Product Management © 2013 Johan Oskarsson

Big is hard. Big ends with complicated bureaucracy and added administration, and somewhere people feel they are loosing control and ads strict governance procedures. Soon you end up with objectives and goals that are about cutting cost and increased speed to market. Can you endure the rules and still motivate yourself to be creative?

The Business

Team

The year is 2014 and all over the world large incumbents and small growing companies are struggling with one common thing. How to be able to manage change, complexity, stay innovative, be fast and agile. Achieve business agility.

If you are a large company, chances are that you have heard about Lean and/or Agile initiatives within your company. There might be official programs, guerilla practices, local achievements, something that promises that you will be faster and cheaper by adopting to Lean and Agile practices. And in some cases you might have seen some benefits. If you are a smaller company that have grown the last 10 years and are now struggling with tighter requirement form the investors and the products are set in their business models. You need to scale and broaden your product portfolio with new innovations, in a cost efficient and responsible way. You look at large scale practices. While in your growth era the last years you have achieved business agility without knowing it, you had to, if you were able to adapt your initial idea and produce a viable product. You seeking ways to stay small in a large company suite. You are not alone. Large companies are trying to transform from stiff bureaucratic organizations into fast and agile, while small companies are trying to stay agile. Somewhere they are facing the fact that todays, most common practices for large corporations are not made to be adaptable complex processes, but rather anticipating ordered complicated processes.

To be a thriving organization today you need to be, not only, adaptable but also exploratory. Exploring means seek new ways, change the game, play, try things that you don’t know if they will succeed. These are all things that is hard to find in a large organization. Most organizations seek anticipation only. I see many organizations that are looking at Agile practices and wants to know in advance how much better, faster, more ROI it will generate. But you cannot know. Transforming into something new need to be done in a creative process. Idea, fast prototype, test, re-design, test again, adapt, remove old stuff, add new, continuous change. Business Agility is not an end, it is a mean.

“To create an organization that’s adaptable and innovative, people need the freedom to challenge precedent, to waste time, to go outside of channels to experiment, to take risks and to follow the their passions. ”

Gary Hamel

Agile Large

Small

You, the reader, might be anyone in the organization, and anyone can make a change. But until that change reaches the top-of-the-top, chances are that your organization will not be able to transform or stay agile. There are two sides of the agility coin, and both requires a different way of thinking and a special design of the organization structure. Imagine that you are big, really big, and you need to move. You need to decide where to move and then you body should follow. What if you had multiple options where to go? If you are one body there is not so many places to go, is there. So you need to make good decisions about the next step. This is the kernel of large organizations. They need to know the next best possible move because all of you body will need to work with the same objective and any change in direction is a large and exhausting pivot. Now imagine that you exist in two smaller bodies. In this case you can chose to move in the same direction or in separate direction depending on options available. In this case you can decide to movie one body in a safe but with less possible profit, and the other in a more risky position but with more possible profit. The smaller bodies, not only can move in different directions but also much faster. Most practices are developed for large bodies. 5-10 year plan for vision with 2-3 year goals, quantitative & qualitative market analysis for accurate market demand and competitor movements, project portfolio management, annual planning and budgeting, and more.

Large organizations usually have one, and one only, governance process so that everyone will move in the same directions. Some organizations even execute every little thing according to the same process. Limitable adaptability. Similar to the metaphor of a large body. Smaller companies sometimes don’t even have a explicit governance process. They act on market changes and are trying to understand what is going on, usually with little control. They do what needs to get done, undisciplined but effective, at least to a certain point. When organizations grow to a certain size it becomes hard to do things jointly, aligned, and this is where added hierarchical levels are added to support the organization with alignment. To be able to do things in a similar fashion. Such roles are project managers, process owners, administrators, human resources, system architects, any role that ends with manager. They all are roles that should help people work together. When you become even larger you need managers to manage the managers. This is a sign that your organization will have problem executing changes.

Optimizing processes, and minor changes in current organizational structure will help a little but usually only make things worse in the long run. How many organizational changes have you seen that is about creating less and simpler?

Just because a process, a tool, or something, is complicated, it isn’t good. In my experience it is the opposite. It creates to much unnecessary work which in hindsight is hard to prove that it was worth the work. Complicated creates specialist, specialist that are hard to replace. Complicated creates stiff administration. For example take a CRM system that claims it support everything. The system probably supports everything. But the organization does not support the process the system requires. Any tool that is large and is designed for large organizations comes with a unknown price, extra staff just to manage the new process needed. And when you are large, you have many large tools and processes. They all require extra staff to manage the complicated. Small tools and processes are sometimes not taken seriously by large companies. How can such a simple tool work for a large company like us, we need a more sophisticated solution. A more complicated solution. Right? For example in the Lean and Agile movement there are new tools specialist for supporting the simple practices and there are old tools that have been modified that claims they support. With one solution you get simple support with the other you get complicated. What do you chose, a complicated tool for a simple process, or a simple tool for a simple process?

Another usually complicated process is decision making. It can take forever to get a decision or a simple matter. For example how long does it take to get a decision to contract a consultant for a temporary effort? How long does it take to get a decision weather to move forward in a project or to kill it? Decision making in large organizations are complicated and takes long time. A lot of organizational change initiatives have the objective to shorten decision making times, but finds that it is hard to do so. I believe it is because most organizational changes avoid changing organizational structure. The structure is that same, process different. Decision making should be different but it is not, it is the same. It is complex, but it does not have to be complicated. Small organizations have to try new things in order to survive and move beyond its initial users. Large organizational are terrified of trying new things. There is the old joke that you first have to provide evidence and prof that a new product idea or organizational change will be profitable, before you can get a decision to go ahead and try your idea. And as we all know, ideas are based on uncertain assumptions. How can you prove them in advance? Improving something means doing something different, trying something new. Something that you haven’t done before.

