Evaluating agility in corporate enterprises

ARTICLE IN PRESS Int. J. Production Economics 118 (2009) 410–423

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Evaluating agility in corporate enterprises Anirban Ganguly , Roshanak Nilchiani, John V. Farr School of Systems and Enterprises, Stevens Institute of Technology, 5th Floor, Babbio Building, Castle Point on Hudson, Hoboken, NJ 07030, USA

a r t i c l e i n f o

abstract

Article history: Received 28 November 2007 Accepted 8 December 2008 Available online 24 December 2008

Being able to adapt successfully and efficiently to unexpected changes in the business environment or agile is key in gaining a competitive advantage in the global market. There has been little discussion in the open literature on measuring and quantifying agility. This paper is devoted to developing a framework and quantifying the notion of agility. We propose three techniques and associated metrics for determining enterprise agility. Lastly, the paper presents a case study related to Apple’ss digital media to demonstrate the utility of the methodology and associated metrics. & 2008 Elsevier B.V. All rights reserved.

Keywords: Agility Metrics Quantification Corporate enterprises

1. Introduction Because of globalization, technology, and outsourcing contributing to uncertainty and unpredictability in all sectors, the ability of an organization to adapt to unexpected changes is critical to achieving and maintaining a competitive advantage. This idea of adapting to unforeseen changes has led to the evolution of one of the latest concepts in business strategies and is referred to as the concept of agility. Agility is fast becoming a key business driver for all organizations as well as a crucial factor to a firm’s ability to survive and thrive in uncertain and turbulent markets. Dove (2001, 2005a, b) defines agile systems as response ability for both proactive (development of a systems to meet some new, but unforeseen future needs) and reactive (reacting to and correcting some malfunctioning subsystem) response needs and opportunities—when these are unpredictable, uncertain and are likely to change. If an organization is proficient at changing, the more chance it will have to adapt to unpredictable changes efficiently and timely. The primary effort of this research is to articulate a framework, identify the critical metrics of agility, and provide tools and

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E-mail addresses: [email protected] (A. Ganguly), [email protected] (R. Nilchiani), [email protected] (J.V. Farr). 0925-5273/$ - see front matter & 2008 Elsevier B.V. All rights reserved. doi:10.1016/j.ijpe.2008.12.009

techniques to quantify them that subsequently might aid an enterprise to assess it’s agility and ability to respond to unforeseen market changes. Beginning with a literature review on agile systems, this paper identifies and quantifies agility metrics. We conclude with an illustrative case analysis by applying the metrics identified and quantified in order to measure systems agility/response ability of what is arguably one the world’s most agile corporations.

2. A brief overview of agility 2.1. What is agility? Agility can be defined as the state or quality of being able to move quickly and in an easy fashion (American Heritage Dictionary of the English Language, 2000). An agile enterprise can therefore adjust to any unexpected or sudden changes in the environment both rapidly and efficiently. The concept of agility stems from the literature on flexibility in economics (Seethamraju, 2006) and was initially developed by a group of researchers in 1991 at the Iacocca Institute, Lehigh University, in order to describe the practices that should be observed and considered as vital aspects of the manufacturing process (Yusuf et al., 1999). The research concluded that organizations must continuously adapt to changing business environment and

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needs such as speed, flexibility, response ability, and infrastructure with a manufacturing system that is capable of quickly shifting among different product models and/or between product models (Seethamraju, 2006). Thus, the proponents of agility at the Iacocca Institute defined it [agility] as ‘‘ya manufacturing system with extraordinary capabilities to meet the rapid changing needs of the marketplace (speed, flexibility, customers, competitors, suppliers, infrastructure, and responsiveness)y a system that shifts quickly (speed and responsiveness) among product models or product lines (flexibility), ideally in real time response to customer demand (customer needs and wants)’’ (Youssef, 1994). Furthermore, the creation of an agility forum (Dove, 2001) and studies by Goldman et al. (1995) was pivotal in introducing much of the early concepts on agile enterprise strategy and vision. Goldman et al. (1995) defined an agile organization as one that is capable of operating profitably in a competitive environment of continually and unpredictably changing customer habits. Dove (1996) subsequently segmented the concept of agility into four dimensions—cost, time, quality, and scope. According to him, the agility of an organization comprised of a perfect balance among those four dimensions. Another early definition of agility included ‘‘the ability to market successfully low-cost, high-quality products with short lead times and in varying volumes that provide enhanced value to customers through customization’’ (Fliedner and Vokurka, 1997). Further definitions of agility were provided by Goranson (1999), Yusuf et al. (1999), Dove (1999, 2001, 2005a, b), Sambamurthy et al. (2003), Menor et al. (2001) and Mathiyakalan et al. (2005) among others. Yusuf et al. (1999) defined agility as ‘‘a successful exploration of competitive bases (speed, flexibility, innovation proactivity, quality, and profitability) through the integration of reconfigurable resources and best practices in knowledge rich environment to provide customer driven products and services in a fast changing market environment’’ (Yusuf et al., 1999). The concept of knowledge management and response ability as being the two cornerstones of agility was further elaborated by Dove (1999) where he stated that the Agility ¼ Response Ability+Knowledge Management. Also, Dove’s definition of agility was somewhat similar to Yusuf et al. (1999) in the sense that he defined agility as the ability of an organization to thrive in an environment of continuous and often unanticipated changes. Dove then subsequently strengthened his definition by stating that in order for a system to be agile, it must efficiently and creatively respond to both proactive and reactive needs and opportunities when these are unpredictable, uncertain and are likely to change (Dove, 2001, 2005a, b). Goranson (1999) provided a similar definition where he stated that the more agile an enterprise is, more efficiently it responds to sudden and unexpected changes, with unexpected being the keyword. Another widely used definition was provided by Menor et al. (2001) according to whom the core essence of agility in an organization comprised of delivering quality product or services in a cost-effective manner and building a flexibility that enables the organization to respond quickly to external

