The Agile Organisation: Changing our Worldview

It is not the strongest species that survive, nor the most intelligent, but the most responsive to change.
—Charles Darwin

From childhood, our amazing brain trains itself to recognise patterns. We use this capability to accelerate decision-making, saving us addressing every problem as if new. To apply patterns we ingest, filter, and interpret data using what psychologists call our worldview, shaped by our upbringing, beliefs, and experiences. But what happens if our worldview falls out of sync with reality? This is a common story with digital transformations, leading to dated beliefs such as:

• more planning increases certainty and lowers risk
• I need to be involved in most of my teams’ decisions
• owning a data centre means it is better managed and more secure
• my business model is unassailable

Today’s rapid pace of change requires that we tweak our personal and organisational worldviews to look at opportunities and issues differently. We often loosely call this change “digital transformation,” although I have a problem with this phrase. It suggests a definitive end state achieved by executing a few technology initiatives. In reality, the goal of enterprise “digital transformations” is to develop the ability to continually match the pace of the outside world. The term “digital maturity,” coined by the MIT Sloan Management Review, more aptly implies a journey towards a continually evolving destination.¹⁰

So what does this maturation look like? It is an ongoing change in culture and business posture supported by technology to create a more agile organisation. I’ll explore the themes in future posts but in brief, attributes of such organisations include:

• a deeply shared purpose
• devolving decision-making to autonomous cross-functional teams
• standardised ways of working which support experimentation at all organisational levels
• a performance orientation supported by information and data transparency
• a learning culture
• the use of agile technology

Firstly, let me summarise the disparate research on why this agility is so important, and then reflect on some of the foundational elements that digitally mature organisations (DMOs) are implementing well to win this game.

A Reality Check

A combination of competitive pressures and a poor track record with organisational transformations is making the status quo for most companies unsustainable, whether they know it or not. The old adage of “skating to where the puck will be” no longer seems apt in a world where others swoop in and change the game completely.

We have all watched companies fail by waiting to act only when disruption has been evident. Enterprises are disappearing at an increasingly fast clip, even those previously labelled “iconic.” The average S&P 500 company lifespan continues to drop from 60 years in the 1960s to under 20 now¹⁵; companies on the FTSE 100 index face a similar fate.¹⁹ While not solely due to external disruption, this turnover is often related to diminishing consumer relevance due to slow organisational reaction times. This will only become more endemic with changes happening ten times faster and at three hundred times the scale than previously experienced. A further threat to incumbents is the nearly one trillion dollars in private equity funding waiting to be deployed into competitors.¹⁶

In reaction to this organisations are heavily investing in transformative programmes. Global spend on digital maturity initiatives alone will likely reach two trillion dollars by 2022.¹ To date, some estimates put the waste in such spend as high as 70%—hundreds of billions of dollars—consistent with multiple studies over the last two decades on how many change initiatives fall short of their intended potential.¹⁴ Here, 20% of companies are failing to deliver even half of the originally cited benefits, while only 5–10% of companies achieve or exceed their original expectations.⁴ In some cases, these dismal results pose existential threats to organisations with digital disruption shaving 30% on average off incumbents’ growth, severely impacting profitability.⁸

Leading with Organisational Transformation…

While most leaders acknowledge that these realities demand critical changes, many organisations struggle to follow through. Reasons vary and include complexity, focus, complacency, and denial. Strong words, but used in this context from well-established psychological principles!

Many companies prioritise attaining agility, particularly in highly disrupted industries such as telecoms, media, retail, and financial services, but this is not always backed up by a sense of urgency or shared vision.¹¹ Over half of change initiatives fail at this first, seemingly simple step.¹⁴ DMOs increase their odds of success here by charging the CEO or a lieutenant such as a Chief Transformation Officer with leading the transformation to create focus and urgency.¹⁰ They parlay this into a purpose and vision that connects with employees at both a rational and emotional level, further increasing the odds of success, more than almost any other lever leaders can pull.⁷

To do this requires a strong foundation of trust and awareness in leadership, starting with an honest appraisal of the current state, including your and your team’s performance. One study highlighted that the management structure and decision-making rights were themselves the biggest barrier to successfully transforming 60% of less digitally mature companies.⁹ Being objective here is hard, particularly if a business has been successful to date, hence why an external perspective is frequently useful.

To date, only 4% of companies believe they have fully embraced an Agile culture, with many more working towards this goal. The goal itself is not perfection in the areas identified; it is ongoing momentum and persistence. DMOs place a high premium on a continuous stream of initiatives that drive organisational agility, nearly three times higher than less mature organisations.⁹ These initiatives more often than not require small, ongoing investments rather than large-scale changes.¹³

What is critical to internalise is that the majority of the attributes of an agile organisation need to emanate from senior leadership setting the tone, urgency, and direction. Future blog posts will dive into specific, proven changes in this area that DMOs are making to achieve this.

…Supported by Progressive Technology

Agile organisations require agile, modern technology to keep pace with the rate of change. To achieve this, DMOs have a significantly higher proportion of their workloads in the cloud versus baseline organisations.⁶ These cloud-centric companies report nearly twice the success in keeping pace with business demand.

