Historical Development of Enterprise Agility

Introduction

Introduction

This chapter provides a literature review on enterprise agility, the historical development of the concept, the theoretical approaches, and how enterprise affects organizational performance. Enterprise agility is a subject that has attracted the attention of researchers for a long time. With the evolution of the business environment such as increased competitiveness and consumer power, business organizations have been compelled to adjust the way they operate in order to adapt to these changes (Sherehiy et al 2007). One area in which organizations have been compelled to adjust is their ability to adapt to change or new developments otherwise known as enterprise or organizational agility. Enterprise agility has been defined in various ways by different scholars. For example, Tallon and Pinsonneault (2011) define enterprise agility is the ability of an organization to detect and respond to threats and opportunities in the business environment with speed, dexterity, and ease. Nadkarni and Narayanan (2007), on the other hand, define enterprise agility as the ability of business organizations to precipitate intentional change which entails rapid shifts in asset deployment, strategic actions, and investment strategies. However, while enterprise agility, as a concept, has attracted a number of definitions, all the definitions agree on a number of issues. One of them is that enterprise is intentional change initiated by organizations (Tseng and Lin 2011). This implies that unsystematic and impromptu sense-response actions cannot be considered as an indication of enterprise agility even though they might demonstrate agility-like characteristics. Agility, instead, comprise of persistent and systematic changes in the structures, processes, and outputs of an organization which are deliberately planned and implemented as a strategy to help an organization to gain a competitive advantage in the market (Yang and Liu 2012). Another consensus among the different definitions of enterprise agility is that enterprise is a bi-dimensional concept which has both flexibility and speed (Trinh-Phuong et al 2012). Flexibility refers to the extent to which a company can change in terms of its processes, structure, products, or practices. Speed, on the other hand, refers to rate of change. Speed thereby means how long an organization takes to detect and initiate change (Bider et al 2011). Organizations which have a higher level of flexibility and speed with respect to introducing change are thereby considered to more agile.

In spite of the agreement among various studies that speed is one of dimensions that define enterprise agility, the operational indication of speed varies across studies (Tallon and Pinsonneault 2011). For instance, some studies consider speed as the rate of producing variety, others as the rate of recalibrating strategies while others consider speed as the rate of response of an organization (Sherehiy et al 2007). Other operational indications of speed include cycle times, how fast an organization recognizes opportunities, and the ability of an organization to exhibit speed and surprise. Another aspect of enterprise agility that is agreed upon by majority of scholars is its dependence on the environmental conditions. Majority of studies indicate that enterprise is normally in relation to the prevailing environmental conditions (Tseng and Lin 2011). An organization is only considered agile if it is able to adapt to the prevailing conditions in the environment. Researchers thereby agree that the agility of an organization can be analysed only in relation to a specific environment. As such, it is possible for an organization to be agile and at the same time not be agile (Trinh-Phuong et al 2012). This is because the organization may be able to adapt easily to one business environment but fail to adapt itself to a different business environment.

Viewpoints of enterprise agility

Oppenheim et al (2011) observe that attaining enterprise agility is hard because it requires an organization to have the learning capacity and effective knowledge management. Oppenheim et al (2011) also asserts that attaining enterprise agility involves efficient decision making as well as deployment of solutions quickly in response to environmental changes. Oppenheim et al (2011) concludes that enterprise agility should thereby feature all aspects of an organization that include business processes, employees, information and technology. Wendler (2013) suggests that in order to examine the concept of enterprise, there is need to employ an approach that considers various viewpoints and one that treats all organizational perspectives equally. According to Wendler (2013), enterprise can be looked at from five viewpoints. These are people view, organizational view, information view, business processes view, and information technology view.

People view

The people view looks at the role that people play within the business environment. Extensive research has been carried out on the role played by people in business organization. With respect to enterprise agility, an agile individual is characterized by the knowledge they have and the technical skills and competence they can display (Highsmith 2013). According to Ragin‐Skorecka (2016), knowledge refers to solutions that one can propose to problems in various situations and the confidence the individual has that the proposed solutions will result in satisfactory results. Ragin‐Skorecka (2016) argues that knowledge is a result of extensive experience while skills and competence are the toolset that one needs to carry out the various tasks that they are responsible.

