Paper Corp.): We have to realize that being agile means being reactive, because your customers certainly will tell you what you need to do. On the other hand, you also must be proactive. You must be ready to learn and adapt to new technologies your customers are leaning toward. If you don't do that, they'll go to someone else, and you're history.

RELATED ARTICLE: A WHO'S WHO OF ROUNDTABLE PARTICIPANTS

William M. Adams is president and CEO of Bethlehem, PA-based Agile Web, a $280 million electromechanical assemblies manufacturer,

Lester M. Alberthal Jr. is chairman and CEO of Plano, TX-based EDS, a $12.4 billion business consulting, information and technology services company.

James A. Alles is CEO of Wilmington, DE-based Global Melinex, a unit of ICI Polyester, a $2 billion resins and plastics company.

Daniel J. Altobello is chairman of Bethesda, MD-based Onex Food Services, a $1.4 billion airline catering company.

Wallace Barnes is chairman of Chula Vista, CA-based Rohr, an $805 million international aerospace supplier.

Charles H. Brunie is chairman emeritus of New York-based Oppenheimer Capital, an investment management company with more than $42 billion in assets under management.

Gary Butler is president of the Employer Services Group of Roseland, NJ-based Automatic Data Processing, a $4 billion provider of computing services.

Charles A. Dickinson is former chairman of Milpitas, CA-based Solectron, a $2.8 billion assembler of electronic equipment.

Harry E. Gould Jr. is chairman and president of New York-based Gould Paper Corp., an $830 million distributor of printing and business papers.

William J. Hudson is president and CEO of Harrisburg, PA-based AMP, a $5.2 billion manufacturer of electronic and electrical interconnection devices.

A. Laurence Jones is president and CEO of Louisville, CO-based Neodata Services, a $238 million direct-marketing services firm.

Charles Klatskin is chairman of Teterboro, NJ-based Charles Klatskin Co., a corporate real-estate broker.

Robert W. Lear is chairman of CE's Advisory Board and an executive-in-residence at Columbia Business School.

Michael S. Levin is president and CEO of New York-based Titan Industrial, a $400 million steel distribution company.

Michael K. Lorelli is president and CEO of Ridgefield Park, NJ-based MobileComm, a $560 million telecommunications, paging, and wireless communications company.

Joseph J. Melone is president and CEO of New York-based Equitable Cos., a $7.3 billion Insurance, annuities, and investment management firm with $217 billion in assets under management,

Barry N. Naft is president and CEO of Potomac, MD-based Environment International, an environmental management firm.

Robert L. Nardelli is president and CEO of Schenectady, NY-based GE Power Systems, a $7 billion power generation equipment, systems, and services unit of General Electric.

William Shaw is chairman, president, and CEO of New York-based Volt Information Sciences, a $907.4 million staffing, prepress publishing, telecommunications, and information solutions company.

Jay S. Sidhu is president and CEO of Wyomissing, PA-based Sovereign Bancorp., a $9.2 billion tri-state bank holding company.

Michael W. Sonnenfeldt is managing member of New York-based Emmes & Co. LLC, a real-estate investment partnership with assets valued at $1 billion-plus.

Joseph H. Stegmayer is president and COO of Knoxville, TN-based Clayton Homes, a $1 billion manufactured home builder, retailer, and finance company.

Barger Tygart is president and COO of Plano, TX-based JCPenney Co., a $20 billion-plus retailer.
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Author:Donlon, J.P.
Publication:Chief Executive (U.S.)
Article Type:Panel Discussion
Date:Dec 1, 1996
Words:5149
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