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How Agile Turns Risk Into Opportunity

In an online reunion of long-time friends recently, I found everyone agonizing between huge opportunity and huge risk. With multiple crises at once and everything being rethought, surely these forced experiments would accelerate positive changes already underway? Yet wasn’t there also a risk that, bad as things are, they might deteriorate even further? There was recognition that the risk would be much lower if we had organizations that were able to “shift on a dime.” Some participants noted that we are beginning to see examples of organizations doing exactly that.

How Organizations Can Change Direction

One participant shared the following story:

There was a high-end restaurant in a big city on the American West Coast that had to rethink their business of some 40 years as a result of the coronavirus crisis.  One day they were in business and the next day they weren’t. What were they going to do? The first thing that they did was that they tapped into their purpose. Their purpose is to feed people. That allowed them to ask the next question: if our purpose is to feed people, then how are we going to do it?

And immediately they came up with three innovative ideas for how they would shift the whole business model. One idea was to keep everybody in employment: they didn’t want to lose any of their staff. The second thing that they should be  willing to throw out every single one of their operational processes s and rethink and redo everything from the ground up.

And they were able to make those changes within a week. And they were able to keep 125 wait staff, employees and other kitchen staff. Since then, they had to go through several pivots  and it’s not such a rosy picture anymore. But they still go back to the fundamentals. What’s our purpose? And what do we need to do operations-wise to make it happen? There were no sacred darlings. They did whatever they had do to meet their purpose.

Working From Outside-In, Not Inside-Out

This example captured some of the spirit of organizational agility. It was noted that some organizations—even some large corporations—were operating in the same spirit. They start from: what are we here for? What’s our purpose! And they work back from that, looking at things from the outside-in. They ask: how can we draw on all the talents of our staff to achieve this? And what would we have to scrap, no holds barred?

They don’t start from “what business are we in?” and then “how we can sell more of our stuff to customers out there and make money off them?” That is inside-out thinking. Firms operating in this new mode start from the outside-in and go from there. Anyone with a good idea can contribute to the discussion. What do our customers need and then, how can we meet that need? Profits become a result, not the goal.

Yet this is radically different thinking from that of most managers and most big organizations today.

But what’s stunning now is this: this set of ideas is having amazing success in marketplaces around the world. Indeed, there’s a whole global revolution of change underway. That’s because when firms operate like this, not just in a crisis, but on an everyday basis, they are finding that they not only meet their customers’ needs and have satisfied staff: they also make a great deal of money.

Amazon and Microsoft are dazzling examples of this phenomenon: they are now worth $1.44 trillion and $1.56 trillion, respectively. (Note: that’s trillion, not billion.) It’s easy to forget that just two decades ago, Amazon was a struggling startup, and Microsoft was a large lethargic bureaucracy entangled in its own processes.

Critics point out (correctly) that some of the recent gains of these market-leading firms arise from the advantages of quasi-monopolies and network effects.

But that leaves open the key question: how did these firms become monopolies in the first place? Why didn’t Walmart crush Amazon? Why didn’t Netscape overwhelm Google?  How could Apple take down the mighty Nokia? How did Microsoft disentangle all its bureaucracy?

The Core Principles Of Business Agility

A key reason is that the current market-leading firms—Amazon, Apple, Google and Microsoft— mostly embraced the three core principles of business agility:

·       An obsession with delivering more value to customers and users; profits are the result, not the goal;

·       A commitment to getting work done in small self-organizing teams so as to draw on the full talents of those doing the work; and

·       A network of competence rather a steep hierarchy of authority.

Doing Versus Thinking Differently

Yet if these principles are so successful, why don’t all firms embrace them? Management guru Gary Hamel had one explanation for me here in April: “When corporate leaders look at those outliers, they ask, what they should do differently? This is the wrong question. The question should be, how do they think differently? What are the principles you have to start with to end up with an organization that breaks the bureaucratic mold in every way?”

