The Concept of Agility

MOR 559 – Strategic Renewal University of Southern California
The concept of agility
©2000, Michael A. Mische

Lecture 9:
DESCRIPTION & OVERVIEW
The need for operational excellence and organizational agility in high-performance and as a source of strategic renewal are well
documented. In this session we explore the various aspects of operational excellence and the need for agile and adaptable
organizational designs and cultures. This class is designed to provide you with increased perspective and an operating knowledge of:
• The definition of operational excellence and agility
• The differences between agility, flexibility and speed
• The various tools and techniques for creating operational excellence and organizational agility
• The impact of the human performance and culture on the ability of an organization to create operational excellence and
organizational agility
• The role of outsourcing in the achieving operational excellence
In addition, we will explore the use of benchmarks and discuss the limitations inherent with relying on “best practices”.
KEY LEARNING CONCEPTS
There are several important learning concepts and objectives for this class session. First, we discuss the trademarks and
characteristics of operational excellence and agility. Second, we review the impact of excellence on organizational and financial
performance and develop a basic understanding of principles and concepts of operational excellence and agility. Third, we discuss the
organization competencies required to develop and sustain excellence. Fourth, we explore how companies develop operational
excellence. Fifth, we discuss the need for the integration of technology, process design and organizational structures as a requisite for
operational excellence and organizational agility.
Inherent in our discussions will be a review of the concept of value and what it means to “design for value”. Finally, the concepts of
designing for adaptability and sustainability are discussed.
Operational Excellence & Organizational Agility

Lecture 9:
CLASS SCHEDULE & AGENDA READINGS

Mische: Strategic Renewal, Chapter 9
I. 6:00 – 6:15 Course Related Q&A
Garvin: “Leveraging Processes for Strategic Advantage,”
Student Concerns
HBR, 95502
General Discussions
The Adams Corporation (HBS) – 9-372-263
II. 6:15 – 6:30 Review of previous Corcoran: “Reinventing Intel,” Forbes, May 3, 1999
material Einstein: “Intel: Elephant in a Tutu,” Forbes, April 13, 2000
Preview of current
Einstein: “AMD Shows It’s Ready for Prime Time,” Forbes,
week’s material
April 13, 2000
III. 6:30 – 7:30 Lecture
IV. 7:30 – 7:45 Break
V. 7:45 – 9:00 Lecture & Material/

Topic Discussion
CASES
VI. 8:45 – 9:30 Case Examples & The Microprocessor Industry:
Discussions
Intel Corporation and AMD (article-built cases)
VII. 9:30 – 10:00 Professor Available for
Q&A, Discussion, etc. Adams Corporation (HBS case)

Lecture 9:
CONCEPT DISCUSSION & QUESTIONS
1. Discuss the importance of process design in achieving operational excellence. What types of
designs are possible and what types of the benefits and weaknesses do they represent?
2. To what extent can operational excellence and organizational agility be facilitated or inhibited
by information technology (IT)? Under what conditions could IT be a catalyst for operational
excellence and organizational agility?
3. How can an organization use supplier relationships and outsourcers to help it achieve both
operational excellence and organizational agility? Consider the implications and also critical
success factors of outsourcing and long-term vendor relations.
4. What programs and initiatives can an organization design that will indicate operational
excellence in the following areas (discuss some real life cases):
• Customer satisfaction and loyalty
• Cycle times for problem resolution, order fulfillment, and manufacturing/service delivery
• Service and or product quality
• Service and or product quality
• Employee relations and morale
CASE DISCUSSION & QUESTIONS

Not specified
Interactive class discussion

Lecture 9:
LECTURE SUMMARY
Operational excellence is central to creating strategic advantage and can be a catalyst for strategic
renewal. High-performance organizations exhibit operational excellence and organizational agility in a
number of ways:
• Operational excellence is a state in which the organization exists – constantly.
• Extend operational excellence to all relevant functions, processes and interactions including those
that are external to their organization and especially to those that involve customer interactions,
key suppliers, and product/service design and delivery or manufacturing.
• Use operational excellence as a catalyst for strategic renewal and change.
• Make it a strategic imperative to selectively integrate portions of business designs, technologies
and outsourcing partners for leverage and economies of scale.
Organizations that successfully establish operational excellence and its compliment, organizational
agility, as a strategic pillar will generate significant advantages and better financial results compared to
those who fail at such efforts.
CLASS & INDIVIDUAL ASSIGNMENTS SUPPLEMENTAL MATERIAL

