“The world,” writes Alan Murray in Fortune announcing an interesting article by Geoff Colvin, “is in the midst of a new industrial revolution.” The “frictionless corporation” of the 21st Century is “driven by technology that is connecting everyone and everything, everywhere and all the time, in a vast and intelligent network of interactive data that is creating an economic dynamic increasingly characterized by low or zero marginal costs, massive returns to scale and platform economics.” This is a world in which “labor, information, and money move easily, cheaply, and almost instantly.”
Colvin's article give dazzling examples of new technology that include:
- Tesla repairs a critical safety defect, not by recalling cars to the shop at massive cost, but by issuing a by beaming a software update to the affected cars, raising ground clearance at highway speed by one inch. The problem was fixed in four months at very little cost.
- Nike reinvents manufacturing with 3D printing and uses social media for marketing.
- Apple gets most of its revenue from selling physical products, yet most of its products are made by others. As a result, it has much fewer assets.
- Warby Parker (valued at $1.2 billion) sells high-quality eyeglasses for a small fraction of what traditional retailers charge by using a low-friction online model;
- Microsoft makes $2 billion from Skype while taking $37 billion away from old-guard telecom firms by giving customers them free or low-cost calls.
- Amazon demonstrates what can be accomplished when growth is pursued ahead of profits.
- Google shows that it is possible to get very big very quickly, achieving the scale of nations with better real-time knowledge of what’s going on in the world than any government.
- Facebook has a bigger population than China.
- Uber shows how a company can unbundle a service, outsourcing functions to others, and exchanging employees for contractors.
What the article misses is that the new industrial revolution may be enabled by technology, but it is not being driven by it. Traditionally managed organizations also use digital technology and platform economics but get rather meager results. That’s because internally-driven innovation and new technology often generate changes that customers don’t want or are not willing to pay for. It’s not the technology that makes the difference. It’s the different management mindset.
Trying to exploit digital technology or the Internet with the management practices of hierarchical bureaucracy that is pervasive in big corporations today is like driving a horse and buggy on the freeway. To get beyond this horse-and-buggy management, and into something more relevant, managers need Agile.
Thus Murray's article lists six main features of “the frictionless corporation”:
1. Limited physical capital. This is retail without inventory (Alibaba), accommodation without hotels (Airbnb), and transportation without cars (Uber).
2. Knowledge workers as the driver: The ability to innovate depends on those doing the work.
3. The gig economy: Those doing the workaren’t necessarily employees.
4. Winners take all: There will be massive disruption of incumbents as new businesses destroy the old. Winners will win bigger, and the rest will fight harder for what’s left. There is a wide gap between the most profitable firms and everyone else.
5. Declining life expectancy: A decline from 61 years to20 years today.
6. Intellectual property: Most of the value of modern corporations comes from intellectual property which has no geographical home.
These are however the results of Agile management, not the drivers of the new industrial revolution.
“Most businesses,” the articles says, “will have to create value in new ways or lose out to competitors that do so.” True, but how?
It is significant that the words, “innovation” and “agile”, do not appear in the text of the article. Instead, the article puts forward a random potpourri of ideas that includes:
- Speed is survival.
- Internet-enabled business models.
- Idea-based businesses.
- Transparency of communications and getting feedback from staff.
- Leadership with a higher purpose, aimed at improving the lives of others.
- Employee relations built on shared vision and core values.
- R&D in short cycles, with the lab linked to the shop floor.
- Value based on employees because they are most of the assets.
The needed change in management
If you look inside these 21st Century organizations, as we did in the 2015 Learning Consortium for the Creative Economy, the results of which are to be published next week, we saw that what’s driving these dramatic changes in performance of 21st Century organizations is not the technology, but something you can’t see. It’s the radically different mindset of the leaders, managers and staff of the organization. These people view, and think about, and interact with, the world very differently.
In traditional management, “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 world is self-evident: to make money for the shareholders, including the top executives. Its communications are top-down. Its values are efficiency and predictability. The key to succeeding in this world is tight control. Its dynamic is conservative: to preserve the gains of the past. Its workforce is dispirited. It has a hard time with the kinds of changes talked about in the Fortune article.
The Agile mindset is quite different. 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. It coordinates work with structured, iterative, customer-focused practices. 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.
The driving characteristic of these workplaces is thus not new kind of technology, but rather a new kind of mindset. The sovereign concept of the new mindset—the guiding star of the Agile organization —is to delight the customer. Everyone in the organization is focused on adding value and innovation for those for whom the work is done. Everyone in the organization has a clear line of sight as to how their work contributes to that. Profits—and increasing shareholder value—are seen as the result, not the goal of the organization.
The new mindset begins with a focus on continuous innovation and 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.