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and internal changes. Mathiyakalan et al. (2005), on the other hand, after reviewing various resources on agility both from industry as well as academia, considered agility as a much broader concept and defined it as the ability of an organization to detect changes (which can be opportunities or threats or a combination of both) in its business environment and hence providing focused and rapid responses to its customers and stakeholders by reconfiguring its resources, processes and strategies. So, we can see that this definition embeds within itself a strategic as well as an operational perspective of agility and also broadly explains how firms can be made agile in terms of managing capabilities, resources, and business processes (Mathiyakalan et al., 2005; Seethamraju, 2006). Other researchers such as Sambamurthy et al. (2003) focused on business process in order to illustrate a firm’s agility, defining it as the ability of a firm to redesign their existing processes rapidly and create new processes in a timely fashion in order to be able to take advantage and thrive of the unpredictable and highly dynamic market conditions (Ashrafi et al., 2005). Other widely adapted definitions of agility include ‘‘yability to accelerate the activities on critical path andytime-based competitiveness’’ (Kumar and Motwani, 1995); ‘‘capability of surviving and prospering in a competitive environment continuous and unpredictable changes by reacting quickly and effectively to changing markets, designed by customer designed products and services’’ (Cho et al., 1996); ‘‘an organization’s ability to sense environmental change and respond efficiently and effectively to that change’’ (Gartner Research Group) (Ashrafi et al., 2005); and ‘‘ability of a firm to dynamically modify and/or reconfigure individual business processes to accommodate required and potential needs of the firm’’ (Raschke and David, 2005). Table 1 summarizes the various definitions of agility along with the essential characteristics embedded within those definitions. While most of these definitions of agility covers the essential characteristics of time, flexibility of the system, and the ability to response (responsiveness), it is the definitions by Yusuf et al. (1999) and Dove (1999, 2001) that takes into account all the essential characteristics of agility. After conducting a comprehensive literature survey, we decided to use the following definition of agility provided by Dove (1999, 2001) as the framework for our research: an effective integration of response ability and knowledge management in order to rapidly, efficiently and accurately adapt to any unexpected (or unpredictable) change in both proactive and reactive business/ customer needs and opportunities without compromising with the cost or the quality of the product/ process. 2.2. Lean, flexibility, and agilit1y Since its inception, the concept of agility has grown in interest among management practitioners and academicians. Agility, along with the concepts of ‘‘lean’’ and

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Table 1 Some definitions of agility. Reference

Definition

Speed/ time

Iacocca/Lehigh (1991)

A system that shifts quickly among product models/lines, ideally in real time in order to respond to customer needs Capability of an organization to operate profitably in an competitive environment comprised of continually changing customer habits Ability to accelerate the activities on critical path andytime-based competitiveness Capability to survive and prosper in a competitive environment or continuous and unpredictable changes by reacting quickly and effectively to changing markets, designed by customer designed products and services Ability to market successfully low-cost, highquality products with short lead times and in varying volumes that provide enhanced value to customers through customization A successful exploration of competitive bases (speed, flexibility, innovation proactivity, quality and profitability) through the integration of reconfigurable resources and knowledge management to provide customer driven products and services in a fast changing market environment Ability of an organization to respond efficiently and effectively to both proactive and reactive needs and opportunities on the face of an unpredictable and uncertain environment ‘‘The ability of a firm to excel simultaneously on operations capabilities of quality, delivery, flexibility and cost in a coordinated fashion’’ Ability of a firm to redesign their existing processes rapidly and create new processes in a timely fashion in order to be able to take advantage and thrive of the unpredictable and highly dynamic market conditions ‘‘An organization’s ability to sense environmental changes and respond effectively and efficiently to that change’’ ‘‘Ability of a firm to dynamically modify and/ or reconfigure individual business processes to accommodate required and potential needs of the firm’’ ‘‘Ability of an organization to detect changes (which can be opportunities or threats or a combination of both) in its business environment and hence providing focused and rapid responses to its customers and stakeholders by reconfiguring its resources, processes and strategies’’



Goldman et al. (1995)

Kumar and Motwani (1995) Cho et al. (1996)

Fliedner and Vokurka (1997)

Yusuf et al. (1999)

Dove (1999, 2001)

Menor et al. (2001)

Sambamurthy et al. (2003)

Gartner Research Group (Ashrafi et al., 2005) Raschke and David (2005)

Mathiyakalan et al. (2005)

‘‘flexibility’’, are ‘‘strategic’’ organizational philosophies that have attracted a lot of attention among leaders in industry and government. Table 2 presents a summary from the Department of Defense (DOD) of the three above said principles and the principles’ relative context to each other (Sarkis, 2001). As presented, agile manufacturing encompasses both the concepts of lean and flexible. Also that lean manufacturing is primarily concerned with minimization (if not elimination) of waste through an efficient produc-

Cost

Responsiveness

Flexibility

Quality

Customer needs





























































































tion process. Although agility embraces this concept, the difference is that agility has with respect to lean is that while one of the tenets of agility is waste minimization, it does so only to the extent where its ability to respond efficiently to sudden and unexpected changes are not affected (Conboy and Fitzgerald, 2004). Lean concepts makes sense in conditions where the demand is predictable and the requirement of variety is low, but in situations related to more volatile demand pattern and thus a wide variety of customer requirements, it is the

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Table 2 Lean, flexible, and agile manufacturing. Lean manufacturing

Flexible manufacturing

Agile manufacturing

A production process that covers the total enterprise and is intended to achieve perfect first-time quality as well as waste minimization by removing all activities that do not add value, continuous improvement, flexibility, and long-term relationships (Shields, 1999 and Sarkis, 2001) A structure as opposed to a strategy and addresses a production line that can be easily reconfigured or customized for producing different products (Sarkis, 2001) A strategy that incorporates within itself both the concepts of lean and flexible manufacturing and addresses the business enterprise world (Sarkis, 2001)

