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An Organisational Intelligence
Framework
for the Agile Corporation
Summary
An agile corporation is one that is quick to see opportunities, is shrewd in developing short-cycle strategies, is able to meet customers' individual needs, develops a capable, flexible, project-based organisation, and is fast at learning and unlearning.A major challenge is coping with information and making decisions in such a dynamic environment. Skilled combat pilots have to do the same thing - only in real-time. They are trained to use the OODA Loop (Observe - Orient - Decide - Act) to carry out high speed maneuvers designed to confuse the enemy.
The purpose of this paper is to show how an organisation's main intelligence functions - business intelligence, market intelligence, and competitive intelligence - can be closely linked to strategic and operational decision-making in a dynamic market environment. Successful corporations, such as Dell Computer Corporation, are deft at applying techniques that have evolved largely from the military -such as the intelligence functions and maneuver warfare tactics - and achieving disruption of the status quo - a characteristic of the agile corporation.
While in no way wishing to glorify war, the simple fact is that the military has a long history of expertise in dealing with information, making sense of it, and undertaking appropriate actions. And therefore there are things that the business community can utilise in becoming an agile corporation.
Introduction
"Success in war depends on the golden rules of war:
speed, simplicity, and boldness."
- General George Patton
Today, more than anything else, you need to be agile at the personal level as well as at the organisational level in order to thrive in a world of continuous change. This is equally the case for the large corporate enterprise or for the small dot-com start-up.
It used to be that all business decisions were made by a senior manager and workers were expected to get on with their work without discussion. While the major strategic decisions are still made by the senior managers, it is now the case that many operational decisions are expected to be taken at much lower levels in the organisation. Also, any news of major significance is expected to be brought to the attention of senior managers. So, what tools can help make decision making more efficient in an organisation?
Not many jobs are more demanding than that of a combat fighter pilot when it comes to making decisions in a fast changing environment. Just how does a pilot keep track of what’s happening at such a fast pace and be able to make the right decisions? The break-through in understanding the answer to this question goes back to the time of the Korean War, but it has taken many years for the military to fully embrace the revolutionary changes associated with what is today called Maneuver Warfare and longer still for the information to be de-classified.
While only some business decisions are carried out in real time, such as face-to-face negotiations, speed in decision making is becoming vitally important. For example, it is not uncommon for a major decision of whether or not to bid to acquire another company, plus prepare a proposal, within a ten-day timeframe. Are there things we can learn from how a pilot goes about his job that would help a business person needing to make quick decisions? Yes, indeed there are and it is embodied in the concept of the agile corporation.
The OODA Loop
The late Col. John R. Boyd (1927-1997) was a US Air Force fighter pilot of exceptional ability. After his initial combat experience in the Korean War he devoted a great deal of his life to studying strategy and warfare tactics, among other things. Originally only of interest to military personnel, this work is now seen as being highly relevant to the business community.
It all started when he undertook an investigation as to the reasons why the US Air Force in Korea had such a high kill ratio (10-1) with a F-86 (Sabre) fighter aircraft that was far inferior in most performance characteristics to the enemy MiG-15 fighters. Boyd discovered that the hydraulic boost to the flight control surfaces on the Sabre allowed for rapid transition in the roll, pitch, and yaw axes and gave the Sabre far greater maneuverability, which astute pilots could utilise to their advantage. From this work, Boyd developed the OODA Loop or Boyd Cycle: Observe – Orient – Decide – Act as a model for maneuver warfare.
This is how a combat pilot uses the OODA Loop:
Observe the adversary with on-board sensors (preferably the pilot’s own vision).
Orient himself by predicting the course of maneuver for the enemy based upon an assessment of the enemy's energy state, knowledge of the enemy's tactics, aircraft, and relative advantage in position.
Decide on the maneuver needed for himself in order to defeat an adversary's attack or counter an adversary's defensive move while on the offensive.