The primary focus on delivering innovation and value for customers has corollaries:
- Leaders see themselves, and act, as enablers, rather than controllers, so as to draw on the full talents and capacities of knowledge workers, using autonomous teams and networks of teams.
- Work is coordinated through structured, iterative, customer-focused practices, not bureaucracy.
- Leaders embody on a daily basis the values of transparency and continuous improvement of products, services and work methods.
- Communications are open and conversational, rather than top-down and hierarchical.
There are hints of these practices in the Fortune article. What is lacking is a recognition that the Agile way of running an organization constitutes, not just a random potpourri of management practices being driven by technology. It’s a coherent self-reinforcing system of leadership and management thinking that is driving the technology for the benefit of the customer.
When leaders act consistently with this coherent Agile mindset, they find that work becomes highly productive: those doing the work became fully engaged. The corporation becomes agile and is able to change direction as rapid shifts occur in the marketplace, as new technology or competition emerges or as fickle customers change their minds.
It is the different goals, principles and values that change the game fundamentally and that create the new industrial revolution. The shift is analogous to the Copernican revolution in astronomy. Instead of giant corporations standing solidly as the stable center of the universe around which passive consumers float by and are manipulated, the living, thinking, feeling customer is now the center of the commercial universe. Customers are now the sun, and organizations orbit around customers, trying to find ways to delight them.
We are thus now in the middle of a paradigm shift in management. The pace of change varies by sector. In software development, the transition has already largely taken place at the team level. There are no longer any serious arguments as to whether Agile is a better way to do software development. The discussion has moved on to developing further improvements of the methodologies in use, along with discussions about how to apply them simultaneously across many teams, and reconciling what’s happening at the team level with goals, practices and values at the level of the organization. Large-scale implementations of the new paradigm are now commonplace.
In manufacturing, by contrast, we are in an earlier stage of adoption of Agile thinking. However as physical products and services are increasingly software driven, they are subject to the same pressures for continuous innovation. As “the Internet of things” makes its presence felt, the distinction between software and other sectors is blurring. As Marc Andreessen quipped, “software is eating the world.” As all firms become in effect software companies, this will accelerate the spread of the Agile paradigm.
How the “aha!” moment happens
For established organizations that have been managed in a traditional fashion for many years with settled processes, routines, attitudes and values, the transition can be difficult. The new paradigm is at odds with many the unspoken assumptions as to “the way we do things around here” even though in most large firms today, there are at least pockets of staff implementing the new paradigm, perhaps in secret, waiting for better days.
The resistance is understandable. Most managers have spent most or all of their careers accepting the prevailing management paradigm and proceeding within its assumptions. They have won recognition by mastering its concepts and practices. They see that business schools still teach traditional practices. The thought that everything on which they have built their careers is changing beneath their feet is unnerving, even alarming.
Yet as the Fortune article points out, the change is coming willy-nilly. The choice for the organization is simple: change or die.
At the very top, there may be no “aha!” moment at all. Many of these firms have opted to go in a different direction. Over the last several decades, they have embraced the notion that the goal of a firm is to maximize shareholder value as reflected in the current stock price. And they have stock options linked to pumping up the share price, which they can easily do by resort to share buybacks. As Upton Sinclair noted long ago, “It is hard to get a man to understand something when he is being paid not to understand it.”
Maximizing shareholder value as reflected in the current stock price is incompatible with Agile management and will generally prevent Agile become the dominant modality of the firm. Instead, there will be an ongoing battle between parts of the organization, including the top, focused on producing quarterly profits and other parts focused on Agile values and the future. The fate of such conflicted organizations is usually not pretty.
Yet some managers embrace the Agile paradigm shift with alacarity. They are happy to be able to shed the traditional management habits of manipulating employees and customers and instead follow their natural preference to treat people as people and engage in authentic adult-to-adult conversations.
Other managers may come to it more gradually. They reflect on the obvious anomalies of traditional management and feel frustrated at their efforts to fix things don’t work. They find themselves having to run faster and faster just to stay in place. Yet they can also see the extraordinary gains of firms operating in the new way and begin to wonder: why can’t we have what they are having? There may follow a lengthy period of reflection and experimentation before the manager finally “gets it” and internalizes the new mindset.
When the managers do finally get it and have the "aha" of how Agile management happening—at scale—it can be so amazing and beautiful, so efficacious and humanizing, that they begin to wonder: why doesn’t everyone organize in this manner? What rational leader and manager would want to even consider any other such approach in today's economy?
And read also:
A Learning Consortium for Management Innovation
The best-kept management secret on the planet: Agile
The case against Agile: ten perennial objections
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Follow Steve Denning on Twitter at @stevedenning