concept of agility that is generally the more acceptable one (Christopher, 2000). Numerous authors (Goranson, 1999; Dove, 2001; Sharafi and Zhang, 1999; Sarkis, 2001; Conboy and Fitzgerald, 2004) have written that agility can be treated as a combination of speed and flexibility (Agility ¼ Flexibility+Speed). Most of the definitions on agility embed within themselves the concept of flexibility as well as speed. As an example, Vokurka and Fliendner (1998) viewed the idea of flexibility as the ability of an organization to transit between a variety of tasks as a routine and a predetermined process. But on the other hand, agility of an organization comprises of not only the ability for it to respond rapidly, but efficiently to unexpected changes as well (Vokurka and Fliedner, 1998; Goldman et al., 1995; Tan, 1998). So, as we can see from the published literature definitions of flexibility and agility, flexibility can be stated as a planned responsiveness to some anticipated contingencies, agility, on the other hand, can de stated as the ability to thrive in markets amid continuous, accelerated and often unpredictable changes (Hezel, 2004). Thus, other than speed, the other important difference between agility and flexibility can be stated as the ability of an agile system to sustain an unpredictable change. 2.3. Efforts in measuring agility Gunasekaran (1999) in his seminal article based on an extensive literature review on agile systems, pointed out the need for suitable performance measurements in order to determine the agility of a system. He further went on to emphasize on the need for quantitative analysis in order to determine the agility of any enterprise. The motivation of our research stemmed from the direction of future research as provided by Gunasekaran, and in the process led to the effort to identify a set of broad critical metrics of agility for an enterprise along with suggesting methods to quantify them. According to Dowling and Pardoe (2005), a metric is considered a compromise of three main attributes—name, definition, and value. The key for a successful metric lies not only in defining it properly and robustly, but also in effective collecting the data and interpreting the data collected (Dowling and Pardoe, 2005).

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Goranson in his book The Agile Virtual Enterprise: Cases, Metrics, Tools (1999), categorized metrics as being upstream or downstream. The metrics he proposed that were associated with agility were mostly upstream since they answer questions that an enterprise might have in improving the business process and dealing with uncertainty. On the other hand, downstream metrics mainly measure how well a process can respond to specific changes. Goranson (1999) further noticed that while most metrics are static in nature, the agility metrics have to be dynamic since they should have the potential to project current capabilities in today’s context into a new set of capabilities in some other context. Dove (1994) presented one of the first discussions on the measurement of agility. Dove (1994, 2001) developed a set of change proficiency metrics—cost, time, quality, and scope—that should be measured in order to measure the overall agility of an enterprise and subsequently went on to sub-categorize them into further details. The concept of change proficiency was further developed by Metes et al. (1998) with a framework involved designing a six-step methodology using a balanced scorecard to assess different domains of agility (Metes et al., 1998; Arteta and Giachetti, 2004). Other efforts in measuring agility involved the concept of Agility Index (AI) developed by Kumar and Motwani (1995), which was subsequently tested in 2000 (Arteta and Giachetti, 2004). Other models to measure agility included Goranson’s (1999) model of agile virtual enterprise using the speech—art theory, a scorecard created by van Hoek et al. (2001) which was based on the factors from Goldman et al. (1995) and the agility measurement index (AMI) developed by Datta (2006) and the use of fuzzy agility evaluation method (FAEM) (Yang and Li, 2002; Lin et al., 2006) to determine the level of agility of any manufacturing enterprise. However, most of the previous researches concentrated on the idea of what a manufacturing organization can do to enhance their agility and subsequent derivations of AI. The present research, on the contrary, enlists a set of broad metrics that can be used to evaluate the agility of any corporate enterprise. That research proposed a set of simple quantifiable metrics that can be assessed based on the market and financial data of any corporate enterprise, rather than using complex multicriteria analysis. Additionally, the purpose of this paper is not to determine a composite AI, but to enlist a set of quantifiable metrics that would aid any enterprise to assess if they are agile in nature. The present research can be combined with FEAM (as shown later) in order to arrive at a conclusion regarding the level of agility of any corporate enterprise. In conclusion, it can also be stated that the proposed metrics in the present research is equally applicable to both the manufacturing as well as the service sector since it considers a set of metrics that are holistic in nature, rather than manufacturing/service specific.

3. Research framework The primary scope of this research is to identify and subsequently quantify a set of important metrics to evaluate the agility of any enterprise. Before moving on

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to a more detailed discussion on proposing the set of metrics for enterprise agility, we thought it to be worthwhile to provide a simple conceptual model of the research process in order to gain a better understanding of our research framework and the importance of agility metrics. The research model is shown in Fig. 1. As shown, the proper identification and subsequent quantification of the critical metrics plays a pivotal role in determining the agility of a corporate enterprise. The basis of the metrics was the agility drivers presented. The agility drivers often form the backbone of selecting a set of metrics to evaluate agility and the current research was not devoid of this idea either. For example, the ultimate objective of any business enterprise is to increase their market share and in the process gain overall competitive advantage in the market. The market share of any enterprise is dependent on a number of variables like price, customer satisfaction (which embeds with itself the quality and the benefits derived from the product), efficiency of the supply chain, ability to respond to sudden business impacts to name some. Hence, assessing the market share of any enterprise and mapping it into its level of agility is dependent of the drivers of agility. For example, the major drivers of agility include changes in customer requirements, technology, price structure, etc. Thus, successfully confronting all these changes might significantly increase the market share of any enterprise (or if the enterprise is a market leader, allow it to remain so). Responsiveness was thought to be one of the primary metrics because the time to respond to an agility driver is the key to a successful agile organization. The two major variables of success agile response, that is speed and time,

Need for Assessing Agility: • Change with new technology • Change with customer preference • Change with the change in price structure • Change with social structure

was already taken into consideration since it can be fairly assumed that responsiveness is primarily a function of time and speed. The final metric, i.e., the costeffectiveness, was also based on an analysis of the primary drivers of agility. As it has been seen countless number of times, that the financial attributes of price and costs often proves to be the single most important catalytic agent in guiding the drivers of agility, which includes, not only customer responses, but technology changes and other changes as well. Hence, it was decided to separate out cost-effectiveness as one of the major metrics that would trigger a transformation in the agility drivers, thereby resulting in the need for an enterprise to be agile. Based on the working definition for the present research, agility can be simply stated as the ability of an organization to rapidly and efficiently response to any proactive/reactive changes in the technology/industry without compromising with the cost and the quality of the product/service that it is catering. The working definition of agility in context to the current research, coupled with the basic drivers of agility, proved to be the cornerstone for the selection of the metrics identifying the agility of an enterprise. Based on these insights, the authors defined three major metrics for measuring agility that capture most of the critical aspects of agility. The metrics defined for quantification are listed in Table 3. The set of metrics provided in Table 3 is definitely not a holistic set, but a set of three important metrics that might aid any enterprise to assess their agile characteristics in their market. Furthermore, the primary idea behind this research is to enlist a set of simple metrics that will aid any enterprise to evaluate and assess whether they are agile, either by looking individually or collectively

Agility Drivers: • Price sensitivity • Change in customer preference • Change in technology • Change in socioeconomical scenario • Cost-benefit analysis by the customers

BUSINESS ENVIRONMENT

A broad set of critical metrics to evaluate the agility of any enterprise No

Effort to quantify the metrics

Are the metrics validated and verified?

