Agile Absorption
Agile Absorption is a term coined by Donald Sull in HBR of Feb 2009, indicating the ability or capacity of an organization to establish and maintain the right combination and balance between organization agility and organizational absorption. According to Sull, absorption and agility are not seen as alternatives but as complements where the balance shifts as circumstances change. The trade-off between the two must be consciously and actively managed.[1]
Assessing an Organization’s Level of Agile Absorption[2]
Absorption and agility are complements, not substitutes. They resemble yin and yang, the two opposing but complementary forces that coexist in all living things, according to traditional Chinese philosophy. Yin, the passive element, corresponds to absorption, while yang is the active element, resembling agility. To assess their organization’s level of agile absorption, managers can ask themselves a series of questions: “How agile are we? How absorptive are we? Where does our absorption currently come from? Are these the best sources? Are there alternative ways to boost our absorption to enhance our agility?” They can also inventory the levels of agility and absorption within their organizations with specific surveys. At first glance, the structural factors that provide absorption appear incompatible with agility: global scale versus a lean operation, for instance, or legacy assets versus a clean sheet of paper. In fact, however, leaders can achieve and maintain agile absorption:
- More good fats, fewer bad fats. As a first step, executives should recognize that absorption sources vary in their effect on agility. Like dietary fats, all absorption sources provide energy for hard times, but some sources are healthier than others. Low fixed costs, for example, are an outstanding source of absorption. They allow a firm to weather a wide range of threats without degrading the ability to seize opportunities. Other sources of absorption, in contrast, come at an unacceptably high cost in terms of foregone agility. Excess workers, particularly those in staff positions, tend to generate work to justify their existence. Their efforts, however well-intentioned, introduce unnecessary complexity and bureaucracy that sap agility. Powerful patrons can drag an organization down as well as lift it up. Government interventions saved many banks, but their salvation comes at the cost of political interference with strategy and pay policy. The government of Dubai might encourage Emirates to grow at a pace that serves Dubai but causes the airline to over-invest in capacity.
- Actively manage trade-offs. Executives should manage trade-offs when balancing agility and absorption. Time and time again, General Motors missed opportunities that Toyota seized— for example, by differentiating on product quality and coming out with smaller cars and hybrids. Many factors contributed to GM’s decline, but one oft-cited explanation is management’s inability to lay off workers when demand slipped. Guaranteed jobs translate labor from a variable cost to a fixed cost, thereby decreasing absorption. Toyota guarantees its employees lifetime employment; the Japanese carmaker attempted to lay off workers in the 1950s but encountered massive resistance from unions and the government. Toyota traded the higher fixed costs for flexible work rules, variable job assignments, and employee involvement, which collectively enhanced the company’s agility. GM executives, in contrast, gave the absorption away without receiving agility in return.
- Build an agile culture on an absorptive asset base. In his early career, Muhammad Ali could bob and weave to victory, but he rose to greatness by combining agility with absorption. But over time, however, the agility seeped from his limbs, and Ali survived his late fights through absorption alone. Many organizations follow a similar arc. Early agility wins them the trappings of success— size, cash, and a secure position. These sources of absorption, however, gnaw away at the cultural roots of agility. Bureaucracy, political infighting, complacency, and arrogance sprout in their place. When the context shifts — and turbulence ensures it will — the bloated organization lumbers through the ring like a punch-drunk heavyweight, absorbing blows it can no longer dodge and missing opportunities it is too slow to seize. The cumulative effect of these blows wears down champions, such as U.S. Steel or General Motors, two companies that once appeared invincible. A similar fate could undo absorption heavyweights such as Merck, Coca-Cola, Microsoft, Citigroup, Royal Dutch Shell, or Sony.
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