The Agility Factor

Published: April 15, 2013

Strategy & Leadership

The Agility Factor A few large companies in every industry show consistently superior profitability relative to their peers, and they all have one thing in common: a highly developed capacity to adapt their business to change. by Thomas Williams, Christopher G. Worley, and Edward E. Lawler III

Ev ery body knows that big corporations, by nature, m aneuv er like battleships. Held back by their own inertia and current business strategies, they cannot turn quickly when the com petitiv e env ironm ent changes. Ev ery body also knows that high perform ance, as m easured by shareholder returns, is im possible to sustain ov er the long term ; no com pany consistently beats the m arket. But a recent in-depth study of long-term perform ance suggests an alternativ e point of v iew about business strategy . When the m easure of perform ance is profitability , a few large com panies in ev ery industry consistently outperform their peers ov er extended periods. And they m aintain this perform ance edge ev en in the face of significant business change in their com petitiv e env ironm ents. The one factor they seem to hav e in com m on is agility . They adapt to business change m ore quickly and reliably than their com petitors; they hav e found a way to turn as quickly as speedboats when necessary . ExxonMobil is a good exam ple. Throughout the 1 980s, when it was still just Exxon, it was the largest, m ost profitable oil and gas com pany in the world. It achiev ed that perform ance through disciplined decision m aking. When div ersification prov ed unprofitable, it rapidly shed ancillary businesses, such as steel and office equipm ent, to focus on oil and gas. When oil prices fell, it reduced ov erhead costs by shrinking cor porate headquarters and relocating HQ from Manhattan to Dallas. Exxon also m ov ed aggressiv ely into Asian m arkets where it had had little presence historically . Then in 1 989 , Exxon fell fr om grace. The com pany reeled under the regulatory , legal, and m edia scrutiny brought on by the Valdez tanker spill in Alaska’s Prince William Sound. It spent US$2 billion on the cleanup effort, and paid m ore than $6 billion in punitiv e fines and dam age claim s ov er the next sev en y ears. Moreov er, the per ceiv ed arrogance and indifference of Exxon m anagem ent created a public relations disaster. Also in 1 9 89 , its Baton Rouge refinery exploded, and Exxon spilled 56 7 ,000 gallons of heating oil into an estuary between New York and New Jersey . When Lee Ray m ond took ov er from Lawrence Rawl as chairm an in April 1 99 3 , Exxon had dropped on Fortune’s list of m ost adm ired com panies from num ber six to 1 1 0. As Ray m ond noted in a rare interv iew, a good day for him was one in which “Exxon” or his nam e did not appear in the papers. Many com panies would hav e reacted by putting in place short-term fixes and doing whatev er they could to r eturn to their old way s of operating. Instead, Exxon quietly m ov ed to internalize the lessons of the Valdez spill and to build the capabilities required for future profitability . Ov er the next few y ears, Exxon dram atically raised its health, safety , and env ironm ental perform ance. Recognizing that external upheav als could occur at any tim e, the com pany relentlessly drov e for efficiency ov er the 1 990s—a fortunate m ov e because oil prices continued to fall thr oughout the decade. Exxon exited businesses and m arkets where it did not hav e cr itical m ass, reduced em ploy m ent by 3 percent per y ear, im prov ed its exploration capability (where it had historically lagged behind its com petitors), and pushed production efficiency ev en harder. Through all these m easures, and by taking full adv antage of the innate discipline for which it was known, Exxon halv ed its cost of finding oil and greatly im prov ed its exploration success rate. In 1 9 95, Lee Ray m ond was able to say , “Exxon is now m uch m ore efficient at getting on with it.”

