Uncertainty is a fact of life in any competitive business environment, but the proactive business leader doesn’t fear uncertainty; he recognises it and deals with it better and faster than the competition. A business that doesn’t react to change and uncertainty can’t remain competitive for long; the often-quoted example is the demise of Kodak. Having invented the technology for digital photography they didn’t recognise the disruption this would cause to the market and their dogged focus on wet film as the basis for their business strategy was ultimately doomed to failure. For a business to stay ahead of the competition it must be alive to the changes around it and evolve its business model accordingly. This requires some objective tools and methodology to help make the right changes at the right time to exploit emerging opportunities – and do it before the competition does. One such tool is the OODA Loop (Observe, Orient, Decide, Act); a concept first developed by Colonel John Boyd of the US Air Force.
Much has been written about the OODA Loop and how it can be applied to business and the challenges of staying ahead of the competition. The concept is not new, but it is often misunderstood and applied at too simplistic a level. But properly understood and implemented, it can be an immensely powerful tool in dealing with just that uncertainty that is at the heart of the competitive business environment. It is built on the premise that any business will have an internal model of its environment to inform its decision-making process and that this model must be updated continuously to remain relevant to the changing world around it. Even more important though is the idea that by evolving the model faster it is possible to influence change in the environment rather than just being responsive to it, and in doing so force the competition to be reactive. Do this well and you can maintain a competitive edge.
The four elements of the OODA Loop are:
• Observe. This is about gathering as much information as possible about the environment to inform the process. It includes external factors such as market forces, customers’ needs and wants, regulatory changes, technological advances and economic drivers; but also includes internal factors such as finance, staffing issues and intellectual property. As with all information gathering exercises, there is often incomplete information available, too much information to make sense of, or a combination of both. It is here that professional judgement, informed by outside expertise if necessary, is key to spotting patterns and making sense out of chaos.
• Orient. This is the stage in the process where the information gathered is used to challenge the existing business models and evolve new ones. Key here is an attitude of innovation, where new ideas from other business areas, competitors or academic research are assimilated into the business to generate new models that fit the changing environment. It is a continuous process rather than a one-off event and it is important to be rigorous in focusing in on the key factors that will drive change forward, ignoring irrelevancies. Don’t let previous doctrine become dogma that constrains novel ideas and always be prepared to bring in outside help to challenge the status quo.
• Decide. Now is the time to be decisive. No decision is perfect, but a good decision made in a timely manner and followed through strongly is far more effective than prevarication and hanging on for the “perfect” decision. It is also important to make sure the whole team is on the same page, with a real understanding of what they have to achieve and why (see Mission Leadership). By far the easiest way to achieve this is to involve the key players throughout the decision-making process.
• Act. Putting the new plan into action should not be seen as the end of the process. It is about testing the hypothesis behind the new business model and the decisions made, and learning from what happens to improve further. This is the point in the process where appropriate speed is important. Overcoming the natural inertia in the business and driving change forward is important in keeping ahead of the competition. With luck the change will be successful, but if further improvement is needed the maxim of “fail early” and respond quickly keeps the momentum going – observe the impact of the new approach and keep going around the loop before the competition can react.
As with all tools, the OODA Loop is not a silver bullet and it must be used wisely to have the desired effect, but in a fast-moving world it can keep a business agile and give it the competitive edge to succeed. Understanding just how to apply it to your business can be challenging, but it is worth persevering – don’t keep blindly applying an old model to a new situation; drive the change agenda and keep competitors reactive.