Companies can become more agile by designing their organizations both to drive speed and create stability.
December 2015 | byWouter Aghina, Aaron De Smet, and Kirsten Weerda
A great discussion on what it takes to be ambidextrous as we teach in our Org Growth class at Kellogg and is the underpinning of the MDG process.
Why do established companies struggle to become more agile? No small part of the difficulty comes from a false trade-off: the assumption by executives that they must choose between much-needed speed and flexibility, on the one hand, and the stability and scale inherent in fixed organizational structures and processes, on the other (the essence of being an ambidextrous company) ….
…truly agile organizations, paradoxically, learn to be both stable (resilient, reliable, and efficient) and dynamic (fast, nimble, and adaptive). To master this paradox, companies must design structures, governance arrangements, and processes (remember the MDG SOP for Organic Growth) with a relatively unchanging set of core elements—a fixed backbone. At the same time, they must also create looser, more dynamic elements that can be adapted quickly to new challenges and opportunities (the difference in how one deals with Horizon 1 and Horizon 3 initiatives--processes, people skills, metrics, etc. differences)….
….One critical prerequisite for sustaining real change is putting in place the behavioral norms required for success. This is not about making cultural statements or listing company values; it is, rather, a matter of instilling the right kinds of behavior for “how we do things around here.”…
Agile organizations deliberately choose which dimension of their organizational structure will be what we call their “primary” one. This choice will dictate where individual employees work—in other words, where they are likely to receive coaching and training and where the infrastructure around their jobs is located. ..
…A global chemical manufacturer we know illustrates the benefits of this approach. Struggling to get traction on a new, increasingly international strategy, it changed its long-standing business-unit structure. Functions—that is, technical, sales, supply-chain, and customer-service resources—became the primary home for employees. At the same time, the company established a small product-line organization with P&L accountability, considerable decision-making authority, and a head who reports directly to the CEO. This “secondary” (product-line) organization holds the enterprise view for overall profitability and thus autonomously synthesizes product strategy, decides where and how the company should invest its resources, and drives collaboration across functions and geographies.
The idea behind agile governance is to establish both stable and dynamic elements in making decisions, which typically come in three types.
- We call big decisions where the stakes are high Type I;
- frequent decisions that require cross-unit dialogue and collaboration, Type II; and
It is Type II topics that most often hinder organizational agility. Companies that have successfully addressed this problem define which decisions are best made in committees and which can be delegated to direct reports and to people close to the day-to-day action. They also establish clear charters for committee participants and clarify their responsibilities—avoiding, in particular, overlapping roles. This is the stable backbone...
- decisions that should be parsed into smaller ones and delegated as far down as possible, often to people with clear accountability, Type III.
…Much as agile companies underpin the new dynamism with a degree of stability in their structure and governance, they create a stable backbone for key processes. These are usually signature processes, which these companies excel at and can explicitly standardize (the MDG SOP for Org Growth)
….. When everyone understands how key tasks are performed, who does what, and how (in the case of new initiatives) stage gates drive the timetable for new investment, organizations can move more quickly by redeploying people and resources across units, countries, and businesses. In other words, everyone must speak the same standardized language.