Fig. 1. The basic research model.

Yes

PROPOSE THE SET OF METRICS

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Table 3 Metrics for agility. Metric name

Formula

Market share

AGðMsÞ ¼

Responsiveness

Cost effectiveness

Market share of an enterprise ðp ¼ nÞ Market share of an enterprise ðp ¼ 1Þ

Where p is the market cycle for a comparable and substitutable product family produced for the market or the average product development cycle for that particular market This can be six months for a cell phone, two years for an operating system, and 20 years for a new type of cement (differs based on product type and industry) Average NPD cycle for the industry AGðReÞ ¼ Average NPD cycle for the measured enterprise AGðCeÞ ¼

Average cost of NPD cycle for the industry Average cost of NPD for the measured enterprise

What it measures

Preferred value

 Quality 1(market demand reflects product quality)

41

 Profitability/benefit

 Speed

41

 Cost

41

Where NPD is new product development.

at the metrics. Hence, discussions on strategic adjustments by any enterprise to counter a agility driver or the limitations to successful deploy and strategic actions to address to the changing needs is beyond the scope of this research and there are not touched upon.

1

The primary focus of this research is to identify and subsequently suggest quantification techniques of certain critical metrics that might aid an enterprise in assessing its agility. In the following section, we will discuss the constituting components of these metrics, their quantification techniques, and discuss their usefulness in determining the agility of an organization. 4.1. Market share metric

Utility

4. Quantifying the metrics of agility

0

100% Market Share, %

The first of the three critical metrics is based on measuring the market share of an enterprise. The primary focus of any enterprise—be it a major player in the market or a small startup firm—is to capture as much of the market share as possible and thereby increasing its profit in the process. The market share of an enterprise can be defined as its share of the total sales of all products within the product category in which the enterprise competes and dividing by the total sales (Marketing Plan Glossary, 2007). For example, if an enterprise is regarded as a dominant player in the market, it is implied that the enterprise in question holds a very high percentage of market share in the industry and holds substantially larger share than its closest competitor. The utility curve for the market share of an enterprise normally assumes the shape shown in Fig. 2. A proper measure of the market share of an enterprise can be an effective indicator of how agile the enterprise is. For example, one of the variables that might affect the market share of an enterprise is its ability to respond to uncertain and sudden changes in the customer demand. With customer demand being a variable that

Fig. 2. Utility curve for market share.

changes continuously over time, an enterprise more adept in adjusting to these changes might achieve in gaining a larger market share than their non-responsive counterparts—hence, leading us to believe that assessing the market share of an enterprise (and changes in it over a certain period of time) can serve as an important indicator of agility of an enterprise. Now armed with the basic concept about market share and its relation to enterprise agility, let us dwell in further details over our definition of the market share metric in determining the agility of an enterprise. Before discussing in depth about the metric, let us first enlist the market share metric along with its formula as derived by us (which is denoted as AG (Ms)). This is given in Eq. (1). AGðMsÞ ¼

Market share of an enterprise ðp ¼ nÞ Market share of an enterprise ðp ¼ 1Þ

(1)

where p is the market cycle for a comparable and substitutable product family produced for the market

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or the average product development cycle for that particular market. Based on our definition of the market share metric, the metric is dependent upon the concept of cycle time. The cycle time of an enterprise is a certain time-period that elapses from the beginning to the end of a particular process. There are various definitions of cycle time depending on the nature of the performance measurement. However, we chose to limit our attention towards production cycle time. The cycle time is as the total time required in producing a product—right from the concept generation to the final product launch. As we can see from Eq. (1), the market share metric can be measured by dividing the market share of an enterprise at its nth cycle by the market share of an enterprise at its first market cycle. For example, if the market share of enterprise A is 10% at the end of the first market cycle and 60% at the end of the nth market cycle, then according to the market share metric, AG(Ms) ¼ 60%/10% ¼ 6, as an indicator that the market share has increased. Nevertheless, this does not necessarily prove that the enterprise has agile characteristics, as it will be shown subsequently in the section. An increase in the market share of an enterprise does not necessarily indicate the presence of agile characteristics with it and might prove to be an erroneous effort on the part of the decision makers. What might be more appropriate is to perform a time series analysis and set up all the enterprises to be measured. In other words, looking at the market share of the enterprises at a certain period (say, x) might serve as an appropriate yardstick for comparing the increase in market share among the firms in order to assess its agility. Another important aspect to look at will be to assess the market share of an enterprise in a certain period x, say (where x ¼ 0,1,2,y (n1)) and compare its rate of growth from period x till period n. the enterprise with the highest rate of growth might be judged to be the most agile of the set of enterprises in question. As a simple example for this explanation, let us consider a hypothetical situation where the dominant player in a market holds 50% of the share while its closest competitor holds 30%. The remaining 20% of the market share are held by other enterprises that will not be considered in our discussion for the moment. Let us name these enterprises as Enterprise X and Enterprise Y, respectively. So, while their market shares were 50% and 30%, respectively, in period x, their market share increased to 55% and 40%, respectively, in period n. Now, although it would seem to apparently indicate just by looking at the market share values that Enterprise X is more agile since it has maintained its status as the market leader along with increasing its market share in the process, but a closer analysis on the growth of market share would indicate that it was enterprise Y that had a higher rate of growth during the specified period as compared to its market leader, i.e., Enterprise X (33% against 20%). Hence, we can assume from this simple analysis that the most appropriate mode of using the market share metric would be to study the rate of growth in the market share of an enterprise over a period of time rather than basing our conclusions on its market share at two discreet point of time.