The imbalance

For an organization to be fast, creative, adaptive, continuously exploring, as well as being cost efficient, it needs to be small. Small in that sense that there is not a barrier between front line people (doing most of the job) and upper management. Nothing between the market (real customers) and the people who are supposed to figure out what they need. No barriers between different disciplines. The agile organization is an organization that has got all the benefit from being small. If you haven’t worked in a small company, imagine that you are and that the company is around 50 people in total. In this organization everyone will know everyone. You will probably talk to everyone on daily basis. You will have to work close together to be able to achieve anything that affects the market. In such an organization there is not long between idea and decision, between decision and execution, between execution and feedback from market. The key is to get the feedback loop going, and have it work as fast as possible. In the small company most people are talking to and meeting customers on regular basis, multiple times a week. They all know what is the customers problems, and what they need to do. There is little need for a grand strategic plan. In the small company you don’t need to go to meetings to find out what is going on in the organization. You just talk to the people working next to you, or drink coffee with.

In the small company everyone has got a saying and is involved in the planning. Some peoples were there form the start and remembers how it was when they didn’t get a pay check some months because of low cash flow. They all know that they have to perform their best if the company will make money, and they have to help each other to do that. Engineering have to help out selling products, sales have to help out testing products, CEO must meet with customers and understand the technical lingo. The support organization is much involved in the design phase to give input to avoid future failure demand. Marketing and Product Management is basically the same thing, if it even exists as a separate disciplines. This is what’s needed also for a large cooperation. It does not happen spontaneous, it have to be designed. Too many managers just want this to happen and sees no barriers, but there are. Too few managers understand how to design organizations, and keep struggling with doing things better but does not change any fundamental structures. In the end they need to be changed if real benefits are to be seen.

The balance

How can you design an organizational structure, that can also work in a large scale. Enter the agile Business Teams, not that it is a new phenomena. An agile Business Team is a larger team that contains all necessary people to be able to manage a product or a portfolio of products. From idea to design to maintenance. The whole life cycle. Isn’t this the same thing as the old Strategic Business Units? Yes and no. Even an SBU can be to large. An agile Business Team, should not be more than about 150 people. Why? That is the number that organizational scientist believe is the biggest number of people that a person can have a professional relationship with. Meaning be able to have in you network and work closely with. If it is bigger you will lose the closeness and start to add hierarchies that will slow you down. Old SBU are known to work too autonyms and had problem to utilize common competencies. The Business Team organization need to balance the autonomy with lateral links between the Business Teams so that knowledge is shared. This is nowadays called Business Guilds. Places where knowledge is grown and maintained. A guild consists of people form different Business Teams with the same core competence, for example The Supply Chain Guild.

The Business Team organization also have Business Teams that are internal suppliers. For example a company can have combustion engines as a core product. The base engine can be developed by one Business Unit and then “sold” to other Business Units which in turn specialize for their specific need. An other feature of the agile Business Team organization is that there can be an internal free market. Meaning that there can exist different Business Teams that have similar specialization that they offer to the organization. For example, two Business Teams might both specialize in IS-IT services and the other Business Team are able to chose who to collaborate with. The best one will win more business internally and the other have to be better or fade away. This feature will offer fast and supportive internal services, services that otherwise are known to be slow, stiff and something you are stuck with. What is also necessary is volatile X-Business teams that have the specialization of generalization. Meaning that can to almost anything and can support the organization where it have the biggest current needs, they balance the fluctuation of dynamic market needs. This type of organizational structure is known as network structure, but as far as what I have read there is little that describe such a bureaucracy. What I have found are separate authors who have figured out parts of it but not the whole thing. I don’t think I have figured out it all either but I hope to put more dots together and keep looking for more bits and pieces. This is what I’ve got so far.

The solution

“Anarchism… stands for liberation of the human mind and the domination of religion; the liberation of the human body from the dominion of property; liberation from shackles and restraint of government. It stands for social order based on the free grouping of individuals.” – Jackson “Jax” Teller

Anarchy

There are four kinds of government “Law and freedom without force, anarchy.” “Law and force without freedom, despotism.” “Force without freedom and law, barbarism.” “Force with freedom and law, republic.”

Immanuel Kant on anarchy

Key patterns What I propose are some general patterns for building a large scale agile network-organization that should be taken into consideration when designing your organization.

What is a pattern anyway. In my case it is design templates, regularities, that I’ll hope will provide somewhat positive, re-enforcing and repeatable generic manner, or behavior, to organizations. They are from different theories that I’ve picked up during the years and my experience of what seams to be working from what I’ve seen and others have shared with me. 1.  Complex Adaptive System. An organization is a Complex

Adaptive System and needs some general preconditions and constrains to function properly. Self-organizing is happening and it is our job to make it work in our favor. Neglect it and unwanted phenomena will present it self sooner or later.

2.  Essential parts. Each Business Team need to contain essential parts for it to function. An essential part is some function that together with an other function, or more, must exist in order to provide the full life cycle support to a product. To many organizations are separated in silos of specialization that are not working together, rather after its own interest and provide only parts of the full support a product need.

3.  Social system. The Organization as a whole and each Business Team is a social system where both the Business Teams and central functions have its own and shared purpose, including the peoples. The old thinking where the board or the CEO is the head and the rest of the organization is the body that moves after the mind is, with the best word I could come up with, … old. A social system recognizes all the people within it, who have their own purposes in life and at work.

4.  Networked organizations. An organization based on Business Teams, nodes in the network, are not bound to follow central rules and control but follows values and principles that forms laws that are followed by free will. Like a constitution but not always codified by written documents. The network organization changes and transforms where it goes. The network organization have boundaries with freedom instead of prescriptions.

5.  Viable Systems. A Business Team must be able to stand on its on feet's, meaning that should not be life-supported by an external part. Each Business Team must have the capability to be sustainable on its own. That means have all the competes that a small company needs to be sustainable.

6.  Internal Market Economy. If Business Teams are to be self-sustainable they need to trade product and services between other internal as well as external parts. That means produce something and sell something. Also each unit must be affected by competition, internally or externally. Keeping a department safe from competition makes them, as a friend told me, “fat and lazy”. Other departments that are dependent on them will not get the superb support and deliveries that a self-sustaining company would offer.

