Change. Chapter 3. Defining attributes for exceptional organisations.

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If you change the way you look at things, the things you look at change…

We’ve covered the basics of agility in the last chapter, and we now need to build on top of this and show what the building blocks are for exceptional organisations.

Later in the book, I will explore a step-by-step iterative approach to applying these building blocks. This is the AWA Strategy Playbook for Organisational Change.

The building blocks are:

  1. Use an iterative strategy combined with execution to enable change
  2. Align around a very clear motivating purpose
  3. Enable the right styles of leadership
  4. Work on psychological safety, transparency, and honesty every day
  5. Restructure with the big picture in mind but act locally
  6. Apply the right constraints, governance, and autonomy
  7. Distribute decision-making
  8. Use iterative planning with feedback cycles
  9. Experiment and measure results

I was inspired by the work done by Joost Minnaar and Pim de Morree who formed Corporate Rebels to interview and find out what is really going on at the top organisations in the world. I reviewed their work, especially their findings on the 8 trends, and saw how our Playbook and the AWA approach brought about these trends faster than without our help.

This chapter was inspired by their work and I used their findings to back up our work, experience, and models. All areas that come from Corporate Rebels is referenced with source urls.

Iterative strategy with execution

Strategy cannot be done on its own. Strategy and execution go hand in hand. It requires an iterative approach with execution and not a big upfront planning session.

The strategy of change is to use a people-first, coaching-based, experimental approach to iterate towards real business results.

Experiments are the engine of change

Just like with traditional upfront strategy, we start with where we are now. However, this is done in the moment, and the data is created and presented by the people who need to change their ways of working. They are the best placed to work out what needs to happen differently to meet the changing environment. For a detailed description of how this works see the later chapter on the AWA Playbook for organisational change.

Very clear motivating purpose

There are three suboptimal ways to achieve your goals:
- lower your goals
- motivate through negative consequence
- use unleveraged willpower (I will succeed at all costs..)
The way to transcend these is through higher purpose.
— Peter Senge

We live in a capitalist society that demands growth; however, we can’t ignore the wider environment including societal and environmental impacts that our organizations are part of. We must take into account that organizations have to grow not just with market share and financial reward but must also balance their impact with social and environmental concerns.

Traditionally the focus of senior leaders has been how to grow financially and reward shareholders only. This is changing rapidly.

Whilst growth is absolutely necessary in a commercial world, in the new complex marketplace, exceptional organisations go about growth in a different way. Rather than placing the primary focus on what’s coming in and what’s going out in terms of cost accounting and profit calculations, exceptional organisations focus on purpose and value.

Growth and profit come from focusing on customer value and staff happiness.

With knowledge-based industries that require creative and innovative product and service development that has customers who are engaging regularly, staff need to be motivated, take ownership, and be in their thinking brains, not in their reactive or stress minds. We need customers to be loyal and come back and do repeat business.

Neither customers nor staff will be motivated around a company profit agenda.

If staff and customers are not feeling valued, and feel they are not producing value, then they will focus and look to get those things elsewhere.

The first thing for leaders to recognize is that the vision and purpose is a source of motivation for customers and staff, and to stop talking primarily about profit and growth. Start motivating with purpose and value. Higher purpose and value will enable profit and growth.

To enable purpose and value, we must first understand what we’re doing and why we’re doing it and make this really clear throughout the organization. We must determine what the real value to customers and the wider society is, and then link this to all of the communications, processes, and work that is going on throughout the whole organisation. This must be done not only in the words and communications from leadership, but in the tooling, backlogs, and work items.

Examples of purpose-led organisations

Source of list: Corporate rebels: https://corporate-rebels.com/trends/#purpose-values

Leaders who enable

In exceptional organisations, leadership styles move from being directive, predicting and controlling to creating the right environments and enabling employees to deliver customer value.

The right environments must include psychological safety to ensure that knowledge workers are not in their stress minds and instead they can innovate, think clearly, and be creative. This requires leaders also to not be in their stressed-out state. To enable calm in complexity, it requires leaders to do some inner emotional work and also learn the right mindset, practices, and tools to lead in complexity, uncertainty, and in rapidly changing environments without becoming overwhelmed.

Once leaders have truly accepted that they are leading in a non-predictable, complex, and sometimes chaotic worlds, and accept that they are leading people who need space, trust, and autonomy to operate, then leaders can start to become curious and to ask questions on how they can best support those below them.

The most appropriate tooling, financial models, and process implementation can only be found once both the leadership and the teams are in the right state of mind and are working together on optimising the organisation for the flow of customer value and psychological safety of the staff.

Examples of organisations with leaders who enable

Source of list: https://corporate-rebels.com/trends/#supportive-leadership

Safety, Support, and Challenge.

