Nobody really saw COVID-19 coming. Most people thought it would be similar to previous virus outbreaks and peter out without any meaningful impact on our daily lives. As the situation unfolded, we struggled to fully grasp the exponential nature of it.
In the business world, we continually face sudden disruption shocks in a similar way. Our senses tell us things are changing incredibly quickly, but like the COVID-19 situation, we fail to grasp the exponential nature of the change, leaving us ill-prepared to cope when it inevitably arrives.
More and more organisations are realising they need to be designed to cope with constant change. This article aims to outline 6 key principles necessary to build such a business.
- Decentralised Decision Making
- Goals and Objectives
Most businesses are designed for efficiency, not adaptability. The underlying philosophy is to obtain the maximum yield for an acceptable effort and to scale this as effectively as possible. Last century’s Scientific Management is the key influence. Such businesses, by design, are not built to suddenly change course. They are designed to do key activities efficiently.
In contrast, a start-up is designed to be incredibly adaptable. It’s structure is fluid as it continually pivots to find the right product-market fit in order to survive. It is fast and nimble and can easy out-manoeuvre larger organisations, but it isn’t efficient and it can’t scale.
Companies that push through the start-up phase and scale bemoan the resulting bureaucracy and structure. The original ethos and culture of the start-up is lost as it grows.
Our clients want the benefits of both. They want the innovation, speed and agility of a start-up combined with the size and scale of a larger firm. Often they are facing some sort of disruption, hence they must be able to change direction quickly.
A business that has embraced Organisational Agility can achieve this, however it requires a profoundly different structure and operating model. It is typically structured as a collection of autonomous, adaptive units working together in unison towards a common objective. They have the scale to compete, yet the agility to suddenly change course to navigate around an obstacle without the cumbersome sluggishness of centralised control. They resemble a fleet of boats, each with a crew, a mission and autonomy to sail towards an agreed objective.
If new conditions emerge, they can change course accordingly, based on the conditions each of them currently face. For instance, say a pod of whales suddenly surfaces for air. Each boat can change course to sail around the whales based on the conditions they observe. Those close to the pod might rapidly tack starboard. Those further back might take a different course of action to avoid the traffic heading starboard.
Contrast that to how a large freight ship would cope. It would struggle to change course fast enough, and likely plough straight into the whales.
A firm is similar. If we are structured as a “fleet” of smaller, independent units (teams), and something suddenly appears out of nowhere, say a new competitor, a change in regulations or a global pandemic, we can change course quickly by distributing control to the independent teams.
Structure enables agility.
Decentralised Decision Making
If we are to structure ourselves this way, we clearly need to change how decisions are made.
In a traditional firm (the freighter), intelligence and decision making is centralised. Decisions are made at the “top” of the firm and supporting directives cascade to the people doing the tasks. When decisions need to be made, they must flow back up to the centralised control and then back down again. The delay directly prevents agility.
In an adaptive firm, authority is pushed to the people with the information. In other words, the people at the coalface are empowered to make appropriate decisions as required. If the decision requires others, they find the people required and attempt to make the decision as quickly as possible.
But if we empower teams to make their own decisions, isn’t is possible they head off in random directions? Absolutely, which is why the other principles are equally as important. Read on.
Goals and Objectives
To make sensible decisions, teams must understand the broader outcomes the organisation is aiming to achieve. To support this, teams undertake planning collectively to break down larger objectives into ones their team can effetely own.
“Stay home to save lives” is a clear goal (although lacks measures). Set by the NZ Government for the COVID-19 crisis, it is obvious what is being asked, but more importantly, why. It turns out “why” is deeply important to humans.
The goal doesn’t have to be perfect with answers for all contingencies, but it does need to be clear, explain why, and needs to be supported by the ability for people to clarify the goal. To turn the goal into an objective, it needs to include tangible measures.
OKR’s have recently become a useful way of expressing objectives.
Objectives are memorable qualitative descriptions of what you want to achieve. Objectives should be short, inspirational and engaging. An Objective should motivate and challenge the team.
Key Results are a set of metrics that measure your progress towards the Objective. For each Objective, you should have a set of 2 to 5 Key Results. More than that and no one will remember them.
The reason objectives are important is that they enable better execution.
Traditional management is based on humans being analogous to machines, whereas Organisational Agility is designed to bring out the chaotic, messy, creative brilliance of humans.
To demonstrate, let’s contrast two different organisations – Traditional Company and Modern Company.
Traditional Company uses traditional management techniques. The Executive Leadership Team (ELT) develop long-range strategies and the Senior Management Team (SMT) turn those into annual plans and budgets and manage execution.
Decision-making is centralised in two different forums – the ELT for things that impact strategy and the SMT for execution-level decision making. Each forum meets fortnightly.
The culture tends to value conformance, adherence to plan and outputs. People tend to be rewarded for either tenure or delivering work on time and under budget. People have managers who allocate tasks and give appraisals of performance.
Work is usually delivered via projects. Projects break work down into smaller chunks and assign tasks resources who are managed to execute. Sometimes, resources comment that they are unsure of why they are doing the work, by just get on with the job.
If a project needs to change direction, it has to submit a change request for either the SMT or ELT fortnightly meeting. This is quite an intimidating process to go through so is generally discouraged. Sometimes the ELT discover “watermelon projects” – projects that have status reports that indicate green (everything is fine) but the project is actually red on the inside (in trouble). These projects are terminated. Traditional Company estimates that on an average year it wastes $72M on either watermelon projects or projects that require additional funding.