Organizational view

According to the organizational view, personnel in an organization operate according to the organizational structure. Every employee has a particular role they play in the organization and relate to other employees in the organization based on hierarchy (Iivari and Iivari 2011). Organizational view also holds that each employee in an organization acts according to the set policies and procedures in the organization (Camarinha-Matos 2014). Lastly, according to organizational view, each organization has a structure which includes specific units that are mandated with carrying out certain roles. In addition, all elements of the structure of an organization are interrelated (Felipe et al 2016). With respect to enterprise agility, the organizational view implies the level of agility in an organization is dependent on its structure.

Information view

According to the information view, information is the most crucial asset for business organization. According to Imache et al (2012), the most basic component of information is structure, that is, grammar and syntax. Imache et al (2012) indicate that content in information can be generated only if there is structure. Content, in this case, alludes to semantics, that is, the meaning that certain information conveys. With respect to enterprise agility, the information view holds that the ability of an organization to react quickly to conditions in the environment depends on the availability of information (Hobbs and Scheepers 2010).

Business process view

Business processes is the main component of a business organization. Gong and Janssen (2012) argue that a business enterprise is basically a collection of activities which have been organized into business processes that collaborate to produce particular desired results. According to Gong and Janssen (2012), business processes may involve many enterprises because they may also include business-to-business transactions. Business processes are categorized into management and operational processes. Operational processes, according to El Kharbili and Keil (2010), are those processes that involve the execution of tasks in an organization in order to achieve certain set objects. Management processes, on the other hand, involve the processes that are carried out at the management level such as decision making, information handling, control procedures, coordination, and making sure that primary operations are carried out effectively and efficiently. With respect to enterprise agility, Seethamraju and Sundar (2013) indicate that enterprise agility relies on the adjustment of business processes.

Information technology view

Lu and (Ram) Ramamurthy, (2011) asserts that nowadays, information technology (IT) forms the basis of the operation of most business organizations. IT infrastructure is divided into software and hardware infrastructure. The hardware infrastructure includes all the physical devices like computers, scanners and printers, and network equipment like routers, switches, and cables. Software infrastructure, on the other hand, includes data-processing applications, network protocols, operating systems, and middleware (Roberts and Grover 2012). In relation to enterprise agility, Ngai et al (2011) indicates that the agility of an organization relies on the agility of its IT infrastructure.

Agility implications of each viewpoint

Each view has various implications on the agility of an organization. Each of the aspects highlighted in the views affects the ability of an organization to be agile.

Agility implications of people view

According to Muduli (2013), people are normally wary of change. It is thereby not easy to instigate change in an organization due to the unwillingness of people to embrace it. Huumonen (2011) argues that enterprise agility can only be achieved when there is human agility in an organization. Human agility, in this case, means that employees have accepted the fact that they operate in an unstable business environment where change is a constant. Huumonen (2011) asserts that since human agility is crucial in enterprise agility, organizations must develop strategies that would help them create a culture that does not only accept change but one which promotes change is a necessity. Alavi and Wahab (2013) hold that in a dynamic business environment, it is important for employees in an organization to adopt a perspective that they operate in a volatile business environment which requires them to be ready for change at all times. This implies that human agility does not only involve employees having the knowledge and skills to adapt to change but also the specific mentality that enables them to not only adapt to change but also embrace it (Ragin‐Skorecka 2016).

Agility implications of organizational viewpoint

Teece et al (2016) argues that for an organization to be agile, it must always to ready to change or adjust its structure depending on the market demands. According to Teece et al (2016) agility in the structure is vital in the achievement of the general enterprise agility. The way an organization is structured affects the level of coordination among different units, efficiency in decision making, and execution of activities in the organization. However, Bottani (2010) observes that agility in the organizational structure is normally hampered by the conflicts which arise from the relationships in the hierarchy in an organization. According to Brown et al (2013), agility in the structure of an organization is characterized by the willingness to reconsider policies and roles and initiate radical changes, if necessary, so that the operation of a company can be improved in order to increase its competitiveness. Brown et al (2013) also indicate that the operation of a company relies heavily on the way various departments coordinate and cooperate. Brown et al (2013) concludes that enterprise agility can thereby be achieved where there is agility in the interdepartmental cooperation. While agility in the organizational structure has been pointed as important in achieving enterprise agility, Worley and Lawler (2010) argue that agility in organizational structure is harder to achieve. For example, Worley and Lawler (2010) indicate that the pyramid-like hierarchy in most organizations depicts less agility making it harder to introduce changes in the organizational structure. Worley and Lawler (2010) also points out that each department in an organization has its own internal aims. As such, each department has its own operational characteristics which are tied to its objectives. This makes it hard to introduce changes in these departments (Camarinha-Matos 2014). In addition, if one department introduces, it may result in interdepartmental conflicts. The independent structure of each department thereby makes it hard to achieve agility in the departmental collaboration.