7.  Scaling up by scaling out. We know how to scale up an organization. Making it bigger to handle more. Usually that means more people and more levels of management. More admin and bureaucracy. Scaling out means growing but without the extra layers and other waste-like roles and processes.

8.  Manage de-centralization. When the organization spreads out into more units it gets harder to keep the purpose straight and shared visions. A Business Team needs to be empowered to manage both means and ends for their business, but also share the greater purpose and visions.

9.  Core competences. When growing large, a Business Team might not have the strength to keep all expertise and specialization, or leverage from economy of scale. Here core competences might be what you are looking for. A core competence is Business Team that specializes in producing a product that one or more other Business Teams can use or re-factor in order to provide a custom product for their niche.

10. Lateral links. When de-centralizing the organization you increase the ability to handle a more complexi environment, but at the same time makes it harder to mange the internal complexity. A later link is a bond internally that keeps the whole organization together. You need many bonds in a large de-centralized organization to mange the full context of the complexity. Manage the purpose. Manage the visions. Manage the shared group interests. Lateral links links needs to be designed carefully and smart, and be nurtured to keep from evaporating.

11. Governance and strategy. Even the most self-managed and self-organized organization needs a central hub that works with strategic issues and controlling functionality. Are you doing what you supposed to be doing? Do you know what you should be doing? How do you know that you are doing what you are supposed to be doing? How do you manage changes? The governance functionality needs to secure that all these strategic issues are managed, governance manage change. Therefore a strategic board needs to exist to provide the service to the Business Teams, the aligning service.

12. People care and benefits. A network organization lets the units manage themself to a large extent, but there are some things that need to be managed as a whole for all parts. Some of those things are taking care of the people and benefits that are common for all the units. When an an organization is small it is sensitive to financial fluctuation. For example in Sweden, we have a pretty good parental leave benefit, but the money we get from the government isn’t always enough to live on compared to our salary. Large companies often have an extra benefit and covering up to 90% of the salary while you are on parental leave. This benefit is quite costly for a small company with low margin, while a large one it is less. The large one sees the benefit of keeping people in age of 30-40 (most common age for parents) who seek financial stability during the years with younger kids. Small companies see the benefit but are unable to provide the benefit and risks loosing people to the companies that provide these benefits.

13. Cross organizational investments. Where in matrix organizations all (most) investments are done through projects, in network organizations investments are managed by the most appropriate Business Team. This makes large investments, that require joint forces, less usual, but not less important. Many investments might require many Business Teams to cooperate. These investments are managed from the executive board and these project should be few, so few that all employees knows about them and what they require. These projects serve also as strategic alignment tools, when Business Teams can be short sighted and narrow minded.

14. Transparent finances. “I show you mine, if you show yours!”. Nothing build trust as showing what you got. Remove the secrecy by letting everyone see the Business Teams financial figures. Not only does it build trust by also insight and perhaps makes people collaborate better.

[1] Complex Adaptive Systems When most organizations draw their organization, they use power point to display the hierarchical structure from the CEO and executives and units, to middle management down to departments. When you ask for project organizations and who work best with whom, and the different networks that exist, very few have this drawn, few can explain it to you. The informal networks are scary to talk about, almost like we don’t want them to exist. The informal networks hide some of the real power in the organization, and we don’t like to talk about them, in some organizations you are not even aloud to acknowledge them. Why…?, they challenge the official hierarchy. Even if we like it or not an organization is a system of people. You can put them in drawn boxes in power point, you can have them report to a specific manager who hires them and fires them, gives them more or less salary, tells them what to do and what not to do. When you look at the management behavior it sometimes feels like a super power dividing up someone else's land by straight lines with no respect to tribes and social structures. “You should work with these people, doing these projects.” How often, in the past, have you cared about who wants to work with who? Who is the leader that people follow? When you read complexity theory you quickly realize that we have missed something huge. You realize that most of our behavior is based on theory that is, well, old. Complexity theory is quite new.

[wikipedia.com]

“Any intelligent fool can make things bigger and more complex… It takes a touch of genius - and a lot of courage to move in the opposite direction.”

Albert Einstein

An organization is a complex adaptive system, which is a special state of a complex system. The organization is complex because of the dynamic networks of interactions. The organization is adaptive because the individual employee and the collective behavior changes and self-organizes. There is a lot to say about complexity applied to organizations, to much to describe in one page. But the pattern that should be noted is that when designing an organization it should be based on the theory of complex adaptive systems. Neglect it and you are basically not following natural laws. Laws that likely will work against your effort to create something good. For example people follow leaders freely, make them follow someone else and you will loose energy. You need to set the boundaries that the organization can self-organize within, they need to be wide enough and be fair. You need diversified teams and groups that can develop creativity, resilience, direction, means, and be sustainable over time. Each system(read team) needs to develop purpose, direction, values and identity, and all systems needs to be aligned, freely, with any greater purpose and agendas. The following pages about patterns will describe things to think about that are somewhat aligned with complexity and systems theory.

[2] Essential Parts A combustion engine does not function without fuel injection, or the piston rods or the crankshaft. The body does not function without the heart, or the lungs. These are essential parts that the engine and body cannot function without. We cannot take the essential parts away and give them back when they are needed. Who would want to wait for the pistons to be installed when all you want is to pick up your fast food? What would happen to the body if you removed a lung because you lying down? We know why for these things, but we don’t when it comes to organizations. What does resource allocation mean to you? For many managers it means keeping track of and lending your employees to different projects. “You get John for 20% but only on Wednesdays and Fridays, but only until 14:00 on every other Friday”. This is what we do, all the time. We know that the body would stop if we removed some essential parts, and we know that we have to call the wrecking truck if for some reason the engine went missing on the highway. But for some reason we pull the most essential part out of the teams and replaces them with new ones. Most of the time without much thought if they will fit the whole. Imagine that you lost your transmission box to your Volvo and you get a new one from BMW. What is the odds of that transmission will fit? What is the odds of the new team member will fit the team. To make a team complete and capable they have to be balanced and put together with great care to be able to learn to become a great team.

