We’ve just published the results of our workplace culture research entitled A guide on the importance of building an agile culture and you can download it free here.
An organisation is only as good as its people. But people are motivated by the organisation’s culture as that’s what drives the behaviours that make the organisation successful.
Organisational agility is not well understood, our research into the subject revealed four critical areas, which are key indicators of what we can term as potential misalignment within an organisation.
We looked at how SMEs manage change and transformation when they go through transition(s), such as a growth phase or through the process of a Merger & Acquisition.
Our focus was on identifying the way businesses managed the four key elements of organisational culture to more efficiently pursue agile transformations.
These four elements are:
1. Recognition: Recognising good or hard/smart work. One in five claim that there are never any personal development reviews inside their organisation…and strongly disagree that there is a system of recognition.
2. Communication: Organisational purpose, clarity of expectations and alignment of people. One in five companies claim that the organisation’s values are not visible…and a similar number claim that the relationship between their role and the purpose of the organisation is not clear.
3. Trust: Trust in other people/ Organisation.Trust is more likely to be associated with fellow colleagues rather than senior management.
4. Learning: Investment in training. In controlling cultures there’s less investment in skills.
An agile culture has to be built on an agile mindset. This allows things to move more quickly, less hierarchy in decision making and responsibility handed to small agile groups and teams to make things happen. Communication channels are then efficient and open, as in there is more transparency.
Building an agile mindset and culture offers a way to harness the power of the people in your organisation to find ways to be more adaptive, innovative and resilient in a fast-paced digital economy.
An agile culture is increasingly recognised as a critical component for the survival and growth of a business.
In a fast- paced environment where changing trends and consumer sentiment are the norm, significant disruption is not only to be expected but embraced.
Rapid changes in competition, demand, consumer and employee expectations, technology and regulations make it imperative for organisations to be able to adapt quickly.
Becoming agile is important to my organisation
Despite companies ranking agility as a high strategic priority in their performance units, respondents sentiment painted a picture of organisations falling behind in transforming activities in several parts
of their structure—from innovation and customer experience to operations and strategy.
What’s more our survey also confirms that organisations that have successfully implemented an agile culture and adopted an agile mindset excel at both stability and dynamism.
The guide looks at some of the behaviours that nurture and characterise an agile mindset and the impact that adopting agile culture can have on communication, commitment and collaboration within your organisation, and the symbiotic relationship between culture and leadership and how it shapes and influences change within organisations.
If we’re not investing in our workforce what are we doing?
If you’re struggling with understanding your corporate culture, why the business isn’t growing as fast as it should and need some help then get in touch.
The concept of the ‘ambidextrous organisation’ was first described by Charles O’Reilly and Michael Tushman in their 2004 HBR piece as a way to capture the challenge inherent in businesses being able to make steady improvements to existing models whilst still developing breakthrough innovations. This, they said, was akin to the challenge of constantly looking backwards in attending to the products and processes of the past whilst also gazing forwards and preparing for the innovations that will define a new future.
They studied 35 different attempts to launch breakthrough innovations that were undertaken across nine different industries, looking for those instances where the business was able to simultaneously pursue incremental innovations for existing customers whilst also developing breakthrough innovations for new customers.
The research showed that the companies that had successfully balanced simultaneous exploitation of existing models and more radical exploration of future shared some common characteristics – most notably in maintaining a degree of separation between the traditional areas and the exploratory ones, so allowing for different processes, structures and cultures to emerge, whilst also keeping links between the units tightly integrated at the senior executive level. More than 90% of these ‘ambidextrous organisations’ ended up achieving their goals, far higher than the other ways of structuring for breakthrough innovation.
The commonalities and differences between the exploratory and exploitative areas of the business and how they link and interact are key. O’Reilly and Tushman showed that successful ambidextrous organisations had been able to set up structures that were independent enough to enable breakthrough innovation and different ways of working to emerge whilst connected enough at the senior level to keep them aligned to vision, strategic goals or needs. This requires the senior teams and management to be ambidextrous in understanding the divergent needs of the different kinds of business areas, combining the ability to make difficult trade-offs or decisions with the visionary thinking required of entrepreneurs. The senior team must also be committed to operating ambidextrously. A compelling vision relentlessly communicated by that senior team can articulate a goal and direction that can enable the exploitation and exploring parts of the business to co-exist and thrive, and bring to life the benefits of both types of operating model for employees.