Exxon’s focus on execution, technical excellence, and capital efficiency positioned the firm well to exploit the rise in oil prices that began in 1 99 8. In 1 999 , Ray m ond, dubbed by Businessweek as the “anti-celebrity CEO,” engineered the largest acquisition in history to that point, and one of the m ost successful, with Exxon’s purchase of Mobil. In 2 000, the com bined com pany becam e the m ost pr ofitable in history , a ranking it still holds today , and launched a new series of exploration initiativ es to spur growth in oil and gas reserv es. The pattern of adaptation Exxon exhibited is not ty pical of m ost large com panies. It r epresents an unusual ability to successfully respond to and learn from external ev ents, to innov ate technically and organizationally , and to plan and execute new courses of action. In short, Exxon dem onstrated a rare and distinctiv e ability to continually and successfully adapt to changing circum stances. We call this “agility .” Today , when ev ery industry faces tur bulent change as a m atter of course, a com pany ’s agility becom es the difference between sustaining per form ance and falling behind.

Agility and Perform ance A closer look at the record of Exxon and other large, public com panies, from a v ariety of industries, supports this link between agility and consistent high perform ance. We studied the financial perform ance of 2 43 large firm s in 1 7 industries ov er the 3 0-y ear period from 1 9 7 9 to 2 009. Like others before us, we concluded that stock prices and shareholder returns cannot tell a story about sustained per form ance. Equity m arkets are subject to fads, irrational exuberance, and m isperceptions that hav e little to do with the quality of the business strategy , m anagem ent insight, and organizational designs that produce profits. Exxon and ExxonMobil stock languished through the 1 990s, for instance, despite exem plary perform ance during the dot-com craze. Thus, instead of rely ing on total shareholder retur n (TSR) or its ev en m or e m isleading cousin, cum ulativ e shareholder return, we looked at return on assets (ROA)—a m eaningful proxy for profitability in m any com panies and a better indicator of m anagem ent’s effectiv eness. (Only one of the 1 7 industries we studied—financial ser v ices and insurance—lacked any kind of reasonable asset base. For this industry , we used r eturn on equity as a m ore relev ant proxy for profitability .) In ev ery industr y we studied, there were two or three “outperform ers”: com panies that achiev ed abov e-av erage industry ROA perform ance m ore than 80 percent of the tim e. Altogether, this group m ade up 1 6 percent of the sam ple. Exxon was a m em ber; between 1 97 9 and 2 009, its ROA exceeded the industry av erage 97 percent of the tim e. Am ong the other com panies, we found two com m on perform ance patterns. About 1 8 percent of the sam ple were “underperform ers,” whose profitability was below the industry av erage 80 percent or m ore of the tim e. The rem aining 6 6 percent of the sam ple were “thrashers”; their profitability oscillated between underperform ance and outperform ance relativ e to the industry av er age. ExxonMobil is one of only two outperform ers in the oil and gas industry . The other is Roy al Dutch Shell PLC (see Exhibit 1). Outperform ers in other industries include Cam pbell Soup, DaVita, GlaxoSm ithKline, Honda, Johnson Controls, Lim ited Brands, Nike, Nokia, and Sv enska Handelsbanken. Thr ashers include BP, Procter & Gam ble, IBM, Toy ota, Pfizer, and Apple—all highly regarded com panies that hav e receiv ed business accolades and spectacular press at tim es, but that tend to be adm ired for their peaks and forgiv en for their v alley s. Meanwhile, Exxon, Shell, and other outperform ers, despite their occasional stum bles, m ore consistently deliv er the goods. To com plete the link between agility and perform ance, we sur v ey ed m ore than 4,7 00 directors and executiv es from 56 com panies (including outperform ers, underperform ers, and thrashers), 3 4 of which were Fortune 500 firm s included in the financial database. We asked about the way their organizations form ulated strategy , designed their structures and processes, led their people, and changed and innov ated. We also interv iewed executiv es at 1 9 of the Fortune 500 firm s. When we com pared our surv ey and interv iew data with the perform ance data, we observ ed a str ong relationship between a com pany ’s basic approach to m anagem ent and its long-term profitability patterns. When m arkets and technologies changed rapidly and unpredictably —as they did in ev ery industry ov er these 3 0 y ears—the

outperform ers had the capability to anticipate and respond to ev ents, solv e problem s, and im plem ent change better than thr ashers. They successfully adapted. They were agile.

