Three steps for firms to achieve strategic agility

Corporate history is full of examples of companies that failed to change when required.

This may be because they ignoring or failing to notice market signals. Alternatively, they may simply be unable to implement transformation.

The list of casualties includes former market leaders Xerox, Blackberry, Kodak, and Blockbuster. Once-dominant companies, they no longer exist or are a shadow of their former self.

On the other hand, organisations that thrive for decades successfully shift to different strategic alignments to retain their place as market leaders. This includes companies such as Amazon, Microsoft, and Netflix.

These companies demonstrate ‘strategic agility’ – the ability to re-invent themselves over time. They change their focus, offering, and business model to remain competitive and win in tough markets.

Amazon began as an online bookstore that expanded the scope of its product range to become the world’s largest retailer.

It diversified into cloud computing via Amazon Web Services, before entering the hardware market with its Kindle and Fire devices. It then invested in logistics as a service and media to create Amazon Prime.

This allowed the company to expand its market power, gain economies of scope, and reduce risk. 

Microsoft shifted from an operating systems company to enterprise and cloud services, then consumer electronics.

More recently, it made substantial investments in companies such as OpenAI to incorporate AI into its key offerings.

Small steps lead to a radical change of strategy

Netflix started as a mail-order DVD company before shifting to streaming. It then moved into original content production and global expansion by tailoring its content and approach to different markets.

While each of these steps may not drastically change an organisation, an iteration of a few steps does. Each of these companies is now radically different to the business it was during its early days.

In our work with NASA, we have observed how it adopted three distinct business models. This enabled the agency to remain the leading space-faring organisation in the world. NASA is also the only one that can engage in deep space missions.

New space organisations such as SpaceX and New Origin draw on NASA’s accumulated experience and knowledge by partnering on missions, hiring experienced NASA executives, and exchanging knowledge in a variety of areas.

The three ages of NASA

In its early days NASA adopted a traditional hierarchical model. It was the prime contractor and exclusive customer of external suppliers based on cost-plus contracts.

The agency developed and monitored detailed engineering specifications, supervised contractors, and integrated the created technology with its own systems. NASA owned the created technology which operated within a unitary engineering architecture.

During the 1990s the agency adopted a transitional, inter-governmental model. This enabled NASA to learn how to collaborate effectively with international government agencies while designing and constructing the International Space Station.

Working with a cluster of partners enabled shifts in capabilities, cultural values, and technology strategy as a result of learning and adapting over time how to operate effectively within collaborative relationships.

Now NASA has adopted a commercial network model. This allows the agency harnesses the ingenuity of the market to access the technologies it needs. It does not specify detailed engineering specifications and does not exclusively own the final product.

The shift to this model began with contracting to market providers to resupply the space station and to transfer and bring back astronauts. In this model the agency specifies goals (the what), leaving the how to the commercial partners.

The agency now works with the commercial sector on ongoing public-private partnerships. It is more outward-looking and capitalises on the innovative capacity of the market.

Embracing leaders from across the organisation

For these shifts to occur successfully, leadership mindset is key. Leaders must look ahead and be willing to challenge the status quo. These are not necessarily those at the top of the hierarchy.

Leaders can be in any part of the organisation. At NASA, a group of young engineers called “the pirates” saw the need for a new mission control before the agency did. Rather than waiting for permission from their superiors, they went ahead to create one.

These are champions of change that any organisation would be wise to nurture and take seriously. We call this first step “emerge”, when new ways of doing things are brought to the fore by individuals who see things differently.

Further, experimentation is essential so the proof of concept for new approaches can be seen by everyone, including sceptics. The agency experimented with open innovation for example, inviting ideas from anyone on how to solve particular technical problems through competitions.

Over time this approach became useful, widespread, and culturally accepted in the agency. It brought solutions to problems that the agency had not been able to solve for decades. We call this second step “embed”, when new ways gradually become accepted in parts of the organisation.

Avoid becoming a corporate casualty

The lessons gleaned from these experiments must then be expanded through the organisation. This involves refinement, investment, and the creation of dedicated groups that can be a resource to other parts of the organisation.

New projects can be initiated, processes become more agile, and incentives and performance measures aligned with the new approach. This ensures a maintained focus on change. We call this third step “expand”, when new ways become institutionalised in the whole organisation.

These three steps to strategic agility can help companies to keep up with rapid changes in the market. This is crucial to avoid becoming casualties of complacency like Blackberry or Blockbuster.

New technologies such as AI and machine learning are raising the stakes, creating opportunities that necessitate organisational transformations.

As a result, the strategic agility to shift business models over time is becoming even more vital for success.

A version of this article was published by Management Today.

Further reading:

How to build a resilient organisation

Why imitating innovation can be a successful strategy

Four keys to using big data to unlock better strategy

100 years of Disney: Three lessons for strategists

Loizos Heracleous is Professor of Strategy at Warwick Business School and teaches Strategy and Practice on the Full-Time MBA, Executive MBA, and Global Online MBA.

Sotirios Paroutis is Professor of Strategic Management at Warwick Business School. He teaches Strategy and Practice on the Full-Time MBA, Executive MBA, Accelerator MBA, and Global Online MBA.

Learn more about strategy on the four-day Executive Education course The Strategic Mindset of Leadership at WBS London at The Shard.

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