Organizational Agility At Scale … New Organizational Strategy (Part 4)
Background:This is a deep dive for a business leader interested in Digital / Organizational Transformation. This is Chapter 4 of a 5 part series. In Chapter 1, I proposed that digital is a way of being that exists at the confluence of customer obsession and organizational agility at scale, enabled by cross functional, autonomous teams with technology excellence at the core. Chapter 2 explored the first key principle of what it means to be digital : customer obsession while Chapter 3 concentrated on the need of implementing strategic vision by cross functional autonomous teams with technology excellence at the core. In this chapter, the focus is on Organizational Agility as an essential lever for Digital Transformation.
Chapter 4 / Principle 3: Organizational Agility at Scale
“Without exception, all of my biggest mistakes occurred because I moved too slowly.” — John Chambers, Cisco CEO
What is Organizational Agility?
Every successful company and well tested business model get disrupted eventually. The trick is to do it by yourself, repeatedly, like Apple, Netflix, Amazon,Paypal and few handful of progressive companies do every few years rather than being upended by nimble upstarts and fast moving competitors.
Organizational Agility can be defined simply as the ability of an organization (or division within an organization) to respond rapidly to feedback (internal and external) and adapt its strategy.
Well orchestrated organizational agility can help a business maneuver successfully and rapidly to a new competitive threat, use new technologies to create a winning product, move into a new market, or foster new ecosystems for growth and sustenance.
In fact, senior leaders across industries are starting to acknowledge how important agility is to their success. In a PwC survey of 1150 CEOs, 76% said that their ability to adapt to change will be a key source of competitive advantage in the future. A study by McKinsey found that 9 out of 10 executives said organizational agility was critical to business success and growing in importance over time. And the Project Management Institute’s Organizational Agility Report introduced the following equation: greater organizational agility = better performance = improved competitive advantage. Yet most companies grudgingly accept that they are not nimble enough to move as fast as they would like.
Three Commonly Applied Organizational Agility Strategies
All traditional incumbent enterprises are trying few different ways to accelerate the process of self-disruption and respond to external threats or jump on new digital opportunities. Organizational agility at scale is the fuel that provides this acceleration and subsequent transformation.
Here are three common strategies that I have witnessed among the big companies.
#1 Appear relevant and trendy: Many large publicly listed companies are desperate to stay market relevant and getting a slice of millennial money by buying relatively successful start-ups at rock bottom prices. These firms are busy with rapid start-up acquisitions to appeal to digital savvy younger demographic and boost stock market positions. Unilever buying Dollar Shave Club and targeting Honest Co, Walmart buying Jet.com, BlackRock purchasing robo-investor firm FutureAdvisor — all that is what Dave McClure satirically refers to as the Unicorn Hedge.
To me, this is akin to a rich homeowner buying properties in relatively upcoming neighborhoods when your own neighborhood is experiencing decay and getting hollowed out due to lack of new ideas and investments. You have the money but not the desire to change the place you live, so move to a new place quickly.
#2 Just keep doing enough to be noticed: Some other large companies are more interested in trying before buying. They pay bi-annual homage to the Valley to ‘see and learn’ what is new, fund mega corporate venture funds to invest in cool technology, launch in-house innovation lab away from the mothership headquarters with couple of ex-Googlers and declare themselves as agile technology companies by having such labs work in two week sprints.
Mega bank J.P. Morgan has partnered with NY based online lender OnDeck Capital Inc. to provide loans to small business customers from early 2016 and have been since then calling itself a technology company trying to attract attention of new talent heading to Silicon Valley. Citi Bank has similarly invested in in-house FinTech divisions with the focus to “fintegrate” rather than to create anything new.
All such efforts are similar to putting a quick and bright exterior coat of paint on an existing building or adding a modern glass-encased extension to an old house with the hope of matching up in value to other novel properties in the neighborhood. This is an attempt to buy time and shift focus while figuring out how might the organization step up its game.
#3 Change the game : Then there are others who are investing NOT only in multi billion dollar acquisitions to enhance their existing product portfolio but also focusing on changing the way they do business. Microsoft, General Electric (GE) and Goldman Sachs (GS) are prime examples of this category of incumbents companies focusing on achieving organizational agility at scale.
While Microsoft bought Linkedin for $26 billion to enhance their existing product portfolio, its CEO Satya Nadella has been deeply involved in laying the foundations for a new kind of company that its founders could only have dreamt of — the company has become the new ‘cool’ with a customer focused mission and purpose driving its global growth.