What Is Agility ? Agility is not just the ability to change. It is a cultiv ated capability that enables an organization to respond in a tim ely , effectiv e, and sustainable way when changing circum stances require it. The m anagem ent literature increasingly refers to this ability as a “dy nam ic capability ”: the potential to sense opportunities and threats, solv e problem s, and change the firm ’s resource base. This allows outperform ers to m aintain or enhance their relativ e adv antages in way s their com petitors fail to see or do not fully im plem ent. Agility is also strategically relev ant: Although agile organizations often change, they do not pursue change for change’s sake. They pursue it for the sake of com petitiv e adv antage. Four routines, sum m arized in Exhibit 2 , below, distinguish the high-perform ing organizations from the thrashers and underperform ers. These com panies hav e the ability to strategize in dy nam ic way s; accurately perceive changes in their external env ironm ent; test possible responses; and implement changes in products, technology , operations, structures, sy stem s, and capabilities as a whole. Im portantly , it is the whole sy stem of routines, not the possession of one or two of them , that confers agility . Indiv idually , these routines m ay sim ply seem like basic practices of good m anagem ent. Howev er, the hard work necessary to orchestrate them for consistent high per form ance is adv anced and uncom m on. By executing these routines in concert, ov er and ov er again, the outperform ers consistently outpaced com petitors. St rat egizing dy namically . Most business people would agree that a clear, relev ant, and shared strategy is an im portant m anagem ent practice. Howev er, agile organizations don’t define strategy the way other firm s do. For them , strategy has three explicit parts: a sense of shared purpose, a change-friendly identity that is nonetheless stable enough to ground the organization, and a robust strategic intent that clarifies how the firm differentiates itself. The Capital One Financial Corporation, which since its founding in 1 99 4 has grown into a $1 6 billion consum er finance powerhouse, dem onstrates all three elem ents of strategizing dy nam ically . It has a widely shared and wellunderstood sense of purpose that is codified in its m ission statem ent and business m odel. These articulate what the firm does (its products and serv ices), define those it serv es (its custom ers and stakeholders), and lay out how it deliv ers v alue in a differentiated way . It also prov ides em ploy ees with clear expectations about behav ior. Capital One’s change-friendly identity is em bodied in a phrase that its m anagers often use in conv ersation: “ test and learn.” No m atter what the business activ ity —new product dev elopm ent, organizational innov ation, adaptation to r egulation, or adv ertising—the organization has an institutional way of experim enting (a “test”), drawing conclusions, and then apply ing them to new business. As it happens, the way Capital One has chosen to com pete ov er tim e ev okes one of the other agility routines (“testing responses”). Here it goes further, becom ing an aspect of Capital One’s stated identity , unchanging ev en as it recognizes the need for continual change as a m atter of course. The com pany ’s ongoing business strategy —its strategic intent—also enables it to em brace continuous change. Capital One is known for its willingness to rapidly shift its operations (for exam ple, the range of custom er segm ents

serv ed, channels used, or products offered); to adjust the aggressiv eness of its m arketing, custom er support, new product dev elopm ent, or R&D; and to m odify the features it offers consum ers. Capital One seeks its com petitiv e adv antage not thr ough a single product line or approach, but through an ongoing series of tem porary adv antages that exploit current business conditions. Perceiving environment al change. Agile com panies take special care to accurately sense what is going on in the env ironm ent. Managers and em ploy ees are put into direct contact with custom ers, regulators, and other stakeholders through m ultiple touch points, structures, and practices, and they are expected to gather intelligence. They com m unicate their perceptions of the external world to com pany decision m akers who hav e the support and knowledge they need to interpret those m essages as im portant or unim portant, opportunity or threat. All three elem ents of perceiv ing env ironm ental change are essential. Sensing without com m unicating is wasteful; com m unicating without interpreting is just noise. DaVita HealthCare Partners Inc., a Fortune 500 kidney care organization with m ore than 1 ,840 dialy sis centers, has an effectiv e, institutionalized per ceiv ing routine. To keep all em ploy ees focused on the external env ironm ent, DaVita abandoned the organization chart. According to the com pany 's point of v iew, structure focuses too m uch attention on the hierarchy and not enough on understanding the local m arketplace

