The current financial crisis does have an upside-we're gaining a renewed understanding of where the risk really lies. Credit default swaps are just one example. Financial services companies, hedge funds, and other parts of the shadow banking system are learning that poor anticipation of the future has real costs. The financial trading system had been growing for so long that few in the industry could imagine it retracting. Today they are learning that a long, straight road will always, eventually, throw a curve at you. Anticipating that curve is the essence of agility; without agility, survival itself comes into question.
Are financial services companies unique in forgetting that the straight road eventually bends? Hardly. The US auto industry is in decline because it failed to anticipate that oil might jump past $60 a barrel and stay there. The music industry has yet to fully define a new business model in the age of digital distribution and the Internet. The list is long.
Some companies actually develop future scenarios, only to fail to connect the insights from those scenarios to business planning. Witness the watch industry. Strategists in that industry have been aware for several years that there is a trend for young consumers to rely on their cell phones to tell time. Where is the evidence enterprises will be agile in response to this existential threat?
How to maintain a high level of responsiveness is the main issue we explore in the Fall 2008 issue of the Technology Forecast. As observers and researchers of industry trends, we have been perplexed by the apparent lack of readiness many firms demonstrate when they face market disruptions. Almost always, these disruptions have been predictable-perhaps not in their timing but certainly in their likelihood of happening at some point in time.
The emerging trends we've uncovered in leading-edge organizations point to a solution. Agility requires anticipation. Agility requires planning. Agility requires an ability to test the impact of a market shift on customers and on the enterprise. Ultimately, agility requires an understanding of where current value lies and a commitment to modeling potential outcomes to choose the most profitable future path.
During our research, we spoke with three people who have thought deeply about these issues. Jeanne Ross from MIT's Center for Information Systems Research; Yury Zaytsev, retired group information officer of Swiss Reinsurance Company; and Martin Curley, senior principal engineer and global director of IT Innovation and Research at Intel add much to the discussion. All agree that senior management must commit to a shared understanding of their operating model, reaching consensus on where the business should perform in a standardized way and where the business will focus on creating distinction. Agility comes when you know-before a scenario takes place-how a disruption will affect what your customers value and the ability of your operating model to deliver that value. Your model for agility tells you that.
The introductory article, "Modeling value and agility," in this issue describes the common thread that connects seemingly disparate initiatives taking place in many enterprises today. It introduces the concept of a business value model, a business agility model, and the key role a strategic CIO will play in advancing the cause of agility within the enterprise.
Article two, "Ready, fire, aim," establishes the value proposition for actively modeling the enterprise via a business value model. Too often, companies jump into initiatives without fully understanding their impact. We describe a typical business situation where an enterprise was not paying attention to its customer value proposition as it pursued a rapid growth strategy. The best strategy will fail to deliver if management doesn't clearly focus on the delivery of value to customers.
Article three, "How to hit a moving target," brings the future into the modeling exercise by introducing the business agility model. Scenarios are valuable tools for management and are not new. Too often, however, the output of deep and thoughtful scenario planning has been a notebook on a shelf. Business agility modeling forces management to engage with scenarios and make decisions on the basis of risks and rewards about anticipatory investments in agility.
The last article, "Lead, follow, or get out of the way," brings the CIO into the picture. We describe the trends that have held the CIO back from being a full business partner in the C-suite and why the pursuit of agility is an ideal path forward for CIOs wanting to stay relevant. CIOs are actually the best candidates to lead an agility initiative.
Please visit our online presence at pwc.com/techforecast, where you can find these articles, our Summer 2008 issue of the Technology Forecast, and future issues. If you would like to receive future issues of the Technology Forecast as a PDF attachment in your e-mail box, you can sign up at pwc.com/techforecast/subscribe .
And as always, we welcome your feedback on this issue of the Technology Forecast and your ideas for where we should focus our research and analysis in the future.
Paul Horowitz Partner