Agility implications of information viewpoint

According to Knabke and Olbrich (2013), information agility concerns its communication aspects. Huang et al (2014) define information agility is ease with an organization discovers the required information at any time and efficiency in diffusion of information in the organization. Huang et al (2014) also indicates that apart from the ability to acquire and disseminate information efficiently, information agility also involves the ability of an organization to present information in various forms. Tallon and Pinsonneault (2011) indicate that information is crucial in achieving enterprise agility because the ability of an organization depends on the information it has about the existing market conditions. If an organization does not have the information about the existing market conditions, then it is unlikely to initiate any change. Tallon and Pinsonneault (2011) observes that while the structure of an organization may be flexible enough to allow for initiation of change, if the information needed to initiate the change is not available, then enterprise cannot be achieved.

Agility implications of business processes viewpoint

Thönssen and Wolff (2012) assert that for an organization to achieve enterprise agility, it must have the capability to respond quickly to changes in the market opportunities by using agile business processes. According to Thönssen and Wolff (2012), from the business process viewpoint, enterprise agility means that an organization has the ability to adjust its business processes easily and in a cost-effective and timely way as well as execute them efficiently so that it can meet emerging demands in the market (Yusuf et al 2014). Based on the business process viewpoint, agility thereby implies adding new actions and discarding older actions where necessary, changing the sequence of processes by rearranging, inserting or eliminating routes, redefining roles, modifying rules, or using alternative resources (Alexopoulou et al 2010). Like agility in the organizational structure, agility in the business processes is also hard to achieve because it may involve changing the way things are carried out in the organization which may be costly and time consuming (Raschke 2010).

Agility implications of information technology viewpoint

According to Chakravarty et al (2013), IT agility is an essential factor that determines the success of a company particularly during periods of change. This is especially the case if IT agility forms the bases for the overall flexibility of the IT infrastructure. Chakravarty et al (2013) observe that for IT agility to be achieved, there is need for a company to have a common IT infrastructure instead of having separate IT platforms. IT agility implies that an organization can quickly access and install new applications which offer the desired services into its existing IT infrastructure (Mavengere 2013).

Challenges of low organizational agility

One of the aspects of enterprise agility which have attracted significant attention from scholars is the challenges firms with low agility go through. One of the challenges of low organizational agility, according to Bottani (2010), is it makes a firm less adaptable to changes in the market. Bottani (2010) asserts that the current market environment is characterized by a high volatility level making it necessary for companies to look for ways to adapt to these changes. However, companies with low agility levels have a low adaptability due to the reduced flexibility levels. One of the companies with low level of agility is Starbucks. Starbucks has insisted on using its old model of business even with changes (Camarinha-Matos 2014). The company has thereby been unable to adapt itself to the market. Another challenge is poor financial performance in the market. According to Worley and Lawler (2010), the ability of a company to perform, financially, in the market is determined by how it meets the needs of consumers in the market. People will buy more from companies which provide the goods or services they need. Changes in the market imply that consumer needs have changes. This means that if a company is not able to adapt to these changes, then it can no longer be able to provide for needs of consumers in the market (Raschke 2010). Consequently, its financial performance will be affected negatively due to reduced sales. For example, Starbucks’ financial performance has been poor in the recent times even with increased presence in the market due to its inability to meet the prevailing consumer needs.

