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The Features of Agile Organizations

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The ability to innovate faster and in new ways will always be critical to achieving high performance. But given the new dynamics of a fast-changing and less predictable global economy, a number of competitive assumptions are changing.

One of the most important changes: The new business environment will favor those companies able to execute innovations faster, and to move their organizations forward more nimbly by cultivating organizational agility.

Farsighted business leaders preparing their organizations for the eventual upturn have already recognized this.

Agile organizations—of any size and across industries— that want to lead the business terrain exhibit five trademarks in common. These trademarks enable organizations to balance stability and dynamism and thrive in an era of unprecedented opportunity.

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.

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. There is now 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 try to engage with the new environment, it does not work out well for many. A very small number of companies have thrived over time.

The new paradigm: Organizations as living organisms

The trends described above are dramatically changing how organizations and employees work. Agile organizations mobilize quickly, are nimble, empowered to act, and make it easy to act. In short, they respond like a living organism (Exhibit 1).

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.

Moreover, such companies simultaneously achieve greater customer centricity, faster time to market, higher revenue growth, lower costs, and a more engaged workforce.

As a result, agility, while still in its early days, is catching fire. Few companies have achieved organization-wide agility but many have already started pursuing it in performance units.

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 (Exhibit 2).

The five trademarks of agile organizations

While each trademark has intrinsic value, research shows 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, it is evidence that 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

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.

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.

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.

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. 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.

  1. Network of empowered teams

Agile organizations maintain a stable top-level structure, but replace much of the remaining traditional hierarchy with a flexible, scalable network of teams. Networks are a natural way to organize efforts because they balance individual freedom with collective coordination.

To build agile organizations, leaders need to understand human networks (business and social), how to design and build them, how to collaborate across them, and how to nurture and sustain them.

An agile organization comprises a dense network of empowered teams that operate with high standards of alignment, accountability, expertise, transparency, and collaboration. The company must also have a stable ecosystem in place to ensure that these teams are able to operate effectively.

Like the cells in an organism, the basic building blocks of agile organizations are small fit-for-purpose performance cells. Compared with machine models, these performance cells typically have greater autonomy and accountability, are more multidisciplinary, are more quickly assembled (and dissolved), and are more clearly focused on specific value-creating activities and performance outcomes.

They can be comprised of groups of individuals working on a shared task (i.e., teams) or networks of individuals working separately, but in a coordinated way. Identifying what type of performance cells to create is like building with Lego blocks. The various types (Exhibit 3) can be combined to create multiple tailored approaches.

The three most commonly observed agile types of performance cell today include:

  • Cross-functional teams deliver ‘products’ or projects, which ensure that the knowledge and skills to deliver desired outcomes reside within the team. These teams typically include a product or project owner to define the vision and prioritize work.
  • Self-managing teams deliver baseload activity and are relatively stable over time. The teams define the best way to reach goals, prioritize activities, and focus their effort. Different team members will lead the group based on their competence rather than on their position.
  • Flow-to-the-work pools of individuals are staffed to different tasks full-time based on the priority of the need. This work method can enhance efficiencies, enable people to build broader skillsets, and ensure that business priorities are adequately resourced.

However, other models are continuously emerging through experimentation and adaptation.

  1. Rapid decision and learning cycles

Agile organizations work in rapid cycles of thinking and doing that are closely aligned to their process of creativity and accomplishment. Whether it deploys these as design thinking, lean operations, agile development, or other forms, this integration and continual rapid iteration of thinking, doing, and learning forms the organization’s ability to innovate and operate in an agile way.

This rapid-cycle way of working can affect every level. At the team level, agile organizations radically rethink the working model, moving away from “waterfall” and “stage gate” project-management approaches. At the enterprise level, they use the rapid-cycle model to accelerate strategic thinking and execution.