Overall, people at Traditional Company reasonably happy, although staff mention they are worried about the new competitors springing up and how quickly customers jump ship given the chance. Customers also seem to be more informed than they used to, often demanding new products and services.
Modern Company has embraced organisational agility. The Executive Leadership Team develop long-range strategies and communicate these via outcomes they would like to see the firm achieve, expressed as OKRs.
Decision-making is pushed to as close to the people with the appropriate information as possible. Sometimes this means decision making at “tribe” level (a tribe being a collection of teams). Other times it means decisions are made by the teams themselves.
Modern Company has invested in developing its culture. It values delivering amazing customer experiences ahead of following the plan. This often requires staff to be creative. People work in teams, each with its own style of sub-culture. Across all teams though, there is a culture of constant feedback and growth. Everyone is aware of the growth areas and openly pursue opportunities to address them.
Teams obtain work as part of Modern Company’s quarterly planning sessions. They use a technique called Big Room Planning out of which comes their Team OKR for the quarter. They then break this down into a number of “Sprints” (two-week chunks) that deliver a piece of the OKR. They regularly review progress and discuss whether they need to change direction.
They’re less concerned about following plans. At first, managers were anxious about this, but when they saw the results of focusing on customer outcomes they relaxed.
They don’t have people managing them to execute, but they do have people who are dedicated to helping them learn and grow. Their key role is to help develop their competence.
Work is delivered by teams. Some teams are part of a larger group called a Tribe. Work exists in a backlog – a prioritised list of things required to achieve their OKR. Each Sprint, Teams select work from their backlog.
If Teams need to change course, they have the freedom to do so, as long as they remain committed to their OKR. If throughout the courses of their work they find the OKR needs to change, they immediately engage whoever they require to discuss and re-plan. They success based on customer value and business value delivered, not time and budget.
Overall, staff at Modern Company say they feel highly engaged. The company has a really eclectic mix of people, from analytical to creative. Staff often say they are excited about what opportunities future technologies will enable and what this might mean for their customers. Customers rate Modern Company highly, even participating in the development of new products and services.
As you can tell, these two companies execute very differently because they are designed and structured differently.
When work is being done by many small, autonomous teams, it is easy for them to drift off in random directions. There are a number of techniques to keep teams aligned without reverting back to centralised control.
- Daily alignment – a 15-minute daily meeting to inspect progress towards our goal(s) and adapt accordingly. This is an opportunity to get our heads out of the weeds to ensure we heading in the right direction.
- Scrum of Scrums – a simple way for teams to keep across progress of other teams and order to avoid overlaps and dependencies. After each daily alignment meeting, 1-2 representatives of each team go to a Scrum of Scrums meeting and share progress, obstacles and challenges.
- Sprint Reviews are open meetings anyone in the company can attend. Teams demonstrate tangible progress and obtain feedback. Sprint Reviews occur at the end of every single Sprint and are a powerful way for a team to ensure what it is delivering is both of value and aligned to the organisational objectives.
- Big Room Planning is a way of all teams planning the next stage of the journey together. We take the outcomes of last period as input and together plan out what we, as a company, aim to achieve for the next quarter, including which teams will be working on what and whether they think it is achievable. It is a combination of top-down and bottom-up planning that includes teams involved. It typically results in significantly increased buy-in and engagement.
Clearly, this type of firm requires different leadership. Thankfully, one of the most successful nuclear submarine commanders in history who ran his vessel this way wrote an outstanding book on how he achieved this and it’s enduring impacts, tried and tested in numerous mission-critical situations.
He shares three critical principles leaders must embrace to be successful with Organisational Agility:
- Clarity on the objective and why it is important
- Control – delegating control & decision making as much as is practical
- Competence – if we are going to decentralise decision making then we need to ensure the people doing the work are technically competent to make the decisions they need to make.
We’ve covered Clarity in “Goals and Objectives” above and we’ve covered Control in “Decentralised Decision Making”, “Execution” and to some extend “Alignment”. If you are interested in diving deeper on these topics, I recommend David Marquet’s website and book.
Over the years I’ve worked with many firms who have attempted to apply the principles I have outlined in this article. In my experience, one of the key reasons they fail is that they give too much control without developing competency. You cant simply transition from one culture to another overnight and expect to succeed. Building competency in people is utterly vital.
Many of us have been raised based on traditional thinking. It was the underlying principle in our schooling and careers. To work in this way we have a significant amount of re-wiring to do, which takes time. Learning new ways of working is one thing. Applying them is another. It requires patience and support from people who know what they are doing and can guide you.
Our approach is to first give a small amount of control to uncover the gaps in competence and clarity. The step is small and calculated to uncover gaps. Competence is developed through training, mentoring and coaching. If the step is too big, chaos will ensue. Equally, developing a highly trained team without giving them control will result in frustrations and departures.
The idea is to instil a culture of leadership that gives others the opportunity to grow by inviting them to the next level. For example, if someone wants to be told what to do, the best response is to ask them what they think or see, and so on.
If you are interested in understanding this better, please contact us.
COVID-19 will change the world. All of us will learn from this situation and make our businesses more adaptable and responsive. This can be significantly accelerated through a fundamentally different system of work based on distributed intelligence.
Once you have stabilised, please don’t forget to invest in your organisation to help avoid learning lessons the hard and expensive way. Together, let’s build better businesses that progressively shape the world for good.