Agility

High market dynamism and disruption are not fundamentally new features

The dynamism of actual markets has striking similarities with that of the manufacturing age. Up to the year 1900, high transport costs meant that most markets had just a short range, and were local and narrow. Competitors could avoid each other. This direct contact forced creativity and generated dynamism. After 1900, falling transport costs were responsible for the emergence of new mass markets, which were wider in range and comparatively sluggish. Companies could expand their businesses without any problem, and at the same time optimise their internal processes. Taylorism and Fordism were characterised by scientific management, which introduced and enforced strict division of labour and work planning – with resounding success, as industrial production grew to a hundred times of what it had been before within two generations. Since the 1980s, market dynamism has again risen drastically, as market liberalisation, the invention of the internet and global trade have resulted in networking on a wider scale. In the new network economy, all players operate globally. The planning and controlling methods, which resulted in great value creation under Taylorism, cannot longer cope with the speed and complexity of today’s dynamic markets.

According to a statistical study by the American Enterprise Institute most companies in the Fortune 500 have failed to master these challenges in the last sixty years. Only 60 of the Fortune 500 companies from the year 1955 still belonged to this group in 2016. An explanation for this big fluctuation of companies can be supplied by disruption theory. At the beginning of the 1990s, the economist Clayton M. Christensen of the Harvard Business School defined the phenomenon of disruptive innovation. Disruptive innovations are described as innovations making products and services more accessible and affordable, and resulting in the acquisition of many more customers.

Companies must challenge themselves, if they do not want to be the next victim of disruption

What are organisational forms and culture called for, if companies are to make the best use of technological advances and keep up with the flow of successful digitalisation? An essential credo of digitalisation says disrupt yourself, before somebody does it to you. This principle was recognised by Amazon CEO Jeff Bezos at an early stage, who commissioned a team to destroy Amazon’s own book business back in 2006 – at the time its second most successful area, second only to its trade in music. He gave them this project just after turning down the offer from Apple’s then CEO, Steve Jobs, to work together with Amazon to develop a music streaming service. Apple launched iTunes and made massive inroads into Amazon’s core business. Bezos realised that self-attack is the best mode of defence.

Platforms are currently the predominant business model in the digital industry as they offer value-creating interactions between customers and producers. They facilitate this interaction by using digital technologies. Costumers and producers enjoy direct platform access to market to use or distribute services. The big advantage of the platform model lies in the fact that companies no longer need any assets of their own, which tie up capital. An overview of the most successful platform companies today reflects this trend:

• The world’s biggest taxi company owns no taxis (Uber)
• The world’s biggest hotel chain owns no property (Airbnb)
• The world’s biggest phone companies have no telecommunication infrastructure (Skype & WeChat)
• The world’s biggest retail dealer has no inventory (Alibaba)
• The most popular media owner creates no content (Facebook)
• The most rapidly growing banks have no money of their own (SocietyOne)
• The world’s biggest streaming platform does not own a cinema (Netflix)
• The world’s biggest software suppliers do not programme the apps themselves (Apple & Google)

The biggest value-creating companies of the 21st century come from the internet economy, where you would struggle to find an assembly line. Instead, internet services create valuable data amounts supporting the generation of large sums of money. For example, they support the development of smart machines, facilitate more deliberate product placement and feed algorithms which are constantly making business processes more automated. The economic growth of the 20th century on the other hand was mainly based on mechanical production for commercial purposes and Tayloristic organisational principles like planning and controlling. In agile organisations, which can handle the complexity of the internet economy, these principles have been replaced by self-organisation and new kinds of latitude.

Corporate cultures are changing – people seek meaning in their activities

It isn’t just the business model of successful companies in the internet economy that differs from the business models of the industrial era. We are also observing a massive transformation of organisational and working culture. In his bestseller Reinventing Organizations, the former McKinsey partner and author Frederic Laloux focuses on changes in collaboration and leadership in organisations. In the age of digitalisation, old-style organisational leadership has reached its limits, Laloux concludes, adding that many employees and executive staff see work on the whole as a necessary evil. How can we counter the complexity of digitalisation, and how can people be given a chance to rediscover enthusiasm for and meaning in their work? The forms of collaboration and leadership models need a radical change, so Laloux. The crucial question for organisations is how they cope with the complexity that has come into being recently on the level of structures and processes. From cybernetics expert Ross Ashby we know that a system will be better capable of handling a complex and dynamic environment to the extent that it is able to make use of its own inner complexity. And inner complexity arises through multifarious social networking – in other words, it is based on the available communication possibilities. It is a matter of increasing the social density.