The impact of this operational model can be significant. There are several characteristics of the rapid cycle model:

  • Agile organizations focus on rapid iteration and experimentation.
  • Agile organizations leverage standardized ways of working to facilitate interaction and communication between teams, including the use of common language, processes, meeting formats, social-networking or digital technologies, and dedicated, in-person time, where teams work together for all or part of each week in the sprint.
  • Agile organizations are performance-oriented by nature.
  • Working in rapid cycles requires that agile organizations insist on full transparency of information, so that every team can quickly and easily access the information they need and share information with others.
  • Agile organizations seek to make continuous learning an ongoing, constant part of their DNA.
  • Agile organizations emphasize quick, efficient, and continuous decision making, preferring 70 percent probability now versus 100 percent certainty later. They have insight into the types of decisions they are making and who should be involved in those decisions.
  1. Dynamic people model that ignites passion

An agile organizational culture puts people at the center, which engages and empowers everyone in the organization. They can then create value quickly, collaboratively, and effectively.

Organizations that have done this well have invested in leadership which empowers and develops its people, a strong community which supports and grows the culture, and the underlying people processes which foster the entrepreneurship and skill building needed for agility to occur.

Leadership in agile organizations serves the people in the organization, empowering and developing them. Rather than planners, directors, and controllers, they become visionaries, architects, and coaches that empower the people with the most relevant competencies so these can lead, collaborate, and deliver exceptional results.

Such leaders are catalysts that motivate people to act in team-oriented ways, and to become involved in making the strategic and organizational decisions that will affect them and their work. We call this shared and servant leadership.

Agile organizations create a cohesive community with a common culture. Cultural norms are reinforced through positive peer behavior and influence in a high-trust environment, rather than through rules, processes, or hierarchy. This extends to recruitment.

People processes help sustain the culture, including clear accountability paired with the autonomy and freedom to pursue opportunities, and the ongoing chance to have new experiences. Employees in agile organizations exhibit entrepreneurial drive, taking ownership of team goals, decisions, and performance.

For example, people proactively identify and pursue opportunities to develop new initiatives, knowledge, and skills in their daily work. Agile organizations attract people who are motivated by intrinsic passion for their work and who aim for excellence.

In addition, talent development in an agile model is about building new capabilities through varied experiences. Agile organizations allow and expect role mobility, where employees move regularly (both horizontally and vertically) between roles and teams, based on their personal-development goals.

An open talent marketplace supports this by providing information on available roles, tasks, and/or projects as well as people’s interests, capabilities, and development goals.

  1. Next-generation enabling technology

For many organizations, such a radical rethinking of the organizational model requires a rethinking of the technologies underlying and enabling their products and processes, as well as the technology practices needed to support speed and flexibility.

Agile organizations will need to provide products and services that can meet changing customer and competitive conditions. Traditional products and services will likely need to be digitized or digitally-enabled. Operating processes will also have to continually and rapidly evolve, which will require evolving technology architecture, systems, and tools.

Organizations will need to begin by leveraging new, real-time communication and work-management tools. Implementing modular-based software architecture enables teams to effectively use technologies that other units have developed.

This minimizes handovers and interdependencies that can slow down production cycles. Technology should progressively incorporate new technical innovations like containers, micro-service architectures, and cloud-based storage and services.

In order to design, build, implement, and support these new technologies, agile organizations integrate a range of next-generation technology development and delivery practices into the business. Business and technology employees form cross-functional teams, accountable for developing, testing, deploying, and maintaining new products and processes.

They use hackathons, crowd sourcing, and virtual collaboration spaces to understand customer needs and develop possible solutions quickly. Extensive use of automated testing and deployment enables lean, seamless, and continuous software releases to the market (for example, every two weeks vs. every six months).

Within IT, different disciplines work closely together (for example, IT development and operations teams collaborate on streamlined, handover-free DevOps practices).

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Are we long—or short—on talent?

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  • By looking at their supply of skills and talent in a new light today, organizations can take actions that better prepare their companies for tomorrow’s challenges.

