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Becoming an Agile Company

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Organizations have to give up on much of their hierarchy and their micro-management to become an agile company: totally changing the management model instead of doing small incremental changes that can become drowned in the traditional bureaucratic structure. They need to stop doing things that inhibit agility and focus on customer orientation, intrinsic motivation, and leadership based on trust and less formal planning.

Göran Nilsson and Lennart Francke spoke about agile companies at the Agile People Sweden Conference. InfoQ is covering this conference with write-ups, interviews, and articles. Summaries of the sessions can be found in Morning Sessions from Agile People Sweden and Afternoon Sessions from Agile People Sweden.

InfoQ interviewed Nilsson and Francke about how organizations are dealing with the challenges of becoming agile and what they can do to change in a sustainable way to become fully agile.

InfoQ: What are the main challenges organizations often face when they want to become an agile organization?

Nilsson: The main challenge is for everybody in the hierarchy - owners, board members, top management, middle managers - to let go of most of the traditional methods of upholding control and to have the courage to trust people in the organisation. In our opinion it is not so much what you need to do to become agile, as it is what you need to stop doing. There is a major risk that managers just try to add agile thinking and methods on top of all the management and control methods they already have, and that would only create confusion more than anything else.

Francke: Taking away too detailed vision and strategy documents helps the business model and the over-arching governance to stand out more clearly and easier to grasp for all staff. Refraining from budgeting helps everyone to focus more intensely on serving customers and staying adaptive to the dynamic development of the business.

InfoQ: How do they deal with these challenges?

Francke: Historically, not so well. We have seen few complex organizations converting themselves to truly agile ones. So far, most attempts have failed on the grounds that the approach has not been holistic enough. You don’t turn agile by changing your budget process into a rolling forecast model. You need to make all the key people in the organization turn their focus to the outside world, the market, the customers, instead of following an internal plan. That’s why we point to the four dimensions of fundamentally changing the management model – customer orientation, intrinsic motivation, leadership based on trust and less formal planning. All four things in parallel!

InfoQ: In the manifesto for the agile company you state "intrinsic motivation over extrinsic rewards". Can you explain this?

Nilsson: Extrinsic rewards such as individual, performance-based bonuses often create a number of dysfunctional effects like short-termism, data manipulation, and even fraud. It also tends to make people less intrinsically motivated and less creative. Intrinsic motivation, on the other hand, supports long-term thinking, loyalty and creativeness. It is therefore important to give autonomy, possibilities to learn, as well as a sense of purpose and belonging to the employees, since all that supports intrinsic motivation.

InfoQ: How do organization like Southwest, Virgin, and Handelsbanken change in a sustainable way? What do they do differently?

Francke: All start-ups are agile, because they have to be. So larger companies either don’t turn bureaucratic when they grow, or, as in the Handelsbanken case, turn from centralized and mechanistic to radically decentralized – and agile. This requires not only a holistic approach, but also a coherent change process. The revolutionary change process of Handelsbanken in the 1970s, as well as its continuous evolution to enhance the model over time, offers a model for how to think about these things. We have therefore included the story of how Handelsbankens legendary chief executive at the time, Jan Wallander, initiated the change, in our book. We found that the John P. Kotter 8-step model for fundamental organizational change, though created more than 20 years later, offered an adequate framework for describing the Handelsbanken change.

InfoQ: What’s your advice for organizations to become fully agile?

Nilsson: Even if agile organizations usually haven’t given up on all hierarchy and necessary control, it is very important not to keep too much of it. So, my major advice is that you have to give up much more than you think. Much more. Many organizations change too little while hardly no one changes too much! Also, don’t do small incremental changes, because they will not have any effect at all. They will just drown in the traditional, bureaucratic structure of the organization. Don’t compromise too much and don’t try to do it by taking one small step at a time, if you want to go the full route to agility!

Francke: For instance, it is not possible to make sales and marketing people truly customer oriented if at the same time they are expected to follow a budget that is broken down into monthly or weekly sales targets. And you can’t expect to foster the servant leadership that has to go with any agile organization, if middle and lower managers are driven by a centralistic hero leaders at the top. The whole approach to change has to be consistent from the start.

Nilsson: Think of it as some people pushing a wagon up a steep hill. If they only make small efforts now and then they will not get anywhere because the wagon will only roll back. But if they all push as hard as they can until the wagon reaches the top, they may make it. When they reach the top, i.e. when the organization tips over to being agile, they don’t need to push very hard anymore. Now the organization can start to improve by taking small, incremental steps. We call it a revolution followed by an evolution.

Francke: Going agile means totally changing the management model of a company or an organization. It is not enough just to implement better leadership principles or to scrap the budget. Indeed, such a fundamental change has to be driven by the chief executive with the full support of the board and, if there is one, the main shareholder. The rewards will come, for all stakeholders, e.g. customers and employees, and not least in terms of sustainably better returns for shareholders.

InfoQ: What can organizations do to keep their agile change going?

Francke: The management model must be clearly communicated and shared by everyone, as well as supported by important shareholders, the board of directors and the chief executive. The quick wins in terms of more efficient cost management and more satisfied employees and customers will very soon become apparent to staff. But top management needs to keep the organization’s focus on agility to be able to reap the long-term sustainability in an agile management model. This is a matter of maintaining a conscious corporate culture that helps the whole organization to consequently stick to the model, even when it be challenged by incredulous critics.

Nilsson: A very good example is the bureaucracy busters at Google. The head of the bureaucracy snake will keep popping up in all organizations, agile or not. So we need to cut its head off whenever we see it – or at least make sure that those who say that it is necessary have very convincing arguments for it.

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