In recent years, many clients have approached us to build agile organizations. It seems that regardless of the size of the company, the moment they hear the word ‘agile,’ they all get excited.
Yes, because the external market is changing rapidly, we need to make the fastest decisions in the shortest time possible. Therefore, ‘agile organization’ has become a hot topic.
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Why build agile organizations?
‘Speed is the new business currency.’
McKinsey’s definition is that an agile organization is one that can quickly adapt to external changes at relatively low cost.
External changes refer to what we often call the VUCA (Volatility, Uncertainty, Complexity, Ambiguity) environment. I don’t need to elaborate on this. The global COVID-19 pandemic in 2020 pushed all of us into an environment where we had to respond quickly, including changes in external regulatory environments, technological advancements, shifts in customer demands, and disruptions from competitors.
Now it seems that traditional, large, pyramid-shaped bureaucratic organizations are gradually becoming rigid and less effective in adapting to external changes. They must enhance their agility.
If agile organizations can be successfully implemented, there are many benefits. However, I’ve also seen many organizations stumble into pitfalls. Below are some pitfalls I’ve observed in the implementation of agile organizations over the past few years, along with strategies to avoid them. I hope this can serve as a reference for companies with the intention of implementing agile organizations.
Pitfall: Disconnect between Agile and Strategy – Agile for the Sake of Being Agile
Some clients see many of their peers implementing agile and innovative organizations and think it’s a great idea. As a result, they want to promote it within their own companies. They start various agile initiatives within the company, such as eliminating attendance tracking, clocking in and out, abolishing KPI assessments, and removing expense approval processes. Employees rejoice in response to these changes.
However, when you ask employees within the company why they are implementing agile organizations, they appear confused. Agile seems to have become another internal movement within the organization.
So, an important step has been missed here, which is how to transform agile organization from the personal vision of the founders into a shared vision of the organization. If people, especially the executive team, cannot see the relevance of strategy and agile organization, they naturally won’t have any positive feelings about it. Instead, they may view it as just another new “hobby” of the bosses.
In such a scenario, when the company’s business experiences turbulence, agile becomes the “scapegoat,” and it is difficult to escape blame. It’s challenging to sustain agile practices under these circumstances.
Filling the Pitfall: Addressing Business and Management Pain Points and Getting Executives on Board
We can see that some founders are clear from the beginning about why they want to promote agile organizations.
For example, the CEO of the largest holacracy company in the United States, Zappos, Tony Hsieh, mentioned the reason for implementing holacracy throughout the entire company when the company was in its fifteenth year. He said, “Why is it that as a city grows, the per capita innovation of that city increases, but as a company grows, the per capita innovation of that company decreases?”
The management team at Zappos saw ominous signs: they were growing at an unprecedented pace, which was exciting, but the more they grew, the more people they hired, and they were at risk of losing innovation. They realized that as the company grew, managers were getting farther away from the front lines of work—they couldn’t sense the problems and couldn’t react as quickly as before. Frontline employees also felt further removed from top-level executives. Even if employees had innovative ideas, most innovations created by employees took a long time to reach the top of a large company, often dying before they got there.
Therefore, it’s crucial to ensure that organizational leaders begin this transformation with alignment on the desire and value of the change. Some companies also organize two-day agile organization transformation workshops for the executive team to collectively explore whether agile organization is what the company needs for its future development. This step is indispensable, and it needs to be done thoroughly. Otherwise, on the path to implementing agility, you may find that the road narrows, and progress becomes circuitous if executives are not on board.
Pitfall: Changing the Appearance but Not the Essence – Superficial Changes without True Transformation
An agile organization is a comprehensive system engineering effort, representing a shift in the entire organizational mindset.
What we’ve observed is that many companies tend to view agile as just another tool to implement. This perspective diminishes the essence of agility.
When an organization transitions from a hierarchical structure to an agile organizational framework, it brings about changes not only in the organizational structure but also in decision-making methods, strategic management, internal processes, employee mindset, and even culture. For an agile transformation to be successful, all these elements need to change. Even a partial transformation has the potential for success if these components are adjusted appropriately.
However, we have seen many companies make superficial changes, merely altering the organizational structure by replacing hierarchical layers with circles, for example. The underlying power structures remain intact, and only job titles are modified. In such cases, it is challenging to achieve the desired outcomes. Lack of collaboration persists, and employees still look up for direction.
The result of such efforts is akin to renovating a store’s exterior to look like a pizza place while still selling the same type of food inside—it’s a change in appearance without a true transformation of the essence.
Filling the Gap: Embedding Agile in Organizational Culture – Upgrading the Organizational Algorithms
To make an agile organization not just look like one but truly become one, you must start by intervening in the organization’s DNA. Everyone needs to understand that the ultimate transformation of an agile organization is in its culture. While much of it is a step-by-step, perception-based journey, it should still follow the principle of “having a blueprint in mind and being rapidly iterative.”
Agile iterations are different from organizational changes that often take three years, causing significant disruptions and stress. Iteration implies taking small steps, experimenting, and making course corrections quickly. It starts with a small portion of the organization as an agile transformation pilot, integrates it into the organization’s MVP, and then swiftly replicates the benefits of agility to other parts. It also involves the systematic spread of agile practices. However, agile iteration is not a random endeavor; it should follow a structured approach. Here, I summarize it as the “three core algorithms of an agile organization.”
