The five trademarks of agile organizations PART 1
Agile
organizations—of any size and across industries—have five key elements in
common.
Our experience
and research demonstrate that successful agile
organizations consistently exhibit the five trademarks described in this
article. The trademarks include a network of teams within a people-centered
culture that operates in rapid learning and fast decision cycles which are
enabled by technology, and a common purpose that co-creates value for all
stakeholders. These trademarks complement the findings from “How to create an agile organization.”
The old
paradigm: Organizations as machines
A view of the world—a paradigm—will endure
until it cannot explain new evidence. The paradigm must then shift to include
that new information. We are now seeing a paradigm shift in the ways that
organizations balance stability and dynamism.
First, the old paradigm. In 1910, the Ford
Motor Company was one of many small automobile manufacturers. A decade later,
Ford had 60 percent market share of the new automobile market worldwide. Ford
reduced assembly time per vehicle from 12 hours to 90 minutes, and the price
from $850 to $300, while also paying employees competitive rates.
Ford’s ideas, and those of his
contemporary, Frederick Taylor, issued from scientific management, a
breakthrough insight that optimized labor productivity using the scientific
method; it opened an era of unprecedented effectiveness and efficiency.
Taylor’s ideas prefigured modern quality control, total-quality management,
and—through Taylor’s student Henry Gantt—project management.
Gareth Morgan describes Taylorist
organizations such as Ford as hierarchical and specialized—depicting them as
machines. For decades, organizations that embraced this machine model and the
principles of scientific management dominated their markets, outperformed other
organizations, and drew the best talent. From Taylor on, 1911 to 2011 was “the
management century.”
Disruptive
trends challenging the old paradigm
Now, we find the machine paradigm shifting
in the face of the organizational challenges brought by the “digital
revolution” that is transforming industries, economies, and societies. This is
expressed in four current trends:
·
Quickly evolving
environment. All stakeholders’ demand patterns
are evolving rapidly: customers, partners, and regulators have pressing needs;
investors are demanding growth, which results in acquisitions and
restructuring; and competitors and collaborators demand action to accommodate
fast-changing priorities.
·
Constant introduction of
disruptive technology. Established
businesses and industries are being commoditized or replaced through
digitization, bioscience advancements, the innovative use of new models, and
automation. Examples include developments such as machine learning, the
Internet of Things, and robotics.
·
Accelerating
digitization and democratization of information. The increased volume, transparency, and
distribution of information require organizations to rapidly engage in
multidirectional communication and complex collaboration with customers,
partners, and colleagues.
·
The new war for talent. As creative knowledge- and learning-based tasks
become more important, organizations need a distinctive value proposition to
acquire—and retain—the best talent, which is often more diverse. These
“learning workers” often have more diverse origins, thoughts, composition, and
experience and may have different desires (for example, millennials).
When machine organizations have tried to
engage with the new environment, it has not worked out well for many. A very
small number of companies have thrived over time; fewer than 10 percent of the
non-financial S&P 500 companies in 1983 remained in the S&P 500 in
2013. From what we have observed, machine organizations also experience
constant internal churn. According to our research with 1,900 executives, they
are adapting their strategy (and their organizational structure) with greater
frequency than in the past. Eighty-two percent of them went through a redesign
in the last three years. However, most of these redesign efforts fail—only 23
percent were implemented successfully.
The new
paradigm: Organizations as living organisms
The trends described above are
dramatically changing how organizations and employees work. What, then, will be
the dominant organizational paradigm for the next 100 years? How will companies
balance stability and dynamism? Moreover, which companies will dominate their
market and attract the best talent?
Our article “Agility: It rhymes with stability” describes the paradigm that achieves this balance and
the paradox that truly agile organizations
master—they are both stable and dynamic at the same time. They design stable
backbone elements that evolve slowly and support dynamic capabilities that can
adapt quickly to new challenges and opportunities. A smartphone serves as a
helpful analogy; the physical device acts as a stable platform for myriad
dynamic applications, providing each user with a unique and useful tool.
Finally, agile organizations mobilize quickly, are nimble, empowered to act,
and make it easy to act. In short, they respond like a living organism.
When pressure is applied, the agile
organization reacts by being more than just robust; performance actually
improves as more pressure is exerted. Research shows that agile organizations have a
70 percent chance of being in the top quartile of organizational health, the
best indicator of long-term performance.5Moreover, such companies simultaneously
achieve greater customer centricity, faster time to market, higher revenue
growth, lower costs, and a more engaged workforce:
·
A global electronics enterprise delivered
$250 million in EBITDA, and 20 percent share price increase over three years by
adopting an agile operating model with its education-to-employment teams.
·
A global bank reduced its cost base by
about 30 percent while significantly improving employee engagement, customer
satisfaction, and time to market.