Act by accomplishing the maneuver with great speed, which is designed to be unpredictable and asymmetrical. The outcome from such maneuvers is a disruption from the flight path that would normally be expected, resulting in confusion of the enemy.
The cycle is then repeated. If a series of maneuvers can be accomplished with such speed that the adversary cannot react with appropriate counter-maneuvers, then victory is certain. The breakthrough in thinking was not the cycle itself, which is similar to Kolb’s learning cycle or Deming’s Plan-Do-Check-Act cycle, but the need for the cycle time to be shorter than the opponent’s.
The OODA Loop Applied to Business
Business is different to warfare in that there is no place to directly attack a competitor, other than, say, taking legal action for infringement of your rights. Besides, there are times when you may need your competitor as your alliance partner. Instead, your aim should to become more attractive to the ultimate judge – your current customers and potential new customers. The impact on the competitor is similar to the place profit plays in being a by-product of success and not as a goal in itself. An example is Woolworths demise in the USA at the expense of Wal-Mart. Did Wal-Mart cause this to happen? Not directly - it’s simply the case that Wal-Mart performed far better in the customer’s eyes so that they chose to buy from Wal-Mart instead of Woolworths - and Woolworths were too slow to react.
Another difference is that the consequences of a decision by a pilot are immediately apparent, whereas the consequences of a business decision may not be seen for long period of time – months in some cases, sometimes longer. Generally, however, delay times are becoming shorter.
What the OODA Loop means in a business context is that if you can perform this sequence faster than your competitor in making yourself more attractive to your customer, you will achieve a competitive advantage. A famous example is the Honda - Yamaha "war" which been well documented by George Stalk and Thomas Hout in "Competing Against Time". When Honda heard that Yamaha were planning to build a large factory facility to build motorcycles they didn’t respond by building another factory. Instead they concentrated on improving their business processes and were able to release a flood of new models at a much faster rate than Yamaha could achieve. The customers loved it and Honda ended up in being the clear winners. Such an outcome is called disruption marketing.
Just as a skilled pilot must be aware of his own capabilities, and that of his aircraft, a business person needs to understand his own business and industry first.
Intelligence and the OODA Loop
Intelligence is the source of an organisation's capacity for survival.
- Arie de Geus
Organisational Intelligence, according to Michael McMaster, refers to the capacity of a corporation as a whole to gather information, to innovate, to generate knowledge, and to act effectively based on the knowledge it has generated. The OODA Loop is the way a business can achieve organisational intelligence with agility, where agility is defined as the ability to thrive in an environment of continuous change.
It is very common to find that decisions are made largely on the basis of previous experience with a limited and out-of-date knowledge base. In a fast moving business landscape, this is dangerous because what might have worked well last year, may no longer be applicable today. In order to update the experience / knowledge base, you need to have up-to-date intelligence as the basis for decisions.
|
Observe |
Orient |
Decide |
Act |
|
Management Intelligence |
Maneuver Management |
||
|
|
||
|
Experience / Knowledge Base |
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Fig. 1 - Organisational Intelligence Framework
To make the OODA Loop work for you, you need to be lightening fast in the way you proceed through the Observe – Orient – Decide – Act cycle. (Refer to Figure 1.) In a business environment, Management Intelligence covers both the Observe and Orient phases, and includes one or more of the "intelligence" methodologies of business intelligence, market intelligence, and competitive intelligence. (See definitions). Of the remaining two phases of the cycle, Decide and Act, it is Maneuver Management which accurately describes the process – from both a systems and human point of view.