Benefits of high organizational agility

One of the benefits of organizational agility is enhanced performance. Majority of studies indicate that enterprise agility enhances performance. For instance, Roberts and Grover (2012) indicate that companies that are more agile realize improved performance because they of their ability of sensing and responding to changes in the market quickly. Agility allows a company to introduce changes seamlessly and smoothly without disrupting its core operations (Mavengere 2013). Such a company is able to continue being operational but at the same time take advantage of the new developments in the market to realize maximum benefits. Trinh-Phuong et al (2012) observes that companies which are less agile are more likely to lose their competitive advantage as well as their market share as a result of a lapse in their operations. Felipe et al (2016) indicate that there is an increased recognition among organizations that agility is crucial for success due to increased competition, time-to-market pressures, and globalization. Organizational agility, according to Felipe et al (2016), allows firms to operate with speed without disrupting enhanced operational performance. Enterprise agility affects two main aspects of a firm’s performance, according to Routroy et al (2015). These are financial performance and operational performance. Enterprise agility allows a company to realize improved financial performance. This is because agility enables a company to constantly improve the quality of their goods and/or services thereby maintaining higher sales. The financial success of an agile organization is also as a result of the competitive advantage that agility provides to the organization Vinodh et al (2010). Agility enables a firm to gain a competitive advantage in the market in the sense agility allows it to quickly adapt to the changes in the market and turn those changes into an advantage. Chakravarty et al (2013), on their part, argue that the ability of an agile organization to realize better financial performance in the market is a result of the ability of the organization to sense change in the market because it occurs. The ability to sense change early allows an organization to initiate changes in its operations and thereby adapt to the changes in the market (Muduli 2013). Consequently, the organization is able to take full advantage of the new market trends and realize high sales. With regard to operational performance, Yauch (2011) argues that enterprise agility allows an organization to improve its operational performance because agility provides the organization with the ability to initiate changes in its operations to be aligned itself with the new trends in the market. Agility allows an organization to operate efficiently by allocating resources effectively (Raschke 2010). For instance, an organization cannot hold a large inventory due to lack of knowledge on the demand trends in the market. Another benefit of organizational agility is increased adaptability of companies. As pointed out by Alavi and Wahab (2013), organizational agility allows a company to be flexible and thereby easily adaptable to the changing conditions in the market. This is also agreed upon by Huang et al (2014) who indicate that organizational agility allows a company to adjust its operations in such a way that it can easily align itself to the changes in the market. This, in turn, helps a company to maintain its performance (Routroy et al 2015). For example, Apple’s high agility level has enabled it to continue performing well in the market because of its ability to adapt easily to changes in the market.

Factors affecting organizational agility

Organizational agility is affected by a number of factors. One of them is the size of an organization. According to Teece et al (2016), the ability of a company to change depends on its size. Small firms can easily change in order to adapt to new trends in the market. On the other hand, big firms are more rigid to change because of their vast operations. Since most changes in a company involve all departments or sections of operation, it is challenging for big companies whose operations are many and scattered in many locations (Vinodh et al 2010). Another factor affecting organizational agility, according to Thönssen and Wolff (2012), is organizational culture. The culture of an organization determines its ability to be agile. Thönssen and Wolff (2012) indicate that an organization that that is characterized by high level of innovativeness is likely to be more agile. On the other hand, bureaucratic organizations are less agile. The diversity in the knowledge and skills of the workforce is also another factor which affects organizational agility, according to Roberts and Grover (2012). Roberts and Grover (2012) indicates that the ability of an organization to change is dependent on its workforce. A workforce that is more knowledgeable and skilled is likely to initiate changes in the way it operates in order to adapt the organization to the changes in the market (Alexopoulou et al 2010). On the other hand, a less skilled and knowledgeable workforce is unlikely to initiate change or be able to operate in a different organizational environment when the management initiates the needed change in the organization.

