How to Thrive in Turbulent Markets

Last Updated Feb 11, 2009 6:40 PM EST

The Idea in Brief


In today's volatile world, doing business feels like competing in a heavyweight boxing ring. To prevail, should your company rely on agility (nimbleness) to quickly spot and exploit market changes? For instance, shifting resources from struggling divisions to more promising ones can spur revenues.

Or should you rely on absorption (toughness) to withstand punches? For example, keeping a lot of cash on hand might enable your firm to weather unexpected threats.

Sull recommends agile absorption: deploying both capabilities in various combinations as needed. Through agile absorption, you consistently identify and seize opportunities while also retaining the structural heft your company needs to thrive.

Toyota, for example, maintains absorption by employing a large workforce, but unlike U.S. automakers, enhances agility with a combination of flexible work rules, variable job assignments, and employee involvement.


The Idea in Practice


Sources of Agility



Sources of Absorption



Achieving Agile Absorption


Copyright (c) 2009 Harvard Business School Publishing Corporation. All rights reserved.

Further Reading


Articles


Why Good Companies Go Bad



Harvard Business Review

July 1999

by Donald N. Sull


One of the most common business phenomena is also one of the most perplexing: when successful companies face big changes, they often fail to respond effectively. Many assume that the problem is paralysis, but the real problem, according to Donald Sull, is active inertia--an organization's tendency to persist in established patterns of behavior. Most leading businesses owe their prosperity to a fresh competitive formula--a distinctive combination of strategies, relationships, processes, and values that sets them apart from the crowd. But when changes occur in a company's markets, the formula that brought success brings failure instead. Stuck in the modes of thinking and working that have been successful in the past, market leaders simply accelerate all their tried-and-true activities and, by attempting to dig themselves out of a hole, just deepen it. In particular, four things happen: strategic frames become blinders; processes harden into routines; relationships become shackles; and values turn into dogmas. To illustrate his point, the author draws on examples of pairs of industry leaders, like Goodyear and Firestone, whose fates diverged when they were forced to respond to dramatic changes in the tire industry. In addition to diagnosing the problem, Sull offers practical advice for avoiding active inertia. Rather than rushing to ask, "What should we do?" managers should pause to ask, "What hinders us?" That question focuses attention on the proper things: the strategic frames, processes, relationships, and values that can subvert action by channeling it in the wrong direction.

Strategy as Active Waiting


Harvard Business Review

September 2005

by Donald N. Sull


Successful executives who cut their teeth in stable industries or in developed countries often stumble when they face more volatile markets. They falter, in part, because they assume they can gaze deep into the future and develop a long-term strategy that will confer a sustainable competitive advantage. But visibility into the future of volatile markets is sharply limited because of the many different variables at play. Factors such as technological innovation, customers' evolving needs, government policy, and changes in the capital markets interact with one another to create unexpected outcomes. Over the past six years, Donald Sull, an associate professor at London Business School, has led a research project examining some of the world's most volatile arenas, from national markets like China and Brazil to industries like enterprise software, telecommunications, and airlines. One of the most striking findings from this research is the importance of taking action during comparative lulls in the storm. Huge business opportunities are relatively rare; they come along only once or twice in a decade. And, for the most part, companies can't manufacture those opportunities; changes in the external environment converge to make them happen. What managers can do is prepare for these golden opportunities by managing smart during the comparative calm of business as usual. During these periods of active waiting, leaders must probe the future and remain alert to anomalies that signal potential threats or opportunities; exercise restraint to preserve their war chests; and maintain discipline to keep the troops battle-ready.