How to Turn an Organization Agile & Digital
Learn Best Practices from Industry Leaders and Adapters but also from Companies that tried and did not make it .
Based on Research from: Harvard, MIT, HEC Paris, Bain, McKinsey.
And experiences from: Amazon, Netflix, Spotify, USAA, ING, Bosch, SAP, Microsoft, Rogue Soft, GE and IBM (not all made the best of it).
Key Learning Sections
There is a big shift going on in companies to today. This is driven by the success of Amazon, Facebook, Google, Microsoft and many more.
All these companies are innovative and work following agile principle but most of all.
They have a New Mindset: Absolute Focus on the Customer
Example: Amazon’s customer obsessed mindset
Amazon’s sophisticated logistics expertise did not come from wanting to be a supply chain company. It came from understanding that the customer experience was greatly affected by flexibility, speed, and quality of delivery.
Amazon Web Services (AWS) did not come from wanting to be a cloud technology company but from needing to provide a scalable infrastructure to provide a great online customer experience.”
In meetings, Jeff Bezos would leave one chair empty. It was for the customer to have a seat at the table. It should focus the whole meeting outcome towards improving the customer experience.
A leadership team hoping to scale up agile needs to instill agile values and principles throughout the enterprise, including the parts that do not organize into agile teams.
This is why Amazon has a specific set of agile driven Leadership principles (see below) and other companies like Bosch or ING developed new leadership principles and put a lot of focus to communicate them throughout the company.
They wanted to ensure that everyone understood that things would be different and that agile would be at the center of the company’s culture.
Amazon’s Leadership Principles
Customer Obsession
Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.
Ownership
Leaders are owners. They think long term and don’t sacrifice long-term value for short-term results. They act on behalf of the entire company, beyond just their own team. They never say “that’s not my job."
Invent and Simplify
Leaders expect and require innovation and invention from their teams and always find ways to simplify. They are externally aware, look for new ideas from everywhere, and are not limited by “not invented here." As we do new things, we accept that we may be misunderstood for long periods of time.
Are Right, A Lot
Leaders are right a lot. They have strong judgment and good instincts. They seek diverse perspectives and work to disconfirm their beliefs.
Learn and Be Curious
Leaders are never done learning and always seek to improve themselves. They are curious about new possibilities and act to explore them.
Hire and Develop the Best
Leaders raise the performance bar with every hire and promotion. They recognize exceptional talent, and willingly move them throughout the organization. Leaders develop leaders and take seriously their role in coaching others. We work on behalf of our people to invent mechanisms for development like Career Choice.
Insist on the Highest Standards
Leaders have relentlessly high standards — many people may think these standards are unreasonably high. Leaders are continually raising the bar and drive their teams to deliver high quality products, services, and processes. Leaders ensure that defects do not get sent down the line and that problems are fixed so they stay fixed.
Think Big
Thinking small is a self-fulfilling prophecy. Leaders create and communicate a bold direction that inspires results. They think differently and look around corners for ways to serve customers.
Bias for Action
Speed matters in business. Many decisions and actions are reversible and do not need extensive study. We value calculated risk taking.
Frugality
Accomplish more with less. Constraints breed resourcefulness, self-sufficiency, and invention. There are no extra points for growing headcount, budget size, or fixed expense.
Earn Trust
Leaders listen attentively, speak candidly, and treat others respectfully. They are vocally self-critical, even when doing so is awkward or embarrassing. Leaders do not believe their or their team’s body odor smells of perfume. They benchmark themselves and their teams against the best.
Dive Deep
Leaders operate at all levels, stay connected to the details, audit frequently, and are skeptical when metrics and anecdote differ. No task is beneath them.
Have Backbone; Disagree and Commit
Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. Leaders have conviction and are tenacious. They do not compromise for the sake of social cohesion. Once a decision is determined, they commit wholly.
Deliver Results
Leaders focus on the key inputs for their business and deliver them with the right quality and in a timely fashion. Despite setbacks, they rise to the occasion and never settle.
Driven by Customer Metrics
Agile organizations place more value on adapting to change than on sticking to a plan, and they hold themselves accountable for outcomes (such as growth, profitability, and customer loyalty), not outputs (such as lines of code or number of new products).
Example: Amazon’s customer metric focus
At Amazon real-time customer metrics are built into every aspect of the work. As a result, “customer value” wins battles that it wouldn’t win in firms run with a financially oriented mindset.
Amazon doesn’t start an activity or develop a capability unless and until the team has figured out how it will measure customers' response. Amazon builds in customer metrics as a “forcing function” from the outset.
By now the article seems very Amazon focused. The main reason is that Amazon has proven that it can work. Have a look at the development of the share price. It is a reflection of successful the successful growth based on new products and services.
Agile Organization Principles
Which functions should start and how do they interact with the rest
Agile approach and teams best suited to innovative functions, i.e. profitable application of creativity to improve products and services, processes, or business models.
Not every function needs to be organized into agile teams; in fact, agile methods aren’t well suited to some activities. Routine operations such as purchasing, and accounting are less yield less.
To allow existing and new organization to work effectively together well defined interfaces and specific collaboration models / agreements are required.
How to setup an agile organization?
The core element are agile teams.
Agile teams are organized around capabilities and services as opposed to projects.
The teams are autonomous. Interactions with other teams are well defined. The team owns and is responsible for every aspect of its capability and service.
One of the primary goals is to lower the communications overhead in organizations, including the number of meetings, coordination points, planning, testing, or releases. Teams that are more independent move faster.