Measurement of enterprise agility

While enterprise agility, as a concept, has been researched extensively, its measurement has not been received equal attention from researchers. According to Yauch (2011), the main reason why measurement of agility has not been addressed in many studies is because the metrics of agility are hard to define as a result of the vagueness of the definition of enterprise agility. Vinodh et al (2010), on their part, argue that agility is understood in a wider perspective making it hard to develop a framework that can be used to assess it. According to Vinodh et al (2010), the broad perspective with which enterprise agility is defined implies that the characteristics which influence agility are different for different enterprises. Despite the challenges involved in measuring enterprise agility, a number of researchers have attempted to develop frameworks which can be used to measure or assess the level of enterprise agility in organizations. One of the tools which have been developed to measure enterprise agility is the Comprehensive Agility Measurement Tool (CAMT). CAMT was developed by Dr Zaki Kuruppalil (2008). In this agility measurement tool, Kuruppalil (2008) highlights 10 critical agility enablers which can used to assess the enterprise agility in an organization. According to Kuruppalil (2008), the 10 agility enablers can be found in all enterprises irrespective of the industry that a company operates in. The 10 enablers are TAKT time, plant capacity, inventory, problem solving, e-manufacturing, continuous improvement, operational flexibility, SMED or quick changeover, internal customer satisfaction, and human resource management. Under CAMT, each of the agility enablers is evaluated to determine the level of agility of an organization. For instance, under TAKT time, the percentage of work that is balanced at or below TAKT is analysed to determine how efficient an organization is in terms of meeting customer demands. In terms of inventory, CAMT analyses the rate of inventory turnover to determine how often an organization replenishes ( Kuruppalil 2008). A high inventory implies a higher rate of sales. Another tool which can be used to measure enterprise agility is the Agility Capabilities Index (ACI). ACI can be used to assess the ability of a firm to respond quickly to the customer needs, take advantage of opportunities in a turbulent market environment, and capture market trend. According to Camarinha-Matos (2014), agile capabilities, under ACI, are measured across five main areas. These areas are product flexibility, process flexibility, people flexibility, organizational agility, and supply chain operational responsiveness. Product flexibility analyses the ability of a firm to configure products and components in order to produce variations as well as the ability of an organization to utilize alternative components (Yusuf et al 2014). The objective of analysing product flexibility under ACI is to assess the ability of organizations to rationalize their products in order to respond to consumer needs in an effective and efficient way. Process flexibility, according to assesses the ability of an organization to configure its business process in order to meet product and demand variations, facilitate introduction of new products, and cope with unexpected problems (Brown et al 2013). People flexibility component of ACI, on its part, assesses the skills level as well as skills flexibility of an organization’s workforce, the level of empowerment and motivation among employees, flexibility with regard to changes in roles or responsibilities, task allocation, and time constraints. Supply chain and operational responsiveness evaluates the ability of an organization to adjust its operational structure and supply chain in order to respond to changes in the market (Chakravarty et al 2013). Lastly, organizational agility assesses the ability of an organization to develop effective strategies, to be innovative, to communicate effectively, and exploit opportunities that come with changes in the market. Camarinha-Matos (2014) asserts that ACI assesses all aspects of a firm from the human resource to business processes. This tool, according to Camarinha-Matos (2014), allows for the assessment of an organization’s agility in its totality.