The concept of agility combines numerous theories, organisational models and methods, capable of encouraging self-organisation and internal complexity. In the VUCA world (the acronym stands for Volatility, Uncertainty, Complexity, Ambiguity), organisations with great internal complexity are economically more successful. They are more like living organisms than like rigid hierarchies, and self-organisation enables them to mobilise new resources. A study by McKinsey shows that companies whose industries are particularly subject to uncertainties are likely to introduce change processes with the goal to become more agile.

Complexity needs both stability and flexibility: what can agile organisations do better than others?

The agility of a company is created through a particularly productive combination of stability and flexibility in structures, processes and roles. Putting it into a paradoxical way, agile potential means that you can decide to act not in an agile but in a rock-solid manner. Agility thus needs precisely the decision about which elements, in terms of processes, structure and roles, need to be kept stable and what elements need to be dynamised. Agile organisations must consciously decide which teams, processes and structures function in an agile way and which ones are less suitable. Agile companies are distinguished by a radically (in the sense of ‘from the root up’) decentralised structure as the definitive organisation principle. Organisations that want to become more agile must therefore challenge the current status quo on the three levels of individual and organisational attitude (values and mindsets), individual and organisational responsiveness (self-organisation of structures and processes), and networking (horizontal and vertical structures, exchange of knowledge and knowledge management) to rearrange themselves and learn from experience.

In companies we can observe different approaches. On the one hand new units are founded as start-up hubs to develop innovative ideas, test out different modes of working, and integrate these into the parent group later on. Another approach is to implement agile lighthouse projects, in which the new working mode is expected to demonstrate its success. Some examples of German companies, by way of illustration, are given below.

A start-up platform founded by Bosch serves as incubator for new business ideas, which are then tested within various innovation clusters, such as connected industry or mobility. A successful agile partnership was realised between Bosch and the electric vehicle manufacturer Tesla. Bosch functioned as a supplier of chassis and safety systems. Many of the hardware and software components can be precisely adapted for the various requirements of the individual vehicle models. The development and implementation could be carried out in half the standard development time. In another project, Bosch was able to develop a new, networked sensor solution for asparagus cultivation in just three weeks of development. The temperature in the earth where the vegetable is grown can be communicated to a smartphone. This makes it easier to create the best possible growing conditions. The short development time resulted from the use of agile procedures and methods of interdisciplinary teamwork. Agile solutions are suitable in situations where the technologies, or the approaches to development of a solution, are to some extent still unclear to begin with, and where the requirements for a new product are going to be subject to change in the course of time, says Bosch CEO Dr Volkmar Denner.

Daimler created the hackathon series Digital Life Campus, held in Stuttgart, Bangalore, Beijing and Silicon Valley. The objective was to build an autonomous, driverless RoboCab from Lego components. As a result of the events, the automotive group acquired new employees, doctoral candidates, work experience trainees, and working students. The students developed 54 ideas; four prototypes are currently being evaluated by the various specialist departments, and another 16 ideas are being scrutinised.

In 2014 Lufthansa set up the Lufthansa Innovation Hub in Berlin to encourage the digital transformation of the company. With an eye to structural changes and macro and micro trends on the travel market, the aim was to develop concrete products in response. This went hand in hand with the introduction of the Lufthansa Open API, bringing together 80 different data pools that can be accessed by developers and partners at developer.lufthansa.com.

But all these efforts are a long way from being enough. In his book Silicon Germany Christoph Keese draws the conclusion: Too little money, too many worriers, too little courage, not enough innovative spirit – these factors are dangerous impediments to the impetus of start-ups in Germany. One reason for this, Keese thinks, is the German zero error culture. He argues that successful companies are rethinking the concept of error. Innovation steps become bigger when you are willing to take a certain measure of failures on board. And then there is the unresolved question of reintegrating the innovation hubs, digital labs, and innovation teams. How can the experiences of these teams be brought back into the everyday life of the company, and integrated with existing working processes?

Then too, the question of the meaningfulness of one’s own work and the meaning of the organisation is increasingly affecting the performance of German companies. With Laloux, we may say that the organisational performance influences the economic performance. Laloux here describes three success factors of the evolutionary organisation:

According to Laloux, energies are released by meaningfulness, self-leadership, learning and the improved use of talents; there is less loss of energy caused by the assertion of the ego, less loss of energy caused by conformity, less energy lost in discussions.