and broader env ironm ent. DaVita’s m anagem ent sy stem orients each local dialy sis center to the needs of patients, phy sicians, and the com m unity . Meanwhile, central m anagem ent concentrates on activ ities that deliv er future v alue for the corporation—they charter team s to build leaders, research the im plications of healthcare reform , identify M&A prospects, and dev elop new business. One of these team s identified and pursued a recent m erger with HealthCare Partners. This process also identified international dialy sis as a potential business opportunity . This external focus is supported by a hard-and-fast rule that m ov es inform ation up the hierarchy : “Whenev er there is a director and three or m ore team m em bers in a room , there’s a town hall m eeting.” In these m eetings, any question can be asked about any subject. If the director doesn’t hav e an answer, the question goes into his or her em ail and has to be answered within 48 hours. All that inform ation—from dialy sis centers and initiativ e team s—gets funneled to top m anagem ent for consideration. But if y ou ask who’s on the top m anagem ent team , y ou’ll get a puzzled look. At DaVita, different top m anagem ent team s are accountable for different purposes. That allows the com pany to assign people with the right expertise to v arious questions and issues, and im prov es their ability to interpret signals from their externally focused organization. Thr ashers and underperform ers, with inward-looking and politicized m anagem ent, find this lev el and intensity of com m unication congenitally difficult. They are too busy v y ing for turf, resources, and position to dispassionately consider the im plications of outside signals. The external focus of agile com panies enables them to face up to brutal facts and separ ate wheat fr om chaff. Test ing responses. Agile organizations refine their insights from the perceiv ing routine with a relativ ely high num ber of low-cost experim ents. They encourage innov ation and tolerate a good deal of failure. Effectiv e testing and innov ation activ ities range from gathering further intelligence, to tr y ing out new ideas on a sm all scale, to im plem enting full-scale product dev elopm ent program s. In m ost cases, there are explicit risk m anagem ent processes—with v alid success criteria so the plug can be pulled if the test fails—and continuous learning efforts so that the insights gained from the tests spread to all relev ant parts of the com pany . Agile organizations inv est significantly in learning and continuous im prov em ent, nev er resting on their laurels or believ ing they hav e “cracked the code” once and for all. The Lim ited Brands has both inform al and form al testing routines that help the apparel retail chain keep pace with fashion tr ends and com petition. Managers get in the habit of asking one another , “What’s new, what’s next?” This connects ev ery one in the organization, from senior m anagers to stor e m erchants, to the observ ations and data they ’v e gathered, whether the subject is supply chain innov ations or the latest trends in lingerie or healthy products, and pushes them to consider what they are going to do about it. The “what’s new, what’s next” m antra keeps them on their toes. At the store lev el, sm all-scale testing procedures m ake it easy to try out new concepts, point-of-purchase display s, and product extensions. Consum er responses to sm all-scale tests are v etted by m anagers, and inv estm ent decisions follow successful ideas. Two of the Lim ited’s blockbuster retail brands— Victoria’s Secret and Bath and Body Works—got started this way . Their success as sm all experim ents inside existing retail stores caught m anagem ent’s attention and led to big com m itm ents from CEO Les Wexner. To enable these tests, agile organizations are not alway s and ev ery where “lean and m ean.” They m ust consciously build in extra organizational slack—inv esting in people, m oney , and tim e that don’t go directly to the bottom line, but allow the agile organization to rapidly deploy resources against opportunities that m ay or m ay not pay off, without jeopardizing day -to-day operations. The higher staffing lev els also play an im portant role in capturing and dissem inating learning that the organization can use later. Implement ing change. Agile com panies hav e m astered the internal program m anagem ent capabilities they need to conv ert successful tests and prom ising innov ations into widespread practices. Their organizations are flexible enough to adopt them with unam biguous com m itm ent—and with the speed, certainty , and precision they need. These com panies hav e histories of successful transform ations, restructurings, and m erger integrations, and they also excel at the execution of new product rollouts, policy changes, and com pliance m andates, as Exxon dem onstrated after the Valdez spill.