124 year old General Electric is betting big on big data, industrial grade sensors and service economy and making sure all its employees know how to code. CEO Jeff Immelt is on an ambitious mission to rewire 300,000 global workforce to “move quickly, take risks, fail fast and behave like a startup to keep winning”.
Goldman Sachs (GS), once labeled as the “great vampire squid wrapped around the face of humanity” is committed to shedding its older skin. Under the guidance of its CIO Chavez Marty, GS has been giving away some of its original trading technology to clients through open-source software and building online-only banks and secure messaging services for financial sector.
These companies are not just putting a new coat of paint or getting a modern extension or buying properties elsewhere, they are committed to reimagining their township to reflect the new world. Such companies are adopting simple but bold strategies to make themselves relevant to this new world.
Organizational Agility Is Not Fad
For a better part of the last century, it was possible for organizations to invest in innovation every 5–10 years and then harvest that invention for years through incremental investments in vertical integration and continual optimization. In relative stable market conditions, it was easier for such companies to focus on operational performance (efficiency) and gain competitive advantage. However, in today’s market conditions, digital disruption across the globe is creating faster cycles of product / service obsolescence than ever seen, making optimization focus a second best strategy to adapt. In this new world, the old concept of business resiliency is probably a fallacy.
No single organization can have total control of its future and environment, when hard earned customer loyalty is lost to few clicks on a hand-held supercomputer.
Companies do not have the luxury of developing new business models via existing bureaucratic, waterfall-like stage-gate processes that take years to roll out anything new to the market. They have to leave their old techniques to stay relevant. Great digital companies are increasingly becoming adept in killing ideas and products before it’s too late and diverting funds to new ideas that have the potential to win on short opportunity cycles. Organizational agility is a must to any market success.
Getting Rid of Past Habits: How To Kill Annual Budgeting
Recently, I was confronted with a digital leader in a large Fortune 50 company who didn’t want to share her people and resources with the broader businesses. She feared losing control of her workforce when it was pretty evident from market data that there was an immediate need of her team’s skills for existing distribution channels to fight-off an unplanned competitive threat.
Though her team was working on a relatively lower priority engagement, she refused to give up the team members with requisite skills to another higher priority initiative.
I witnessed first hand the how the main obstacles to improved business responsiveness in such organizations of scale are slow decision-making, conflicting departmental goals and priorities, risk-averse cultures and silo-based information (The Economist: Economic Intelligence Unit report 2009).
To adapt to this new world, leaders need to attack the perhaps the most broken process hindering the cross-functional, customer-obsessed way of thinking — the annual budgeting process (in some cases annual targets).
Though the annual budget cycles gives you a feeling of control over finances and resources to be spent over the upcoming year, in reality it’s actually a barrier to innovation and new ways of thinking and doing things. Such centralized once-in-year theater of fund allocation creates unhealthy competition between senior executives and their teams; the applause is reserved for the senior leaders who manage to secure the most number of dollars allocated to their initiatives through elbow greasing and power politics so as to ‘manage’ a higher headcount of subordinates.
The entire process stinks of the command and control way of working from the last century.
In the same organization mentioned earlier, we were able to pilot a new budgeting process. The process focused on releasing funds, twice a year, to those initiatives which score high on relative customer outcome value and cost of delay. We used Fibonacci Planning Poker cards to rank all existing and new initiatives on a 2*2 grid (that is what consultants do) based on customer outcome and cost of delay.
All the initiative’s owners were able to gather in an off-site meeting and do relative ranking of the proposals with the help of a trained facilitator. The entire team agreed to focus on the top 50 initiatives (of the 170 items initially proposed) as they could all see the significant value created for the customers if they do these 50 things well, rather than trying to do everything in the year. Also, we made sure that the teams are forced to come back to the funding discussion every 6 months so as to create incentives for the leaders to measure real outcome (rather than vanity metric) of their initiatives.
In the end
This notion of organizational agility is not just limited to traditional companies.
Established digital players with profound success are experiencing the same challenges in their own ways. We all know Google, Uber and Tesla as the biggest players in self-driving cars in the Valley, but the truth is that there are 30+ other global auto companies and tech firms who have invested swaths of cash and loads of PhD brainpower to commoditize driverless cars and gain innovation advantage.
The winners will be determined by not by sheer technology excellence but by the pace of the organization to monetize ever advancing technology changes and satisfy customer demands.
That cannot be done without organizational agility at scale.
Learn more about digital transformation from Part 1 Part 2, Part 3, Part 5 of this five part series.
If you like what you read and want to use this content for any presentation or business case or anything that makes sense for you, please let me know how you plan to use it. Open to listening to critical comments and constructive suggestions.