Now let’s scale up one level. To the Business Team, an essential part is not one team member, but a full team, or multiple teams to fill the function of one essential part. Many organizations today are matrix organizations where business investments are executed by projects. Projects are staffed with people from various department for a definite time and scope. Most organizations run many, many projects making the people split up between project and become part timers. I believe this is wrong for the most part. I believe that people should work together for a long time, with the same products from idea to phase-out. The full lifecycle. I also believe that a portfolio of products should be managed by one Business Team with all people necessary to manage the full lifecycle; development, marketing, support, after-market, logistics, etc. These are the essential parts needed to manage a product over time. Building knowledge takes time. Time that are denied to project organizations where people are pulled and replaced depending on the most urgent project. People should be treated as essential parts and not be pulled and replaced. The essential business functions like R&D, sales, marketing, logistics, support are the same. They should be structured like an agile cross functional team. A cross functional business team. The reason behind the agile success it mainly two things: they work together for a long period of time, not just one project, and they are built with competences that stretches over multiple disciplines (development, test, product management). They learn to work together and can manage a larger part of the value-chain. Let’s take that one step further.

[ithistory.org]

“A system is a whole that cannot be divided into independent parts without loss of its essential properties or functions.”

Russell Ackoff, Re-creating the corporation

Developers

Micro level - Agile Teams (smallest entity)

Testers System analysts

Agile teams

Systems theory in agile words for an entity is “cross-functional”. All essential parts in one entity in order to be able to carry out the defining function: “deliver a working product”.

Corporation

Macro level – Business Teams

Split up into the smallest possible parts (entities)

Cross-functional full-feathered teams (small company within the company)

Business

R&D Marketing

Support Supply Chain

Logistics

Agile team

Fractal scaling

The defining function of a Business Team: “manage a portfolio of products over a long period of time”.

[3] Social System Many times I have heard that people are missing clear goal form up-stairs. The executives don’t understand. For them the goal are super clear. What is not clear is why the organization is not racing against them in full speed. What is the problem? I think the main problem is the way we look at the organization. I’m not the only one, thank … Professor Ralph Stacey, a great complexity researcher, writes “There is a dominant discourse in which it is assumed, without much questioning, that small groups of powerful executives are able to choose the direction of their organization will move in, realize a vision for it, create the conditions in which its members will be innovative and entrepreneurial, and select the structures and conditions which will enable them to be in control and so ensure success”. Gary Hamel the famous strategy expert talks about the concentration of decision-making power is in the hands of a few top executives and that compromises business effectiveness because that, given the complex environment and the time it takes before top management understand what need to be changed it is to late. I could not agree more. These two, who are some of my favorite authors, point to the same thing as I bring up here. The metaphor of a body (animalistic system) where the top management is the brain and the rest of the organization is the body, where the brain decides and the body follows, is quite opposite of what the researchers tell us. I also think that most employees would agree, and would love to be more involved in decision-making and strategic planning. In a social system there is not only one brain but many. All employees are recognized. Their individual goals and visions are respected as long as they are not contradictory to the organizations shared and understood purposes and goals.

The problem is not to get upper management to understand this, because most already do and really wants to reinforce this. The problem is the organizational structures and management models available. How many managers knows and are capable to build organizations where both executives and front line people jointly work with strategy. How can you possibly do this? How can upper management find the time? It has never been easy. Alexander Osterwalder, the inventor and author of Business Model Generation, which is both a model and a method for creating a business model, says that “Co-creation is much more work than writing somewhere hidden in a corner and then publishing your content. However, the benefits outweigh the costs.” This method of working with strategy is just one of many good ones that lets management work with the front lines. The pattern for building a social-system organizational structure is based on the mix of management and front line people. Manager don’t work only other managers, equals. Whenever you work with any kind of means and ends planning, management questions, people from different layers of the organization should be forming the working group. One other reason agile teams manage so well is the mix of management and team whenever: planning, decisions, means of execution, goals, deliveries, are managed. They all work together with this questions. What needs to scale tothe corporate level is same philosophy.

[jurgenappelo.com]

“Management is to important to be left to the managers”

Jurgen Appelo, “Management 3.0”

[4] Network organization An organization based on small and agile self-directed teams, that leverage information and exchange of products and services, can be called to have a network-centric configuration. This type of structure supports many different types of forms within the same organization. It needs a network governance.

A network organization is also called a liquid organization, cellular organization. It changes when it needs to, it shows different forms in different environments and contexts. Liquid is the complex system of matter, like a social system of people, unlike the solid state that most traditional organizations are more similar to. The network is a socioeconomic business of likeminded people who create business opportunities. The social network’s purpose is business, where each team have special idea of a general purpose, shared among the teams. Networked businesses are more open, random and collaborative than the traditional hierarchical that are more closed, deterministic and controlling. A precondition for a network organization to work, are the peoples in it. They are not to be controlled and told what to do, but inspired and supported. The average worker is knowledgeable and passionate about her work, and aware and involved in its business. Much of the knowledge is tacit and embedded in the culture of the network. The network organization is sensible to a complex environment and fast to response due to the low bureaucratic decision-making. The teams are self-directed and share a common sense from means to ends, as well as the common shared visions and purposes. The network needs fast feedback loops and data collection to understand and make sense of its course.

There is a power shift in network organizations. The ego-centric thinking versus the network-centric thinking. Decisions are allowed to be moved out of the HQ to the Business Teams where power is distributed among and over the teams to be more self-managed. The HQ is not lost and gone forever, but holds a strong influential and supporting role, pushing the power out to the Business Teams that prove to be knowledgeable, capable, and responsible for its business. A network governance is defined by autonomous and interdependent actors, “Business Teams”, who interact by trading, competition, within boundaries and shared purpose. The network governance function need a board of elected participants who represents the Business Teams and works for the Business Team on a corporate level. The development and maintenance of the strategy needs are never-ending and a foundation to the shared causes. The patterns for designing an agile organization is the acknowledgement of the network-centric organization theory and understanding of the community-like structure, shift in power and governance. When building an agile organization you will have many small agile teams that are expected to work given the constrains and expectations we have on a business network. It will not emerge spontaneous.

[jwikipedia.org]

“The thing that we are trying to do at facebook, is just help people connect and communicate more efficiently.”