·
A basic-materials company fostered
continuous improvement among manual workers, leading to a 25 percent increase
in effectiveness and a 60 percent decrease in injuries.
As a result agility, while still in its
early days, is catching fire. This was confirmed in a recent McKinsey
Quarterly survey report of 2,500 business leaders.6According
to the results, few companies have achieved organization-wide agility but many
have already started pursuing it in performance units. For instance, nearly
one-quarter of performance units are agile. The remaining performance units in
companies lack dynamism, stability, or both.
However, while less
than ten percent of respondents have completed an agility transformation at the
company or performance-unit level, most companies have much higher aspirations
for the future. Three-quarters of respondents say organizational agility is a
top or top-three priority, and nearly 40 percent are currently conducting an
organizational-agility transformation. High tech, telecom, financial services,
and media and entertainment appear to be leading the pack with the greatest
number of organizations undertaking agility transformations. More than half of
the respondents who have not begun agile transformations say they have plans in the works to
begin one. Finally, respondents in all sectors believe that more of their
employees should undertake agile ways of working (on
average, respondents believe 68 percent of their companies’ employees should be
working in agile ways, compared with the 44 percent of employees who currently
do).
The rest of this article describes the
five fundamental “trademarks” of agile organizations based on our recent
experience and research. Companies that aspire to build an agile organization
can set their sights on these trademarks as concrete markers of their progress.
For each trademark, we have also identified an emerging set of “agility
practices”—the practical actions we have observed organizations taking on their
path to agility.
The
five trademarks of agile organizations
While each trademark has intrinsic value,
our experience and research show that true agility comes only when all five are
in place and working together. They describe the organic system that enables
organizational agility.
Linking across them, we find a set of
fundamental shifts in the mind-sets of the people in these organizations. Make
these shifts and, we believe, any organization can implement these trademarks
in all or part of its operations, as appropriate.
1. North Star embodied across the organization
Mind-set shift
From: “In
an environment of scarcity, we succeed by capturing value from competitors,
customers, and suppliers for our shareholders.”
To: “Recognizing
the abundance of opportunities and resources available to us, we succeed by
co-creating value with and for all of our stakeholders.”
Agile organizations reimagine both whom
they create value for, and how they do so. They are intensely customer-focused,
and seek to meet diverse needs across the entire customer life cycle. Further,
they are committed to creating value with and for a wide range of stakeholders
(for example, employees, investors, partners, and communities).
To meet the continually evolving needs of
all their stakeholders, agile organizations design distributed, flexible
approaches to creating value, frequently integrating external partners directly
into the value creation system. Examples emerge across many industries,
including: modular products and
solutions in manufacturing; agile supply chains in
distribution; distributed energy grids in
power; and platform businesses like Uber, Airbnb, and Upwork. These modular,
innovative business models enable both stability and unprecedented variety and
customization.
To give coherence and focus to their
distributed value creation models, agile organizations set a shared
purpose and vision—the “North Star”—for the organization that helps people
feel personally and emotionally invested. This North Star serves as a reference
when customers choose where to buy, employees decide where to work, and
partners decide where to engage. Companies like Amazon, Gore, Patagonia, and
Virgin put stakeholder focus at the heart of their North Star and, in turn, at
the heart of the way they create value.
Agile organizations that combine a deeply
embedded North Star with a flexible, distributed approach to value creation can
rapidly sense and seize opportunities. People across the
organization individually and proactively watch for changes in customer
preferences and the external environment and act upon them. They seek
stakeholder feedback and input in a range of ways (for example, product
reviews, crowd sourcing, and hackathons). They use tools like customer journey maps to
identify new opportunities to serve customers better, and gather customer
insights through both formal and informal mechanisms (for example, online
forums, in-person events, and start-up incubators) that help shape, pilot,
launch, and iterate on new initiatives and business models.
These companies can also allocate
resources flexibly and swiftly to where they are needed most. Companies like
Google, Haier, Tesla, and Whole Foods constantly scan the environment. They
regularly evaluate the progress of initiatives and decide whether to ramp them
up or shut them down, using standardized, fast resource-allocation processes to
shift people, technology, and capital rapidly between initiatives, out of
slowing businesses, and into areas of growth. These processes resemble venture
capitalist models that use clear metrics to allocate resources to initiatives
for specified periods and are subject to regular review.
Senior leaders of agile organizations play
an integrating role across these distributed systems, bringing coherence and
providing clear, actionable, strategic guidance around
priorities and the outcomes expected at the system and team levels. They also
ensure everyone is focused on delivering tangible value to customers and all
other stakeholders by providing frequent feedback and coaching that enables
people to work autonomously toward team outcomes.
CONTINUES
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