Little Buddha said
Companies that can adapt to changing circumstances and successfully navigate crises often have a strategic agility that can be summed up as "AAA": first, they are flexible enough to avoid the worst impact; second, they are strong enough to absorb a lot of damage when they are hit; and third, they have enough resilience to accelerate faster and more effectively than their peers.
The 6 principles behind the 3A rating
Strategic agility refers to the ability to improve performance in the midst of chaos – not only to survive, but to thrive – based on research conducted on qualitative and quantitative data from hundreds of businesses, and our multi-year research project shows that strategic agility can be further broken down into six principles. These principles are not definitions, rules, ordinances, tools, or frameworks, but guiding principles that help companies take advantage of chaos.
Avoiding shocks: Speed and flexibility
Shock avoidance is associated with perceiving risk in your environment, being able to prepare yourself to avoid danger, and moving quickly to avoid the impact.
Principle 1: Prioritize speed over perfection
During a crisis, opportunities come and go, so businesses need to be prepared and willing to act quickly, even if they sacrifice quality and predictability in the process.
During the multi-day holiday that celebrates the Chinese New Year, movie theaters are usually packed with families. However, in January 2020, most theaters were empty due to the spread of the new crown virus, and many theaters have closed their doors. Huanxi Media Group's New Year movie "Lost in Russia" threatens to lose millions of dollars.
When most of their peers decided to postpone the release of their films, Joy reached out to Bytedance, the Chinese company behind the sensational app TikTok. ByteDance is not a natural distribution partner, as it features streaming user-generated short-form content. For example, TikTok's video cap is 15 seconds — while "囧Mom" plays for more than 2 hours.
In just two days, "囧Mom" received 600 million views on the ByteDance platform. Not only did the film gain a large following, but it also sparked a wave of goodwill from the Chinese people, who were frustrated that they could not leave their homes during the outbreak. By waiting and seeing, other studios missed out on a significant opportunity to expand market share and take advantage of the time-limited opportunity.
Principle 2: Prioritize flexibility over planning
In business schools, strategy teaching is often a series of choices made around where to engage and how to win. These choices are usually included in strategic plans, which are designed and approved over a period of several months, then executed over a period of three to five years, and then repeated in this cycle. In a crisis, however, strategic planning can easily be an anchor, locking businesses down paths that no longer make sense.
Faced with a sharp drop in revenue during the pandemic, Qantas abandoned its five-year strategic plan to return to old ideas from the 1980s and launch "destinationless flights". These excursions include low-altitude flights to some of Australia's major tourist destinations such as the Great Barrier Reef and Uluhu National Park. All seats sold out in 10 minutes, making it the fastest selling promotion in Qantas history.
Qantas is not only fast-moving, but also flexible in the way it operates. The airline recognizes that even if people can't leave the country, they have a potential desire to travel. It quickly adapted its services to meet this demand. Then, building on its initial success, it launched a sightseeing flight to Antarctica.
Absorbing Shocks: Empowerment and Diversification
When it's impossible to avoid a shock like COVID-19, the next best thing to do is to minimize the damage. This step is often misunderstood by managers. Some of the characteristics of defusing strong shocks — scale, inefficiency, or centralized management — are seen as obstacles to effective competition in a volatile environment. However, when set up, these elements can enhance a company's resilience to shocks without compromising performance.
Principle 3: Prioritize diversification and "efficiency easing" over optimization
Many businesses have struggled during the pandemic, and some have failed not because they are not flexible or innovative, but because they have been knocked down by devastating blows. In many cases, the root cause of the problem lies either in a lack of operational diversification or in an overemphasis on efficiency and optimization.
The principles of diversification and leniency have recently fallen out of favor. The stock prices of diversified companies are often hit by "group concessions", and markets and activist investors are quick to punish any signs of easing. However, these are powerful hedging tools against the impact of shocks. Pain in one area can be compensated for by gains in other areas. During the pandemic, when sales of P&G's personal care brand declined, the company was able to make up the difference with an increase in revenue from its cleaning and disinfection brands. In contrast, Gold's Gym, Avianca Airlines and Brooks Brothers suffered losses due to a lack of diversification and eventually went bankrupt.
Principle 4: Prioritize empowerment over hierarchy
Systems are the most vulnerable in the weakest places. For example, in a hierarchy, the top is the most vulnerable.