Changing the way large numbers of people in a corporation think is a monumental undertaking. It doesn’t come easily or quickly.

But what is the alternative? Firms not operating in this way have been struggling, even in normal times, and they are steadily going out of business, exactly as Nokia was forced out of the phone business despite its massive wealth and large market share. Nokia didn’t change in 2010 because of a crisis or because it wanted to: it had to change because its phone business was bankrupt, even though it had been the dominant phone firm in the whole wide world, only three years before. That kind of story is now playing out, in sector after sector all around the world.

As a result, there is now huge interest, even in large corporations, to find out what’s involved and learn how to think differently.

How Market-Leading  Firms Have Changed Our Lives

Some critics dismiss the  valuations as ‘mere  technology’as if this another dot-com bubble. For instance, the esteemed economist Robert J. Gordon argued in 2017 that the changes in our lives wrought by these new behemoths are insignificant in comparison to the material changes up to 1970 such as flushing toilets and kitchen appliances.  “We don’t eat computers or wear them or drive to work in them or let them cut our hair,” Gordon wrote. “We live in dwelling units that have appliances much like those of the 1950s, and we drive in motor vehicles that perform the same functions as in the 1950s, albeit with more convenience and safety.” According to such economists, our lives are not very different from 50 years ago, apart from “entertainment, communication, and information devices.” I don’t how Gordon spends his time, but “entertainment, communication, and information” are the pretty much the essence of what we do as humans in both work and play.

The reality is that innovations in these areas have dramatically changed our lives over the last two decades.

·       Two decades ago, we sought knowledge by laboriously searching in bulky paper-based encyclopedias or dusty journals in libraries; today we have knowledge on-line at our fingertips at the tap of an app. 

·       Two decades ago, a car was a metal machine with a couple of electric controls: today, a car is a multifunctional entertainment and business center on wheels, with which we can even hold conversations.

·       Two decades ago, a telephone was a mechanical contraption attached by wire to a physical system: now, a telephone is a handheld multifunction device that connects us to the world and serves an infinite array of complex purposes.

·       Two decades ago, an office was a physical building that contained people and machines: now, an office is a software network with people scattered around the planet interacting with it.

·       Two decades ago, a movie meant going to a physical cinema where a limited array of films were being shown; now, entertainment consists of a limitless panoply of films and games that are available for streaming in our own homes.

·       Two decades ago, listening to music depended on attending a concert or owning a pile of CDs; now, the entire catalog of the world’s music is ready to be listened to on our phone.

·       Two decades ago, shopping meant a physical place where, in a time-consuming and often frustrating experience, you could find a limited array of goods at locally inflated prices; now, shopping is an online interaction with a vast array of products from all around the world at rock-bottom prices.

Traditionalists like Gordon mourn the loss of our old ways of doing things, just as in the Plato lamented the discovery of writing, and in the 15th Century AD, and religious authorities bemoaned the invention of the printing press5th Century BC.

But today, for most people, these changes make life quicker, simpler, more convenient, and, let’s face it: generally better. And people have responded with their wallets. The firms that provide these services have earned their profits and their stratospheric valuations. They have changed our lives fundamentally.

Are These Firms Really Models?

Other critics suggest we should pay no attention to such firms because of their flaws. And it is true that those firms that have become quasi-monopolies have started to exhibit the familiar flaws of monopolies, such as abuse of power and crushing competition, as well as some new twists, like abuse of privacy and encouraging divisiveness and bigotry through their social media channels. It is also true that at Amazon the principles are only being applied in about 15% of the firm, while other parts of the firm are run like 18th Century sweatshops. But should these flaws blind us to their strengths? Should we not also learn about the gains that they are making from applying the core principles?

And if all firms were run according to the three core principles and developed the capability for rapid innovation with energized workplaces, would there not be a greater chance of turning the current dire situation from impending calamity to realized opportunity?

And read also:

Surprise: Microsoft Is Agile

How Amazon Became Agile

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