An agile operating model for the rapidly changing digital world

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The world is constantly evolving, and in recent years, changes have happened at an unprece-dented pace – a pace which is undoubtedly expected to remain constant or increase in the future. Fierce technological developments and new business models have changed and disrupted industries and at the same time transformed the daily life of the consumers.

Customer expectations are on the rise and demand that corporations up their game. Digitalisa-tion is changing the business landscape and creating close to endless opportunities for corporations to differentiate and serve customers better. Customers now expect a good customer experience across both digital and analogue channels and from both private and public services alike. Through our work with digital strategy and innovation, we have identified six customer needs and product expectations that have become the new norm you need to consider when you develop products and services:

Digitalisation is changing the game

Technology / data

Products / servicesCustomer needs

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ConvenientEasy to select, buy

and use

GamifiedFun and rewarding

engagement

SocialA part of my digital and

social identity

InstantInstant gratification –

I can use it immediately

MobileAlways at hand

– everywhere, anytime

PersonalisedData-driven and relevant for

the individual customer

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Change to become more adaptable

To compete in this volatile, uncertain, complex and ambiguous (VUCA) world, corporations need to adapt their strategy processes and operating model from a linear, deterministic process to a cir-cular, adaptable process. In our perspective, a more agile operating model is required for corporations to excel in the "new world" and become both more innovative, more adaptable and more efficient.

This kind of strategy process and operating model is often associated with start-ups. The good news for corporations is that they have the opportu-nity to make a move to become tomorrow's winners – by combining the muscles of a corporate with the brain of a lean organisation and the soul of a start-up. It is not an easy move to make as it normally challenges the existing culture and way of working, but it can be realised through the right combination of planning and experimentation.

Strategy

Execution

Operating modelSensing / learning

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The muscle of a corporate• Customer base• Trustworthy brand• Financial power• Distribution channel• Industry knowledge

The brain of a lean organisation• Manufacturing excellence• Waste minimisation• Precision and reliability• Continuous improvement• Self-managing teams

The soul of a start-up• Customer-centric• High ambitions• Short decision cycles• Rapid execution• Bold decisions

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New ways of working and decision-making processes

Successful corporations adapt to current trends and move fast to meet customer needs. The ability to adapt to the changes in a rapidly evolving world gives a clear competitive advantage. This often requires an innovative and adjusted business model, an entrepreneurial organisation and increased customer-centricity. However, corporate bureaucra-cy, silo organisation, focus on business-as-usual development and an incremental improvement mind-set limit corporations' ability to keep up the pace and develop innovative and disruptive solutions.

Often, the new ways of working and decision- making processes are experienced within pilot projects and then scaled to more parts of the organisation once they have proven successful. The new ways of working are the easiest ones to get started with, but the real effect comes when the fast decision-making processes are also implemented. However, they can be more difficult to implement in an existing organisation. This is one of the reasons why some organisations start out with an incubator approach when trying to bypass existing culture and governance structures.

There are many elements that you can change to become more agile. On a high level, they fall into the categories of new ways of working and new deci-sion-making processes. Both are equally important. From our work with both start-ups and corpo-rations, we have identified eight elements that are typical for an agile organisation. Converting to agile ways of working and deci-sion-making processes implies –>

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New ways of working

New decision-making processes

Sprints

Block the calendar for the cross-functional teams in full weeks to accelerate progress and push theproject forward in a short time span

Think big, start small

While large ambitions can infuse a sense of purpose, they can also be demotivating to measure deliverables against. Start with small deliverables, but keep the end goal and vision in mind.