Building the right environments for thinking work requires the safety to try things out to see if they work and adjust if the results are not what was expected. The best way to encourage and support this process is to build in reviews around managing risk first and then expertise and results.

Ask questions such as

  • How well are they following a process of iteration of feedback?
  • How well are they considering the impact of their decisions by consulting and working with the people who will be most affected by those decisions before they are implemented?

If these questions are being asked and the answers are good, only then will we focus on improving business and market knowledge. The right process of risk management is the most important factor in localised decision-making. We need localised decision-making because that is one of the key elements needed for rapid delivery of the right value to customers.

Safety and trust can be generated by building a culture where it is ok to get things wrong and be vulnerable. This is normal and accepted, as long as the decisions are made within the risk constraints defined. Constraints are the enabling factor that allows people to experiment with relative freedom.

The focus then is on managing risk and allowing experimentation with ideas. People are celebrated for their ideas whether or not they resulted in business outcomes as long as the risk protocols were followed.

Success is achieved when lots of ideas are generated within the risk profile defined. Each experiment has an entrepreneurial owner who is responsible for risk, cost, and cancelling the experiment once it has proven not to be viable.

We are looking for experiments that produce asymmetric payoffs and by cancelling those that are not viable candidates early, we can achieve our business objectives by the large payoffs of those that do work.

The payoffs that do work are usually many times the size of the cost of the ones cancelled. As long as we have enough large successes we don't need to be right every time.

Asymmetric payoff vs the cost of non-viable solutions

Thank you to Chris Matts, our engaging conversations about options trading and his book Commitment.

This is entrepreneurism at its best and can only work when the reward structure is correctly made. This is not necessarily money but the congratulations and celebrations when someone has a great idea, regardless of whether it brought a good business result. This is the safety required to explore and innovate.

Restructure with a holistic view but act locally

Prior to the 1990s organisations had a hierarchical top-down approach to structure, communication, and decision-making. During the late ’90s and early 2000s many organisations moved to a matrix type reporting structure for more flexibility in recognition that work and relationships are not linear in nature but more like a matrix or web.

As the internet, social media, and our business models have become more complex, and the number of people involved in building businesses has increased, the matrix model has now become outdated and less effective at delivering the outcomes required.

Over the last decade, more and more companies are moving towards a networked team approach to business where teams have little dependencies between them to deliver value to customers.

Agility taken to its logical conclusion leads to the most exception companies reorganising to become a set of entrepreneur-led partially autonomous customer-focused teams that are able to deliver the right value to customers right when they need it most.

The second element is the way that employees are structured. So many organizations are extremely hierarchical often with matrix reporting lines with the top team knowing and having information that no one else has. When this is coupled with a structure that is grouped around expertise rather than customer value it is impossible to optimise the flow of value to the customer.

There are different ways an organisation can go about making this reorganisation, depending on the ability of leadership and their appetite for change. The approaches are:

  1. Invert the pyramid. — Leaders do not change the reporting structures but do change the direction of information flow and support. This means distributing decision-making to the closest point to those effect by the decision. Leaders become enabled for those delivering the value to customers to do so as easily as possible.
  2. Flattening of hierarchy. — As leaders support more and decisions are distributed effectively and risk appropriately, the coordination efforts of mid-level managers are no longer required in such numbers and the levels of management are reduced. This reduces cost. It also speeds up decision-making even further and allows faster customer flow and feedback, which in turn lowers risk.
  3. Moving to networked teams. — Entrepreneurial Product Owners are enabled to make commercial decisions and the teams are able to deliver real value quickly with much lower work in progress and risk.
  4. Micro-businesses — The organisation operates a set of micro-businesses that all have their own budgets and ability to direct themselves appropriately for the customers and markets they serve.

It is only possible to work through this list of organisational structure changes if the purpose and values have been well-defined and the leadership and senior managers are aligned to them. The optimisation of customer value flow must be done with a clear set of purposes and values.

I go much deeper into these approaches later in the book.

Constraints, governance, and autonomy

No organisation or society can work on policy or law alone. Contracts, documents, and processes are great for guidance and to reduce risk, however, the majority of decisions are made minute by minute as people make their own judgements and do what they believe is right. Trying to control and enforce every detail does not make sense for 99% of the daily decisions that employees make.

In complex environments there is always a tension between alignment and autonomy, and also innovation and regulation and governance. Neither extreme is desirable. There are many dynamic tensions that leaders and staff alike need to balance as situations change. The only way for an organisation to optimise these dynamic and changeable tensions is to do it in real-time.

Therefore, it is essential for an organisation to have its purpose and vision, coupled with very clear objectives in place to guide decision-making. The risk factors for an organisation must also be clear and easy to measure. An organisations ethics must also be taken into account. Once these have been clearly defined (sometimes in an ongoing and iterative fashion), then the change workshops and product delivery workshops must be designed to include these factors so that they are not forgotten when day to day decision making takes place.

