‘Routines of Agility’ deliver superior profitability

The Strategy+Business web site recently reported on an in-depth study that looked at the relationship between agility and long-term business performance.  The authors, Thomas Williams (Booz & Company) and Christopher G. Worley and Edward E. Lawler III (both of the Center for Effective Organizations, University of Southern California), report that:

When the measure of performance is profitability, a few large companies in every industry consistently outperform their peers over extended periods. And they maintain this performance edge even in the face of significant business change in their competitive environments. The one factor they seem to have in common is agility. They adapt to business change more quickly and reliably than their competitors; they have found a way to turn as quickly as speedboats when necessary.

The study looked at the Return on Assets (ROA) for 243 large firms in 17 industries over the 30 year period from 1979 to 2009 and identified the percentage of years for which the firm performed above the industry average.  Return on Assets was compared with survey results that evaluated each company against each of four ‘agility-related routines’: strategizing dynamically, perceiving environmental change, testing responses, and implementing change.  As with the ROA scores, each ‘agility-related routine’ result was assessed to be above or below the average of all companies in the survey.  The following chart summarizes the results.

Agility Chart

The study results indicate that above average agility performance generally correlates with above average financial performance in terms of Return on Assets.  Further, the results reinforce that agility is a systemic capability in organizations.  The companies in the study needed above average performance in at least three of the four ‘agility routines’ to achieve consistent above average financial performance.  This finding is consistent with my conviction that organizational agility and adaptive capability requires Adaptive Iteration – a purpose-driven iterative cycle of observation, interpretation, design and experimentation.  More on that in my next blog post.

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