Fig. 3 shows the rate of increase in the market share of three enterprises present in the market. For the sake of simplicity, we assume that the market is comprised of the three enterprises only and the total market share (100%) is divided among those three enterprises only termed Enterprise A, B, and C. Fig. 3 is a hypothetical conceptual graph that illustrates the case of three enterprises—A, B, and C. Comparing the market share for the enterprises in the first and the nth period, we can clearly see that enterprise A had the largest growth in market share followed by Enterprise B. Enterprise C, on the other hand, had a negative rate of growth in its market share at the nth cycle. This might be due to the fact that Enterprise C, unlike Enterprise A, lacked agile characteristics thus resulting in a much slower in its market share. It should be stated here that agility is definitely not the only attribute (or variable) that affect the market share of an enterprise. Market share of an enterprise is rather a function of a number of variables like agility, supply chain efficiency, quality, corporate, and market strategy, customer satisfaction, revenue, etc. among others. It can be seen that all these attributes (except agility) that comprises the market share of an enterprise, can also serve as attributes depicting the agility of an enterprise. For example, an agile enterprise has an efficient supply chain, an effective marketing strategy that continuously adjusts to the ever-changing customer demand, enhanced quality product, and an increase in revenue structure. Hence, we took the liberty of taking the market share attribute as one of the major indicators of enterprise agility. It has been seen repeated throughout history that the dominant player in the market ends up losing its market share to its competitor due to the lack of agile characteristics. For example, established firms often fail to notice the advent of a disruptive technology that follows a different trajectory than usual as their modus operandi. Two of the more notable examples being film based photographs and cameras and mainframe computers. Drug companies, computer vendors, entertainment, and electronic firms are the most susceptible to disruptive products.

Market Share, %

416

50

Enterprise B

40

Enterprise A

30 20 Enterprise C

10 0 (n –1)

n

Market Cycle, Time Period Fig. 3. A conceptual graph depicting market share and its measurement.

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1

Utility

A product launched that can be characterized as a disruptive technology has the potential to change the market by adding another product market to the existing product. Dominant existing firms, often due to bureaucracy and low level of agility, fail to notice the advent of a disruptive technology and often, in the long run, end up losing its market share to the new market entrant. On the other hand, an enterprise that continues to thrive and even flourish by virtue of either coexisting with the disruptive technology (through different ways of countering or morphing the technology) or accommodating it might be concluded to have agile characteristics that pave the way for their increase in the market share in spite of the presence of the disruptive technology. Hence, it can be once again concluded that market share is a critical metric that should be considered while assessing the agility of an enterprise.

417

0 Time Period

tn

Fig. 4. Utility curve for responsiveness.

4.2. Responsiveness metric

Enterprise A Industry NPD, Rate

The ability to respond to uncertain changes is the single most important characteristic of an agile enterprise. For example, with the continually changing business environment (and customer demand), and enterprise that respond more efficiently (and effectively) to these uncertain and sudden changes will be in superior strategic position in regards to its market share than an enterprise. One issue of note is that size can but does not always preclude responsiveness. The utility curve for responsiveness may assume the shape shown in Fig. 4. As it can be seen from the slope, the greater the response time, the lesser the utility derived. Let us further clarify this concept with a hypothetical example. In the case of a stock broking firm even a minor delay in responding to an uncertain and sudden change in the business environment (that might be caused by not anticipating customer demand among other factors) might result in heavy losses. Thus, even a minor increase in the acceptable response time will lead to a heavy downfall of the utility value in the case of the firm cited above. It should also be mentioned here that the acceptable range of the response time greatly vary from industry to industry. For example, what would be considered an acceptable range of response time in the heavy machinery industry might not be considered so in the case of the cell phone sector. Hence, this important aspect should be kept in mind while using the responsiveness metrics to quantify agility of any corporate enterprise. An enterprise that is agile in nature will have a shorter response time than its non-agile counterpart. It should also be noted here that what might be considered a fast response time in certain industries, might be a slow response for others. For example, the response time for repairing heavy machinery can be slower than resetting a stock broking website. Thus, we can clearly figure out that the utility curve depicted in Fig. 5 is not uniformly true for all industries but rather varies across different industries. However, whatever the shape of the utility curve is, an agile firm will always strive on reducing the response time

0 Time Fig. 5. New product development cycle for enterprise a versus industry development cycle.

in order to gain a firmer foothold in the market to the point that the cost of reducing the response time does not increase dramatically. Another area where the issue of responsiveness holds a position of vital importance is the pharmaceutical sector. With ever-changing demand in customer requirement and huge competition among the pharmaceutical companies, the responsiveness metric tend to hold a position of elephantine importance. This is especially true in the case of drugs associated with life-threatening diseases like cancer and HIV. In should also be noted here that even among the pharmaceutical industries, there are certain areas where a faster response is more crucial than the others. For example, in the case of development of a certain cancer drugs, an enterprise that is more responsive to changes (and hence more agile in the process) will hold a stronger ground in the market than an enterprise that is slow in responding to changes.

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The responsiveness metric is shown in Eq. (2). AGðReÞ ¼

Average NPD cycle for the industry Average NPD cycle for the measured enterprise (2)

As it can be seen from Eq. (2), our definition of responsiveness is based upon market cycle. The concept of cycle time was discussed in the previous section. According to this relationship, for an enterprise to be more responsive; the rate at which it develops a new product should be preferably greater than the rate of new product development in the industry it belongs to. The concept is shown in Fig. 5. As it can be seen from Fig. 5, an enterprise that is agile in nature although initially starting below the market growth rate, will quickly start responding to changes in customer demand and business environment—thereby shortening its average product development cycle and in the process gaining the market share. For such an enterprise, the preferred value of the expression should be 41, thus indicating it rising at a greater rate than the industry in general. On the other hand, an enterprise having a value of o1 thereby indicating its low ability to respond to changes in the market environment and as a result failing to keep pace with the average new product development cycle for the industry it belongs to. 4.3. Cost-effectiveness metrics The last suggested metric is the metric related to costeffectiveness. Although an enterprise might be able to change with the changing business environment in an effective fashion, it may still not be considered as an agile enterprise if it does so through incurring an astronomical amount of cost. Therefore, for any enterprise to be truly agile, it should respond to changes not only in an efficient, but also in a cost-effective manner—thereby gaining market share in the process. The higher the cost of responding to changes, the lower its utility value for a certain enterprise. It is often seen that although certain enterprises are quite efficient in responding to changes, they tend to do at the expense of a huge cost structure, which often leads to the new product developed, discontinued after a certain period. The cost-effectiveness metric as enlisted and formulized by us is given in Eq. (3). AGðCeÞ ¼

