Organizational Agility

Organizational resilience has held a prominent spot on the agendas of leaders since the start of the COVID-19 pandemic. Companies quick to respond to market shocks are better positioned to recover. The speed at which markets shift is increasing. Hence, the frequency of shocks is going up. In response, leaders embrace organizational agility to lower the impact of the shocks, increase recovery speed, and increase the extent of the recovery. Agility decisions require a deep understanding of the concept and ways to implement it.

The reason for organizational agility to be prioritized is the increasing frequency at which business interruptions occur. Among significant changes in recent years are the pandemic, new disruptive technologies, the war in Ukraine, and the looming economic recession. These changes disrupt business activities. The aviation industry, employing 750,000 employees in the US alone, had to respond almost overnight to heavy travel restrictions aimed at slowing the spread of COVID-19 (Washington Post, 2020). The European Union (2022), introduced a ban on almost 90% of all Russian oil imports in response to Russia's war on Ukraine. ChatGPT took the world by storm and had 100,000,000 active users within two months of its launch, breaking the record for the fastest-growing consumer application (Reuters, 2023). These big changes happened in the last three years and companies that were quick to respond benefitted from a quicker recovery and competitive gains.

Being prepared and ready to adopt new strategies to remedy change is part of the concept of organizational agility. According to Forbes (2023), organizational agility can be defined as a company's attitude and capabilities allowing it to adjust, recover, and do well in the face of rapid change. In other words, organizational agility is about improving resilience. While it may sound simple, roughly 50% of business transformations do not succeed at improving resilience in response to impending changes (Boston Consulting Group, 2021). Worrisome is a study by Gallup (2022) that found just 16% of business leaders in Germany believed their company is agile and quick to respond to business needs. The concept of organizational agility is straightforward but the ways companies embrace it appear flawed as many are unable or fail to build a more resilient organization.

To embrace organizational agility, companies must familiarize themselves with effective treatments for market shocks. This includes preventive, direct, and post-change measures. According to the Boston Consulting Group (2020), resilient companies have advantages over their less resilient peers in three areas: (1) anticipating change, (2) cushioning change, and (3) adapting to change. In anticipating change, it's crucial that leaders prepare for plausible scenarios by identifying slow-moving trends, building early warning systems, and setting out contingency plans for business disruptions. To cushion change, companies take actions to create operational and financial buffers, bring diversity to revenue streams and operations, introduce options for modularity in operations and finance separation, and position themselves close to the needs of customers and society. In adapting to change, companies continue to evaluate their positioning. They experiment with and deploy quick changes. Effective organizational agility means companies are prepared for, able to soften the blows of, and leverage the opportunities presented in market shifts.

Companies' actions to be more agile must reflect in the roles of leaders and teams. Extensive research by McKinsey (2022) points to three additional levels apart from the company level at which organizational agility must be induced. The first level is that of leaders. Leaders must be able to adapt and possess skills to react to change, setting short-term and long-term conditions. The second level is that of teams. For organizational agility to thrive, teams need to be self-sufficient with access to information enabling constant innovation. Gallup (2023) underlines the importance of agile teams with more cross-functional connections and faster decision-making. The third and final level is talent management and acquisition. Agile organizations leverage technology and data to make hiring, developing, and retaining high-performing talent more effective. Organizational agility must be present in all layers of a company and opens a door to Human Resources teams playing a mission-critical role in identifying, growing, and retaining current and future talent.

An underway change that requires organizational agility is the growing skills gap. The relevance of job functions is questioned as the market trends to value creation based on project work. Accenture (2017) reported that nearly 80% of executives see the future of work structured around on-demand projects. Deloitte (2022) found that 98% of executives say that skills are becoming more important in defining work. According to McKinsey (2022), 45% of companies experience skills gaps today and an equal percentage anticipates them in the near future. 90% of executives say their companies are not ready to address this change (McKinsey, 2022). To address the growing skills gap, 90% of executives are experimenting with skills-based approaches (Deloitte, 2022). Companies experience the impact of skills gaps and the question is whether they timely anticipated the change, are now able to cushion the effects and adapt quickly to close these skills gaps.

To make a company future-proof, leaders must understand and deploy effective organizational agility. This means that they equip the company, themselves, and their teams with strategies, technology, and skills to anticipate, cushion, and adapt to market shifts. Leaders in Human Capital hold a critical role in being agile to the current change toward a skills-based workforce as they reshape their hiring, development, and retention practices. Their approach to anticipating skills gaps, limiting the consequences, and reaping competitive advantage from quick actions to close them will be key in addressing the next big change.