A Truly Agile Organization
A Truly Agile Organization
In these times, attempting to make the organization more agile is the main objective of many companies. The word agile is used to denote many different things, but what I am getting at in this context is quicker reaction to customer needs and more accurately directed value delivery with the aid of the company’s product and competence resources. Even within the next few years, becoming more agile will bring about a significant competitive advantage. That’s why many companies in various fields are contemplating the possibility of making their organization more agile. In software development, many teams have been agile for quite some time now. Of course, at the same time, at least as many teams and companies are talking about agility fluently with no understanding whatsoever about what being agile really means in practice. In reality, at both the team and company level, real agility is but a distant dream for many.
In many companies, agility has become an obligation rather than a positive goal. In some cases, for the sake of the credibility of certain people and the company image, companies want to advertise that they are agile and use agile methodologies, such as Scrum or Kanban, even though, in reality, the way they react to customer wishes and produce customer value has not changed at all. And when you go up a level from the teams, the principles of Agile and Lean are poorly understood. In that case, the objectives are forgotten and agility becomes just one process among others.
When the objective is to develop a truly agile organization, a few themes are more important than others. The three main development themes include decision-making mechanisms, cash flow planning, and operational culture. These three matters must be accounted for particularly well when striving to achieve comprehensive agility.
Decision making in an agile organization could be summarized in a single sentence as follows: Enterprise resource planning should always take place and business decisions should always be made at a level as low as possible but still in accordance with the company’s strategy and in the company’s interest. The idea is that a company should be able to make decisions as quickly and as correctly as possible. This is only possible when decisions are made as close to the source of the need for decision making as possible and with as few intermediaries as possible. Enabling this requires a very clear strategy and clearly defined values and objectives from the company. People and teams must be able to make decisions that are in the interest of the company and in accordance with the company objectives without having to ask for authorization or additional information. Information and authorization should already have been made available to the decision maker.
The Agile methods and Lean thinking provide some ways to realize this. For instance, the SAFe® model aims at making teams aware of the company objectives in as clear a way as possible with the aid of Themes, Epics, and Releases. With these control mechanisms, the teams should be able to operate on their own initiative. This, however, requires that the company has the courage to let the teams operate on their own in accordance with the company objectives without excess control from the Program or Portfolio levels.
In the case of many companies, it is not, however, sensible to introduce ready-made agility models into the organization as such. When a method is introduced as such, it is precisely the main principles of quicker reaction and more accurately directed value delivery that are easily forgotten. Therefore, it could be more sensible to introduce, e.g., small successful practices and adjust them to suit the company’s operational method and market. The responsibility matrix, which clarifies decision making by clearly stating the matters on which each person is allowed to decide, serves as an example of a successful practice. For instance, the Advice Process works in connection with this. Its main principle is that the decision maker is allowed to make the decision as long as they consult all those whom the decision concerns. However, the responsibility matrix serves no purpose if at each part we check a little box saying that only managers are allowed to make decisions.
Many probably already understand that, in practice, when decision making is allowed at a level as low as possible, the management turns into the leadership. In an agile organisation, the number of managers is very limited but there are still a few leaders. It is the leader’s task to get the others to make the right decisions because they want to do them and not because a manager tells them to.
Cash flows are a matter which only a few companies dare to address. The most common response in companies is that “This is how budgeting/selling is done here and everybody just has to live with it.” Bonuses and wages/salaries also fall into the same category as the budget and sales. Seldom does anybody dare to touch these in organizational development projects. If one did want to sum up in one sentence why cash flows play such a vital role in an agile organization, this is how the sentence would go: Money must not create a competing control mechanism, but the cash flows, strategy, and daily decisions must be in line with each other.
Perhaps the problems should be elaborated a little before discussing their solutions. Cash flow planning still holds a strong position in numerous companies. When budgets are drawn up in these companies, money is directed towards, e.g., a certain project or team. This already is, in itself, cash flow planning which directs the company’s actions. In the worst case, this budgeting is done by completely different people than those who are responsible for creating the company’s product or service vision and objectives. In this case, the budgets already tie people’s hands, or at least make some things much more difficult.
Some of those who know me also know that I am not a big fan of budgets. I feel that when it comes to budgeting, many things are still done because they have always been done. Budgeting is very rarely questioned, and hardly anyone ever considers how things could be done differently. There is one conversation that I wish every company would have: “Why are budgets drawn up, what is their purpose, and what do we wish to achieve with them?” When companies find answers to these questions, they can start to think about what could be done differently.
Sales and related activities are control mechanisms that are very strongly connected with cash flow. Sales, of course, also play a central role in the business operations of companies. Without sales, companies will not succeed, even though there also are organizations with objectives other than sales. Enterprise resource planning is often conducted with the aid of sales and, in particular, sales projections. A very frequently heard sentence is that “It has already been promised to the customer” or “It has to be done because it has already been sold.” In addition, skilled players have the ability to create really convincing diagrams about sales projections so that they can get their own project started in the organization. Sales must play a key role in the organization, but it must not compete with other kinds of enterprise resource planning. Sales must play by the same rules and strive to obtain the same objectives as others.
