The purpose of this article is to show how companies that embraced the Agile management mindset succeeded at continuous innovation.
The article describes the processes and mindsets of companies that successfully and unsuccessfully adopted post-bureaucratic management models.
Pioneering companies that have adopted a post-bureaucratic mindset are obsessed with adding more value for customers and end-users.
A case example of the model in practice is included.
The article recounts the problems and advantages of both top-down and bottom-up adoption of Agile management concepts and practices.
Emerald Publishing Limited
Copyright © 2019, Emerald Publishing Limited
One way of understanding the future of management is to examine what happened when a few successful and unsuccessful companies rejected the dominant business models of the day and went their own way. To begin, consider the stark divergence between the path forward with the conventional business model and the choices that map each individual firm’s alternative journey.
The dominant model of 20th Century organizations: bureaucracy
When we look at organizations that originated in the 20th Century, we can see a dominance of the bureaucratic mindset. As described by one of the leading chroniclers of the era, Gary Hamel: “Strategy gets set at the top…. Power trickles down. Big leaders appoint little leaders. Individuals compete for promotion. Compensation correlates with rank. Tasks are assigned. Managers assess performance. Rules tightly circumscribe discretion.”
The purpose of this vertical world was self-evident: to make money for the shareholders, including top executives increasingly rewarded with lucrative stock options. The communications were top-down. The values were efficiency and predictability. The key to succeeding was tight control. The dynamic was conservative: to preserve the gains of the past. But the economy fostered by this organizational model – the Traditional Economy – is in decline.
The emerging 21st Century model of post-bureaucratic management
In the 21st Century, by contrast, pioneering companies have adopted a post-bureaucratic mindset that is focused on continuous innovation. Its purpose is to delight customers and produce solutions for the jobs they need to do. Making money is the result, not the goal of its activities. The dynamic achieved by the Agile management processes that promote the continuous innovation system is enablement, rather than control. These processes are designed to liberate the full talents and capacities of those doing the work. The result is that post-bureaucratic organizations are oriented to understanding and creating the future. That future includes rethinking banking, the accommodation industry, the transport sector, healthcare and education. This economy sector fueled by innovation – the Creative Economy – is thriving. It is led by the five largest and fastest growing firms on the planet: Amazon, Apple, Facebook, Google and Microsoft.
The emerging post-bureaucratic mindset has three notable common features or “laws.”
Customer-obsessed: Firms implementing Agile management are obsessed with adding more value for customers and end-users. They are aligned with Peter Drucker’s dictum that there is only one valid purpose of a firm, to create a customer or offer value to an end-user. They all stress getting close to customers and understanding and interacting with them. They change their structures and do whatever is necessary to add value to customers. In some cases, customers become almost part of the firm.
Small is beautiful: Customer-focused firms emphasize getting big things done in small units, small teams, small everything. Big complex problems are descaled into tiny pieces that can be handled by small units or teams, which are often self-organizing. Processes and procedures are less important than inspiring energy and innovation. The primary focus is on passion and commitment, not rules and structures. The emphasis is on enablement, rather than control.
Networks: Firms succeeding in the creative economy tend to be run as networks or ecosystems, rather than top-down command-and-control models. They tolerate and even encourage significant “organizational messiness.” Values and culture are key features that help maintain consistency and coherence.
Each Agile journey is unique
While these innovative and unconventional practices are illuminating, it’s equally important to examine what is distinctive in the organizational practices of companies that have adopted this post-bureaucratic approach:
Living a narrative: Firms that have adopted the new mindset tend to see themselves as living a narrative that explains where it has come from and tells why it is being run the way it is. The story both expresses and inspires the passion of those living and implementing the initiatives.
Unique terminology: The management models in Agile firms tend to have different names and labels. Each firm uses its own terminology to describe what it is doing.
Home-grown: Their management models all have a home-grown feel to them. They have emerged organically over time. None of them has occurred as a result of imposing a system or model from without. This is one reason for the differing nomenclatures.
Failure is frequent: It is important to realize that not all Agile journeys are successful. Even the most successful firms encountered major setbacks along the way. We can learn much from looking at the ups and downs of these different journeys, and gain insights from the failures as well as the successes.
The Microsoft story
The transformation at Microsoft took time. A key part of the Microsoft story began in the Visual Studio Team Services unit. This group of around forty teams totaled about 500 people. A group program manager, Aaron Bjork, looked after seven of those teams. He had begun experimenting with Agile and Scrum with his previous team back in 2008. About a year later, several teams began implementing Scrum, and there were other pockets of Agile in various places around Microsoft. In 2010, the Team Foundation Server team decided to “go Agile,” with all their teams operating with Scrum practices and roles in three-week sprints, in the same cadence. Based on the success of these efforts, in July 2011, Brian Harry, the corporate vice president, publicly announced in his blog the commitment to Agile and Scrum in the Visual Studio group.