On the Maneuver Management side, one model that has been developed by Richard D’Aveni for dealing with hyper-competition is the modified or New 7-S framework. Based on McKinsey’s 7-S model, this consists of a vision - or mindset - for disruption, plus capabilities and tactics for undertaking the disruption.
|
Vision |
S1: Superior Stakeholder Satisfaction S2: Strategic Soothsaying |
|
Capabilities |
S3: Positioning for Speed S4: Positioning for Surprise |
|
Tactics |
S5: Shifting the rules for competition S6: Signaling strategic intent S7: Simultaneous and Sequential strategic thrusts |
Fig. 2 - New 7-S Framework
Dell Computer – an example of an Agile Corporation
In the following explanation of each component of the 7-S framework, an example is given from Dell Computer Corporation Inc., one of the most successful proponents of disruption tactics and a first-class example of an agile corporation.
Started in 1984 by Michael Dell as a one-man part-time business operating from a university college dorm, Dell Computer today has around US$30 billion in sales, has approximately 27,000 employees and has operations around the world. It is the number two PC supplier in the world and is number one in the USA. (See Appendix).
S1: Superior Stakeholder Satisfaction
Dell people work hard at understanding and satisfying the needs of customers. Their major market disruption is to build to order, giving customers exactly what they want and because they sell direct, they do not have the costs associated with middlemen. They also pay great attention to customer service. Because of the policy of minimal inventory, Dell can introduce the latest relevant technology much more quickly than companies with slow-moving, indirect distribution channels. Dell turns over inventory every seven days on average, compared to 80 days for competitors, keeping related costs low.
Dell also has programs in place to pay attention to the needs of employees, suppliers, and investors.
S2: Strategic Soothsaying
According to D’Aveni, strategic soothsaying is a process of seeking out new knowledge necessary for predicting or even creating new temporary windows of opportunity that competitors will eventually enter, but are not currently being served by others. This requires two competencies: motivated, empowered workers at all levels in the organisation, and knowledge of the future or an ability to create the future.
Some of the firsts that Dell has been involved in are being the first computer company to market PCs by phone, the first to sell direct in foreign countries, and the first (by two years) to sell via the Web.
Because they sell direct, Dell has an enormous amount of business and market intelligence available within the corporation. All employees are trained to take comments from customers and organise these comments. They also use programs such as their Platinum Councils held with corporate clients twice a year to understand customer and market needs.
Dell executives use Competitive Intelligence in the guise of War Games to play the part of a competitor and devise a plan for destroying Dell. Author Rebecca Saunders says the result is not only defensive plans, but offensive plans as well. When entering foreign markets, they also study carefully:
- Local competition
- Current distribution channels and marketing strategies used by local companies
- Comparisons of local products and services with those Dell will offer
- Consumer attitudes to the products and services Dell propose to offer
- Local skills and abilities and location to help to determine on-site locations for Dell facilities
- Sourcing – ability to source locally in the foreign country.
S3 & S4: Positioning for Speed and for Surprise
D’Aveni says that by pre-positioning the company’s organisational capabilities for speed and surprise, the firm creates the ability to react quickly to opportunities in the environment or to proactively out-maneuver competitors at every stage of the dynamic strategic interactions between companies.
It’s one thing to have a good idea – it’s another thing to implement it. One of Dell’s strengths is in execution. As Andrew Grove of Intel said once, "(Dell) tackles jobs others think are overwhelming and prevails."
Dell uses product teams to make break-throughs in problem solving. Questions are often used to stimulate thinking that leads to innovative thinking, and new ideas can lead to competitive advantage.
As Michael Dell himself says, "Things happen in the morning that you have to react to in the afternoon. We have to be competitive 24 hours a day, 365 days a year, or else we lose business. A sense of urgency about communicating and problem solving is imperative."
Sometimes competitors are surprised by Dell’s moves, such as taking a direct selling model into foreign countries. Many people predicted it wouldn’t work in other cultures. But it’s not so much the competitors being surprised that matters to Dell, as the delight customers receive through Dell's initiatives.
S5: Shifting the rules for competition
By shifting the rules of the game, a company creates new opportunities to satisfy customers. Dell’s approach in selling direct wasn’t the result of a grand plan – it was simply the only way Dell could start his business. But it did change the rules. Likewise the approach to build to order and inventory management.