The Swedish bank Sv enska Handelsbanken is built on the principle of radical decentralization, and its record of financial success is unm atched; the recent financial crisis hardly dented perform ance. Guided by a changefriendly identity and the slogan “the branch is the bank,” branch m anagers are responsible for financial results and hav e the budget authority to take action. They control m arketing decisions (except when a new product com m on to all branches is being launched), staffing lev els, salaries, and property lease costs. In addition, on av erage, half of a branch’s staff has lending authority , perm itting custom ers to receiv e answers v ery quickly . Branch m anagers are held accountable for results and continuous im prov em ent by a “relativ e perform ance m easurem ent sy stem ” that transparently com pares all branches on a quarterly basis. At the end of the y ear, a per form ance-based profit-sharing sy stem for all em ploy ees is triggered when the organization’s after-tax return on shareholders’ equity (excluding extraordinary item s) is higher than the av erage for other Nordic banks. One-third of the excess am ount is placed in an em ploy ee fund, and all em ploy ees, including the CEO, receiv e the sam e profit share. Executiv es at Sv enska’s headquarters are expected to support the decentralized approach through coaching, instead of through m em os, instructions, and directiv es. If corporate m anagers disagree with a branch decision, they are expected to raise the issue through a short em ail or brief phone call, but the final decision ultim ately rem ains with the local m anager. The im plem entation of change relies on m anagerial autonom y and shared leadership. The change capability is not relegated to a staff function at headquarters. Rather, it is em bedded in line and staff organizations. Once a decision is m ade, m anagers charged with im plem entation are m onitored, but not second-guessed. Strong-form per form ance m anagem ent sy stem s pr ov ide incentiv es for m anagers to follow through. Perform ance targets are objectiv e and unam biguous; positiv e and negativ e consequences are real and transparent. When we correlated the agility routine scores from the surv ey data with the firm per form ance r esults, a clear pattern em erged. Firm s with high scores on three or four of the agility routines (strategizing, perceiv ing, testing, and im plem enting) are six tim es (1 8 percent v s. 3 percent) as likely to be outperform ers in their industry . They are also twice as likely (3 0 percent v s. 1 5 percent) to hav e abov e-av erage ROAs between 51 and 7 9 percent of the tim e. Firm s with only one or two of the agility routines, indicating an incom plete sy stem , are m uch m ore likely to hav e below-av erage ROAs m ost of the tim e (see Exhibit 3). Although im prov ing any one of these routines can m ake an organization m ore effectiv e, agile com panies, according to their own accounts, hav e at least three of these four traits in large supply .

Making Organizations More Agile Dev eloping the agile capability is no sm all feat, but it has been done. IBM, DaVita, and Harley Dav idson hav e all dem onstrated that transform ation is possible by com m itting to a sy stem atic approach and following through. Ev en within this group, Harley Dav idson (H-D) stands out. It is one of a handful of com panies in our sam ple that m ade the transition to agility . Its story dem onstrates how organizations can build strategizing, per ceiv ing, testing, and im plem enting routines. H-D’s perform ance has been consistently higher than auto industry norm s for m ore than 2 0 y ears (see Exhibit 4).