Several years later when the new CEO embraced Agile, it spread across the entire firm and steadily became part of the culture (Exhibit 1).
A number of notable features of the journey:
Bottom-up at first: Initially, adopting Agile was a bottom-up movement. It was only around 2014 when Satya Nadella became Microsoft’s CEO that the entire top management endorsed Agile. A key fact in the journey is that the new CEO came from the first division of Microsoft that had implemented Agile.
The transition took time: The Agile journey at Microsoft has been underway for some ten years and continues to evolve. There is some evidence that attempts at rapid transformation face significant problems.
A home-grown feel: There is less emphasis now on the process details of Scrum and Agile than in the early days. There is more emphasis on a growth mindset, a culture of trust and business results.
Overcoming failure: Microsoft recognized that its mobile phone offering was doomed and so turned its attention to other more promising areas.
So far the journey has gone well for Microsoft, which is now the largest firm on the planet—a startling turnaround from 15 years ago, when many thought Microsoft’s best days were behind it. A recent score card: Microsoft’s market cap is $889bn, Apple’s is $877bn and Amazon’s is $841bn.
The General Electric story
Other Agile journeys have had very different outcomes. For example, the iconic company General Electric (GE) embraced a variant of Agile—the Lean Startup—in a very public and aggressive way. In 2012, the CEO Jeff Immelt fell in love with the approach and spearheaded its implementation throughout GE.
In his Harvard Business Review article summing up his tenure, Immelt recalls that “the two things that influenced him most were Marc Andreessen’s 2011 Wall Street Journal article ‘Why Software Is Eating the World’ and Eric Ries’s book, The Lean Startup.” Andreessen’s article helped accelerate the company’s digital transformation. GE made a $4 billion bet on connecting industrial equipment through the internet of things and analytical software with a suite of products called Predix Cloud.”
In response to Ries’s book, GE adopted lean methods and built its Fastworks program around them. “Beth Comstock, GE vice chair responsible for creating new businesses, embraced the lean process. Over a period of years, every GE senior manager would learn the lean startup methodology, and GE would be the showcase for how modern companies use entrepreneurial management to transform culture and drive long-term growth.”
Innovation at GE was on a roll. Until it was not.
GE is an example of a top-down Agile journey, which turned out to be largely ceremonial. It was imposed from the top as a process. Despite huge investment in training and process and top management directives, it achieved practically nothing. The Agile mindset was lacking. It came to a brutal end in 2017. The VPs implementing the Lean initiatives were fired and then the CEO himself was also fired. GE is selling itself off in pieces and is now in a fight for survival (see Exhibit 2).
A key factor in the failure was the top-down approach. GE which was once one of the most valuable firms in the world but it has lost more than 30 percent of its market cap during Immelt’s tenure and is now worth just $87bn.
Key elements in GE’s journey include:
Top-down implementation: GE’s adoption of Lean Startup was top-down. The CEO was the champion.
Process ahead of mindset: GE’s CEO approached implementation of Lean Startup as a process because that is the GE way. As late as September 2017, Immelt wrote: “GE is famous for creating and religiously implementing processes for managing virtually everything we do. The task of transformation is no different.” Immelt gave no sign of grasping that implementing Agile requires a new company-wide mindset.
Reliance on M&A: During the Immelt era, as the digital transformation failed to deliver business results, the dominant mode of strategy increasingly became one of mergers, acquisitions and divestitures. Numerous historic GE businesses, including light bulbs, appliances and locomotive engines were sold. In GE as in many firms, “the default assumption was that if the company has a performance problem, the natural fix is to buy and/or sell something. The idea does not naturally come to mind that perhaps the problem is an uncompetitive value equation with customers.”
Stalled Agile journeys
Some Agile journeys that begin in the software development division ultimately stall when they fail to win support from top management. Initially, when software development is operating in an Agile fashion management is happy to see high-speed production. But sooner or later the software developers are likely to become frustrated with the slow pace with which the rest of the organization operates and starts lobbying for change.
What has often happened then is that this lobbying increasingly irritates the top management. At a certain point, the management closes down the Agile implementation. Of course, they don’t use those words. Instead, they declare victory: “We are already agile. We don’t need Agile leaders or coaches or training.” As a result, the Agile journey can stall and the concepts and practices go underground (Exhibit 3).
But without Agile, a firm isn’t likely to be able to adapt rapidly enough. Often, after a few years, the firm launches yet another effort to “become agile.”