The need for breakthrough innovation has certainly not declined since the research was done in 2004, and the business environment has if anything become even more characterised by rapid change and unpredictability. So the concept of an organisation that can ambidextrously optimise for the present whilst simultaneously creating the future is a powerful one.
But in the modern environment where value is increasingly shifting from long-term, sustainable competitive advantage to generating and exploiting a series of transient advantages, businesses need a continuous flow of new propositions and breakthroughs. This can only happen if there is enough separation in the early stages to ensure that new thinking, cultures and ways of working are given sufficient space to thrive and are not suffocated by legacy and hierarchy. But then the bigger opportunity is for these new ideas and operating models to catalyse a much wider transformation across the entire organisation. For that to happen, as concepts are commercialised and scaled there should be growing commitment and integration not just at the most senior level, but at all levels through the organisation, and a more seamless flow between exploit and explore.
Silicon Valley entrepreneur Steve Blank makes a good point about McKinsey’s Three Horizons Model for innovation and how our approach to understanding how we apply it needs to change. The model famously seeks to define the different types of innovation that businesses need to focus on if they are to survive and thrive:
Horizon 1 is about incremental improvements or continuous innovation around a company’s existing products, models, or core capabilities. This type of innovation typically focuses on existing markets or utilises existing technologies that the company is familiar with, and is likely the easiest and most common form of innovation
Horizon 2innovations are more about adjacencies, next generation products and likely focused on extending the company’s existing business model or core capabilities to new markets or customers, perhaps using new technologies. Since this extends into areas that the company is less familiar with, it likely requires different thinking and techniques to Horizon 1
Horizon 3 innovations are entirely new, breakthrough products or categories that are pushing the boundaries, responding to or taking advantage of disruption, and pushing the company to explore new markets or technologies
Originally articulated in the book The Alchemy of Growth in 2000 by Baghai, Coley, White, the model has become a well-referenced way of describing the need for organisations to shape focus and funding on the different types of innovation and how the ability to create ongoing competitive advantage depends on all three types. Whilst it’s easier for businesses to focus on incremental innovation which is closer to existing, well understood models (Horizon One), there is a requirement for a more comprehensive approach that recognises the need for continuous exploration in lesser known areas (Horizon 2 and 3).
Three Horizons presents a way that organisations can concurrently manage optimising for current growth opportunities whilst discovering and building potential future opportunities for growth. But it is important for businesses to recognise the differences in the way in which you manage each one. For example approaches to risk and payback, sources of value creation, measures, and the allocation of senior management time.
The source of value creation in Horizon 1 comes from superior execution, in Horizon 2 from ‘positional advantage’ (where you are trying to gain a better position relative to your competitors), and in Horizon 3 from insight and foresight around changing customer and market contexts and opportunities.
McKinsey found that Horizon 2 and 3 required more time from senior leaders, but also a commitment to avoid starving these innovations of resources due to short-term financial pressures. They also found that in Horizon 3, whilst the general hit rate may be lower, successful innovators clustered their experiments into between two to five themes depending on the size of the organisation.
Measures through the Horizons also differed. Horizon 1 is more about profit, cash flow and return on invested capital, overseen by experienced business managers. Horizon 2 is more entrepreneurial, so is supervised by ‘business builders’ whose metrics for success might be revenue milestones and net present value. Horizon 3 is far more emergent and so requires visionaries and ‘champions’ who are focused on emerging technological and commercial value milestones.