Core Algorithm 1: Driven by Mission and Vision
In companies that prioritize strategic flexibility, the mission and vision are like water to fish. In the face of a complex, uncertain, and volatile external environment, having a clear mission and vision is vital. If the top leadership doesn’t set a flag by articulating why the organization is pursuing agility and what problems it aims to solve, the chances of success are minimal (unless you have exceptional resources and luck). While mission and vision are not the only motivating factors, they are essential.
As an organization matures, it’s best to document and create a shared understanding. Just as Jack Ma articulated Alibaba’s mission to “make it easy to do business anywhere,” it may not have been clear whether it was the right direction initially. However, it resonated with a sense of excitement and resonance within the organization.
Core Algorithm 2: Agile Organization Structure Through Rapid Iterations
In organizations that encourage innovation, there should be a balance between responsibilities, authority, and rights. We’ve observed that in environments fostering innovation, this balance is critical, sometimes even leading to a “rights and authority” delegation to the frontline.
When innovation and frontline commanders are significantly empowered, even officially empowered, it eliminates the breeding ground for bureaucracy and a top-down culture. It ensures rapid information flow and dissemination. Traditional hierarchical structures, where lower-level leaders are at the periphery of information and decision-making, often lead to bureaucracy. To avoid this, authority and responsibility should be matched, if not tilted toward those closest to the frontline.
Core Algorithm 3: Dynamic Collaboration Rules
Agile organizations are not just a methodology; they represent an upgrade in organizational culture and work practices. In traditional management, everything is expected to meet standards, be perfect, and undergo multiple layers of approvals. This approach leads to slow decision-making and hinders agility.
In a VUCA environment, there’s a need for “satisficing in the present, safe to try.” If an organization aims for a perfect 90, it might take three to six months to achieve it, whereas if they already have 80, they should launch the product, gather customer feedback, and iterate.
Teams can start by creating “minimum viable rules” and gradually develop dynamic collaborative rules. Here’s a step-by-step process:
- Ask each team member what the minimal and simplest policy is to solve the current problem. Write it down and openly discuss it with the team.
- Policies and rules should guide actions based on unified principles. Elaborate and grandiose policies that are not practical should be iterated or discarded.
- Collaboration rules should be timely, fair, and transparent within the team.
- Rules are a group commitment and should be executed rigorously.
- Anyone in the team can propose updates to policies and rules, rather than waiting for leadership to decide.
This process tests the leader’s ability to maintain a global and systemic view and orchestrate operations effectively. It also involves leveraging external resources and capabilities to drive the implementation and expansion of an agile organization.
Pitfall: Neglecting Strategic Investment in Specialized Talent
We have also observed that many organizations, when promoting agility, tend to overlook a crucial driving factor, which is the strategic investment in specialized talent.
This kind of specialized expertise serves as the fuel that propels the agile machinery. It allows companies like Amazon to create genuinely cross-functional, empowered teams by embedding highly skilled and experienced individuals within them.
For many traditional organizations, a talent strategy is a profound consideration in their agile transformation. We have found that initially, people are enthusiastic about taking on new agile roles or joining agile teams. Still, due to a lack of skills, these teams continue to rely heavily on senior leadership for decision-making. For example, a domestic company in the automotive components industry aimed to emphasize customer-centricity as part of its agile transformation.
To achieve this goal, the company wanted to create a new design project and recruit over 25 designers to play various roles throughout the project. However, due to a lack of detailed planning, after seven months of agile transformation, the company not only struggled to recruit new designers but also faced friction among existing designers due to unclear roles and enthusiasm. This resulted in a significant expenditure of leadership time in addressing these challenges.
Filling the Gap: Innovative Talent Mechanisms
Due to the novel nature of the skills and capabilities required for agile teams, there’s a need for unconventional and dynamic talent mechanisms. This necessitates a forward-looking talent acquisition strategy and a thoughtful approach to identifying and nurturing exceptional talent to attract and fully harness their abilities.
During this process, several critical questions merit serious consideration:
- What skills are essential for success in agile organizations?
- How should performance be managed in the new setup?
- What will happen to individuals who may no longer be required in the new agile organization?
For instance, Haier implemented an “internal role market,” which does not restrict employees to their previous positions. Instead, all managers can apply for roles, allowing capable individuals to take on significant positions.
Many companies have also embraced agile performance management as part of the transformation. This breaks away from traditional, disconnected, annual performance appraisal systems and introduces high-frequency, open, and transparent performance assessments, fostering individual growth and timely feedback.
Some organizations have even replaced traditional personnel termination mechanisms with what’s known as the “beach policy.” Employees who no longer hold specific roles are given an opportunity to rediscover their potential before being let go. The “beach” effectively becomes an “internal job market” where employees can explore suitable positions through activities such as journaling, seminars, and personality assessments to redefine their roles.
Of course, the successful implementation of agile organizations depends on several other factors, including systematic methodologies, cultural transformation, and the evolution of leadership awareness.