These journeys show that ultimately, Agile requires a paradigm shift in the management model and mindset. Having one part of the organization operating in an Agile mode, and the rest a traditional bureaucracy, is inherently unstable. Either Agile will take over the whole organization or the bureaucracy will crush Agile.
The Amazon story
While top-down Agile implementation can be problematic, it is not impossible. The Agile journey of Amazon is instructive.
In one way, Amazon was Agile from the outset: in a statement unusual for a public company in 1997, Amazon announced its obsession with adding value to customers as the driving force of its operations. Profits and shareholder value were to be the result, not the goal.
Amazon grew rapidly, but it was only in 2002 that the CEO, Jeff Bezos, formulated his theory of organizing work in “two-pizza teams,” each of which was required to propose its own “fitness function” – a linear equation that it could use to measure its own impact without ambiguity. “Bezos wanted to personally approve each equation and track the results over time,” writes Brad Stone in The Everything Store. “It would be his way of guiding a team’s evolution.” In this way, the team knew exactly what was expected of it, without further interruption from the top, while Bezos was free to move on to other decisions.
Bezos “framed the kind of employees he wanted in simple terms,” as Stone explains. “All new hires had to directly improve the outcome of the company. Bezos wanted doers—engineers, developers, perhaps merchandise buyers, but not managers. Bezos’s vision: ‘We didn’t want to be a monolithic army of program managers, à la Microsoft. We wanted independent teams to be entrepreneurial.”
About 2003 Amazon began to crystallize its approach to developing new businesses through what it called a “PR/FAQ.” This is a document which Amazon uses to “work backward” from the future. Amazon starts by imagining the finished product, as described in a six-page PR/FAQ paper. The initials stand for “press release” and “frequently asked questions.” It is a prototype of an Amazon product announcement written as if it were ready to launch. Its content reflects how Amazon expects the product to be received in the marketplace, and it includes anticipated “customer quotes” about how it will make customers’ lives better (Exhibit 4).
This process has led to an astonishing array of major innovations including Cloud services with AWS in 2006; Amazon’s Kindle in 2007; video on demand in 2008; Amazon Studios in 2010; Amazon Echo in 2015 and Amazon groceries in 2017.
At the same time, Amazon also had many failures. Amazon jewelry and shoes never took off. Amazon Wallet and Web Pay were closed down in 2014, as was Amazon’s disastrous Fire phone (Exhibit 5).
Key findings from Agile journeys
What leaders can learn from successful and unsuccessful Agile organizations:
Mindset: While each of the journeys is unique, a common characteristic is that becoming Agile is essentially a shift in mindset.
Holistic: The post-bureaucratic approach applies to the whole organization, not just the R&D department. Partial implementations are problematic.
Both bottom-up and top-down: The journeys of successful firms tend to be both bottom-up and top-down in spirit and orientation. Even in Amazon, which is clearly being led from the top, there is also a great deal of freedom for teams to pursue their mandate, with multiple paths to getting a “Yes,” if they need change.
Learning from failure: None of the firms implementing Agile management had a smooth path to success. All of them encountered failure along the way. While Microsoft and Amazon learned from failure, it seems that GE did not.
No perfect model: While the post-bureaucratic model is in many ways is a better fit for the rapidly changing marketplace of the 21st Century, it has, like all models, limitations. The question is whether leaders learn these limitations and then adapt.
No panacea: All post-bureaucratic firms are imperfect: They are all on journeys. Their very success has turned some of them into the quasi-monopolies, giving rise to the risks that monopoly always brings. Issues of privacy and exploitation of personal data are making headlines and some firms have value chains still linked to sweatshops. Greater involvement of the state will be essential in helping to rectify these flaws.
Profitable: When Agile is done right, it can make a great deal of money. Post-bureaucratic management is thus not about tradeoffs between doing good and doing well. In fact, the new way of managing can help public corporations overcome adverse pressures from the stock market and hedge funds to prioritize short-term goals ahead of long-term shareholder value.
This article draws on insights from the author’s blog: http://blogs.forbes.com/stevedenning/, particularly www.forbes.com/sites/stevedenning/2019/03/17/how-mapping-the-agile-transformation-journey-points-the-way-to-continuous-innovation/ and the author’s books, The Leader’s Guide To Radical Management (2010) and The Age of Agile (HarperCollins, 2018).
SD Learning Consortium: www.sdlearningconsortium.org/
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About the author
Stephen Denning (firstname.lastname@example.org) is the author of The Leader’s Guide to Radical Management (Jossey-Bass, 2010) and The Age of Agile (HarperCollins, 2018) His essays appear at Forbes.com: http://blogs.forbes.com/stevedenning/. He is a member of the board of directors of the SD Learning Consortium and a member of the Program Advisory Board of the Drucker Forum..