- Mark Zuckerberg

[5] Viable Systems A small business, like a man working as a plumber, needs to be able to handle all sides of a business. The plumber needs to get new customers, finish the current work he is doing right now, make sure he stands for the quality that he have been doing and fix the things that wasn’t reflecting his best work, he needs to calculate and pay tax, take out salary and many, many more things. This is one of the reason some complain about plumbers ability to plan, stay in contact, fix problems and estimate cost properly. It is hard to be good at everything if you are a one-man show, but you have to be at least good enough. You have to be viable. Viable, or viability means that a living organism, or artificial, or a good idea, have to be able to maintain itself. Grass that in a dry summer recovers when the rain finally comes is viable. Ant farms that persist when moved are viable. The human body that recovers from major injury is variable. Trees that survive seasons a viable. A corporation that re-invents its business model and manage to stay in business past their due time is viable. In organization theory a viable system is part of regulation theory or Cybernetics. A viable systems means any system (read organization) that is organized is such a way as to meet demands and surviving in a changing environment. Stafford Beer developed the VSM, Viable System Model and many more have elaborated on the model. Patrick Hoverstadt is one of them and my favorite author on the subject.

Why does some agile teams manage to perform so good? Why do we think that they are performing good? As with a good plumber you as a stakeholder or external observer, can somehow measure and compare one plumber from another and decide which one is the better. The good agile team performs better because, if done successfully, the agile team can deliver a larger part of the value chain. Not only coding, or testing or customer service/support. They do a little bit of everything and more of something. The operate like a small business within your large business. The learn what the environment is like outside their team, which makes them equipped for meeting the changes better. The best agile teams I have seen an herd about are the ones that work in small business, they are then forced to handle more things, like finance. A truly successful agile team can read an income statement and take action to improve the financial situation. They find ways to measure themselves, track changes and reflect on consequences. They come to understand and gain wisdom of their business. But an agile team in a large organization have one problem, they need to be multiple agile teams working together. Managed as autonomous small teams but also as one larger team. This is fractal scaling. Both the large system has to be viable as well as the small agile team. This is not something that happens spontaneously. It is designed.

[Transformationforum.org]

“People think and says a lot about systems but they rarely practice them.”

Patrick Hoverstadt The Fractal Organization

[6] Internal (free) market economy Can you choose which development team you want to work with, or are you stuck with one? Can you choose to buy product internally or externally, or do you have to buy it internally because it is the strategic decision? If you have ever worked as a product manager you will recognize these questions. You have probably argued that you, as the P&L responsible should be able to buy from who ever you feel like buying from. After all, you are the one who have to shoulder the responsibility in the end.

How can someone be responsible if that someone cannot chose the means he or she needs to reach the wanted end? Imagine a product management department that consists only of product managers, support people, key account sales people and a director. Not an unusual group. They have a bunch of products or services in their portfolio that they have the responsibility to maintain and grow. Show profitability. When they show great profit they are regarded as kings, when they have a dry season they are under discussion of dismissing. Yet they have little control or influence of their own fate. They probably have a R&D department to order new products and changes from. A logistic and supply chain department to manage their channels and deliveries. Can they decide how they want it. Not likely. They can only tell what the market need and put in requests. What if the director, head of product management doesn’t get a long with the logistics manager. Good luck trying to innovate the current channel strategy for their products! They are stuck in structure. Now imaging instead that they, the product management department, could chose to work with either of two logistics units.

How about that! Does it sound stupid to have two logistics departments? Isn’t that wasteful? Maybe on a micro level, but is it on a macro level? One logistic department might have all the general logistics capabilities but are specialist in fast and custom deliveries, the other one might be specialist in cheep and standardized delivers. They have a general process that both follow but also a special capability that the offer the organization. In this case you can chose who you want to work with. You can chose who you want to pay for their services. The two logistics departments have to compete for their customers. The facts that it seams wasteful to have two, can be compensated by the fact that they will compete and seek to improve to stay in “business”. If no one want to work with them, they are clearly not providing enough value. Somehow internal competition is sometimes thought of as bad. I say it is only bad when constrains, rewards and punishments are bad, system-wise. Adam Smith wrote about this in his “Wealth of nations”. The totally free market have some pitfalls when applied to organizations, but if you have seen the movie “A beautiful mind” where Russel Crowe plays John Nash, the mathematician explains that to win bigger you have to make sure that everyone wins. That is the constrain that needs to be applied also for organizations when use of internal market economy. Not only survival of the fittest!

[rugusavay.com]

[7] Scaling out Scaling out is like copying yourself into two smaller self’s, versus scaling up is like keep growing even when the roof is too low and you have to rebuild the house to fit. Scaling out means two parts with two will and two moving parts that will only move in the same direction if both wants to, compared to very a large body that still follow only one mind. The large body is slower than the two small ones. The large one will have a harder time managing a changing environment. Picture a soccer game with two small players in one team and a large one in the other (two Lionel Messi against one Zlatan Ibrahimovic). Where the large one will be stronger where huge force is necessary and need only one mind to understand what action is required, the two minded needs collaboration and joint forces. There are limits to growth. We see it nature and we see it in social organizations. When organizations grow they naturally split up when they feel the need. How many one-on-one meeting can you do in one month, yearly personal development plans, etc. After a while the manager can only handle a certain amount of people where a new layer of team leaders or lower level managers are appointed to manage smaller teams under one super manager. When an organization splits today, it is usually dived into parts of similarity. Core competences, such as development, logistics, sales, etc. Enter matrix and project organization. All investments require a project where each department are contributing to. Now, imagine it differently. Enter Business Teams. Structured with all essential parts needed to be self sustainable. Once the organization is mature you have a bunch of Messis or Zlatans, or a mix for that matter. The importance is to divide into smaller bodies.