The point that Steve Blank makes concerns the delivery time for each horizon and how this has fundamentally changed. The McKinsey model accounts for the fact that different industries may have different timescales for innovations to return value (short cycle industries for example may seen value created quicker), but in general the impact on profit and cash flow, and current market value is far longer with more emergent innovations than it is for extending core capabilities. Horizon 1 may therefore deliver impact in the short-term since it is focused on models and capabilities that are already contributing the majority of value and profit today. Horizon 2 may take 3-5 years to see a return since it involves extending existing businesses and capabilities. And Horizon 3 may take as long as 5-12 years as it involves more disruptive creation of value.
In the modern environment however, Blank notes that the time it can take for disruptive ideas to be researched, engineered and scaled to market has been radically transformed by digital technologies and networks. Horizon 2 and 3 may now happen at speed. The potential for new, emergent, even disruptive, ideas to be rapidly prototyped and then to generate scale and take on a life of their own has added an entirely new dynamic:
‘These rapid Horizon 3 deliverables emphasize disruption, asymmetry and most importantly speed, over any other characteristic. Serviceability, maintainability, completeness, scale, etc. are all secondary to speed of deployment and asymmetry.’
The Three Horizons, whilst still a valid and important way of understanding the different types of innovation that businesses need to continuously focused on, is no longer bound by time. Disruptive businesses, unencumbered by legacy technologies and systems, and entrenched, slower moving processes, can move quicker towards generating return from newer, disruptive technologies and models.
Blank defines four key ways in which incumbents can counter this kind of rapid disruption:
Incentivising third party resources to focus on your goal or mission – open innovation initiatives, allowing external parties to innovate from your data through APIs, creating new marketplaces through platform thinking (Apple and the App store), partnering with entrepreneurs to venture build around aligned goals (Diageo and Distill Ventures), setting incentivised, inclusive challenges (DARPA Prize Challenges)
Acquiring external innovators that can operate at the speed of the disruptors. The challenge here though is the not-insignificant potential for corporate culture, processes, and approaches to stifle any speed advantage that the newer business has
Rapidly copying new, disruptive models (like Google copying Overture’s pay-per-click model) – this carries with it the risk of not properly understanding customer needs and contexts and so failing to do it well
Innovating better than the disruptors (like Amazon and AWS, Apple and the iPhone). This is of-course extremely difficult for a large, incumbent organisation to pull off when it is focused on execution, optimisation and protecting legacy value creation
Three Horizons remains an extremely useful taxonomy, but the trap is that we under-appreciate the impact of re-purposing existing Horizon 1 technologies into new models at speed, and the rapidity with which new, emergent propositions can be iterated and scaled.
…Or why in business we need a more sophisticated approach to appreciating the impact of digital technologies
When we think about the impact of digital technologies on the modern business environment there’s a prevailing narrative now around disruptive new market entrants, and accelerating and exponential change. This is often expressed in talk of the ‘Uberisation’ of entire industries, or catchy soundbiteslike: ‘the pace of change has never been this fast, yet it will never be this slow again’. Or demonstrated with graphs like Nicholas Felton’s for the New York Times that shows how technology consumption is spreading faster than ever (the telephone took decades to reach a penetration of 50% of U.S households yet the mobile phone took less than five years). Or supported by studies such as that conducted by Professor Richard Foster at Yale University that showed that the average lifespan of a company in the S&P 500 index has decreased from 61 years in 1958 to just 18 years now (although the detail is arguably more nuanced). Yet the reality is perhaps not as clear cut as this picture suggests.
The Myths Around Disruption
Given all the column inches and social media mentions dedicated to disruption you’d be forgiven for thinking that it was all around us. Yet the latest IBM Global C-suite Study (based on research with more than 12,500 CxOs worldwide, including 2,000+ CEOs) demonstrated a more refined picture of the reality of disruption but also more specifically where the C-Suite now see as its source.
To begin with, disruption is far from ubiquitous. Over a third of executives (36%) reported minimal or no disruption in their sector, and only just over a quarter (27%) reported that they were experiencing significant disruption. In a previous iteration of the survey in 2015, a majority of executives reported that they were expecting significant disruption from new market entrants outside their sector but in the latest survey only 23 percent of respondents reported that this was the case and 72 percent said that it was industry incumbents that were leading the disruption. Whilst the impact of new market entrants should never be under-estimated (I certainly wouldn’t want to be a CEO when Amazon entered my market), it’s unhelpful to consider either that disruption is everywhere or that it is solely the domain of innovative startups.