 

CEOs and HR leaders worried about the viability of their talent strategy may be excused an occasional sleepless night. After all, there’s a closetful of bogeymen to pick from as disruptive technologies such as digitization, automation, and artificial intelligence combine with demographic forces to continue transforming the nature of work, how it gets done, and by whom. The resulting job displacement could be massive—think Industrial Revolution massive—affecting as many as 800 million people globally by 2030 and requiring up to 375 million of them to switch occupational categories and learn new skills.

Companies are already feeling the heat. Fully 60 percent of global executives in a recent survey expect that up to half of their organization’s workforce will need retraining or replacing within five years. An additional 28 percent of executives expect that more than half of their workforce will need retraining or replacing. More than one-third of the survey respondents said their organizations are unprepared to address the skill gaps they anticipate.

The competitive implications are profound. Organizations that expect to benefit from a digital transformation or a promising new strategy won’t get very far if they lack the people to bring the plans to life. What might seem like an irritating talent gap today could prove a fatal competitive liability in the not-too-distant future.

 

How can organizations better prepare for what’s coming?

For starters, they should embrace a more expansive and dynamic view of their talent supply—one that tosses out the usual preoccupation with titles and traditional roles and looks instead at the underlying skills people have. Indeed, we find that when companies start with skills—the ones they need, the ones they have, and how the mix may change over time—they can free up their thinking and find more creative ways to meet the inevitable mismatches.

In this narrative, we’ll show how forward-looking organizations are grappling with these challenges and highlight ways that CEOs and senior leaders can spark progress that is tangible, practical, and quite often beneficial for both employer and employee alike. Oftentimes, taking the first step can be as simple as asking: For our five most important skills, are we long—or short—on talent?

 

Shift happens

Consider the European bank whose market position was threatened by new, more digitally savvy rivals. The shifting competitive landscape required action, but when the bank’s leaders compared their proposed strategic response with a three-year projection of the bank’s talent pool, they saw a mismatch. The plan made sense, but executives feared that their people couldn’t execute it.

For example, the bank would soon have serious skill gaps in its retail-banking unit, particularly among branch managers whose roles needed to change to encompass areas such as sales expertise, customer orientation, and digital capabilities, given the new strategy. Meanwhile, the bank’s IT group faced both undersupply and oversupply: programming skills would be too scarce, while IT infrastructure skills would be too plentiful. To complicate matters, the bank faced strict regulatory and labor restrictions that prevented most layoffs. Any solutions would require flexibility and creative thinking.

To respond to the imbalances, the bank developed a range of interventions. For example, the bank is rolling out upskilling programs to help prepare its retail bankers for the aspects of their jobs that are changing; elsewhere, reskilling and retraining programs (including new digital and analytical skills) are helping employees’ secure new roles in the company. Still other employees have been offered part-time positions, an option intended to appeal to those nearing retirement.

Finally, for some employees, the bank is exploring secondment opportunities with selected not-for-profit organizations. Under the arrangement, both organizations pay a portion of the employee’s salary. In principle, this benefits everyone: the not for profit (which gets a talented employee for less money), the employees (who are doing meaningful work using skills that are in high demand), and even the bank (which pays less for skills it already has in surplus, while potentially enhancing its visibility in the community).

While the bank’s overall approach is still a work in progress, its example is instructive not only for its breadth but also for the outlook of its leaders. Instead of just looking at its talent supply through the lens of its traditional jobs or roles, which after all are changing, the bank’s executives pushed themselves to take a more objective, skills-based look. Similarly, the bank’s experience underscores the importance of setting aside long-held assumptions about which roles are most important, as prevailing opinion may be outdated or biased.

 

Are we long—or short—on talent?

Adjusting the skills of a workforce requires a blend of rigor and creativity; it also requires dedicated commitment and attention from senior management. One way to spark a fruitful C-suite conversation about talent supply is to borrow a page from the dismal science and look at skills in the context of surplus and shortage.

Starting with a thought exercise such as this can help break down an otherwise intractable problem into smaller chunks that can be approached with discipline. At the same time, testing potential interventions using the logic of microeconomics can help managers see a wider portfolio of options beyond reskilling at one extreme, and layoffs at the other (exhibit).