On average, two-thirds of an enterprise’s technology investment goes towards just keeping the lights on (KTLO) for existing applications. While important, this cost stymies the ability to innovate. DMOs proactively reduce KTLO expenditure, automating repetitive activities at a much higher rate than non-cloud companies. This is a key element of achieving agility and liberating your teams to focus on differentiated work to drive competitive advantage.²

Mature, agile organisations can see an incredible uptick in value delivered, with up to 46 times the frequency of deployments, a fifth of the deployment failures, and over 40% more time spent coding new features.³ While statistics can be debated, it’s obvious that delivering software to consumers faster can generate a speedier return than classic waterfall initiatives, as well as the ability to correct issues faster and cheaper. To do this, though, requires a rethink within the business as whole on topics such as decision rights and experimentation.

Despite this, DMOs generally spend twice as much on technology than baseline organisations—and this gap continues to widen.¹² With great power comes great accountability, so in these same companies, you’ll typically see better technology governance at a senior level, along with a keener focus on measuring investment results.

Despair Not!

With this directional data on the table, it is worth emphasising that despite their complexity, enterprises are very well positioned to evolve. Others can only dream of the access to significant capital, people, customers, and deeply rooted brands that most enterprises have.

Historically, most enterprises were innovative, often the original driver for their success today. In many ways, all I’m advocating here is reembracing characteristics that made enterprises successful before they became so bureaucratic. I am not railing against processes and procedures either, as these are essential for scale and efficiencies. Rather I would encourage you to consider how what Kotter calls the “dual operating system”—a balance between agility and appropriate structure and processes—can coexist in your organisation.¹⁸ My experience of this in McDonald’s opened my eyes to how energy and passion can be liberated even within the confines of a traditional hierarchy, but that’s a story for another time.

The payoff from being more agile is huge, reflected in significantly higher EBITDA. The best-performing decile of organisations earn up to 80% of the digital revenues generated in their entire industry.₅ While compelling, there are still a significant number of companies that have yet acknowledged the need to change.^17,20 Enterprises require two things to acknowledge this change: humility, to know changes are necessary, and fortitude, to execute the changes to existing models that have stood companies in good stead for years.

It’s an exciting time to be a technologist, and it’s an exciting time to be a business leader. We just need to remember our childhood and relearn how to wire our brains for what I believe will be one of the most significant organisational revamps in our lifetimes. The advice as always is, start now and start small.

Phil

[1] Anon. 2018. “Worldwide Spending on Digital Transformation Will Be Nearly $2 Trillion in 2022 as Organizations Commit to DX, According to a New IDC Spending Guide.” IDC.
[2] Anon. 2018. “Boosting Innovation with Public Cloud.” Forrester Consulting.
[3] Anon. 2018. “2018 State of DevOps Report” Puppet.
[4] Baculard, Laurent-Pierre, Laurent Colombani, Virginie Flam, Ouriel Lancry, and Elizabeth Spaulding. 2017. “ Orchestrating a Successful Digital Transformation.” Bain and Company.
[5] Bughin, Jacques, Jonathan Deakin, and Barbara O’Beirne. 2019. “ Digital Transformation: Improving the Odds of Success.” McKinsey.
[6] Bommadevara, Nagendra, James Kaplan, and Irina Stankova. 2016. “ Leaders and Laggards in Enterprise Cloud Infrastructure Adoption.” McKinsey.
[7] Boudens, Jet, Rodgers Palmer, and Brooke Weddle. 2019. “ Mobilize Your Organization with a Powerful Change Story.” McKinsey.
[8] Bughin, Jacques, and Nicolas Van Zeebroeck. 2017. “ The Best Response to Digital Disruption.” MIT Sloan Management Review, pp. 80–86.
[9] Kane, Gerald C., Doug Palmer, Anh Nguyen Phillips, David Kiron, and Natasha Buckley. 2017. “Achieving Digital Maturity: Adapting Your Company to a Changing World.” MIT Sloan Management Review.
[10] Kane, Gerald C., Anh Nguyen Phillips, Jonathan R. Copulsky, and Garth R. Andrus. 2019. “The Technology Fallacy.” Cambridge, MA: The MIT Press.
[11] Ahlbäck, Karin, Clemens Fahrbach, Monica Murarka, Olli Salo. 2017. “How to Create an Agile Organization.” McKinsey.
[12] Kark, Khalid. 2020. “Reinventing Tech Finance: The Evolution from IT Budgets to Technology Investments.” Deloitte.
[13] Laczkowski, Kevin, Tao Tan, and Matthias Winter. 2019. “The Numbers Behind Successful Transformations.” McKinsey.
[14] Kotter, John P. 2007. “Leading Change: Why Transformation Efforts Fail.” Harvard Business Review.
[15] Mould, R. (2019) “35 years of the FTSE 100 – who are the 30 survivors?” A.J. Bell
[16] Raza, Sheeraz. 2017. “Private Equity Assets Under Management Approach $2.5 Trillion.” Value Walk.
[17] Schadler, Ted. 2018. “The Sorry State Of Digital Transformation In 2018.” Forrester Consulting.
[18] Kotter, John P. 2014. “Accelerate!” Boston: Harvard Business Review Press.
[19] Sheetz, Martin. 2017. “Technology Killing off Corporate America: Average Life Span of Companies under 20 Years.” CNBC.
[20] Wolkoff Wachsman, Melanie. 2018. “Survey: Despite Steady Growth in Digital Transformation Initiatives, Companies Face Budget and Buy-in Challenges.” ZDNet.