In contrast, empowered teams are inherently robust. Because power is decentralized, no single blow or crisis can wipe them out. The key is to maintain an open and regular flow of information so that they work in unison.
Zoetis, a global leader in animal health, has adopted this approach during the pandemic. When the pandemic hit, they were preparing to launch their biggest new product ever, a dog drug. A range of challenges, including supply chain disruptions, marketing delays, and shortened test center and lab opening hours, threaten to void product launches. In response, Zoetis' CEO decided to allow local leaders in 45 markets around the world to conduct their own product launches in the most appropriate way. For example, social distancing rules vary greatly from location to location, as does the requirement to wear protective clothing. This delegation extends to field employees, managers, and teams who are encouraged to "operate as if you were your own boss." To further empower these employees, the priority is on data-driven decision-making, where everyone in the business can view dashboards with the latest pandemic information.
Accelerating away from shock: learning and modularization
Regrouping from shock is partly operational (being able to redeploy and reassign resources) and partly cultural (fostering tolerance for failure, implementing an environment that encourages risk-taking and rewards learning). In an extremely uncertain environment, the application of acceleration principles can have a significant impact on performance.
Principle #5: Prioritize learning over blaming others
It is widely accepted that a corporate culture that rewards risk-taking and tolerates failure is faster than a cultural action that does not. If people are criticized for failing, they are less likely to take risks; in a crisis, this can be fatal.
Principle 6: Prioritize resource modules and liquidity over resource locking
Since it is difficult to predict what the future will look like in a crisis, effectively planning resource allocation is not an easy task. Therefore, it is important to build modular and/or liquid resources so that they can be reconfigured or mobilized as needed.
Put strategic agility into action
2020 has been a highly disruptive year for the media and entertainment industry. Streaming companies such as Netflix and Amazon Prime Video experienced strong growth, while companies dabbling in live events and movie distribution saw a sharp drop in revenue. Walt Disney Company lives in the middle of it. At the beginning of 2020, the media and broadcast business accounted for about a third of its revenue, with 17% of revenue coming from direct-to-consumer brands and the remaining 50% from film studios, theme parks and product sales.
The growth in broadcast revenue did not offset the heavy losses caused by the closure of cinemas, theme parks and retail stores. Disney's share price was $146 at the beginning of 2020, but by March 20, as the globalization of the epidemic became apparent, its share price had dropped to $86 per share. The company seeks to avoid the worst impact of the pandemic for as long as possible by limiting the number of visitors to keep the theme park open and adding strict safety protocols for all facilities, staff and guests. By laying off employees in a range of services such as its stores, parks and cruise ships, the company has saved money and, where possible, partnered with local governments to supplement revenues. A strong balance sheet allowed it to defuse the decline in revenue.
At the same time, the company reconfigured resources and staff to launch its "Disney+" streaming service in November 2019. The company strives to accelerate product improvements, adding new content throughout the year. For example, the release of the live-action movie "Mulan" was launched through this service under the name of a special paid feature film. By the end of the year, the company had attracted more than 90 million paying subscribers to the Disney+service, well ahead of rivals like HBO Max and Peacock and far beyond what it hoped it would achieve in 2024.
When things got better, Disney quickly seized the moment. It reopened its theme parks in Shanghai and Tokyo in May and July, respectively. On top of that, the company continues to invest heavily in Disney+, building it into one of the world's largest video subscription services a year after its launch. It empowers local managers to make decisions as situations change around the world and mobilizes people and resources everywhere, with a focus on growing areas. Its story shows that even large companies at the forefront of the COVID-19 shock can respond effectively by leveraging AAA, which is strategically flexible.
While we will eventually see the end of the COVID-19 crisis, there is no doubt that businesses will continue to face other difficult situations in the future. In such a situation, a combination of avoiding, defusing, and accelerating away from shocks may determine whether the business will eventually survive or collapse.
Keywords: agility
Michael Wade, Amit Joshi, elizabeth A. Teracino, | wen
Michael Wade is Professor of Innovation and Strategy at the International School of Management (IMD) in Lausanne, Switzerland, and Head of Digital Business Transformation at Cisco. Amit Josh is Professor of Artificial Intelligence, Analytics and Marketing Strategy at the International School of Management in Lausanne, Switzerland. Elisabeth Terracino is a researcher at the Global Center for Digital Business Transformation at the International School of Management in Lausanne, Switzerland.
Liu Jun | edit
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