N/A

“To grow, our companies have to become much

more flexible, much lighter on their feet. You can’t
be light on your feet if you’re carrying a lot of
baggage.”
Christian Koffman, Worldwide Chairman of the Consumer &

Personal Care Group, Johnson & Johnson

Operational Excellence & Organizational Agility: The

Fourth Pillar of Strategic High Performance…
Leadership
Operational
Excellence & Knowledge Innovation
Agility
Information
Technology

OE As a High-Value Competency: Five Critical Issues
1. What is the definition of operational excellence

relative to high-performance organization?
2. Why is operational excellence important as a strategic

pillar?
3. What are the characteristics and qualities of

operational excellence?
4. How does an organization create operational

excellence?
5. What is the role of organizational agility in operational

excellence?

Operational Excellence Is Defined As…
“The design and performance of integrated systems and

processes that create superior strategic, competitive and
operational value through speed, flexibility and cross-
purpose adaptability.”
Mische: Strategic Renewal
Key Terms
SYSTEM PROCESS

System & Process – Definitions
SYSTEM… PROCESS…
“…is a set of integrated “set of interrelated work

activities supported by related activities characterized by
organizations and specific inputs and value-
technologies that are designed added tasks that produce
to achieve desired outcomes specific customer-focused
based on predetermined outputs.”
measures. “
V. Sethi & W. King

Many Factors Influence Operational Excellence…
Knowledge
Technologies Organizationa
l Structure
Process
Humans
Execution
PROCESS PERFORMANCE
PROCESS OUTCOMES
VALUE GENERATED

OE: Cases in Point…

 High-performers achieve operational excellence through an effective
design and implementation of their overall business architecture.
 How did the following companies develop their business architecture

and integrated their processes to achieve operational excellence:
Chrysler vs. Ford

$240 development costs $700 mill
(Sebring) (Mustang)
Dell Compaq Gateway

24-hour order shipment 35 days 12 days (1999 data)
GE
26 days mfg. time
(locomotives); considerably better than GM

Business Architecture for OE

OPERATIONAL EXCELLENCE
MINIMIZE TOTAL
MAXIMIZE
TRANSACTION
CREATED VALUE
COSTS
OPERATIONS & DECISIONS

HIGHEST MIN. HUMAN
GREATER SPEED
QUALITY INTERVENTION
OVERALL BUSINESS ARCHITECTURE
INFORMATION HUMAN
KNOWLEDGE TECHNOLOGY
TECHNOLOGY PERFORMANCE

Benchmarking in OE: A Critical Element

 Benchmarking is defined as:
“The process of using consistent tools and practices to identify,

analyze, measure and contrast the behavior and performance of
comparable processes and activities within an organization, a
specific industry or across various industries.”
 Benchmarking communicates 3 important messages:

1. What is possible
2. What others have accomplished
3. What other are doing
 Three approaches to benchmarking:

– Intra-company benchmarks
– Intra-industry benchmarks
– Cross-industry benchmarks

Intra-Company Benchmarks
 Performed within a company on its processes, operations,

organizational performance and other functions
 Compare costs and performance among similar as well as different
functions
BENEFITS:
 Easiest to perform
 Least costly
DRAWBACKS:
 Often biased by internal politics
 Restricted in design and scope
 Sometimes incomplete in rationalization of processes

Intra-Industry Benchmarks
 Derived from several different companies in the same industry
BENEFITS:
 More diversified
 More representative that intra-company benchmarks
DRAWBACKS:
 More expensive to perform
 Require greater effort to rationalize data

Cross-Industry Benchmarks
 Include many different companies irrespective of industry and/or

processes and operations
BENEFITS:
 Broadest
 More sophisticated
 More meaningful
 Most indicative
DRAWBACKS:
 Most expensive to perform
 Very complex to analyze and rationalize