The problem is not to get Messi or Zlatan to be creative or driven, but to get them to work for both their own purpose and goals as well as the shared soccer team’s. The pattern of scaling out is to build leaders and competencies of the people so that you are able to scale out. You will need to raise and recruit a number of people who can be CEOs. You need to understand the nature of your environment to understand into what Business Team you should divide into. The question is also, when to scale out. Most researchers, scientists and leaders is such organizations seams to says around 150-200 people is the number when you should try to break into smaller parts. It is hard to say, but around that number people tend to loose the possibility to know everyone and have a relation with everyone, and hence the broad communication bandwidth. Here is probably where you start questioning this theory, “what about our factory with 1000 employees, should we build 8 new smaller factories?”. This is also where this gets complicated. I think here is where we need a hybrid of network and core competence organizations. At certain points and contexts we need some units to be specialized at internal deliveries. That said, a lot of production sites are breaking up into smaller lines of production that serves different business flows. The essence of scaling out is to enhance the easy of working together, manage complexity and remove wasteful middle layers.

[jfotballspeak.com]

“First I went left, he did too. Then I went right, and he did too. Then I went left again, and he went to buy a hot dog.”

Zlatan Ibrahimovic

[8] Manage de-centralization How do you win a soccer game? Or how do you win NHL? How do you get the payers to work together, game after game? They are clearly individuals with their own goals. Being an elite in any team sport is as much about beating the other teams as it is to earn your place? How do you make sure that autonomous business units plays together to win, not only their own game but the common game of the organization? How do you manage someone or something that has a mind of its own? Baking chocolate chip cookies and putting them fresh on a table in a room filled with kinds is one way of getting kids to move from one position to another. I sometimes wish I had a fence to keep my one and half year old daughter from running of, a boundary that she couldn’t move out of to keep her safe and make me feel like I have her under control. When she gets older I hope I can let her take on more responsibility and make tougher decisions, and that we can have a dialogue about how to increase it even more, once she have more experience and understanding (I really hope so, I can be done, I think..). If I stay true to my values and that the important values are also hers, I’ll trust her until proven otherwise. When I was I a kid, six or seven I stole a small silver robot from the local store where I lived. My dad found out and told me that I had to go back and return it and say that I sorry for what I did the next day. I still remember the agony I had going to bed. I know I had done wrong and even worse I had to confess it. Playing in groups kids (and adults) experience the influence of others. The peer-pressure. It can make you do something stupid, and it can make you do something good. We have all felt it, and know what peer-pressure can do. Yet we are quite bad at using it tactically to do good.

Now, the people in your organization are not kids, but the approach is not that different. Compared to the strictly top-down structure, all power is distributed to the top. In the de-centralized it is continuously being moved out as far as possible in the organization. Just as with raising kids, autonomous units need alignment so that they and the executive know that they are on the same page about what needs to happen. We need clear boundaries, so that we know the area of freedom. We need to be clear on what decision areas we delegate and which we don’t, and how and when we take decisions together. We all need to understand the implications of decisions. We need to plan how to increase the decision-making power, it is not simply just handled out. We need shared values, not the one wrote down on paper as the standard values but we truly need to believe in the same ones that is core to the organization as a whole. We need to know the rewards and punishments, because even if we maybe don’t want to talk about them (specially the punishments) they are there but usually hidden. And last but not least we need to get peer-pressure working between the Business Teams. It is a strong force that requires some thinking before it can be designed, and it should be handled with care. I personally think that management of de-centralization gets way to little attention and seriousness. What is missing is the knowledge of how to, tools and practices how to do it good.

[wikipedia.org]

“Making good decisions is a crucial skill at all levels. ”

Peter Drucker, Management

[9] Core competences 2.0 What is the core competence of the plumber? Plumbing! Duh! Gary Hamel & C. K. Prahalad wrote 1990 an article about core competence. It is the specific factors that a business sees as central to the company. The core competence cannot easily be imitated. It gives a competitive advantage. Or so it is thought. I believe it is outmoded. Driven by the need for rapid change of business model. It needs a redesign. 2005 Google bought Android. Why? They needed an operating system to attack the mobile market. 2010 apple bought Siri for search competence. Nike wasn’t known for its digital competence, why they worked with Apple for its first Nike+ products. Apple didn’t have MP3 players are their core competence at first. Core competences are not something that you build and have for ever, and ever. It is the competence you need to make your business model come true. A core competence is not something you build fast. And things that you don’t build fast are not so prone to change. Yet some things require deep, deep knowledge and specialization. I think that the sickness is a combination of big, slow, constipated specialized department (core competences) combined with matrix organizations. The result is that all department see themselves are core competences. Take the IT support at your organization. Do they see themselves as a service unit for your company’s core competences or as a core competence themselves? How do they behave? A change in business model usually requires changes in many, or most, products and organization. Most strategic pivots require a new organization structure.

Sun Tzu writes in “The art of war” that “A military force has no constant formation, water has no constant shape. The ability to gain victory by changing and adapting according to the opponent is called genius”. Like that an organization that is swift, adaptive and able to reinvent itself must be like water. I think that core competences are still needed but the organizational structure should not be built around them, rather see them as smaller units that can support the Business Teams. I also think that each Business Team needs to have part of the capability of the core competences, though smaller and not as deep knowledge to be able to move fast and to be able to customize when needed. Looking at the organization as a whole, seeing the core competences as smaller Business Teams that can be moved, dismissed, changed when and where needed, will add relief and resilience. Core competence Business Teams could also be external, like consultants or supplier that act like partners to fulfill a core competence. The core competence can be supporting a certain Business Team during a certain period of time when the company need to focus on a specific area or a range of products. They can be move elsewhere when needed. They can sell their own services outside of the company to friendly competitors to stabilize their sustainability. They should be expert at retrieving new knowledge and capability and at providing that competence to the Business Teams. You need to constantly evolve though partnerships, new talents and, or, acquisitions.

[wikipedia.org]

“We shape our buildings; thereafter they shape us.”