Customer involvement

Involve customers as early as possible in thedevelopment phase. Costumers should have anactive role in providing feedback from pretotypes

Fast decision making

Ensure momentum by creating a framework fordecision making. Utilise a data-driven approach to limit mistakes based on unproven assumptions

Pretotyping

Build the right it, before you build it right. While a prototype is an early version of a product, a pretotype tests the customers' experience and circumvents technical development

MVP mindset

Create minimum viable products developed justenough to make a good test. Anything more is a waste in case the assumptions aboutthe product were wrong

Cross-function teams

Bring the right people together to ensure the rightmatch of knowhow and competences is present tofuel fast problem-solving and decision-making

Fail fast, learn fast

Incorporate short iterative ‘build-measure-learn’ loops in product development to make the inevitable mistakes early and tune the product iteratively based on real feedback

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Increasing the agility of the operating model

The eight new ways of working and deci-sion-making processes will all have an influence on the traditional elements of the operating model. Part of increasing the agility of the operating model is to figure out how to incorporate the new ways of working and decision-making processes. Through extensive client work on the topic, we have realised that there certainly is no one-size-fits-all solution as for example the starting points and the necessary degree of agility differ from one organisation to the other.

The right target picture for the future operating model should be designed based on existing culture and values, but it also needs to be challenged in or-der to make the step change to agile that some cor-porations need. The agile operating model might not be for everyone in the corporations. But most of the corporations that have successfully taken the journey have kept the target picture and kept motivating the organisation in the right direction, but have also lost some of their employees during the change. Usually because of cultural mismatches.

Becoming agile is not an end state but a journey

of continuous improvement

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Base structure

Digitalisation and systems

Siloed and functionally fo-cused with stringent and for-mal hierarchy – organisational structures optimised towards functional excellence

Limited use of data to operate and innovate the business. Most systems run isolated or with low degree of connection

From To

E2E customer journey focused – dedicated cross-functional teams and resources adapting to customer journeys

Extensive use of data, connected systems and analytics to drive both efficiency and innovation across the organisation

Top-driven one-off projects and processes with low level of transparency characterised by the waterfall approach and handovers

Centralised and top-anchored leadership mandates with traditional line managers lead-ing “functions” and rewards slightly biased towards siloed behaviour

Self-organising, cross-function-al “start-up”-like teams (e.g. “tribes” and “squads”) driven by the business teams in sprints

Leaders capable of leading cross-functional “sprints” and acting as agile coaches. Gov-ernance structures adapted to decentralised decision-making

Fixed number of employees in-house to carry out opera-tions and very limited use of external resources

Clear hierarchies among em-ployees and formal communi-cation by leaders directing the employees

Higher degree of variable number of employees and mix of skill sets adjusted to current situation with use of external resources and partnerships

Empowered employees act in networks and are being led by influence and the mindsets of "fail fast, learn fast" and "MVP"

Collaboration models

Leadership mandates

People

Culture & philosophy

New ways of working

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Is agile always the right approach?

When assessing whether an agile operating model is the right way to go, in our work with clients, we usually consider the company's volume and variability of its business operations; volume used as a broad term for number of similar products or services sold and variability as a broad term for how changeable the company's surroundings are. The agile operating model thrives in business landscapes with high variability and low to medium-high vol-umes. In other words, agility is suited for less pre-dictable environments when volume is low and the need for variability is high. On the contrary, if a com-

pany has a very high volume and a very low need for variability, we will not dispute that a lean operating model probably is the right choice.

It is important to emphasise that the right con-figuration of an agile operating model is definitely not one-size-fits-all – it depends on the company in focus. Often different configurations are needed across larger organisations based on product and service portfolio, current strategy and mandates. The optimal agility of the operating model might also change during the course of the product life cycle, e.g. from agile to lean.

Incubator

Niche production/ service

Lean manufacturing/service

LEAN

AGILE

Hig

hLo

w

Low High

Stand-alone innovation sprints

Agile approach to project work

Agile ways of working in value chain/ business area Agility-

embracing organisation

Volume

Var

iab

ility

The dynamic, agile organisation

For most corporations, the operating model will combine an upgraded entrepreneurial core align-ing the overall and common goal, a stable process platform optimised to support the high-volume, low-variability products/services and one or several tribes driving innovation and low-volume areas. The configuration is not finite, but will change over time as new products/services arise and new opportuni-ties need to be explored. The relative size of the pro-cess platform vs. the tribes and squads will vary from enterprise to enterprise and also over time. However, even for very large and stable enterprises, there is al-most always a tendency to overestimate the required size of the process platform relative to the tribes and squads – which carries a risk of a less agile than optimal operating model. From our experience, most

stable corporations will have 50-70% allocated to the process platform – but with a continuous exchange of knowledge, capabilities and people between the core and the tribes. For example, areas such as mar-keting, sales, research and development and adviso-ry services are perfect candidates to work in a tribe and squad structure. On the other hand, the mass production of high-volume products such as phones or cars should be done through automation and lean principles.