Benchmarking: An Overview – Summarized

Internal Intra-Industry (External) Cross Industry (External)
Benchmark is performed Benchmark is performed among Benchmarking is performed

within the organization. a select group of competitors across industries using
Benchmark can be inter- within an industry. different companies.
divisional, intra-divisional or
within a department.
 Easy to perform  More complex process  Extremely complex, requires

careful design and execution
 Higher investment
Characteristics
 Inexpensive
 Significant investment
 Confined area of  Provides broader
interest, limited insights perspective and insight  Provides more comprehensive
perspectives and greater
 Can be difficult to perform
insights
 Very difficult and expensive to
perform
Approach to Benchmarking: 7 STEPS
Step 1: Determine what to benchmark

Step 2: Define benchmarking standards
Step 3: Determine benchmarking strategy
Step 4: Develop work and staffing plans
Step 5: Perform the benchmark
Step 6: Analyze results
Step 7: Formulate insights
The Limitations of Benchmarking
1. At best, benchmarking can lead to a “successful” imitation of

competition
2. A company cannot gain a competitive advantage by meeting a

benchmark
3. A company cannot achieve a sustainable advantage through

benchmarking, because:
 The external and industry environment is highly dynamic and
rapidly changing
 The “benchmarkee” itself is continuously improving its internal
processes and performance
4. Benchmarking itself often fails, because the concept of “best

practice” is highly elusive and ill-defined:
 Poor identification and assessment criteria
 Poor interpretation
 Time factor and obsolescence
 Potential restriction on creativity and innovation

Creating Operational Excellence

The high-performing companies embrace 5 objectives in
creating OE at the process level:
1. Designing for Economic and Strategic Value
2. Designing for Multiple Domains
3. Designing for Flawless Execution
4. Designing for Adaptability
5. Designing for Sustainability

Designing for Economic & Strategic Value

 In the context of high performance, value is defined as:
The creation of tangible economic and operational benefits through:

1) Improved customer attraction and loyalty
2) Increased revenues and profitability
3) Reduced total transaction costs
4) Increased competitive advantage.
M.Mische: Strategic Renewal
 Economic Value Proposition must be developed:
– A representation or statement as to what a certain program,

project, objective, or action is worth to the consumer,
organization and or employee.
M.Mische: Strategic Renewal

Designing for Value, cont’d

 The design of the process must reflect the following characteristics:
1. Clear alignment and congruency with organizational strategic

and operational objectives
2. Distinct cause-and-effect relationship between expected,

needed, and produced outcomes
3. Optimization of competencies, resources and organizational

capabilities, especially IT, human resources and knowledge
4. Creation of synergies of purpose and leveraging of human and

IT performance
5. Appropriate integration of technology
6. Outcome-driven

Designing for Multiple Domains

 Designs must be functional and adaptable to a fluid environment
 Created processes must be:

– Adaptable
– Scalable
– Transportable
enterprise-wide as well as to other potential users
 Three tenets underlie the concept of design for multiple domains:
1. Design/operation of the process can be singular, modular,

vertically integrated or externally extended
2. Design/operation of the process should allow for the efficient
switching between these multiple forms of process and
organizational designs in a cost-effective manner
3. Design/operation of the process should consider the unique
aspects and requirements of customers, manufacturing
capabilities and collaborative suppliers

Process Designs and Operations: Overview

Singular  exist for a highly specialized purpose
 relatively independent of other processes and organizational
competencies
 little end-customer interactions
 relatively low value generating activities
 can be performed by internal resources, external resources, or
outsourcing partners
 examples: product testing for legal or regulatory requirements,
financial auditing, etc
Modular  represent a major sub-system, sub-assembly or significant
percentage of an overall process architecture or system
 typically integrated into an overall process architecture
 complete sub-systems that are ready to be “plugged into” or readily
adapted to an overall larger product or operation
 the result of internal competencies and collaborative agreements
with outsourcing partners, subject matter or specialty providers
 high customer and competitive value to the organization
 examples: computer industry (Intel chips, MS software), etc.
Vertically  provide essentially for the entire process
Integrated  related human and physical and natural resources are owned and
operated by the company executing the process
 Examples: industrial giants such as GM