Average cost of NPD cycle for the industry Average cost of NPD for the measured enterprise (3)

For an enterprise to achieve agility, the average cost of new product development of the enterprise should be lesser or equal than the average cost of the new product development of the industry in general. Hence, the preferred value for the metric should be X1 (preferably, 41 for agile enterprise) signifying the cost of new product development in the industry o cost of new product development in the enterprise. In conclusion, three critical metrics that were identified should preferably be used in combination in order to

have an accurate assessment of enterprise agility. Also, although the metrics suggested are applicable to any enterprise in general, the range and the interpretations tend to be somewhat industry specific, i.e., varying across various industries. 5. Assessing enterprise agility: the case of Apple’ss digital media In order to validate our model using a case study, we focus our attention on the digital media sector of Apple Inc. (iPod, iTunes, iPhone, etc.). Apple’s continual strive for innovation and being agile in the digital media sector was the focal point in our decision to concentrate in this sector rather than their computer business coupled with the fact that it covers a wide range of products and processes and indicates a fair amount of agile characteristics. This section is divided into three subsections—a brief overview of Apple Inc., a details analysis of their digital media sector and finally applying and validating the metrics with regards to Apple’s behavior in the digital media sector. 5.1. Apple Inc. Apple Inc. develops, sells, and supports a series of personal computers, portable media players, computer software, and computer hardware accessories as well as currently being involved in the creation of new technology concepts, such as the iPhone and Apple TV among others. Apple also operates an online store for hardware and software purchases, as well as the iTunes Store, a comprehensive offering of digital downloadable music, audio books, games, music videos, TV shows, and movies. The company’s best-known hardware products include the Macintosh line of personal computers and related peripherals, the iPod line of portable media players, and the iPhone. Apple’s best-known software products include the Mac OS X operating system and the iLife software suite, a bundle of creative software products that are highly integrated with the OS and are designed for amateur users. 5.2. Apple and the digital lifestyle Since Apple’s inception in the late 1970s, it was Steve Job’s mission to bring a user friendly computer to every man, woman and child (Yoffie and Slind, 2007). High end design quality and dependable products, coupled with Apple’s continual strive for innovation, quickly placed them in a position of market leader in the PC market, only to be overtakes and ousted by Microsofts in subsequent years. Apple, once the dominant force in computers, has now been relegated to a niche status in a market that is dominated by ‘‘Wintel’’ computers (Hennessey, 2004). In spite of having very high brand equity, the very high costs associated with switching from Windows to Apple’s exclusive OS, coupled with some incompatibility issues, have pushed back Apple in regards to having a dominant market share for personal computers and notebook computers. It was during this time that Apple started

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becoming aware of thinking beyond the insular world of Mac and Steve Jobs took his own advice—the famous ‘‘think different’’ advertising campaign of Apple—and started developing Apple into a high-end consumer electronics and services company (BusinessWeek, 2003) and so started Apple’s gradual transformation. This transformation finally led to the production of the first generation of iPod in November 2001. Having an iPod meant that the user could download songs in a compressed format into the player directly from the computer. The fact Apple subsequently launched the iPod for Windows OS in July 2002 (BusinessWeek, 2003) made the player an instant hit among the windows users who at first was somewhat skeptical about using the iPod due to its lack of compatibility. This, to a great extent indicates the agile nature of Apple Inc., something that will be discussed in details in the later part of this article. The above stated benefits, coupled with an excellent advertising campaign, very quickly catapulted Apple into a position of dominance in the portable digital player market. iPod and other digital media had fast turned Apple into technology’s most influential trend setter. In the year 2007, 70% of new US-model cars have iPod connectors built in, and about 100,000 airline seats will have the same. Moreover, Apple’s online iTunes Music Store has become the world’s third-largest music retailer after Wal-Mart Stores Inc. and Best Buy Co. (BusinessWeek, 2007). The next big feather in the cap of Apple was iPhone, which debuted all over USA on June 29th, 2007. With the launch of iPhone (after iPod and iTunes), Apple seems poised to extend its reach even further. And considering how Apple changed expectation about portable music players (there were portable music players before iPod, but iPod revolutionized the portable music players to such an extent that it has become a generic term, much like Xerox), they could very well re-define the cellular phone experience. An article in BusinessWeek (2007) clearly indicated that although all of the 25 million smart-phones sold in 2006 offer similar capabilities, such as Web browsing and e-mail, none has captured the heart of the mainstream consumer due to their complexity, something which iPhone plans to erase.

5.3. Apple and its agile behavior The preceding two sections in this article discussed briefly about the overview of Apple and its position in the digital media sector. This section and the one following it will be based on analyzing Apple’s strategies in the digital media market with respect to the metrics of agility identified earlier as a part of the process to validate the metrics. But it should be mentioned here that due to a huge amount of confidentiality prevailing among the enterprise, especially Apple’s, it was rather difficult to base our validation from concrete data available from the company sources. Most of the verification and validation process involved gathering general market data from various resources on the internet and then base our expert judgment on in order to arrive at a conclusion