In all corporations, a key element to get right – one which needs to be adjusted in almost all situ-ations – is the upgrade of the core to embrace the agile values, decision-making models and the servant leadership. Without this adjustment, the corporation will find limitations in realising the full potential of the agile operating model.

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TRIBES AND SQUADS Agile project and network organ-isation, sometimes stand-alone innovation, sometimes supporting process platform

PROCESS PLATFORM Stable, structured and highly efficient, often based on lean practices and sized dynamically based on current variability and volume

ENTREPRENEURIAL COREAligning the pieces in a common goal based on agile decision- making models and entrepreneurial servant leadership

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How to get started

Transitioning to an agile organisation should be done, in our opinion, in a step-wise process. It re-quires an agreed starting point, a clear purpose and a structured approach for scaling and improvement. A key part of the scaling phase is also to consider how wide to scale the agile approach – is it only in IT and business development or an organisation-wide scaling? The best way to get started is to run a pilot in a selected area of the business to experiment with different approaches and to tailor the approaches

to the specific culture of the company. Based on the pilot, the scaling approach can be designed. During the initial steps, a key set of questions needs to be addressed to ensure that the reason for change can be described in a compelling way to make the transi-tion journey as smooth as possible.

Most corporations experiment with an agile way of working in IT/digital parts of the organi-sations, but they often run into a wall during their agility transformation, or they are disappointed in the results. Often, this is because the existing organ-isation is still running with a traditional set-up where the existing operating model contradicts the agile initiatives.

As is

Why agile?

Pilot

Scale + Improve

• What is the point of departure?

• Why do we need to change?• What are the goals? • Why agile? • What's in it for me?

• Acceleration of a pilot team• Building knowledge and tools• Getting the organisation interested in change• Build success stories + Train

the trainers to scale

• Develop best practises• Scale from pilot to decided

part of organisation • Continuously improve the operating model based on

both external and internal feedback

Transitioning to agile WoW – Steps in transition

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I

IV

From strategy to continuous deliveryHow do you get from yearly strategy plan to continuous deliv-ery of products in small increments (how do you slice and eat the elephant)? How do you prioritise all the options and ensure alignment around the choices?

Change of culture and way of working To change the culture and way of working is difficult in all situations and requires both best-practise knowledge and change management

Roles and responsibilitiesWhat roles and capabilities are needed? When are they needed? Who is responsible for what?

ScalabilityOne team one product can be difficult enough – but how do you scale agile to multiple teams and programmes and further than just IT?

Continuous improvement of process and tools Agile is based on lean practices, and a key theme is improving in a structured approach. But how do you do that?

II

V

III

Difficulties in becoming agile

Some of the challenges can be minimised by designing the agile operating model correctly and ensuring the right transition. Some of the challeng-es will still be there and need to be minimised and improved during the transition and in the continuous optimisation of the operating model that is a key part of becoming more agile. The five challenges

Adapting your operating model to become more agile is not completed over night. We see five key challenges to consider when you are adapting your organisation to become agile:

are often discussed and tackled as part of an initial structured-assessment phase when we help our clients improve the agility of their operating model. The response to the challenges is then part of the core design principles when you run a pilot and scale it.

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Do you want to know more? Please reach out to:

Jesper Kjersidejesper.kjerside@qvartz.com+45 26 71 35 75

Morten Askholmmorten.askholm@qvartz.com+ 45 28 26 17 72

Joachim Allerupja@verticalstrategy.com+45 29 71 55 67

www.qvartz.comwww.verticalstrategy.com