Winston Churchill

[10] Lateral links When you scale your organization out, splitting competences, or acquire a new competence you face the problem of managing control. The easiest or most common way to mange control is through hierarchies. But as we know, hierarchies are slow and the middle management is trapped in no-knowledge land. They don’t know what is going on in the teams and they don’t know what is going on at the C-level. So they spend all of their time chasing control and sending it upwards. When managing an organization built on value streams, networks, and partnerships you need different types of control mechanisms. How do you control the quality of a piece of software, recruiting a Quality Assurance Manager to inspect or stimulate the intrinsic behavior of the developers to produce quality code and craftsmanship? How do you enforce collaboration between managers, with targets on their balances score card or merging of their departments into shared teams? How do you manage learning and knowledge when you have outsourced or off-shore teams, again targets and rewards system or establishing business guilds (competency groups)? There are huge amounts of control mechanisms that needs to be working to regulate an organization. The more de-centralized and flat the organization is, the harder it is to control top-down. The contracts, and reporting system gets very complicated. A lateral link is not only a car suspension part, even though it explain the concept pretty good. It is a link between two or more parts that needs to be connected in order to provide control of an important function.

A lateral link applied to organizations is a control mechanism between two or more important parts, Business Teams, competence groups or departments. Not top-down but side-to-side. For example having the managers of the Business Teams meet and review each others P&L statement, in detail. It would not only bring out peer-pressure, but also (if the relationship is good) induce learning and feedback. Or, have the team members discuss when and for how long they can be on vacation during summer holiday. How is the manager going to know what works? Or, teams scoring other teams on their performance. Or, distributing architects into teams to have them teach architecture to the teams instead of writing guidelines and principles. Incentivize travel to and from India when you decide to partner up with an off-shore supplier. Build an internal bar where everyone can meet after hours enjoying a cold one. The lateral links provide the controls you need. They are not only very effective, but usually also quite popular. The only problem is that they also need to be immersed with from senior management to work. Because if the seniors don’t inspect and review them, they are prone to add hierarchical control in vain or feel like they lost control. Knowing yourself is key to strategic planning after all.

“I have a very strict gun control policy: if there is a gun around, I want to be in control of it.”

Clint Estwood

[11] Strategy and governance The traditional approach to both the governance and strategy function is based on that the future can be described and reaching that destination is linear. Some, a special few, set the vision, the gap and the high flying plan to close the gap. What is wrong with this? One, the cycle time is usually to long before it is updated and the yearly plan is soon outdated. Two, the measurement of the strategy is also based on linearity, the output of the strategy, without the feedback mechanism to make it circular. Three, the strategy and decision-making are done by only a few people, ignoring the complexity because of the over-simplification. Business strategy is as you well know a legacy form the military. But reading about warfare written by for example Sun Tzu and Claus Von Clausewitz it seams that some parts are ignored. For example the generals cannot micro manage the battles, simple because the is no direct feedback. If the commands where based on the feedback to the general it would be to late. The officers with lower rank have to be trained to make decision on their own. That is a little conflict to the traditional strategy model. Reading about Julius Cesar you get another view on the commanding officer, where Cesar seamed to have been fighting himself very close the soldiers. Seeing the battle first hand. Another thing that seams to be in conflict are the change of tactics and formation, which the governance function should manage. It seams to me that many changes are being executed much later compared to when the need arose, and not caring for the special context. A change is done in described way, neglecting the circumstances and what tactic way each change need.

A very ironic approach to agile transformation and initiatives is that organizations tries to implement agile in a linear way. Totally missing the whole philosophy of agile, and sending a totally wrong and quite incompetent message to the organization. “We want this new agile (flexible, fast, circular, adaptive and explorative) thing. Please implement it using these sequenced steps and provide us with these efficiency numbers”. The strategy and governance processes needs an overhaul when searching for business agility. The yearly plan have to be replaced with quarterly (at least), that goes for both budget, plan and feedback-loop (performance measurement) and all the data and information needed to to make and changes. Small batches are faster than large ones. That means that the work needed to produce a strategy, manage change (governance) and review feedback will go faster if you do it more often. Not the opposite which many people fear who gets this message. The strategy and governance function also needs to be integrated with the front line people to get first hand information, true and fast insight to what is really happening. Involving more people from all levels in the decision-making process. The final thing is the measurement. Don’t just measure and compare to plan, make sure that what you measure provides input to decisions. Richening the knowledge and understanding.

[jwikipedia.org]

“You have to be fast on your feet and adaptive or else a strategy is useless.”

Charles Du Gaulle

[12] People care and benefits What you earn is a combination of your salary and the extra. Let’s say that you have transformed your organization into smaller Business Team which are empowered to manage P&L. You can then chose how to structure your own earnings, or? What happens when different unit and teams can chose their own rewards system. How do you handle the situation where one Business Team is very successful and the others are not? It is quite obvious that different Business Team cannot offer totally different salaries to their employees and that there needs to be some kind of structure to stabilize the salaries. If not, people would want to change teams in bad years and promote extremely high salary the good years. The Business Teams belong to the same organization and I think it would be stupid to offer very different salaries depending on what team you work in. On the other hand if your team is very successful and that success is very much dependent on the people working there, perhaps a little extra would make the effort people put in seam fair. The extra I consider is the bonus which should reflect the financial return that the Business Team generates. The other extra should also be something that the whole organization stands for. A minimum benefit program that all employees have as benefits. These are things that each Business Team pay its share for. These are also things that an individual teams have a hard time negotiating with supplier alone and would probably end up with very different solutions if managed individually. Then again each team might be a bit different and want to chose some special benefits that other might not prioritize. So their needs to be some context dependent freedom for each team.

People come and people go, and their life situation changes. Some Business Teams might come up with very good benefits. Therefore it is important to have lateral links set up for managing benefits and reward system between the Teams. I believe that many employees have to little insight in salary system, bonuses, reward and benefit system. Therefore I believe that this should be open information, available for everyone. Daniel Pink writes in his book “Drive” that money needs to come off the table. So that it is not an issue. From my experience the closed system, where only the managers understand a part of it and the salary is only managed boss-to-employee, doesn’t take the money off the table. People are suspicious and have little understanding of the structure. Make it open and involve everyone in the process of setting each others salary and extras. We want people to trust each other after all.

[ted.com]

“Especially for fostering creative, conceptual work, the best way of to use money as a motivator is to take it off the table so people concentrate on the work.”

