The pursuit of agility is a challenge because it is about change. Management theories mostly focus on ways to develop and execute on strategy-implicitly describing a stable environment. In a sense, today's management theories are linear, but today's environment is nonlinear. Change is so constant that the implicit assumption of stability no longer holds. And yet our interviewees agree that agility is defined in part by having a clear understanding of where the enterprise needs a stable, standard set of business processes. Defining the line where standard gives way to flexible is today's management challenge.
Discussion with Jeanne Ross
PwC: What do you see as the connection between enterprise architecture and agility?
JR: In terminology an enterprise architect might use, we think of agility as the reuse of existing IT and business process capabilities. More generally, you could just say agility is the use of existing organizational capabilities to rapidly generate new business value while limiting cost and risk.
PwC: Why do you think enterprise agility has become such a hot topic?
JR: Agility matters now more than ever because we need profitable growth. Companies in the past have typically focused on profit or on growth. Today's marketplace demands profitable growth. That's difficult, because growth is usually a tooling-up stage and profit is usually a taking-out-cost stage. So if we are trying to grow profitably, it means we have something in place that we can reuse and we already have some cost management and some world-class practices in place. Companies no longer have the luxury of not making money on a new venture. When they take something to market, they must make money on it. And I think that's why agility is getting so much attention today.
PwC: How does your notion of agility include the idea of anticipation, of being prepared for change? We would add to your definition some ability to anticipate what's coming, preparing your organization by investing in strategic flexibility exactly where a change has the most impact.
JR: Yes, and in some ways your definition and my definition make up the whole. You are saying that one way to be agile is to see what's coming and get ready for it. Our perspective is that it may be too hard. You have to know so much. We suggest companies should figure out what's not going to change, build that very solidly, and then reuse it in the next environment where there will be some changes but the stable piece that you built can be reused.
PwC: But some change, anticipated or not, challenges the very core of a company. It can destroy any value created by your operating model. If change is accelerating, are companies going to define more flexible operating models?
JR: Instead of companies saying, "Well, I don't want to build anything too solid, because my world might change," I think companies will become more and more aware of the strengths and limitations of what they've built. If a time comes when it doesn't work, they don't say, "Oh wait a minute, this is what we have, so we must reuse it." Instead they say to themselves, "This is what we have, it isn't right for where we're going, so let's get started on something totally new."
PwC: Do frameworks such as your operating model concept need to be designed for change or designed to change?
JR: We are trying to design it for change. The operating model provides direction, because every morning you are going to wake up and something else in your world is going to be different. You need to know whether it's something different that you should respond to or whether it's something different that you are ready for. Are you in a position where you will be able to take advantage of it? The concept of the operating model is to design for change, so that as you set your direction you understand fundamentally what you are doing as well as the limits of flexibility your operating model allows around the edges. But you can simultaneously use understanding to recognize when your operating model is not working anymore and thus needs to be discarded and you start over. So in that sense I think you first design for change, but in doing so it will help you recognize when an operating model just isn't going to work anymore. In that way, I would say it should simultaneously be designed to change.
Discussion with Yury Zaytsev
PwC: Enterprise agility seems to summarize what many companies want to pursue these days. It's a fairly abstract concept. Can you define it in a more concrete way for us?
YZ: Agility is the ability of an enterprise to effectively respond to a wide variety of disruptions while retaining the core design of the business itself; that is, its fundamental business model. Companies demonstrate agility when this business model survives many generations of organizational models and many generations of different market conditions. Perhaps the highest levels of agility are when the enterprise and its sustaining business model define the market environment others must respond to.
PwC: Can you point to ways in which Swiss Re has demonstrated this type of agility and what contributed to that agility?
YZ: A good example is our GEIS acquisition in 1996, which in size and significance was much larger than any of our previous acquisitions. Successfully integrating a large acquisition is one indicator of agility. In fact, even before the integration step, being able to rapidly make the right decision on a potential acquisition is a true demonstration of agility. In essence, it represents a test of whether you have a foundational understanding of your business model, one that has been translated into a sustainable operating model. At Swiss Re, we can quickly compare a potential acquisition for compatibility and avoid bad acquisitions where the target company would be a poor fit with our operating model.
But even when a positive decision has been made, acquisitions are disruptive by their nature. You have to integrate data centers, you have to make HR decisions, you have to compare business logic and align the whole organization to the better logic. But having completed other acquisitions in the context of having a globally consistent operating model, we understand what we need to look at in the target acquisition and what needs to be done. Ninety days after the transaction closed, Swiss Re could renew most new GEIS business at both companies mainly via its operating platform.
PwC: Some companies have recently reported better success with merger integration by using middleware to mediate differences between systems and processes. Is this what you mean by having an operating platform ready for post-deal integration?
YZ: No. That's technology integration. It's not true business integration. It astounds me when I hear of a company that has 20 or 25 different business models-and 20 or 25 ways of implementing it in different places-acquiring a company that has 10 or 15 different business models. The CEO and CFO of the acquiring company will say, "Within a year and a half or two years, we'll deliver $2 billion of synergies." How do they know? How could anybody compare 25 different business models with another 15 and understand the points of integration that actually could or will produce synergies?
Our approach is to combine two companies that we have concluded have a common or potentially common business model, and to harmonize the global operating platform so the combined business runs on that single platform. Our integration focuses on integrating the information from different sources and migrating it to our level of consistency, quality, and structure. It's not actually system integration that defines our integration process.