The Nuance of Change
It’s true, I think, that many things around us are changing quite profoundly, and faster than ever before. But not everything changes. Narratives about accelerating change are far from new but it’s lazy thinking to think that this applies to all contexts. More than this, it can also be dangerous if this then causes us to be distracted or overly tactical, or to pursue shiny technologies with questionable value. As Jeff Bezos once said:
“I very frequently get the question: ‘What’s going to change in the next 10 years?’ And that is a very interesting question; it’s a very common one. I almost never get the question: ‘What’s not going to change in the next 10 years?’ And I submit to you that that second question is actually the more important of the two — because you can build a business strategy around the things that are stable in time…”
Bezos (of-course) talks about how fundamental customer needs like access to a great product range, good value, cheap prices, and fast delivery remain constant. Fundamental needs change slowly, if at all. So that affords the opportunity to invest energy and focus in areas that you know will pay dividends over the long-term. Essential elements like these should be the guiding North Star for any business. Yet the way in which we may deliver to these fundamental needs may indeed be susceptible to swift change.
So in order to make smarter decisions in businesses about how we respond to this environment we need to articulate a more nuanced understanding. Here’s a few thought starters from me on the specific dynamics that actually havechanged and are changing quickly and profoundly:
Capability Access:- the democratisation and widespread availability of new and potentially transformational enterprise services and means that even the smallest startup now has access to scaled capability that was once only the domain of large, well-funded businesses. Barriers to entry have been vastly reduced. For example, with the right approach any business regardless of scale can access some of the best digital infrastructure technology, analytics tools and open-source machine learning capability currently available.
Access to knowledge and expertise:- the democratisation of information has fundamentally changed the value dynamic. The value of specialist expertise has not diminished but when we can find the answer to pretty much any question on Google, and harness internal and external expertise more easily than ever (andeven access some of the best teaching online for free), advantage shifts from being focused on the stocks of knowledge that we have built up in the business over time to being more about the flow of ideas and knowledge, how we apply it, and what we choose to do with it.
Data:- an elemental part of this shift in the information dynamic is of-course the ability to access, filter and utilise the wealth of data that is now being continually generated. This is clearly not new news but businesses need to get better at extracting value from data by structuring good quality data, interpreting patterns and meaning, and originating processes that can execute against actionable insights quickly. We’ve yet to scratch the surface of how machine learning will take this to completely different level.
Networked value and connectivity:- with the explosion in the connection of things and people, network dynamics have change some fundamentals of how we should think about value creation. This is writ large in a diverse set of impacts from the development of platform business models and ecosystems which have changed competitive dynamics considerably in some sectors, a radical shift in the flow of data through APIs, the operational efficiency gains that can be derived from connected machines, the rapidity in which ideas and content can spread through networks, the eroding of traditional barriers like geographical borders and market boundaries, the ease with which collaboration can happen.
Lowering transactional costs:- digital has completely changed the cost dynamic in many areas of value chains, reducing key elements of some chains to zero marginal cost and enabling dramatic changes in efficiency and new entrants to compete at relative scale from a small base. Growing automation will continue to generate opportunity and impact here.
Scaling dynamics:- digital networks have brought with them a dramatic shift in scalability that gives individual people access to a global market, small teams the ability to originate and scale transformational ideas, and businesses with finite resources to have disproportionate impact. Pre-digital for example, it would potentially take decades for a business to expand to a global scale yet in a little over six years Netflix was able to complete an international expansion that has taken them into no less than 190 countries worldwide.
Customer expectation:- whilst some areas of consumer behaviour are changing rapidly, more fundamental needs are arguably not. But customer expectation is changing fast and changing all the time. Services like Lemonade Insurance, Monzo, Revolut, Netflix, Uber, Amazon set a new bar for customer experience that raises customer expectation (not only in category but more broadly across sectors) for how easy to use and convenient services should really be. This is a significant challenge for businesses of all types but also an opportunity. Jeff Bezos (in his 2018 annual letter to shareholders) said:
“One thing I love about customers is that they are divinely discontent. Their expectations are never static — they go up. It’s human nature.”