S6: Signaling strategic intent
Signaling can be used to stall the actions of competitors or create uncertainty that erodes their will to defend against attacks. Some companies use this tactic to pre-announce new products, with the intention of having customers hold off purchasing products from competitors. However this tactic, if overdone, can backfire for several reasons: lack of credibility, lack of current sales, which in turn can cause disillusionment in the sales force.
Dell is very active in sending signals of strategic intent. Michael Dell is feted as a corporate hero and this is a very positive motivator for all stakeholders. Some recent initiatives announced by Dell build on their Internet strengths: Gigabuys to resell software, printers, digital cameras, and office equipment and www.DellEworks.com, a new small business site that provides customers with a one-stop source to establish an Internet presence and grow businesses with online services.
S7: Simultaneous and Sequential strategic thrusts
Distruption tactics call for simultaneous and sequential strategic thrusts. These firms will often use War Games to play out these moves before initiating any of them. By the time the competitor is reacting to the first move, the firm is moving onto the next. Intel actually design the follow-on release chips at the same time as part of a development project so they can quickly respond to market needs.
Dell uses a sequential thrust when it comes to entry into foreign countries. Like Amazon.com’s adoption of many consumer products in addition to books, Dell also has simultaneous thrusts into desktop PCs, notebooks, servers, and now software, printers, etc.
Lessons from Dell
Dell is operating in a very competitive market. While assembling PCs is a relatively straight-forward operation which could be performed (and often is) in any backyard workshop, Dell has the process of understanding and satisfying the customer (and stakeholder) needs down to a fine art.
But Dell doesn’t rest on its laurels. It is constantly trying to improve. And it does make mistakes. One major mistake was releasing their first notebook computer too early. Another was at one stage attempting to adopt a reseller model like the rest of the industry.
Dell uses both sides of the OODA Loop for its disruption tactics. It uses a highly-developed management intelligence system to observe and orient, and an equally sophisticated maneuver management process to decide and act.
Not only is Dell an intelligent organisation, but because of its obsession with speed, it is also an agile organisation.
How Agile is Your Organisation?
The most critical part of an agile organisation is the mindset of the people. Unless there is the desire, it will not happen, as the members of the agile organisation must continually look for innovation. So, how prepared is your organisation? What areas might need development if you wish to become an agile corporation?
The purpose of the Agility Potential Questionnaire is twofold:
- To focus an enterprise's OBSERVATION process (as part of the OODA Loop) on those business and technology areas of primary importance to adaptability and pro-active change management.
- To act as a blueprint or road map in guiding an enterprise in its transformation to an agile corporation.
The questionnaire probes these areas of your environment: YOUR ENTERPRISE, YOUR CUSTOMERS, YOUR PEOPLE, YOUR COMPETITORS, YOUR MARKETS, YOUR BUSINESS NETWORK, YOUR USE OF SCIENCE AND TECHNOLOGY, and YOUR MANAGEMENT OF INFORMATION.
This questionnaire is available free on request by sending an e-mail to: woodlawn'at'worksys.com
Definitions
Business Intelligence (BI) is the gathering, management, and analysis of large amounts of raw data on a company's customers, products and services, and all the transactions in between.
Competitive Intelligence (CI) is a process - using legal and ethical means - for discovering, developing, and delivering timely, relevant intelligence needed by decision makers wanting to make their organisation more competitive.
Intelligence is knowledge and foreknowledge of the world around us - the prelude to management decision and action.
Market Intelligence is market research that has been analysed. It is used to identify and define marketing opportunities and problems; to generate, refine, and evaluate marketing actions; to monitor marketing performance; and to improve understanding of the marketing process.
Organisational Intelligence refers to the capacity of a corporation as a whole to gather information, to innovate, to generate knowledge, and to act effectively based on the knowledge it has generated.