It’s the small to medium sized enterprises that are experimenting with self-organisation. At the Trumpf company 4500 employees, from production assistants to executive staff, were allowed to decide over a period of two years how many hours they wanted to work. At the vegan condom manufacture Einhorn, the 8-hour work day was abolished. The digital agency Elbdudler has introduced a system whereby its employees can be paid the salary they ask for. These concrete measures of increased self-determination and self-organisation encourage the development of a different kind of mindset, and have positive effects on the performance of the company.

Self-organisation as key to success: do we then still need leadership at all? Three principles for agile leadership

The answer is yes – leadership is always going to be necessary. However, it is undergoing a process of transformation. Agility is also needed in leadership, of the sort, which is particularly distinguished by the fact that it is distributed among many rather than just a few people. Agile leadership comprises the three levels of attitude, responsive structures and networking. Leadership focuses increasingly on shaping the right framing conditions, on rolemodelling the values and behavioural attitudes that are seen as desirable and on network management. Leadership also has to resolve conflicts, and to decide in case of escalation.

Leaders need to ask the following questions in particular: How does this company basically work? What decisions are taken, why and by whom? What processes need how much rapidity, flexibility and stability? What patterns and dysfunctionalities can be identified? In most cases faulty developments are less attributable to employees than they are down to the ingrained and daily repeated behavioural attitudes in the company. These are caused by structures, and, as a result, give rise to dysfunctional patterns.

Agile leadership principle no. 1: attitude

A person’s attitude feeds on his/her fundamental convictions, assumptions and experiences. With an eye to developing an agile organisation it is crucial that individuals should become conscious of the complexity and fragmentary nature of the world. We have the choice whether we fall victim to the error of supposing that the world is comprehensible and easy to explain and that the powerful determine the state of the world and the company. We can likewise acknowledge the complex interconnections of the many systems (human being, family, company, state, economy, law, leisure) and scrutinise polarised thinking in terms of opposites like good and evil, right and wrong, success and failure. This is a complex exercise itself, as we human beings have learned to think in a linear way and it is difficult for us to think in exponential and systemic terms.

Just as with the individual, in organisations fundamental convictions and patterns come to be established as well – for example a trust-based attitude to people, or alternatively a coexistence characterised by mistrust. The values of the agile manifesto, which originated with software development, sum up the necessary attitude of the ‘agile mindset’ effectively in the following terms:

But to avoid this being just a scratch on the surface, the new behavioural modes need to be anchored in the structures of a company. Christoph Keese describes the way in which at Netflix neither working hours, working days nor periods of leave are clocked up. The founder and CEO Reed Hastings, moreover, does not have a fixed office of his own and is a leader of the new age: The Netflix CEO lives out an understanding of his role that could become a standard for many managers in the age of digitalisation. Executive staff no longer take up a position in the foreground, but rather keep themselves back. They hardly ever assign concrete tasks any more, but rather put the right questions and give teams the job of finding the answers. They hardly ever formulate rules any more, but rather concentrate on effectively getting across their own culture. They do not hand out instructions from above to below, but distribute impulses in all directions. They do not think in terms of fulfilling plans, but uncover truths, identify weak points and reward honesty. They do not disempower, but encourage freedom. They are not complacent, but are always challenging themselves and their business models. They do not put on a show of strength, but display vulnerability. They are not insecure, but take care to avoid any excessive assurance. They do not give orders but listen. They despise status symbols and ask for acknowledgement to be based on their projects. They do not control any structure of commands, but rather coordinate working groups.

In most companies, moreover, it is not clear what role is assigned to employees who are the object of leadership, so to speak. Employees too have a responsibility to adopt a self-determining attitude in relation to those in leadership positions: in being conscious that no one has power over them, unless they give it to them; that they will be disappointed and also disappoint others. Employees can ask themselves: am I aware of my changing environment, do I learn from others and let others learn from me, do I talk to others rather than passing judgment on them, and do I share important information with the other person?