419

regarding the verification and validation process of the identified metrics. Apple, since the days of its inception, is known to the consumers as an enterprise that thrives in innovation and producing high quality product. Their primary business focus was satisfying their customer requirement. As stated earlier, there were portable music players even before iPod was launched in the market, but Apple, with its iPod, was able to race miles ahead of its competitors through superior product quality and continuous innovation. In other words Apple’s continuous strive for launching new innovative products adhering to customer requirements has made them a very agile played in the portable digital media sector. When iPod first came into the market in the later part of 2001, there were other digital media players that were already available in the market. But the value addition brought about by iPod was the trendiness coupled with superior sound quality—something that was very attractive to the customers it targeted at. Also, Apple was very quick in realizing that in order to be agile and hence capture a greater part of the market share in the process, they would have to made their iPod compatible to Windows—the most widely used operating system in the world. Hence Apple, within a very short period of time, developed a new model of iPod with windows compatibility—which resulted in an astronomical increase in market share if their iPod brand of portable digital media player. An article published in the New York Times (Belson, 2005) stated that Apple’s iPod held a staggering 75% of the market share of digital music products, in the process dominating companies like Creative, Samsung, and Dell among others. For the first six months in 2007, Apple accounted for about 71% of the US unit sales thus surpassing its closest competitor SanDisk by 61% (SanDisk accounted for 10% of the total US unit sales) (Hau, 2007). It was also seen that the manufacturing cost of an Apple iPod was lesser than its counterparts manufactured Apple’s competitors. For example, the manufacturing cost of an iPod shuffle is stated to be around $45.00 while the same product, launched by Rio (Rio Forge Sport) is $53.00, which is marginally greater than iPod shuffle (Emsnow, 2007). This is a classic example of agility in Apple, responding rapidly to a changing environment (catering to the Windows users) and increasing their market share in the process and also at a lower cost. Soon after launching their revolutionary mp3 player in the market, Apple was very quick to launch iTunes, which has now become one of the most popular website for downloading digital music. iTunes, coupled with iPods, was instrumental in addressing the ‘‘total need’’ of a consumer—a portable music player and a place to download the music from. Although this advantage has subsequently slowed down, but Apple greatly benefited by having this advantage at a critical time in the market. By being the only ‘‘whole product’’ for early adopters, Apple took an early lead in market share and market perception. This lead fed into positive reinforcing loops as Apple was able to use it is early success to invest in research and development (leading to better products and thereby more reason to buy iPods) and

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followed by its closest competitor SanDisk whose market share is a mere 8.9%. Also, an analysis of Apples financial data over the years indicated that the growth rate of iPod over the time period covering from its launch to the second quarter of 2007 has been following a upward trend. This is indicated in Fig. 6 that is a plot of total sales of iPod vis-a`-vis per fiscal quarter starting from 2002 till the second quarter of 2007. Fig. 7 clearly indicates an upward trend in the rise of the sales of iPod over a period of six years—from 2002 till 2007. The data from this plot can be used as a validation tool for the market share metrics. For example, let us compare the number of iPods sold in the last quarter on 2003 (period1, say in our market share metrics) against the number of iPods sold in the third quarter of 2007 (period n in our market share metrics). So, comparing the values that was received from Apple’s data, it was seen that the total number of iPod sold in the last quarter of 2003 amounted to 733,000 (Apple Press Release, 2004) while the number sold at the end of the third quarter of 2007 is a staggering 9,815,000 (Apple Press Release, 2007). Thus, putting these two values in Eq. (1), we get

marketing investment (leading to more awareness thereby greater sales). It also allowed Apple to create a web of key relationships with music companies and distribution. In this way, the temporary advantage that the complementary asset of music distribution gave to Apple, while eroded, gave them a huge lead for the long run that will be difficult for other competitors to overcome—in the process once again identifying their agile behavior as well as placing them as the leader in the market. It was also seen from analysis the fiscal report by quarter, that the growth rate of iPod has shown a steep increase over the last two years, in spite of the presence of numerous competitors in the market. 5.4. The agility metrics and Apple iPod The previous section of the article discussed the various strategies that were followed by Apple in their digital media sector along with discussing the possible agile traits of the enterprise. This section will present the reader with a roadmap that will provide an effort in tying the identified metrics with Apple’s strategies and its agile characteristics, if any. This section will be divided in three brief subsections, each dealing with an individual agility metrics. The section will conclude with a tabular representation of the findings and analysis and drawing conclusions based on the results and findings.

AGðMsÞ ¼

9; 815; 000 ¼ 13:39 733; 000

which in turn indicated a huge rise in the market share and hence Apple’s agile behavior with respect to the first identified metrics (i.e., the market share metrics).

5.4.1. Market share metric and Apple’s digital media The first of the three metrics that was identified in measuring enterprise agility was a metrics related to the market share of the enterprise. According to market research data (Cruz, 2007; Hau, 2007), the market share of iPod as of January 2007 is at a staggering 72.1%,

5.4.2. Responsiveness metric and Apple’s digital media The next important metric to assess the agility of an enterprise was responsiveness. Although the market

100 90

70 60 50 40 30 20 10

Fiscal Quarter Fig. 6. iPod sales by fiscal quarters (2002–2007) (source: Wikipedia, 2007).

2007 Q2

2007 Q1

2006 Q4

2006 Q3

2006 Q2

2006 Q1

2005 Q4

2005 Q3

2005 Q2

2005 Q1

2004 Q4

2004 Q3

2004 Q2

2004 Q1

2003 Q4

2003 Q3

2003 Q2

2003 Q1

2002 Q4

2002 Q3

2002 Q2

0 2002 Q1

iPods total sold (Millions)

80

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421

Fig. 7. iPod timeline (source: Answers.com).

share metric was listed in the discussion above the responsiveness metric (as achieving a high market share is the ultimate goal of all enterprises), it is the ability of an enterprise to respond successfully to a changing business environment that often proves to be the foundation of its agility. According to our definition, the assessment of responsiveness stems from the idea of comparing the rate of NPD of the enterprise in question vis-a`-vis the rate of NPD in the industry in that particular sector. It is here that Apple has a substantial edge over its market competitors. Ever since Apple launched the first generation of iPod in 2001, their mission has been to continually develop new products at a rapid rate, perfectly aligning to the changes in customer requirements in the process. Immediately after Apple launched the first line of iPods, they almost immediately realized that they had to make it Windowss compatible in order to attract the huge ‘‘Wintel’’ customer base. So, the next like of iPod with Windowss compatibility came out in the July of 2002, exponentially increasing Apple’s market share in the process. Apple further went on improving and launching new products at regular interval as shown in Fig. 7. As shown Apple has continuously indulged itself on new product development and they have done so at fairly short intervals. In this way, they have managed to be ahead of the curve with respect to NPD of the digital media sector. Also, on the other hand, other major players in the digital media market (e.g., SanDisk, Creative, Microsoft, etc.) was not able to maintain the same rate of new product development as Apple did, thereby conceding the position of market dominance to Apple. As an example, let us compare between the launch time between the first and second-generation iPod as well as the first and second generation of Microsofts Zune. While it took eight months (October 2001 till July 2002) for Apples to transit from first to the second generation of iPod (Michaels, 2006), it took Microsoft 12 months (November 2006 till November 2007) for Microsoft to take their Zune player from a first generation to a second generation (Cnet Reviews)—thus indicating that iPod had a faster responsive rate than their counterparts from Microsoft. Hence, putting the gathered data into the

