There is no accounting for flexibility

I am working with several clients on how to identify the right balance between pursuing scale and leverage on the one hand and retaining agility and flexibility on the other.

Many organizations are becoming more integrated globally; either through matrix organizations or just a realization that cross functional, international and global working is required to deliver synergies and use resources effectively (whatever the formal structure). This is leading to a lot of focus on creating scale and leverage, but the more we do this, the more we encounter concerns about how this can inhibit agility and local flexibility.

One of the challenges we are all struggling with is that it’s hard to quantify and account for flexibility with our existing accounting practices and methods.

If we are developing a global initiative, product or process it’s relatively easy to show cost savings – for example through global single source purchasing. Our accounting systems can recognize and value this because we have numbers to back up our logic. We can calculate the return on investment and the business case is often compelling.

However, how do we account for the loss of agility and flexibility? What are the opportunity costs of the dis-empowerment of local people no longer able to make a decision or respond quickly to local needs and circumstances? How do we quantify the cost of the space we create for more agile local competitors to get a foothold in our markets? How do we bring these important factors into the debate to balance the logic or scale and leverage?

I don’t know of any company that has a solution to this yet.

Without a way to quantify and account for these important flexibility factors I fear that we overestimate the benefits and underestimate the costs of global initiatives, and may therefore be making poor business decisions in some instances.

The more we pursue leverage and scale the more we potentially inhibit flexibility and agility. It’s an area I am researching and discussing with clients for my next book. There are opportunities to choose different approaches or even to achieve agility through leverage (and vice versa) but they require a more nuanced and accurate view of the trade-offs we make.

Do you have any clever ways of quantifying the impact of global initiatives on local flexibility? How does your company account for agility? I would be happy to share ideas with any corporate people out there who are working on this issue.