Yet in 1 9 80, the com pany was as good as dead. Its corporate parent at the tim e, Am erican Machinery and Foundry (AMF), had put Harley -Dav idson up for sale and found no takers. Japanese com petitors like Honda had not only encroached on Am erica’s last dom estic m otorcy cle br and, but opened up entirely new segm ents of com m uter and recreational users. In 1 981 , Vaughn Beals and 1 2 other executiv es took Harley Dav idson priv ate, buy ing it back from AMF. In a desperate bid for sur v iv al, they shrank the com pany by one-third, rapidly im plem ented Toy ota production sy stem techniques to im pr ov e product quality and reduce costs, and successfully petitioned the Reagan adm inistration for the “Harley Tariff” on im ported m otorcy cles ov er 7 00cc to giv e them som e breathing room . In 1 9 83 , they form ed the Harley Owners Group (HOG), a stroke of m arketing genius that created the largest factory -sponsored club of its kind and enabled direct com m unications between H-D and its m ost ferv ent custom ers. When Rich Teerlink took ov er as CEO in 1 9 87 , he inherited a com pany that had been rescued from the brink thr ough a strong form of “com m and and control” m anagem ent. Naturally , there were questions about whether Harley -Dav idson could sustain its success without a crisis to com pel its em ploy ees. But instead of clinging to a topdown m anagem ent sty le, Teerlink and his senior m anagem ent team engineered a further transform ation of H-D using a m odel of shared leadership and accountability , continuous im prov em ent, and inv estm ents in learning and dev elopm ent—practices that are all ty pically linked with agility . The com pany ’s m anagers and em ploy ees were asked to go from a “tell m e what y ou want m e to do” sty le of m anaging others to a “giv en where we’re going, I’ll figure out what’s best to do” approach. Said Teerlink at the tim e, “I believ e fundam entally that people should hav e the opportunity to influence their liv es and their workplace.” Teerlink and his m anagem ent team took the com pany through a series of initiativ es, including a “joint v ision process” inv olv ing the top 1 3 0 executiv es. They clarified and codified Harley -Dav idson’s identity , sy nchronized their planning and perform ance m anagem ent to it, and set up an integrated, cascading goal-setting process that prov ided lines of sight from executiv es to the worker on the floor. Personal and organizational goals were incorporated into appraisals and v ariable com pensation. Leadership and accountability were distributed thr oughout the organization. Along the way , Teerlink and other senior leaders paid close attention to the four routines of agility : St rat egizing dy namically . Prior to the buy out, H-D’s reputation and sty le had been rough, oily , and arrogant. Thr ough strategy and organization changes that consistently em phasized the im portance of custom ers, quality , and accountability , a new identity ev olv ed, sum m arized in the com pany v ision: “We fulfill dream s inspired by the m any roads of the world by prov iding rem arkable m otorcy cles and extraordinary custom er experiences. We fuel the passion for freedom in our custom ers to express their own identity .” Perceiving environment al change. At H-D, ev ery em ploy ee engages with the outside world—particularly with custom ers. Through HOG, em ploy ees (including current CEO Keith Wandell) ride with custom er s, attend HOG rallies, and participate in sponsored m usical and sporting ev ents. The Harley -Dav idson Museum in Milwaukee is a shr ine that attracts 3 00,000 v isitors each y ear. There is also constant form al and inform al contact with H-D dealer and supplier networks, and an expanded website where custom ers can interact directly with m arketing and

