Companies must avoid shocks, absorb damage and accelerate when disruption hits. This demands strategic agility built on six principles.
Before the pandemic, Airbnb was enjoying growth in bookings and poised for a blockbuster IPO. When COVID hit, more than $1 billion in bookings vanished and its expansion and IPO plans were shelved. But, by the end of 2020, the company completed one of the most successful tech IPOs in history. On the flipside, California Pizza Kitchen (CPK) responded to COVID with curb-side delivery and enhanced online services. However, by mid-2020, it was filing for bankruptcy protection.
Companies that kept on track during the pandemic were agile enough to adapt to change in three key ways – what we call the Triple As of strategic agility:
Airbnb introduced strict cleaning protocols, relaxed cancellation and compensation policies, and raised capital before focusing on in-country travel, rural getaways, “quarantine” stays and internet speed ratings. CPK struggled to transition quickly from a restaurant to delivery model and had problems raising capital due to existing debt. This led to a cash squeeze and bankruptcy.
What does it take to build the strategic agility to thrive amid disruption? Our research points to six guiding principles.
Principle 1: Speed, not perfection
Organizations must be able to act quickly during a crisis, when opportunities come and go rapidly. In January 2020, the Huanxi Media Group (Huanxi) stood to lose millions on its New Year-themed movie Lost in Russia. It approached Bytedance, the makers of TikTok, to find a solution. The result? Lost in Russia notched 600 million views on Bytedance platforms in two days.
Principle 2: Flexibility before planning
Strategic plans take months to create and years to deliver. In a crisis, sticking to a strategic plan can lock organizations onto a path of no return. During the pandemic, Australian airline Qantas abandoned its five-year strategic plan to offer “flights to nowhere” for tourists to see sights such as the Great Barrier Reef. It sold out in 10 minutes.
Principle 3: Diversification and “efficient slack” before optimization
Even nimble companies failed during the pandemic because they were vulnerable due to a lack of diversification or an obsession with efficiency and optimization. Diversification and slack act as buffers against shocks. When P&G’s personal care brands sales dropped, it made up the difference with its cleaning products, where there was greater demand during the pandemic.
Principle 4: Empowerment over hierarchy
Decentralized, empowered but well-connected teams are more robust than hierarchies. When COVID struck, animal health company Zoetis was readying for its largest ever new product, a medication for dogs. Supply chain challenges, marketing delays and reduced opening hours threatened the launch, so Zoetis’ CEO empowered 45 local leaders to tailor the launch to regional needs.
Principle 5: Learning, not blaming
Allowing teams to learn through failure and risk taking is key. IT services company Evalueserve has offices in India. A short notice lockdown forced the firm to move almost all of its 3,000 employees to work-from-home. To manage the risks to wellbeing, it promoted a “no blame” culture, introduced mental health initiatives, and rewarded employees for learning and adaptability. As a result, there was negligible attrition of employees and clients.
Principle 6: Resource modularity and mobility, not resource lock-in
In a crisis, resources should be modular and/or mobile, as it is tricky to allocate resources effectively. The “Paranoid Fan” app allowed NFL fans to order food from their stadium seats, but it became redundant during lockdown. As queues grew outside New York food banks, the app’s maker pivoted its technology to create an app to allow food banks to set menus and delivery protocols, while helping users find operational banks.
Beyond the pandemic, disruption will continue to pose challenges to organizations. Learning how to avoid the worst of the hit, absorb damage and accelerate ahead of peers can mean the difference between survival, success and failure.
Michael Wade is Professor of Innovation and Strategy at IMD. Amit Joshi is Professor of AI, Analytics and Marketing Strategy at IMD. Elizabeth Teracino is Research Fellow at IMD’s Global Center for Digital Business Transformation.