Process Design: The Selection Process & Criteria
Three factors affect assessment and selection:
1. Flexibility
2. Cost
3. Longevity
Additional considerations include:
 Number of available partners

 Quality requirements
 Complexity
 Total transaction costs
 Cycle times
 Proprietary nature of involved intellectual capital
 Brand name exclusivity
 Switching costs among various alternatives

OE & Outsourcing
Outsourcing is defined as:
“Transferring of all or part of a function, resources, personnel and

services to a third-party that provides specialized services that are
contractually defined in scope, character and cost for a specified
period of time.”
Three main reasons for outsourcing:
1. Cost reduction
2. Improving service delivery capabilities
3. Capitalizing on superior external expertise and talent

Outsourcing Decision-Making
Companies must address some key questions regarding outsourcing.

Specifically, does it allow to:
1. Support the business direction
2. Represent a good “fit”
3. Reduce costs at sustainable annual target rates
4. Maintain required management controls
5. Retain functional/technical infrastructure flexibility for changing

business needs
6. Improve technical competencies and capabilities
7. Mitigate risk and costs

Outsourcing Processes and Procedures
1. Develop realistic outsourcing objectives and options, given:

 Existing needs
 Future needs
2. Use specialized legal services for contracting
3. Consider intellectual property laws and copyrights
4. Examine exit options and cost implications
5. Determine performance measures and monitor performance
6. Establish collaborative partnership with outsourcer

Approaching Outsourcing
PHASE 1 PHASE 2 PHASE 3 PHASE 4 PHASE 5
Determine Develop Evaluate

PHASE Baselining Outsourcing Outsourcing Vendor Implementation
Strategy RFP Alternatives
Strategy Require- Systemic

Vision Strategy
Alternatives ments Risk
Final
Risk Vendor Evaluation
Assessment List Criteria Organizational
Unsystematic Change
Services Users Metrics
Risk
Formal Evaluation Process
Benefits Process Change
RFP
PROCESS Budgets
Business
Issues Legal Staff
Plan
Training
Business Vendor Legal
Rationale Profiles Review
Performance
Shareholder Measures
Vendor Initial
Strategy Vendor
Evaluation Costs
Alternatives Evaluation
Criteria
Vendor
Viability Outsourcing Conference Vendor
Assessment Strategy Selection
RESULT RFP Implementation
Final
Vendor Outsourcing
Initial Decision Decision
to Outsource Evaluation
Criteria

Designing for Flawless Execution
 Achieves maximum efficiency in process execution through:
Effective
Measurements Simplicity of
Design
Meaningful Flawless
Performance Execution &
Targets Desired
Outcomes Accountability
Design
Design of
Flexibility
Organizationa
l Structure

Designing for Adaptability

The design must:
1. Reflect the organization’s immediate needs as well as longer-

term objectives
2. Account for and address the organization’s capabilities and

limitations
3. Provide for transferability
4. Incorporate the use of appropriate knowledge and realistic

technologies and innovations
5. Be capable of changing to meet the demands of the environment

and new technologies

Designing for Sustainability

Characteristics of sustainable designs:
1. Provide for the transfer of knowledge

• No abundance of documentation and information
• Reflect the unique tacit knowledge
2. Have embedded heuristics

• Interrogate the process
• Measure performance
• Influence the behavioral aspects of the process
• Communicate effectiveness
3. Ensure continuous improvement and innovation

OE and Organizational Agility
Organizational agility is defined as:
“The capacity to quickly and efficiently create, redeploy,

reconstitute, and reallocate the resources of the organization in a
manner which optimizes their use in an environment or allows them
to create new environments.”
 Organizational agility is the essential enabler of operational

excellence.

Organizational Agility: Observations
 Agility is a state in which the organization exists.
 The degree or level of agility is unique for each

organization.
 The need for agility is different for each organization.
 The ability to be agile is directly related to human

performance and the processes and technologies of the
organization.
 Sustaining agility can be more difficult than creating it.