Good workshop and meeting design are essential for success, and this is why, at AWA, we run certified facilitation and coaching courses, because these skills are so sadly lacking in most organisations.

Distributed decision-making

Staff can only make good decisions if they have the right information at hand. Therefore, transparency and information sharing is a key part in decentralising decision-making. This is often one of the ‘acts of faith’ that leaders have to go through in moving towards an exceptional organisation.

I have often experienced leaders who are fearful that if they give staff the full information, there will be panic, challenge, or that people will leave. The side effect of this fear is that staff are unable to make the right decisions and will look to leaders to make them for them. This then disempowers the organisation and reduces the thinking power to solve the issues.

Distributed decision-making is an important element on the road to agility. — Image source: https://sketchplanations.com/authority-to-information

If a clear vision and purpose are in place, then this will motivate everyone through the hard times and enable the wisdom of the crowd to solve seemingly intractable problems.

Information flow and decision-making are the lifeblood of an organisation. Building in this flow and a specific and explicit framework that takes into account risk, ethics, consistency, and business results, is a vital part of an organisations working environment.

We want successes and failures to be well-known throughout the organisation and both to be taken as a celebration of learning to be better. Rapid decision-making mixed with risk management, consistency across teams, and the wider ethical, social, and regulatory considerations must be taken into account when moving towards good business outcomes. It is therefore essential to build a decision-making framework that takes these things into account and enables the rapid flow of value to the customer.

Examples of companies with distributed decision-making

Source of list: https://corporate-rebels.com/trends/#distributed-decision-making

Iterative planning with prioritization based on feedback

Once we have a network of teams that are largely independent of each other, we can properly prioritize work. We cannot effectively prioritise work until we have whole product ownership by the teams. Whole product ownership means that we do not pass unfinished work from one team to the next.

When we have teams that are ‘silo’ teams meaning they only produce a part of the value, or we have teams that are framework teams, such as those that support only parts of the application, we cannot successfully prioritise work. This is probably the biggest area of misunderstanding that organisations have in the move to being exceptional. I will make it clear here and then cover it in more detail later.

An organisation that is designed with specialist teams will never be agile. They will not achieve any measure of predictability in terms of delivery, and then they will need two, three, or even four times the number of staff to deliver anything. This is vitally important to understand, to achieve agility you have to remove the specialist teams.

Complex work is inherently unpredictable over the long term. This means that we don’t know exactly what we’ll be building, what services the customers will want, or how the market will change. The time period over which change is inevitable depends on the market context, and this could be months, weeks or even days.

Once we understand over what timeframe your work is consistent and predictable, we can work out how quickly or how frequent your iterations of customer delivery need to be. In our move to an exceptional organisation, we can’t miss these steps.

Once we have the optimising information, we can start work to reduce the transaction cost of a single iteration. This gives us the investment cost of the change. This is how much it will cost to reach the level of agility we need to succeed in the market.

Experimenting and delivering results

Staff must be looked after. Exceptional organisations cultivate an entrepreneurial attitude with a high level of transparency of the work they’re doing. They need feedback from customers in order to focus on the flow of value to the customer.

Only once all of the other items are in place can innovation, reduced risk, and rapid delivery of customer value take place. This happens with experiments.

Experiments in a complex adaptive world are NOT the experiments of the empirical world! Often it is called an empirical process, and this is one of the big misnomers and misdirection of the agile space!

Experiments in a scientific sense are designed to be repeatable. They are designed so that we can learn about an objective world. In science, we are looking for the phenomenon that is always true. We are mostly operating with the boundaries of the complicated and predictable world and not the complex adaptive world. Typically, science experiments do not change the problem by the act of the experiment.

Obviously, organisations do face problems within this domain of predictability, but increasingly, and the focus of this book, are problems that involve hundreds or thousands of people trying to solve problems that do change before they are solved. It is a world of shifting sands and for that, we need different types of experiments.

We will cover experiments in detail in later chapters, but for now, I will say that experiments, must take into account the current situation, the desired outcomes based on the vision, and create small measurable steps that can be tested easily within the capability and capacity of those involved.

Organisations that embrace experimentation

Source of list: https://corporate-rebels.com/trends/#experiment-adapt

Putting it all together

These building blocks form the basis for exceptional organisations. They can only be implemented in an incremental approach that takes into account the cultural, emotional and mental states of those involved. This is what the AWA Playbook for organisational change is for.

I will share more of the playbook after our 600-year journey to see the macro trends at work. It is important to see the threads of change that result in a shift in human consciousness to see why this is happening now.

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CEO and Founder of the community of practice, training, and coaching company: Adventures with Agile.