It’s difficult to ignore the significant changes that are happening in and to the world’s largest companies. According to a recent report by Innosight, at the current churn rate, about half of today’s S&P 500 firms will be replaced over the next 10 years. Meaning, we are sitting squarely in a period of heightened volatility for leading companies across a range of industries. The next ten years are shaping up to potentially be the most turbulent decade in history for modern enterprises, due to a complex combination of movements in technology, culture, economics, and politics around the globe.
The firms who have thrived in this volatile environment are fundamentally different than the ones they’ve replaced—not just in the products and services they provide, but in the way they structure, operate, and scale their business. It’s clear that in order to compete with this new type of firm, enterprises will have to embrace, promote, and protect organizational agility like never before.
Given the imperative for transformation, why are some organizations so slow to change? 66% of enterprise executives agree or strongly agree that their organization needs to transform (either in their core offerings, business model, or both) in response to rapidly changing markets and disruption, but only 15% say they feel “very confident” about making that change. There are several structural and cultural factors likely responsible for this lack of confidence.
Here are some of the most common reasons that organizations fail to truly embrace a Lean-Agile culture shift, taken from our eBook, “Why Lean-Agile Culture Shifts Fail.”
Underlying psychology does not evolve.
Traditional business structures weren’t designed for the challenges of today. Hierarchical, top-down organizational structures were designed to maintain control over workers, during a time when organizations were facing two challenges:
- Getting semi-skilled employees to perform repetitive activities competently and efficiently
- Coordinating those efforts so that products could be produced in large quantities (source)
However, the challenges facing businesses today are far different:
- Power has shifted from seller to buyer, demanding a deliberately customer-centric approach
- Continuous innovation is required to compete with a global economy of “better, cheaper, faster, smaller, more personalized, and more convenient”
- Skilled knowledge workers demand more from their employers and their working environments
In order to transform into a Lean-Agile culture, organizations have to openly evolve the underlying psychological concepts on which they are built—consistently and transparently putting people and progress over profits.
Organizations trying to “adopt Lean-Agile practices” without transforming the profit-first, control-focused mindset on which they are built are missing the point entirely.
Leaders don’t buy in.
Agile expert and writer Steve Denning explains that “management” (traditional corporate mindset) and “Agile” are two different worlds: The world of “management” is vertical—power trickles down. The role of leadership in this environment is to ensure efficiency and predictability, to maximize profits for stakeholders. Compliance with orders from the top-down guarantees success within the organization.
By contrast, the Agile world is horizontal. If “management” resides in the skyscrapers of New York, Agile’s habitat is the low flat buildings in places like California. “[Although] it’s also established footholds in most of the tall vertical organizations,” Denning explains, the Agile mindset is horizontal in that:
“Its purpose is to delight customers. Making money is the result, not the goal of its activities. Its focus is on continuous innovation. Its dynamic is enablement, rather than control. Its communications tend to be horizontal conversations. It aspires to liberate the full talents and capacities of those doing the work. It is oriented to understanding and creating the future.”
Lean-Agile organizations operate in self-organizing, self-sufficient teams, with guidance from leadership, an Agile PMO (potentially), and Lean-Agile practices. This structure is only made possible through leadership that aims to empower (i.e. “liberate the full talents and capacities of those doing the work”) rather than control.
While forward-thinking managers can certainly evolve their leadership styles to embrace a Lean-Agile mindset (especially with the support of more seasoned Lean-Agile practitioners), some might not be willing, interested, or able to rise to the challenge. A tough reality many organizations face is that some ‘old dogs’ (in terms of mindset, not age) will refuse to learn new tricks. Agility is characterized by a willingness to embrace change—organizations that allow resistance to prevail risk jeopardizing the success of their Lean-Agile transformation.
Old school budgeting/planning cycles cripple new team structures.
Traditional portfolio management methods rely largely on work breakdown structure, which is a deliverable-oriented way of structuring projects. Individuals are organized into projects and are often assigned to multiple projects (working on multiple teams) at a time. Since teams are measured based on their ability to deliver agreed-upon deliverables, they aren’t directly incentivized to innovate. In fact, it’s the opposite: They’re incentivized to stick to the plan at all costs, in order to earn gold stars upon completion of each task.
These ‘gold stars’ do not necessarily equate to customer value—in fact, they often don’t, since requirements for projects are often gathered far in advance of when the work is completed.
Success, then, becomes a measure of how well teams are able to present deliverables in spite of market shifts—not how well they’re able to incorporate those shifts into their plans and deliver an actually desirable product.
Predictability is the name of the game—can we deliver the thing we said we would deliver 12 months ago—as opposed to delivering customer value—can we deliver the thing our customers want right now, and in the future? If you imagine a traditional planning approach as a waterfall, you realize that once the plan is set in motion, it will literally require defying gravity to make a change.
The root of this problem is the way projects are funded. Project-based funding and cost accounting create an environment ripe for friction, inefficiency, and bureaucracy—and cannot co-exist with a Lean-Agile culture.
Culture is Hard to Change
Another reason Agile transformations fail is that they don’t happen quickly—but then again, no culture shift does.
As Agile expert and author Steve Denning explains, “The elements of a culture fit together as a mutually reinforcing system and combine to prevent any attempt to change it. Single-fix changes at the team level thus may appear to make progress for a while, but eventually the interlocking elements of the organizational culture take over and the change is inexorably drawn back into the existing organizational culture.”
Transforming a culture meaningfully requires time, consistent effort, and accountability.
The exciting news is, true Lean-Agile organizations are seeing results: According to McKinsey & Company, Lean-Agile organizations are more likely to excel in both dynamism and stability, key ingredients McKinsey & Company identified as needed to achieve agility.
Lean-Agile practices are having a positive impact on the bottom line, as well: 81% of respondents in Agile units reported a moderate or significant increase in overall performance since their transformations began. On average, respondents in Agile units are 1.5x more likely than others to report financial outperformance relative to peers, and 1.7x more likely to report outperforming their peers on nonfinancial measures.
To learn more about Lean-Agile culture shifts, read our eBook, “Why Lean-Agile Culture Shifts Fail”.