One way of understanding management is to examine the dominant business models of the day. Another is to look at the history of individual companies and learn from the map of their unique stories. While both perspectives can add value, some of the most useful insights come from understanding the specifics of individual firm journeys.
The Dominant Model Of 20th Century Organizations: Bureaucracy
For instance, if we look at 20th Century organizations, we can see that a bureaucratic mindset was dominant. The organizational world was seen as vertical. Its natural habitat was the tall buildings in places like New York. “Strategy gets set at the top,” as Gary Hamel often explains. “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 the top executives. 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. The workforce tended to be dispirited. The firms had a hard time with innovation. They are still being systemically disrupted. The economy—the Traditional Economy—is in decline.
The Emerging 21st Century Model Of Post-Bureaucratic Management
In the 21st Century, by contrast, this vertical bureaucratic model is giving way to a post-bureaucratic mindset that is horizontal in orientation. Its natural habitat is the low flat buildings in places like California, although it also spreading rapidly like a virus and has already established footholds in most of the tall vertical organizations.
The purpose of the post-bureaucratic organization 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. It believes in banking, not necessarily banks. It believes in accommodation, not necessarily hotels. It believes in transport, not necessarily cars. It believes in health, not necessarily hospitals. It believes in education, not necessarily schools. Its economy—the Creative Economy—is thriving. It is notable in the five largest and fastest growing firms on the planet: Amazon, Apple, Facebook, Google, and Microsoft. In effect, Agile is eating the world.
If we look at common features of the emerging post-bureaucratic mindset, there are three common features or “laws”:
- Customer-obsessed: These firms 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 (taking “customer” to include “end-user”). They all stress getting close to customers, understanding customers, interacting with customers, drawing on customers, changing their structures and doing whatever is necessary to add value to customers. In some cases, customers become almost part of the firm.
- Small is beautiful: They all 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 these 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: These firms 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 it is illuminating to learn from these generic models, it’s equally important to examine what is distinctive in each organizational story.
- Living a narrative: Each of these post-bureaucratic firms tends to see itself as living a narrative that shows where it has come from and why it is being run the way it is. The story both expresses and inspires the passion of those living and implementing the story. In each story, making money is the result, not the goal.
- Unique terminology: The management models of these firms all have different names and labels. Each firm uses its own terminology to describe what it is doing. None of them say they are implementing the model from another firm, such as Spotify.
- Home-grown: The management models of these firms 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’s important to realize that not all Agile journeys are successful. Even the most successful 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
A key part of the Microsoft story began in 2008 when a team leader—Aaron Bjork, a group program manager in Microsoft’s Developer Division—launched the new version of his product (Visual Studio). He looked around the marketplace and saw that his product duplicated something that was already on the market.
He could also see that Microsoft at the time was working in 3-year cycles. It did one-year of planning and two years of implementing the plan, and then it would finally release the new version of the product to its customers. During the two-year implementation phase, if someone had a new idea, no matter how good, it was too late to be incorporated in the next version of the product. The innovation had to wait until the next iteration, which might be five years away, i.e. too late.
Bjork could see that he could never compete in the marketplace operating this way. He had heard about Agile and he decided to give it a try. It’s important to note that he didn’t adopt Agile because it was cool or because everyone was doing it. He adopted it because he had a real problem that he desperately needed to solve. And it worked. So he began to persuade others to try it.
Over ten years, the journey began with one team, then three teams, then 25 teams, then many teams, and then after about 5 years, the new CEO embraced it, and it spread across the entire firm and steadily became part of the culture.
A number of features of the journey are worth noting:
- Bottom-up at first: For the first 5 years, the Agile movement was a bottom-up movement. It was only around 2014 when Satya Nadella became Microsoft’s CEO that the entire top management embraced Agile. A key fact in the journey is that the new CEO came from the very division of Microsoft that had embraced Agile.
- The transition took time: The Agile journey at Microsoft has been underway for some ten years and continues to evolve. Firms that imagine they can transform rapidly usually run into problems.
- A home-grown feel: There is less emphasis now on the language 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 by market cap. ($889 billion)—a startling turnaround from 15 years ago, when many thought Microsoft’s best days were behind it. (Apple’s market cap is $877 billion while Amazon’s is $841 billion]
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 wasn’t.
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 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.