Bonuses also are a strong cash flow control mechanism. A great many companies still utilize bonuses, and they will probably never completely cease to exist. I should write whole separate post about the benefits and risks of bonuses, but I think that the two most significant bonus-related problems should also be brought up here: (1) Bonuses often lock down the objectives for an unnecessarily long period of time and thus make the organization less flexible. (2) Bonuses, especially personal bonuses, create the wrong kind of competition inside the company and cause a silo mentality, misrepresentation of information, self-interest, and weakening of motivation.
There is no quick fix, no magical solution to these challenges, so they still have to be considered at the company or organization-specific level. Fortunately, the Beyond Budgeting management model already provides a good basis for the improvement of cash flow planning. The organization of sales and sales practices depend entirely on the company. When it comes to bonuses, Google’s OKR system and bonus model are worth exploring. Google still utilizes personal objectives and even a bonus model, but the objectives are not, however, ever meant to be fully achieved and achieving the objectives does not affect the bonuses. The bonuses mainly depend on the person’s self-assessment, although they must ask for the opinions of others first.
There are undoubtedly many solution models in this field. The most important point here is that this matter has to be boldly addressed when creating a truly agile organization.
Talking about changes in the organizational culture sounds so consultant-like that I’m ashamed. Even every second-rate consultant can credibly say that the culture must be able to change in times of change. Usually, that is nothing but empty words, but this time even I believe that without a real change in the culture, it is not possible to achieve a truly agile organization. To sum up the need for a change in the organizational culture in one sentence: Daily decision making must be based on mutually understood values which, in turn, are based on the company’s way of carrying out agile development.
The next big question, then, is whether organizational culture can even be changed. In my experience, changing the organizational culture requires major efforts, new people, a sufficient amount of time, and a few effective drivers. It is, however, not impossible. The organizational culture changes gradually, and therefore the change requires a few people who remember the basic principles of agility and agile organizations well and help others stay on the right path when a crisis occurs. Generally speaking, the introduction of the agile method is fairly straightforward and simple until the first fire breaks out. At that point, it is too easy to revert to old problem-solving methods which are often contrary to those principles on which the new model has been based.
Unfortunately, a cultural change always requires a few staff changes as well. The culture of a company mainly resides in the people who work for it. Therefore, new people, or the resignation of some people, further the cultural change. The behavior of a group of people always depends on those people who are part of the group. It is easier for a new group to change their values and operational methods than for an existing group.
Important questions in connection with the discussion about an agile organization are: What is the concept of quality, and how is quality created in the company? What does customer value consist of, and what is the long-term objective in the creation of customer value? What is the company’s business idea? Where does the company want to be positioned in relation to the competition, in terms of both the market and labor market? Even though these questions may sound somewhat general in nature, they are very important in order for the company to be able to make joint decisions with the same values in different locations. For instance, in software companies, these should affect the backlog prioritization and sprint planning of every Scrum team. In addition, the concept of, e.g., quality must be fairly directly reflected in the Definition of Done. The questions asked at the beginning of the section are rarely answered in the same or even a similar way by different companies. Usually, people only see the importance of their own work and not the big picture on which the company’s operations are based.
Changing the culture is a very difficult issue. Organizational culture will not be changed with new values and effective internal marketing. These can, of course, be of some assistance, but in reality, persistent work is required for the change. This can only be achieved when a few key persons have internalized the values and objectives of an agile organization well enough.
When a company grows, extra flab is always created. However, risks have to be taken and a few people are needed to support the sales persons and those who produce customer value. Usually, however, the result is that there are too many people, and that slows the operation down. The additional costs from the excess people are not the biggest challenge but rather the fact that the excess people tend to slow down and complicate the operations. That’s why many companies seek benefits by attempting to make the organization more agile. When attempting to make an organization more agile, the objective is often to gain efficiency and speed benefits fairly quickly, thus improving the company’s position on the market.
In the end, the objective of a truly agile organization should, however, be continuous improvement and progress towards organizational agility. In other words, the objective is to create the conditions for the continuous improvement of operations. A truly agile organization is never complete but constantly improving itself. Achieving this state does require exceptional vision and courage to do things in a way that best suits the company’s own operational environment.
This blog post was written by senior consultant Henri Hämäläinen, who has over 10 years of experience in a variety of agile organizations. I would also like to thank my colleagues Pasi Pekkanen, Lasse Mikkonen, and Panu Ravolainen for their valuable comments and conversations.
Henri is the CEO of Contribyte and a Coach of Organizations. Over the past 15 years, he has been working as a coach for dozens of organizations. Henri insists that even as the CEO, he would have time to coach and train organizations. Henri's free time is spent on a variety of sporting activities with friends and family alike. Outdoor sports such as cycling, running, orienteering, skiing or dog walking are close to the heart.