 

The following snapshots highlight ways that organizations have addressed both talent gaps and overages.

 

 

We’re short on talent: Build, acquire, or rent?

While talent shortfalls arise for many reasons, the supply-side remedies can be summarized in just three watchwords: Should we build on our existing skills? Should we acquire them? Or should we “rent” them?

A global manufacturer investigated these options as it looked for ways to fill several looming skill gaps. One of the most acute shortfalls was in data science, a problem complicated by the company’s suspicion that it was losing ground to high-tech firms as an employer of choice.

On closer look, their fears were justified: a talent-supply forecast that used machine learning to predict the likelihood of employee attrition found the company’s data scientists would be eight times more likely to leave than other colleagues. Clearly, the company couldn’t simply hire its way out of the problem; filling the skill gap would also require better employee retention.

Subsequent analysis helped the manufacturer spot opportunities in both areas, starting with a plan for more meritocratic career paths and redesigned leadership tracks to keep employees engaged and happy. The company is now working on simple changes to its recruiting and interviewing processes, to be more responsive and to help make candidates feel more valued throughout the process.

Of course, another way that companies can acquire skills en masse is through M&A, an approach pioneered in the tech industry, where it was given the portmanteau “acquihiring.” It has since become more common in other industries. Walmart used it in 2011 when the company bought Kosmix, a social-media company, to form the nucleus of what would become Walmart Labs, the retailer’s digital-technology unit.

Companies can also start nurturing skills today that they may benefit from later. Programs such as this are intriguing to employers, because it lets them tap a new pool of talent and then create and shape the specific skills they need. The approach also holds considerable social promise, as it can be designed to support underemployed groups, such as young people or military veterans.

Finally, companies can obtain skills by “renting” talent; for example, through outsourcing partnerships that bring specialized skills or by tapping the gig economy, where the rise of digital platforms has rightly captured executives’ attention.

 

We’re long on talent: Redeploy—or release?

Invariably, the changing nature of work will create skill overages that even the most inspired corporate upskilling or reskilling programs can’t manage. In these cases, companies must choose whether to redeploy workers or to find thoughtful ways to let them go.

As the case of the European bank demonstrated, there may be regulatory reasons to consider the redeployment of workers by offering their skills to a third-party organization for a fee. There might also be cultural, financial, strategic, or even social reasons for redeploying skills.

In the private sector, meanwhile, the video-game industry has long “loaned out” the specialized skills of software engineers to other video-game companies, including competitors, when their own projects hit unforeseen snags. While the approach may seem counterintuitive, the arrangement helps the sponsoring company maintain ready access to skills that are particularly rare and hard to recover once lost. The engineers, meanwhile, appreciate the change of pace and the chance to work on high-visibility projects with talented counterparts.

To be sure, redeployment programs such as these tend to be the exception rather than the rule. And no program can forestall all the job separations that come with technological change.

 

Work, Adapt, Repeat

The nature of the evolving workplace confronts leaders with the need to think quite differently about people’s relationship to work. In this vein, we are particularly intrigued by concepts such as “lifelong employability” that prioritize helping people successfully adapt—again and again, if necessary—as the economy evolves.

Yet if companies are to bring ideas such as these to fruition, and truly reorient their organizations around skills and not just roles, they will need more than just a mind-set shift. Many, if not most, companies will find their people-operations infrastructure and talent-management system creaking under the strain of new challenges. Designing a winning employee value proposition, for instance, is much harder when career paths are themselves in flux.

Indeed, HR will need to sharpen its own skills, not only in traditional areas, like employee retention and performance management, but also in new ones, such as managing the risks associated with gig work. In this respect, HR leaders are no different from those in any other function—all of whom must be prepared to evolve if they are to be effective in helping the larger enterprise adapt to the changing nature of work.

 

  • By Megan McConnell and Bill Schaninger

 

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