What Digital Must Learn From Agile
“We stand on the brink of a technological revolution” wrote Klaus Schwab, Founder of the World Economic Forum in 2016, “that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before.”
Yet the truth that the digital age will be “unlike anything humankind has experienced before” also contains a paradox. While firms are tantalized by the promise of astonishing new technology that offers unprecedented possibilities of innovation and growth, most firms are experiencing disappointment with their digital initiatives. Yet good news: the paradox has a resolution. We can learn from two decades of digital experience to look beyond the firm’s current modus operandi and successfully navigate the digital world using the three Laws of Agile.
Current approaches aren’t t working. As Nitin Seth writes in Winning In The Digital Age: Seven Building Blocks of a Successful Digital Transformation (Penguin, 2021) “despite significant investments in digital transformation initiatives, its impact has been underwhelming.” Similarly, McKinsey authors in Fast Times: How Digital Winners Set Direction And Adapt (Amazon, 2020) lament that many companies today are “stalled in ‘pilot purgatory,’ unable to sustain and scale the benefits… senior executives are frustrated by the slow pace and limited return on investment of their digital transformations, and are unsure what’s holding them back.” Similarly, Behnam Tabrizi and colleagues write in Harvard Business Review, “Companies are pouring millions into ‘digital transformation’ initiatives — but a high percentage of those fail to pay off.”
Each writer sketches a myriad of issues and a plethora of needed actions. Tabrizi and colleagues write that digital isn’t just about technology. So what’s the problem? “Too much focus on a specific technology.” “Failure to align change with business strategy.” “Too much reliance on external consultants.” “Fears of job loss.” “Lack of deep knowledge of how change will affect customer experience.” “Failure to adopt the process techniques of experimentation and prototyping.” And “lack of the right mindset.”
And the solution? It’s aligning change with business strategy; leveraging insiders; designing customer experience from the outside in; recognizing employees’ fear; introducing “Silicon Valley culture” that is “kept somewhat separate from the rest of the organization.” The possibility that strategy and management themselves must fundamentally change isn’t presented as central,
Similarly, Nitin Seth’s tome offers seven building blocks:
· recognizing the new rules of the VUCA world;
· understanding your industry maturity curve;
· mastering seven digital technologies: design/customer experience; analytics/data science; automation operations transformation, artificial intelligence, data infrastructure, blockchain, and cloud;
· developing global delivery models;
· organizational transformation enabling experimentation and innovation;
· entrepreneurial leadership in which “the traditional tools of management” are replaced by “vision, inspiration, intuition, collaboration, and ability to constantly adapt”; and
· recruiting next-generation talent.
The problem in these writings is not the lack of problems and solutions. It’s the lack of prioritization among the blizzard of different solutions.
The good news is that we aren’t starting from scratch. The business agility movement spent the last two decades grappling with similar issues and had the same debate between conflicting views.
Eventually, clarity emerged. The winners of business agility turn out to obey three common principles or laws: Whether we call the issue “agility” or “digital”, the same laws apply: the Law of the Customer, the Law of the Small Team, and the Law of the Network.
Winning firms in Agile and digital are obsessed with delivering value to customers. To the surprise of traditional managers, customers have become their boss. Globalization, deregulation, and new technology, particularly the Internet, provided the customer with choices, reliable information about those choices and the ability to connect with other customers. Now the customer is in charge, demanding instant, frictionless and intimate value at scale. Although Peter Drucker grasped this as early as 1954, his insight lay hidden, as business got lost in the pursuit of value extraction for shareholders. (Figure 3)
To succeed in digital, firms must think about the customer differently. Firms got used to exploiting and manipulating customers to extract value for shareholders. In today’s more customer-driven marketplace, this approach is steadily less effective.
Customer primacy is at once the most obvious and the most difficult aspect of digital to grasp. It goes beyond parroting phrases like “the customer is number one.” Delivering more value to customers has to become almost a religion that everyone lives on a daily basis. Profits are the result, not the goal.
The second great discovery of business agility was the Law of the Small Team. Agile practitioners share a mindset that work is normally done in small self-organizing cross-functional teams working in short cycles on relatively small tasks, getting continuous feedback from the ultimate customer. The Agile movement spent more than a decade figuring out how to systematically generate these high-performance teams.
Meanwhile work in big firms is typically very different. Big systems implement big plans delivering large quantities of standard product. Big bosses appoint little bosses, and so on down the line. The result? Only one in five workers fully engaged in their work, and even fewer truly passionate. This is a disaster for firms attempting digital: success depends on a workforce that is inspired to create value to customers. Working in self-organizing teams with a clear line of sight to the customer ensures that leadership occurs throughout the firm, not just the top. Managers become enablers, not controllers. Leadership is everywhere.
The biggest stumbling block for many firms in Agile—and now digital—is the third Law: the shift from a vertical hierarchy of authority to a horizontal network of competence where ideas flow in any direction. The organization is a fluid and transparent network of players that are collaborating towards a common goal of delighting customers.
A hierarchy simply can’t move fast enough, even though many managers can’t imagine, let alone implement, operating any other way. Hierarchy in large organizations has been the tradition, ever since the building of the Egyptian pyramids. Yet digital technology permits something more efficient and effective: dispersed leadership following a common goal.
It is only when these three laws have become instinctive throughout the organization that it will be Agile enough to manage basic digital initiatives, let alone cope with the higher levels of performance involving platforms and ecosystems. In Agile, doing this intuitively is often called “being Agile” (not just “doing Agile”) or “having an Agile mindset”. The firm cannot succeed if everyone has to consult a detailed rule-book to figure out each issue of digital implementation. Yet even “mindset” may not fully capture the needed shift from value-extracting command-and-control managers to inspiring value-creating leaders. For traditionally run firms, the shift is so deep that it may mean becoming “new people”.
Author: Steve Denning