Practices used to increase enterprise agility

As indicated before, enterprise agility is a broad concept which focuses on various aspects of an organization such as business processes, the human resource, and information technology (Alexopoulou et al 2010). The practices that increase enterprise agility thereby address these aspects. Like measurement of enterprise, practices that can be employed to enhance enterprise agility are a subject that has not received significant attention from researchers. As such, there is limited literature on the subject. Nonetheless, there are a number of practices which have subjected by scholars with respect to enhancing enterprise agility. One of them is lean production. Lean production is a management approach which focuses on reducing waste while at the same ensuring quality. According to El Kharbili and Keil (2010), lean production has seven basic elements. These are small-lot production, setup-time reduction, maintenance, and improvement of equipment, pull production systems, focused factories, cellular manufacturing, and standard operations. According to Knabke and Olbrich (2013), lean production helps to promote agility due to its focus on small-scale production. Knabke and Olbrich (2013) assert that since lean production focuses on producing what is required by customers, it is easy for an organization to adjust to changes in the market. According to Highsmith (2013), the fact that lean production involves producing only what is demanded by the market implies that a company which employees’ lean production in its operations has sufficient knowledge about the market trends. This knowledge makes it easy for an organization to adjust its operations in order to adapt to changes in the market. The effectiveness of lean production in enhancing enterprise agility is also highlighted by Alavi and Wahab (2013) who point out that the focus on setup-time reduction in lean production helps to improve agility. According to Alavi and Wahab (2013), reduced setup-time reduction implies that it is easy to shift from the production of one product to another if demand in the market changes. Another practice that can be employed to increase enterprise agility is cultivating a culture that embraces change. According to Iivari and Iivari (2011), how an organization performs depend largely on existing culture in the in the organization. In the case of enhancing agility, Iivari and Iivari (2011) suggest that organizations need to create a culture which creates the change mentality among employees. According to (Iivari and Iivari (2011), employees need to understand that change is not only a necessity but also a positive development that they should embrace. Some of the ways in which an organization can create a culture that promotes agility include encouraging employees to take calculated risks, empowering employees, creating a customer obsession is a culture, and encouraging innovativeness (Roberts and Grover 2012).. Encouraging innovativeness, for instance, makes employees to constantly look for new ways of carrying out their tasks. This makes employees to embrace change easily. Reducing or eliminating bureaucratic decision making is also another practice that can enhance agility. Tseng and Lin (2011) argue that bureaucracy in organizations of one of the main impediments of agility. The agility of an organization is dependent on the rate of decision making. An organization with a higher level of agility is characterised by a higher rate of decision making particularly in the face of new conditions in the market. Bureaucracy, according to Tseng and Lin (2011), makes it hard for decisions to be made quickly due to the excessive administrative procedures that need to be accomplished before a decision is arrived at. The idea of reducing bureaucracy as a way of improving agility is supported by Ragin‐Skorecka (2016) who asserts that bureaucracy limits the ability of employees to be innovative and initiate change in an organization making it hard to for the organization to adapt quickly to change. According to Ragin‐Skorecka (2016), the lower level employees are the ones who have the ability to initiate change easily in an organization due to their proximity to customers. Allowing employees to take part in decision making thereby makes it easy for organizations to initiate changes as well as adapt to changes in the market quickly.

Enterprise agility and performance

One aspect of enterprise agility that has received significant attention from researchers is its effect on the performance of organizations. Majority of studies indicate that enterprise agility enhances performance. For instance, (Roberts and Grover (2012) indicate that companies that are more agile realize improved performance because they of their ability of sensing and responding to changes in the market quickly. Agility allows a company to introduce changes seamlessly and smoothly without disrupting its core operations (Mavengere 2013). Such a company is able to continue being operational but at the same time take advantage of the new developments in the market to realize maximum benefits. Trinh-Phuong et al (2012) observes that companies which are less agile are more likely to lose their competitive advantage as well as their market share as a result of a lapse in their operations. Felipe et al (2016) indicate that there is an increased recognition among organizations that agility is crucial for success due to increased competition, time-to-market pressures, and globalization. Organizational agility, according to Felipe et al (2016), allows firms to operate with speed without disrupting enhanced operational performance. Enterprise agility affects two main aspects of a firm’s performance, according to Routroy et al (2015). These are financial performance and operational performance. Enterprise agility allows a company to realize improved financial performance. This is because agility enables a company to constantly improve the quality of their goods and/or services thereby maintaining higher sales. The financial success of an agile organization is also as a result of the competitive advantage that agility provides to the organization Vinodh et al (2010). Agility enables a firm to gain a competitive advantage in the market in the sense agility allows it to quickly adapt to the changes in the market and turn those changes into an advantage. Chakravarty et al (2013), on their part, argue that the ability of an agile organization to realize better financial performance in the market is a result of the ability of the organization to sense change in the market because it occurs. The ability to sense change early allows an organization to initiate changes in its operations and thereby adapt to the changes in the market (Muduli 2013). Consequently, the organization is able to take full advantage of the new market trends and realize high sales. With regard to operational performance, Yauch (2011)) argues that enterprise agility allows an organization to improve its operational performance because agility provides the organization with the ability to initiate changes in its operations to be align itself with the new trends in the market. Agility allows an organization to operate efficiently by allocating resources effectively (Raschke 2010). For instance, an organization cannot hold a large inventory due to lack of knowledge on the demand trends in the market.

Conclusion

In this chapter, literature review was carried out. Some of the issues which were addressed in the literature include the definition of enterprise agility, the viewpoints that can be used to explain enterprise agility, the implications of each viewpoint, the tools which can be used to measure enterprise agility, the practices that can be used to improve enterprise agility, and the effect of enterprise agility on firm performance. It can be concluded that enterprise agility is an important to organizations because it improves their ability to adapt to changes in the market.

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