References
Canter, John. (2000) "An Agility-based OODA Model for the e-Commerce / e-Business Enterprise." Online: http://www.belisarius.com/canter.htm
Cowan, Jeffrey L. (2000) "From Air Force Fighter Pilot to Marine Corps Warfighting: Colonel John Boyd, His Theories on War, and their Unexpected Legacy." Online: http://www.defense-and-society.org/fcs/boyd_thesis.htm
D’Aveni, Richard A. (1994) Hypercompetition: Managing the dynamics of strategic maneuvering. New York: The Free Press.
Ruhli, Edwin. (1996) "’Hypercompetition’ and the Strategy Orientation of Asea Brown Boveri", Competitive Intelligence Review, 7: 36-45.
Farrell, Adrian. (1999) "Competitive Intelligence Basics." Online: http://www.worksys.com/ci101.htm
Fulmer, William E. (2000) Shaping the Adaptive Organisation: Landscapes, learning, and leadership in volatile times. New York: Amacom.
Leonhard, Robert. (1991) The Art of Maneuver: Maneuver-Warfare Theory and AirLand Battle. Novato CA: Presidio Press
McMaster, Michael D. (1996) The Intelligence Advantage: Organising for complexity. Boston: Butterworth-Heinemann.
Stalk, George, and Thomas M. Hout. (1990) Competing Against Time : How Time-Based Competition Is Reshaping Global Markets. Free Press
Saunders, Rebecca. (2000) Business the Dell Way: 10 secrets of the world’s best computer business. Oxford (UK): Capstone Publishing.
About the Author
Adrian Farrell is Principal or Woodlawn Marketing Services, a Melbourne-based consultancy specialising in competitive intelligence, knowledge management, and business strategy. The sevices include: competitive intelligence (CI) research assignments, implementation consulting to establish in-house CI capabilities, CI training courses, and knowledge management systems for enterprise-wide CI.
Adrian is a certified competitive intelligence professional, is a member of the Society of Competitive Intelligence Professionals, and a Fellow of the Australian Institute of Management.
APPENDIX
Dell Computer Corporation History
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1984 |
Michael Dell founds Dell Computer Corporation |
|
1985 |
Company introduces the first PC of its own design: the Turbo, featuring Intel 8088 processor running at eight megahertz. |
|
1987 |
Dell is first PC company to offer next-day, on-site product service International expansion begins with opening of subsidiary in United Kingdom |
|
1988 |
To better meet unique customer needs, Dell begins to organize business around distinct customer segments Dell conducts initial public offering of company stock, 3.5 million shares at $8.50 each |
|
1990 |
Manufacturing center in Limerick, Ireland, opened to serve European, Middle Eastern and African markets |
|
1991 |
Company introduces its first notebook PC |
|
1992 |
Dell included for first time among Fortune 500 roster of world's largest companies |
|
1993 |
Dell joins ranks of the top-five PC makers worldwide Subsidiaries in Australia and Japan are company's first entries into Asia-Pacific region |
|
1995 |
$8.50 shares of Dell stock worth $100 on pre-split basis |
|
1996 |
Original Asia-Pacific manufacturing center in Penang, Malaysia, opened Customers begin buying Dell computers via Internet at www.dell.com Dell begins major push into network-server market Company added to Standard & Poor's 500 stock index |
|
1997 |
Dell ships its 10-millionth computer system Per-share value of common stock reaches $1,000 on pre-split basis Dell introduces its first workstation systems Company sales via Internet exceed $3 million per day |
|
1998 |
Company expands manufacturing facilities in the Americas and Europe, and opens production and customer center in Xiamen, China Dell introduces its PowerVault storage products |
|
1999 |
Dell opens second major U.S. location in Nashville, Tenn Dell introduces "E-Support Direct from Dell" online technical support Dell opens manufacturing facility in Eldorado do Sul, Brazil, to serve Latin America |
|
2000 |
Sales via Internet reach $50 million per day Dell launches initiative to help customers build an online presence |
Source: http://www.dell.com