PwC: How does your focus on a core operating model enhance your agility in offering innovative solutions to customers? All this focus on a single standard would seem to constrain Swiss Re's ability to customize its offerings to customers in innovative ways.
YZ: Again, you're looking at the core capabilities of the firm, and you're looking at how you can enhance client relationships by having a consistent operating model. When that foundation is in place, by nature of its consistency and its transparency, you enable client-facing staff to apply more intelligence, more skills, and more innovation to what they offer their clients. For example, earthquakes are a major factor in the reinsurance business. You'd really like to consider a wide range of scenarios in developing customer-specific insurance options that are priced appropriately to our risk exposure. Without a global operating platform, client staff spend most their time dealing with the diversity of information. They're lucky if they can run two scenarios in a month. With the consistency and transparency of our operating model, we can run 20, 30, or more in a day.
PwC: So you're saying that agility does not equate to complete flexibility. By analogy, a jellyfish is quite flexible, but because it has no vertebrae, it can do only certain things. You're saying that to innovate in value-creating ways, the flexibility in your operating model must be intelligently positioned relative to a set of standard or consistent ways of operating.
YZ: Correct. There's a lot of misunderstanding about this, in my view. I think it's because there is
this contradiction in definitions of standardization and customization. The more standardized you become in the core operating platform that supports your fundamental business model, the more customization you can offer clients because your structure is so solid.
PwC: So standardize the core to enable agile customization at the edge.
YZ: Correct. You can customize different things because you know it all comes back to one set of systems, processes, and information. If you try to customize things that are not standardized, you're creating generations and generations of that, and then it's impossible for any middleware or any additional process to connect those pieces together.
Discussion with Martin Curley
PwC: A trend we're watching is how companies are responding to the need for agility. What do you think is driving this interest in agility?
MC: I think the meta-theme is the speed of change. It is clearly driving greater interest in agility.
PwC: Is this an important focus at Intel?
MC: Absolutely. From an IT standpoint this is very important, and from a business standpoint it is very important. In IT, I think the focus is moving from patching different solutions on an ongoing basis to providing a platform for business agility. Additionally, we think an important component of business agility is having information superiority over our competition through the use of analytics, business intelligence, and visualization.
Once you have the information, of course, then you have to be more agile in your ability to respond. One way to do that on a localized basis within the innovation centers is to use extreme programming and rapid solution prototyping. From a business standpoint, innovation velocity is very important and Intel has a strategy called "Tick-Tock," which is a synchronized strategy to introduce alternate significant processor architecture and manufacturing process innovations every other year. This is almost like hard-coding agility into our business operation, and our position as a keystone player in our business ecosystem allows us to be mostly proactive, setting the pace rather than reacting.
PwC: So Intel is seeing agility in terms of sensing and responding?
MC: Yes and no. Alan Kay once said the best way to predict the future is to invent it. This is what our "Tick-Tock" strategy is about-being agile enough to predictably invent and innovate new processor architectures and manufacturing processes so that we set the pace for innovation and continue to drive Moore's law. However, on sensing and responding, the whole Darwin thing has sped up dramatically. First you need the ability to sense and then the ability to respond-those two competencies both have to be there. You may have heard it said that management without leadership leads to mediocrity, but leadership without management leads to catastrophe. I think there's a direct parallel to agility-sensing without the ability to respond is bad, but probably even worse is responding without the ability to sense.
PwC: Information superiority seems to cover the sense side of agility, but what about anticipating something happening? Do you look at scenarios to anticipate the need for agility?
MC: Let me give you one example and see if that helps. We've been doing some very interesting work with gaming theory around demand forecasting for new products. The results we get from using this approach are at least as precise as using the conventional method and often more accurate and much less costly. So this is something that has very significant implications for the business. Any new product we launch will carry a lot of risk in terms of future demand. We have the forecast from a couple of vendors that are going to adopt this product, but in parallel we're using gaming theory to actually plan and help develop our factory utilization plan. By better forecasting demand, we can somewhat mitigate the need for expensive agility, avoiding building costly inventory while taking advantage of revenue upside where that is likely to be available.
PwC: You've talked about Intel's success with its core operating model of designing and manufacturing semiconductors. Where does agility come in?
MC: When you choose your operating model, I think you're hard-wiring in agility in certain dimensions, and then you're excluding agility in other dimensions. You'll end up doing some unnatural act if you try and do something that the operating model isn't specifically designed for. Cisco's competency is in developing an operating model for the fast incubation of new businesses-which I think that company does extremely well. Cisco's business operating model is structured for acquisition agility. That's not something that Intel does very well. Maybe it's something that we should do.
PwC: How do you make sure that your efforts at being agile and innovative will create value?
MC: When someone develops an innovation, we map it into our value paths, so we can decide whether to go forward. If we see something that's quite attractive, we can anticipate how it will impact a specific value path. The innovation could be a new solution that goes through the formal Intel IT product lifecycle, or it could be something that's so valuable that we rapidly adopt it (meaning it's deployed within 30 days), providing we make sure it's legal and it's secure. Or it could be something that becomes part of a new Intel product,
or it could be something that influences our enterprise architecture-something that fundamentally changes the cost structure of not only IT but Intel.
PwC: Where are you seeing the most success when people struggle with the need for agility?
MC: Agile innovations often happen at the convergence of business and technology. It's an example of the Medici Effect, you know, how Frans Johansson said that the most powerful innovations happen at the intersection of different disciplines. And this is a frontier that, I think, people are really understanding: When business and technology meet, that's where we can really get innovations that overperform and have higher yields than the sort of innovations that just stay within a particular discipline.