Lord of the rings - strategic agility among companies

Chief Executive, The, Dec, 1996

Competition today demands more than flexible manufacturing, operational efficiency, and rapid response time. Fixing a company's problems involves more than improving quality, cutting costs, and empowering employees. What's needed is a new system for adapting to changing challenges, evolving markets, and increasing demands - working along with employees, customers, suppliers, and competitors. Holistically. Synergistically. Agilely.

* In Ohio, Columbus-based Hamilton Bancshares has replaced 40 percent of its existing branches with small, full-function, but remotely staffed banks. Realizing that the bulk of its profits comes from young and middle-aged ATM customers, Hamilton decided to establish workerless banks that provide not only ATMs, but 24-hour interactive video access to remotely located personnel.

* At its assembly plant in Kyushu, Japan, Nissan has invested in very flexible, high-technology production. The objective: very rapid assembly to customer order, regardless of model, configuration, or sequence. Profitability is achieved at 10,000 units of any given model. On the other hand, Toshiba, in Ome, assembles all its portable computer models - more than 20, each with many different customer-selected options - on a single production line in batches of 20 per model and can afford to do it in batches of 10. At each work point, a notebook computer provides instructions for assembling the next model, the configuration of options for each unit, and the number to be assembled. Toshiba President Fumio Sato explains: "Every time I go to a plant, I tell the people 'smaller lots!'"

* Panasonic has now reduced its consumer electronics product cycle time to three months. That means the lifetime of any given model of CD player, TV, VCR, cassette deck, or stereo receiver is just 90 days. During that time, a model's successor is being designed, tested, and put into production.

* At its St. Louis aircraft manufacturing facility, McDonnell-Douglas reduced its economic order quantity by linking what had been 100 individual computer numerical control machine tool cells to a single production-scheduling computer. This allowed the company to achieve direct numerical control of machining operations.

* Across America, Barnes & Noble, once a large but local New York-based bookstore specializing in academic texts, has become one of the book industry's leading superstores nationwide, not only because it offers substantial discounts and stocks its shelves according to data provided through a sophisticated data collection system, but because the pleasant surroundings and coffee-house atmosphere it has built into many of its locations provides a quiet atmosphere for relaxing and browsing: It's become part of its customers' lifestyles, not just a place for buying books.

All these companies - and many others - are reacting to a new environment characterized by a range of rapidly convening and colliding forces, including:

* Market fragmentation

* Production to order

* Information capacity that allows companies to treat masses of customers as individuals

* Shrinking product lifetimes

* The convergence of physical products and services

* Global information and production networks

* Simultaneous intercompany cooperation and competition

* Distribution infrastructures for mass customization

* Corporate reorganization frenzy

* The pressure to internalize prevailing social values

The convergence of these forces has created a demand for a new system of corporate behavior that can best be described as agile. Not simply reactive, not just about improving efficiency, cutting costs, or battening down the business hatches to ride out fierce competitive storms, this new "agility" is a deliberate, comprehensive, companywide, cooperative, and continually evolving response to constantly changing requirements for competitive success. It's a new mind-set about making, selling, and buying. It reflects an openness to new forms of commercial relationships and new measures for assessing the performance of companies and people. Most of all, perhaps, it represents a new way of understanding the company and its relationships to the world at large. No longer a collection of silos, of separate functions pulling this way and that, the company is, and must be, an integrated whole, a strong link in an even stronger chain.

THE AGILITY MANDATE

In recent years, many, if not most, companies have undertaken limited and sporadic programs of total quality management, employee empowerment, just-in-time logistics supply, reduced cycle time, and more. Becoming agile certainly requires these improvements. But many of these companies have seen little bottom-line return for the investments they've made. This is partly because their efforts have often been seen as ends in themselves, not as means to a more general goal; they've been primarily tactical responses to marketplace pressures, focused on individual pieces of the puzzle rather than the whole picture.

Because it looks at what companies ought to be doing, not just how they can do a better job of what they already are doing, and because it approaches the enterprise as an integrated system, agility challenges the prevailing paradigms of organization, management, production, and competitiveness. It is explicitly strategic rather than tactical, taking no established practices for granted. Agile competition demands that the processes that support the creation, production, and distribution of goods and services be centered on the customer-perceived value of products and services. It requires knowing a great deal about each individual customer - and about all the other links in its chain, suppliers as well as competitors - and interacting with them routinely and intensively.