A key element in the failure is that it was purely top-down. I am not saying top-down can’t work. But the fact is, I haven’t seen many examples of long-term success that have been led from solely the top, without strong bottom-up impetus and buy-in. GE which was once one of the most valuable firms in the world but it has lost more than 30% of its market cap during Immelt’s tenure and is now worth just $87 billion.
Key elements in GE’s journey include:
- Top-down implementation: GE’s embrace of the lean startup was top-down from the start. The GE 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.” He never grasped that Agile is 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. Including divestitures of numerous historic GE businesses, which ended up including light bulbs, appliances, and locomotive engines. 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
We also see many examples of Agile journeys that begin an Agile fashion in the software development division that ultimately fail to support from the top management support. Initially, the fact that software development is operating in an Agile fashion, while the rest of the organization is functioning much more slowly in a traditional bureaucratic fashion, isn’t too much of problem: the management is happy to see the faster production. But as the agile movement spreads, the tension between the two different modes of operation can start to become a major source of tension. The software developers are 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 and more.” As a result, the Agile journey can stall or die, or at least go underground.
Of course, the problem in the marketplace that had prompted Agile in the first place still exists. Without agile, the firm isn’t able to adapt rapidly enough. So often, after a few years, we will see the firm launch a new effort to “become agile.”
These journeys show that while top-down implementation of Agile can cause problems, purely bottom-up Agile implementation can also be problematic. Ultimately, Agile is a paradigm shift in management. Having one part of the organization operating in an agile mode, and the rest in a traditional bureaucratic mode 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, that is not to say that it’s impossible. The Agile journey of Amazon is instructive.
In one sense, Amazon was in some ways Agile from the outset: as 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 Brad Stone explains. “All new hires had to directly improve the outcome of the company. He wanted doers—engineers, developers, perhaps merchandise buyers, but not managers. ‘We didn’t want to be a monolithic army of program managers, à la Microsoft. We wanted independent teams to be entrepreneurial.’”
In 2003, Amazon launched its platform, “Amazon Marketplace” to enable fulfillment of products by other vendors.
Around this time, Amazon began to crystallize its approach to developing new businesses through what it called a “PR/FAQ.” This is a document in which Amazon “works backward” from the future. Essentially, the way Amazon starts is by imagining the finished product, with a 6-page paper, which is called a PR/FAQ, i.e. a “press release” and “frequently asked questions.” It’s essentially how Amazon would announce our product in the marketplace if it was ready to launch. It’s how Amazon expects the product to be received in the marketplace. It’s replete with “fake customer quotes,” about how it will make customers’ lives better. Given Bezos’s antipathy to PowerPoint, the PR/FAQ is about two pages of press-release prose, and four pages of frequently asked questions.
This process has led to an astonishing array of major innovations: 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, among many others.
At the same time, Amazon also had many failures. Amazon jewelry and shoes never took off (although eventually, Amazon bought Zappo’s). Amazon Wallet and Web Pay were closed down in 2014, as was Amazon’s disastrous Fire phone.
Findings From The Journeys
Some key findings from the journeys include:
- 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. It includes talent (formerly HR), accounting, procurement, finance and so on. Partial implementations are problematic.
- Both bottom-up and top-down: The journeys of each firm 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. The successful firms are based on pull, rather than push. In each case, the top has been supporting and inspiring change driven largely from below.
- Learning from failure: None of these firms 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. Thus there is no perfect vision, that needs only a certain kind of severe discipline, to ensure success. Business schools and consulting firms tend to suggest that it is possible to attain to some kind of nearly absolute knowledge and to tidy the world up, to create some kind of rational order, in which intellectual error can be avoided. All of these models have limitations. The question is whether they learn from the limtiations.
- No panacea: All of these post-bureaucratic firms are imperfect: They are all on journeys and the journeys continue. 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, the creation of sweatshops rather than human-centered organizations are also present in some cases. In other cases, there are steps backward after steps forward. Greater involvement of the state will be essential in helping rectify these flaws.
- Profitable: These are organizations in the private sector (although similar developments are beginning to emerge in the public sector.). When Agile is done right, it can make a great deal of money, although making money is the result, not the goal. Post-bureaucratic management is thus not about tradeoffs. In fact, the new way of managing has helped public corporations overcome adverse pressures from the stock market and hedge funds to give priority to short-term goals ahead of long-term shareholder value.
And read also:
Why Agile Is Eating The World
Ten Agile Axioms That Make Managers Anxious
Six Lessons That Society Must Learn About Agile
Surprise! Microsoft Is Agile
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