Agile leadership principle no. 2: responsive structures

Responsiveness means the ability of the organisation to respond adequately and adapt to market conditions. This generally succeeds only when complex problems are tackled on an interdisciplinary basis. Agile structures avoid the distribution of work and any kind of differentiation in the value creation process. Agility lays more emphasis on the question of which value-creating activities are necessary in order to satisfy the requirements of the market, and how an autonomous team can handle the associated tasks. In concrete terms, this means that thinking in terms of specialisation and special areas of expertise must give way to a new kind of logic. In German industry, in particular, Keese states, thinking and organising in terms of specialist departments and specialisations was a big factor for success in the past, as it resulted in top-quality industrial products. With digitalisation, however, it has become a problem. Rethinking the situation is a difficult business, because it entails a loss of certainty – because expanding horizontally means branching out into the unknown. Nobody knows anybody in this alien field, nobody knows what the rules are and people are no longer conscious of their own strengths. When a person feels good as a member of his own specialist group, he isn’t going to want to get active as a builder of bridges. According to Keese we can only escape from this pattern with the help of a leadership culture that calls for audacity and encourages experiments. But the zero-error culture in Germany makes this practically impossible.

Laloux formulates the necessary restructuring in a much more radical way, under the heading of ‘structures and processes of self-leadership’. In evolutionary organisations the traditional pyramid model is replaced by an interlocking system of structures, processes and practices. Holacracy refers to a concrete concept of an alternative form of hierarchy, designed to bring about greater flexibility and release the creative potential of self-organisation. Brian Robertson, the founder of Holacracy, defines the concept as a social technology for the control of organisations, understanding these as organisms, which feel, adapt, learn and integrate new things. The central component here is the transfer of power from person-related leadership to power, which is constitutionally based. Immediately, when a company introduces Holacracy, the CEO must sign a constitution, whereby he or she surrenders power to the agreed processes and rules it embodies. Within a Holacracy, recruitment is not on the basis of job descriptions. Instead roles are defined, which meet a specific function in the company. In this context a person can embody several roles. Teams organise themselves. This makes control of the organisation increasingly decentralised, because it takes place on many different levels. The biggest company organised as a Holacracy is Zappos, an online trader with 1500 employees. In addition, there exist numerous methods, where it is not a matter of restructuring of fundamental company hierarchies. These methods help different processes and behavioural attitudes to be established that are capable of giving rise to greater agility. The commonest contemporary methods, to mention just a few, are Design Thinking, Scrum and Lean Startup.

Agile leadership principle no. 3: networking

The more global networking increases, the more companies also become a part of complex networks. The communicative networking leads to fundamental reorganisation of work and of the organisation itself. In theoretical and practical terms, a company can float in the Cloud completely with all its data and can be accessed from any part of the world. But its internal structures as well generally tend to resemble networks rather than the classic form of an organisational diagram. In particular, information technology supports a higher degree of internal and external referentiality. What would the structure of a company be like, if the company sees itself as being a network? Rigid structures and hierarchies, such as reproduced in the classic organisational diagram, would lose their legitimacy. The focus would tend to shift from positions and committees in the direction of processes and the presentation of different hierarchies, like those of competence, experience and formal power of decision.

More diversity and the distribution of intelligence and knowledge make it possible for companies to generate more ideas and wider latitude of action. Agile companies are permeable, i.e., the organisation itself is receptive at many points to the outside world, and can feed the information received into the internal processes of product improvement and innovation. In concrete terms this means that the employees and the company are connected with customers, suppliers and other players. It must be possible for the information to be internally processed as a matter of routine and in appropriate ways, so that the conclusions for business are drawn. Keese concludes that it depends on an intelligent combination of horizontal and vertical networks. Individual business units can be organised vertically as a pyramid. Amongst themselves, however, they should have a strong horizontal aspect. Pyramids on a small scale often make just as much sense as networks on a large scale. In this model, the task of the CEO no longer consists in passing on concrete instructions from above to below, but rather in managing the network skilfully and distributing resources, like funds and personnel, over the network on an efficient basis. The most important responsibility of corporate managers in the digital future could be summed up as practising network management, creating connections, organising the exchange of information and staying out of the limelight.

We can state in conclusion that agility must be seen as an indispensable competence of organisations in the digital era. There is no black or white, however – companies must decide for themselves how much agility makes sense for which structures and processes. In view of the increasing complexity of our working world, what is needed is above all a change of mindset and attitude on the part of corporate decision-makers. Classic hierarchies and cascaded decision-making processes are giving way to new organisational structures, where employees and teams have more responsibility for themselves and so find more meaning in their work. Agile organisations are those, which have understood that this calls for an organisational culture where the consistent scrutiny of the status quo, the courage to experiment and fail and the decentralised distribution of power are enshrined in the DNA of a company, and not just lived out in the context of a lighthouse project or digital hub.