product dev elopm ent. To help com m unicate the ideas that com e in, H-D has a shallow hier archy and little cultural tolerance for gatekeepers and apparatchiks who would im pede or filter inform ation flow to executiv es. Test ing responses. Managers routinely v et the ideas com ing from HOG and dealer connections for v iability . These ideas include m ar keting program s, m odel custom izations, new m otorcy cle m odels, new engines, new sty ling, new m anufacturing m ethods, new way s of working with custom ers, and new m arkets. H-D also adopted the quality m ov em ent practice of “plan–do–check–act,” wherein activ ities, processes, and decisions are im prov ed on the basis of collected data, and the m ilitary practice of “after action rev iews,” wherein participants in a cam paign m eet in intensiv e sessions to analy ze successes and failur es. Implement ing change. Harley -Dav idson has repeatedly dem onstrated its capacity for ongoing change. Since the lev eraged buy out, it has im plem ented oper ational restr ucturings, a new product dev elopm ent process, new m anagem ent processes and per sonnel practices, and expansion into Europe and Asia. In 2 01 1 , for exam ple, the com pany em bar ked on an am bitious pr ogram to dev elop a full-blown m ass custom ization capability . H-D reorganized and scaled down its m anufacturing footprint, stream lined R&D, m arketed a wide v ariety of custom ization options through dealers and the Web, and restructured the m anufactur ing process to a flexible sy stem that can produce any custom v ersion of any bike in any plant on any day . To accom plish this, the com pany engaged its unionized workforce to dr am atically change work rules and m ov e from 6 2 job classifications to fiv e. By the tim e Rich Teerlink r etired in 1 99 9, his team had transform ed Harley -Dav idson from an inward-looking, m arginal, com m and-and-control organization to an agile, dy nam ic m arket leader perm eated with shared leadership and accountability . Curiosity , experim entation, and dir ect action are explicitly encour aged and rewarded. But it is a controlled chaos, held together by the centripetal forces of a strong identity and shared v alues.

T he Agility Challenge Som e business env ir onm ents change faster and m ore profoundly than others, but it is a giv en that y ours will change. The point of transform ation is to adapt, and the point of pursuing agility is to becom e m ore adaptable. Executiv es in agile organizations m ake explicit, sy stem -wide decisions that prom ote adaptability ov er stability and flexibility ov er inertia. Leaders and em ploy ees see the ability to change and adapt as the key to long-term success. They do not fear or av oid change; they em brace it because their ability to m anage change well is their prim ary adv antage. Managing agile organizations m eans being willing to giv e up the activ ities that m ake y ou successful today but that won’t be appropriate tom orrow—ov er and ov er again. By contrast, thrashers often increase their com m itm ent to successful courses of action but m iss im portant inflection points in the m arket. BP, for instance, continued to em phasize cost perform ance ov er process safety and com pliance for y ears, resulting in disasters like the 2 005 Texas City refinery explosion that killed 1 5 and the 2 01 0 Deepwater Hor izon oil rig explosion and spill. Toy ota was enam ored with being the biggest auto com pany in the world and ignor ed im portant safety issues. Outperform ers are not perfect, but they m ake fewer m istakes and, like Exxon, when they do stum ble, they are quick to see the error and hav e the capabilities to correct it. Perceiv ing the v alue of constant change is only the first step. Translating that perception into productiv e action requires know-how, processes, infrastructure, and resources. Leaders m ust com m it the organization to a new cour se of action, m obilize resources, and im plem ent changes. Niccolò Machiav elli’s insight is as relev ant today as it was in the 1 5th century : “Whosoev er desires constant success m ust change his conduct with the tim es.” AUTHOR PROFILES: Thomas Williams is a senior executive advisor with Booz & Company. Based in Ridgway, Colo., he specializes in strategy, organization, and management systems for energy and industrial companies. Christopher G. Worley is a senior research scientist at the Center for Effective Organizations at the University of Southern California in Los Angeles. He is the coauthor, with Edward Lawler, of Management Reset: Organizing for Sustainable Effectiveness (Jossey-Bass, 2011).

Edw ard E. Law ler III is the director of the Center for Effective Organizations at USC; the coauthor, with Chris Worley, of Management Reset; and the author of Talent: Making People Your Competitive Advantage (Jossey-Bass, 2008). Also contributing to this article was Niko Canner, former senior partner of Booz & Company; and s+b contributing editor Jim O’Toole.