Example: Amazon's Two-Pizza Teams
At Amazon, the so called Two-Pizza Teams work like semi-independent entrepreneurial hothouses. Insulated from the greater organization’s bureaucracy, the Two-Pizza Teams encourage ambitious leaders, provide opportunity, and instill a sense of ownership.
The Two-Pizza Team owns its own data. No other team may access or change the data except through APIs. Application programming interfaces (APIs) are the interfaces with enforced rules allowing other teams to integrate and use the team’s capability.
New Organization vs. In the existing Organization
Choice depends heavily on what the organization is trying to achieve.
Existing Organization: The agile units are setup in or close to the existing organization. This allows agile principles to be quicker introduced to the organization as a whole. It also allows more control.
New Organization: To create significant disruption from current business practices, the teams within your company that are dedicated to creating innovation need to be separated from the teams representing the status quo.
Example: Amazon's Lab126
In Amazon’s case, the company has a special team called Lab126 that is focused only on creating innovation in their devices.
That team is based in California, far from the company’s Seattle base. While physical separation can be important, it’s more about independence from the legacy business and having unfiltered communication and collaboration with a company’s CEO or senior leader.
Another example is how Charles Schwab setup its online brokerage business by setting up a completely new company.
What about hierarchies?
Flat Hierarchies – Leaders as owners
Move and reduce middle management as much as possible.
Senior managers are often put in charge of important initiatives heading some of the most innovative teams. Senior managers are considered doers, not merely overseers of others.
Agile teams work differently from chain-of-command bureaucracies. They are largely self-governing: Senior leaders tell team members where to innovate but not how.
Leaders solve problems and remove constraints rather than delegate that work to subordinates.
What is the role of a senior leader?
This approach frees up senior leaders to create and communicate long-term visions, set and execute strategic priorities, and build the organizational capabilities to achieve those goals.
The executive team sets priorities and selects opportunities to improve customers’ experiences and increase their success.
The agile leadership team, like any other agile team, has an “product (agile initiative) owner”. This owner is responsible for the overall results and a facilitator who coaches team members and helps keep everyone actively engaged.
How can agile be applied in large organizations or projects?
Agile Principles can be applied to large scale organizations or ventures. Studies show that many executives have trouble imagining that small agile teams can attack large-scale, long-term projects.
Establish “team of teams” that work on related initiatives - an approach that is highly scalable.
Example: Saab’s aeronautics business building the new Gripen fighter jet
More than 100 agile teams operating across software, hardware, and fuselage (one fighter jet costs around $43 million).
The coordination of all efforts is coordinated through daily team-of-teams stand-ups.
At 7:30 AM each frontline agile team holds a 15-minute meeting to flag impediments, some of which cannot be resolved within that team.
At 7:45 the impediments requiring coordination are escalated to a team of teams, where leaders work to either settle or further escalate issues.
By 8:45 the executive action team has a list of the critical issues it must resolve to keep progress on track.
Example of a Major Transformation: International Banking Giant ING from the Netherlands
ING was faced by a thread through Fintechs and a huge shift from in person to online banking.
ING had to react. By the spring of 2015 the headquarters had replaced most of its traditional structure 3,500 employees with a fluid, agile organization composed of tribes, squads, and chapters.
Thirteen tribes were created to address specific domains, such as mortgage services, securities, and private banking. Each tribe contains up to 150 people. (Employees in sales, service, and support functions work outside this structure—in smaller customer-loyalty teams, for instance—but they collaborate with the tribes.)
Each tribe has a lead who sets priorities, allocates budgets, and ensures that knowledge and best practices are shared both within and across tribes.
The tribe lead has also the key responsibility: to create self-steering squads of nine or fewer people. They address specific customer needs by delivering and maintaining new products and services.
Therefore squads are cross-disciplinary to be able to deliver the product or service across all functional areas involved. These could be marketing, data analytics, user-experience , and IT. One squad member is selected as the the “product owner,” responsible for aligning stakeholders (internal & external customers) and setting priorities.
The time a squad stays together will vary, depending on the specific tasks assigned. Sometimes they might work on a specific topic only for a few weeks, e.g. a new feature to capture additional information on an online form. In other cases they continue driving the product development for years.
Working in such small units and with colleagues from various capabilities, squad members can quickly resolve issues that before would have been passed on between functions with no one taking ownership.
Applying agile principles like scrums and sprints drives the ownership the team feels and forces information sharing and short feedback loops. This also increases customer satisfaction as the team usually directly interacts with the customer and quickly understands if their solution is meeting the requirements or not.
Agile coaches help the tribes to stay true to these principles. They ensure the collaborative approach in solving the customer's problem. The squad owns the problem and need to work together to resolve it.
Even in such a large organization like ING Netherlands, adapting to the new ways of working was actually not as difficult as one might think. Many long-term bank employees embraced the new model as ING Netherlands CIO Peter Jacobs confirms: They “adapted even more quickly and more readily than the younger generation.” One reason for this might be that also long-term employees are tired of the old red taped processes and are happy to see that they can move something quickly forward.
In addition there are chapters. They are tracking and sharing best practices across specialists focusing in the same capability, e.g. data engineers, mobile app developers. At ING they are also responsible for performance management and coaching.
Following a sprint type of approach, every two weeks squads review their work. Squads get to decide how they will continue to improve the product for our customers, or if they want to ‘fail fast.’ This is not exactly agile and seems to leave the customer out of the equation, though.