equation denoting the responsiveness matrix, we have AGðReÞ ¼

12 months ¼ 1:5 8 months

which indicated that the rate of responsiveness of Apple iPod had a faster rate than their competitor. It can also be sated that Apple’s launching if iTunes along with iPod was one of the major traits of agility as shown by them. With iTunes coupled with iPod, the user got a complete package—now they had a player as well as a source where they can download digital music from. Apple was the first to address these needs of the consumers, thereby responding to the ever changing consumer needs for a portable media player—a need that has evolved from portable cassette player to portable compact disc player to a hard drive based digital media player. Although a lot of enterprises subsequently ended up following iTunes and its business model, Apple, by virtue of being the market leader, reaped the most benefit out of it. This thus goes on to show the agile nature of Apple—correctly assessing the changing customer needs and responding to it in a rapid fashion. 5.4.3. Cost-effectiveness metric and Apple’s digital media The third and the final metric that was developed is related to the cost. As stated in our working definition of agility, an enterprise, in order to be agile in nature, should responding to a sudden change in business environment not only rapidly, but do so in a cost-effective manner. Hence, our definition of cost metrics stated that in order for an enterprise to be agile, its cost of new product development should be lesser that the industries cost of new product development. For example, if we take the case of iPod Nano, say, according to our definition, the cost of developing the iPod Nano should be lesser than the cost of developing a portable digital audio player of the same type and having the same specification. From the available data (Emsnow, 2007), it was seen that the manufacturing cost of an iPod shuffle is stated to be around $45.00 while the same product, launched by Rio (Rio Forge Sport) is $53.00, which is marginally greater than iPod shuffle (Emsnow, 2007). Hence, putting the values in our derived

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Table 4 Apple’s agile behavior in the digital media sector. Metrics

Quantitative value (preferred value 41)

Apple Inc.

Market share

AGðMsÞ ¼

9; 815; 000 ¼ 13:39 733; 000

 Market leader in portable digital players  A steady increase in market share from period 1 till period n  Rate of growth substantially higher than its competitors

Responsiveness

AGðReÞ ¼

12 months ¼ 1:5 8 months

   

Costeffectiveness

AGðCeÞ ¼

$53:00 ¼ 1:18 $45:00

 Cheaper to manufacture an iPod shuffle than its competing counterparts of the same type.

Rapid response to consumer needs Continuous product innovation New product developed and launched with short intervals iPod and iTunes—the complete experience

formula of the cost-effectiveness metrics, we have AGðCeÞ ¼

$53:00 ¼ 1:18 $45:00

thus letting us conclude with a fair degree of certainty that the value of the cost metrics in case of Apple and its digital media player sector is greater than one (41)—the preferred value of the metric. Therefore, based on the metrics developed in Table 3, it was seen that while Apple Inc. showed sufficient agile characteristics in achieving the position of market leader in relation to their portable digital media players. Table 4 enlists the results in a tabular form. The preceding discussion and Table 4 indicated that the proposed metrics fitted properly into the case study and was helpful in indicating the agile characteristics of Apple Inc. So, is can be assumed that the case study demonstrated that the proposed metrics (Table 4) was useful in assessing an enterprise as agile. 5.4.4. Evaluating the level of agility of Apple Inc. As an endnote to this research, a simple model of FAEM (Yang and Li, 2002; Lin et al., 2006) was followed to determine the level of agility of Apple Inc. According to Yang and Li (2002), the level of agility of any particular enterprise can be determined by an AI (U) that can be determined by rating the factors and fuzzy assessment. The same was done using the three metrics enlisted before in order to assess the level of agility of Apple Inc. After analyzing the available data of Apple Inc. with respect to the three metrics stated before, the authors, independently ranked Apple, on a scale of 1–10, on the three previously mentioned metrics, i.e., responsiveness, cost-effectiveness and market share. Additional, in order to avoid any bias, all three metrics were assigned equal weights (0.333) and following the matrix multiplication process used by Yang and Li (2002), the overall AI was determined for Apple Inc. Table 5 provides the readers with the ratings and their corresponding weights. Based on the data in Table 5, the AI for Apple Inc. was determined by a simple matrix multiplication. The final value of U, i.e., U0 ¼ 7.15 which translates to Apple being agile in nature. The fact that Apple Inc. is agile in nature can be concluded from the value of the assessment grade

Table 5 Apple’s level of agility in the digital media sector. Metrics

Respondent 1 Respondent 2 Respondent 3 Weights

Market share 7 Responsiveness 8 Cost-effectiveness 6

8 9 7

8 7 5

0.33 0.33 0.33

vector whose meaning is, 8–10: extremely agile, 6–8: agile, 4–6: generally agile, 2–4: not agile and o2: extremely in agile (Yang and Li, 2002; Lin et al., 2006). The fact that the final value of U with respect to this research came out to be 7.15 (which lies between 6 and 8) makes Apple Inc. ‘‘agile’’ in nature.

6. Conclusions and recommendations A review of literature on enterprise agility and the case study presented was useful in indicating that the metrics proposed could be used to assess the agility of an enterprise. In addition, it should be noted that the set of metrics enlisted in the article should be used in tandem with each other in order to arrive at a more accurate prediction. Additionally, it should be stated that the proposed set of metrics are not exclusive and that other measures can aid in determining enterprise agility for certain market sectors. Rather, they comprise of the set of metrics that was thought to play a significant role in assessing and quantifying the agility of a corporate enterprise. The research conducted in this article dealt with the problem of assessing the agility of a corporate enterprise. Assessing enterprise agility is a key to effectively managing an enterprise’s business process and hence achieving a greater market share and overall profit. The metrics proposed in this paper can be applied to many other technological decisions. Like all commercial products, no company will share products specifics. Thus, we had to mine the open sources for a case study to demonstrate the utility of methodology and metrics. A detailed assessment of several market sectors (electronics, pharmaceutical, entertainment, etc.)

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