Bezos describes how the cycle of improvement required to serve customer’s appetite for better solutions is happening faster than ever, but the phrase ‘divinely discontent’ demonstrates how the real opportunity is to use continually rising customer expectation to challenge your teams to do it better or do it differently.
Accelerating complexity:- in-spite of the promise of technology to simplify, the reality is that it also creates growing inter-dependencies and problems with competing ecosystems that results in poor inter-operability and unnecessary friction. Whilst I’d love to believe that this is a temporary situation, my feeling is that this increasing complexity will remain a reality for years to come.
So if that’s what is changing rapidly, how should businesses respond?
Responding to this More Nuanced Picture of Change
It’s clear that organisations need to think smarter about potential sources of disruption but also how they can shape their organisations to be more adept at responding to it when it happens or even before it happens. Increasingly, I’m finding that it’s useful to think about the impact of change more in terms of heightened unpredictability. And the ability of businesses to re-orient themselves to becoming far better at rapid adaptation.
If you can’t easily predict how market, competitive and consumer dynamics will change in a world where some of them may change quickly and at scale, then the organisation needs to always be exploring, learning and inventing. This means evolving structures, strategies, processes and culture towards enabling continual reinvention of value. The reality however, is that most businesses are still structured and organised for a very different world.
It was notable that that IBM C-Suite study that I mentioned earlier found that the most successful businesses that were part of the study were those that weren’t waiting for disruption to hit before making change happen:
‘The organizations that are prospering aren’t lying in wait to time the next inflection point — the moment when a new technology, business model or means of production really takes off. Remaking the enterprise, they recognize, isn’t a matter of timing but of continuity. What’s required, now more than ever, is the fortitude for perpetual reinvention. It’s a matter of seeking and championing change even when the status quo happens to be working quite well.’
Cluster analysis of the research outputs led IBM to categorise three main types of organisation according to where they were on their journey towards reinvention:
The Reinventors: 27% of the total, these are the standout businesses that are successfully re-engineering their businesses to lead the way in innovation and disruption and outperforming their peers in revenue growth and profitability
The Practitioners: 37% of the total, this represented those businesses with big ambitions (notably to take on more risk or to launch new business models) but yet to develop the real capability to bring those ambitions to life
The Aspirationals: comprising 36% of the total, these organisations still have some way to go in their digital journey and in changing their companies to be able to move rapidly to adapt or capitalise on new opportunities
Looking at those organisations that are more advanced on the journey to reinvention and the incumbents that are successfully leading disruption there were some consistent attributes. IBM classify a range of factors that separate the ‘reinventors’ from the ‘practitioners’ and the ‘aspirationals’, most notably:
Continuous adaptation and the ability to evolve rapidly alongside a well-defined strategy to manage disruption
Strong alignment between IT and business strategy in order to deliver the technology infrastructure and foundation to optimise business processes and support new strategies
Redirection of resources towards deriving new scaled value from ecosystems and networks of partners, a willingness to explore opportunities for co-creation with partners and customers
An ability to derive exceptional value from data and analytics to inform business strategy, to support prototyping and fast feedback loops, to successfully iterate innovative products and services, and to build compelling customer experiences
Investment in and attention to developing people and leadership skills, structures and culture to support and empower greater experimentation and adaptiveness
These ‘reinventors’ are demonstrating the way in which incumbent organisations can not only learn but apply that learning to adapt capabilities, structures and ways of working to the new environment.
The really big change here is what John Hagel and John Seely Brown at Deloitte describe as the shift from ‘scalable efficiency’ to ‘scalable learning’. As institutions have become more adept at leveraging the benefits of scale they have structured around consistency, stability and predictability which has forced a trade-off between efficiency and the organisation’s ability to learn. When key dynamics such as those listed above change rapidly, the business struggles to adapt.
I’m curious to know what I’ve missed in my list so feedback and contributions are more than welcome.