Creating Organizational Agility

Involves processes and structures for:
1. Redeployment and reallocation of resources
 Introduction of new technologies and processes
 Addition of new personnel
 Retraining of existing personnel
2. Selective integration of organizations and processes

 Organizing resources and actions around core processes
and competencies
 Selective integration of organizations through internal
consolidation of common infrastructure functions
 Selective use of key suppliers, alliance partners and
outsourcing specialists
 Development of Shared Service Organization (SSO) for
extraordinary leverage of resources and common
services

Five Core Processes of Shared Services
 High-performers excel at the following five core processes:
Creating Satisfying
Demand Demand
Leading
the
Enterprise
Creating
Managing
Products
Technolog
&
y
Services

OE… Summarized
 OE is central to creating strategic advantage
 OE is a catalyst for strategic renewal
 High-performance organizations exhibit operational excellence and
organizational agility in a number of ways:
– OE is a state in which the organization exists, it is a continuous
process
– Extend OE to all relevant functions, processes and interactions
– Use OE as a catalyst for strategic renewal and change
– Make it a strategic imperative to selectively integrate portions of
business designs, technologies and outsourcing partners for
leverage and economies of scale
Operational excellence is central

to creating and sustaining
strategic advantage and change!


The Concept of Agility

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MOR 559 – Strategic Renewal University of Southern California

The concept of agility

©2000, Michael A. Mische

KEY LEARNING CONCEPTS

Operational Excellence & Organizational Agility

CLASS SCHEDULE & AGENDA READINGS

III. 6:30 – 7:30 Lecture

IV. 7:30 – 7:45 Break

V. 7:45 – 9:00 Lecture & Material/

Operational Excellence & Organizational Agility

CASE DISCUSSION & QUESTIONS

Operational Excellence & Organizational Agility

CLASS & INDIVIDUAL ASSIGNMENTS SUPPLEMENTAL MATERIAL

Operational Excellence & Organizational Agility

“To grow, our companies have to become much

Christian Koffman, Worldwide Chairman of the Consumer &

Operational Excellence & Organizational Agility

Operational Excellence & Organizational Agility: The

Operational Excellence & Organizational Agility

OE As a High-Value Competency: Five Critical Issues

1. What is the definition of operational excellence

2. Why is operational excellence important as a strategic

3. What are the characteristics and qualities of

4. How does an organization create operational

5. What is the role of organizational agility in operational

Operational Excellence & Organizational Agility

Operational Excellence Is Defined As…

“The design and performance of integrated systems and

Operational Excellence & Organizational Agility

System & Process – Definitions

“…is a set of integrated “set of interrelated work

Operational Excellence & Organizational Agility

Many Factors Influence Operational Excellence…

Operational Excellence & Organizational Agility

OE: Cases in Point…

 How did the following companies develop their business architecture

Chrysler vs. Ford

Dell Compaq Gateway

Operational Excellence & Organizational Agility

Business Architecture for OE

OPERATIONS & DECISIONS

OVERALL BUSINESS ARCHITECTURE

Operational Excellence & Organizational Agility

Benchmarking in OE: A Critical Element

“The process of using consistent tools and practices to identify,

 Benchmarking communicates 3 important messages:

 Three approaches to benchmarking:

Operational Excellence & Organizational Agility

 Performed within a company on its processes, operations,

Operational Excellence & Organizational Agility

 Derived from several different companies in the same industry

Operational Excellence & Organizational Agility

 Include many different companies irrespective of industry and/or

Operational Excellence & Organizational Agility

Benchmarking: An Overview – Summarized

Benchmark is performed Benchmark is performed among Benchmarking is performed

 Easy to perform  More complex process  Extremely complex, requires

Approach to Benchmarking: 7 STEPS

Step 1: Determine what to benchmark

The Limitations of Benchmarking

1. At best, benchmarking can lead to a “successful” imitation of

2. A company cannot gain a competitive advantage by meeting a

3. A company cannot achieve a sustainable advantage through

4. Benchmarking itself often fails, because the concept of “best