Daniel Pink, “Drive’”

[13] Cross organizational investments When you remove the project organization and replaces it with continuous deliveries form Business Teams you remove one important thing. The maneuverability for the CEO and his, or her, posse, which still may be necessary to make the grand pivots and adaptions. In the project organization the CEO could always go in and start, or change priorities of important projects. I think that it should still be possible Some investments are huge and will cover from one end of the organization to the other. Sometimes these changes are needed. These types of large investments, projects and adaptations can also be the thing that an organization need. If the organization consists of small interdependent but autonomous entities, it can be hard to maneuver for a small group of people. What I’m saying is a little contradictory form what I’ve said before but it is the balance I think is needed. Sometimes I think that a small amount of very enlightened people like the CEO or perhaps the founders know that things have to change radically. Here the small-step explore, learn and adapt approach might not be powerful enough. For example. Steve Jobs classic comeback to Apple. Major changes. One man. Quite successful. I think that the CEO should be able to have five project that he or she drives. These are the cross organizational investments that can and probably will unite and align the Business Teams. If there are too many projects, then they will be be regarded as less important and unknown to many. With the “big five” the CEO should be able to communicate the large strategic moves.

At some point, the organization may need a great force to shake it and move it out of comfort zone. I believe that a continuous delivery organization will end up being complacent at some time. Always adapting until it fits the organization. I’ve seen agile initiatives being very mature, but also heavy in its practices. Agile teams tends to improve, a lot, and that means sometimes adding a lot of practices that have led them to produce fast, with quality and the right features. But that is maybe not what the organization need. Some investments might not be strategic changes or visions, but internal improvements that are concerning everyone. If there are many units/entities that share resources, chances are that you are paying for things that are of benefit for everyone and sometimes more to others than you. There needs to be a governance for these investments looking at the whole and each individual entity’s needs. Resources are always scarce and needs be managed. I think everyone in a larger organization recognizes this. How many CRM system do you have in you organization and how many do you need? I believe that each Business Team should in the end be the one choosing, but if they don’t know what to chose from its likely to be a choice in the dark.

[14] Transparent finances How do you build trust in an organization? What do people fear the most? The answer to the second question is money. Few things can create so much problem as thinking that you are being screwed by someone else money-wise. That you are paying for things that you don’t know the reason for. That you are paying more than others. That others might owe you money, that you are unaware of. It is showdown. There will be times when you need to invest money in shared assets. There will also be times when you pay for something that you don’t see as very important or relevant to your Business Team. The best way to stop the intrigues and cover stories is to make the financials available for the other teams. Show each other what you are making in revenue. Show what your cost of sales are. Show them your expenses. Show them your return on investments. Show who is paying for what, and how much. Bring forth the major contributors and the parasites. If a Business Team are making great profit, chances are that they will hide parts of it and spend it on things that might not be ethical to the organization. Let’s say a trip to the Maldives. On the other hand why shouldn’t they, if they have made a great profit and want to celebrate. How they spend it is maybe not the most important part, but the secrecy about it. Secrecy creates, suspicion and jealousy. It’s building trust. If a Business Team are in for loss, they are probably a bit ashamed and want to cover it up somehow. Even though that is a bit harder than to hide. No one want to be the loser in the organization.

But showing the numbers and doing it to show the reality, the truth, then the peer-pressure will engage and with a set of good values it might increase trust and cooperation. If there is a killer manager in one Business Team, his or her skill is definitely something to show the others. How exactly are you doing what you do? Can we (the others) do it to? Are there bright spot that you can study and learn from?

[axiomgroup.com]

“The forecast shall revel issues on the radar screen early enough for us to take the necessary actions.”

Bjarte Bogsnes, “Implementing Beyond Budgeting”

The Design Few organizations that I have met are designed as a whole. I think most are they way they are because of individual managers initiative, historic urgency, downsizing needs, efficiency programs, M&A:s, etc. Managers that I meet that are facing an Agile initiative responds to the design question with a defensive behavior, “the organization will have to emerge”. If you hear it, be aware, it is likely that the manager has no idea how to build an agile organization. Many agile initiatives, large ones, are responses to a strategic needs. The business is not meeting the targets and goals fast enough. Efficiency targets are displayed and programs are started with one goal. “Faster, cheaper”. The board of directors do not care if it is Agile, lean or what ever management fad that will provide those targets, as long as they are met. The organization answers with Agile and Lean practices in order to provide the means necessary to achieve faster and cheaper. Little do they know, both of them, the strategic board and the organization that they are miles from speaking the same language. The expectations from the organization is not anywhere close to what the strategic board is capable of providing. Some Agile experts and consultants explains that a large scale Agile organization is build from below, form team level. I disagree. It is designed from all levels at once. Perhaps that transformation is incremental, starting small and expanding. But the design is still covering the whole organization. To be able to design the organization one must know and understand the full organization. This is my best clue why organizations are not designed as a whole.

No one knows the full organization. Sometimes when I do something for a large organization, such as an investigation or assessment, I met people who are involved with the products and the problems but they have never heard of each other, and these are organizations of only a few hundred people. Well, you cannot solve the organizational problems using the same thinking that created the problem in the first place. That is, changing here and there because of a burning need and strong individuals. You always need a full design to fall back on, to understand what a small change will affect in the large design. Any designer or architect knows this, but managers don’t. Don’t let the organization emerge. Always take a step back, view the grand design and the interactions between parts, before you decide how to respond to a local problem. So when you hear a manager say “organization” and “emerge” in the same sentence, ask for the grand design. If there is none, sound the alarm. It means you have no idea where you are going. Some might say this doesn’t sound like agile. Emerge is a strong word in the agile community, but also totally misunderstood. To just do something, without understanding if impacts, and see what happens is a shot into the dark, hoping that you will hit something (good). To build a truly agile organization you need to explore with small shots, adapt when needed but also anticipate. The next pages are steps to take to start designing and transforming your organization.

Johan Oskarsson

@johanoskarsson

Johan.d.oskarsson@gmail.com

www.captaintrouble.com

Inspirational book sources Management 3.0 – Jurgen Appelo What matters now – Gary Hamel Re-creating the organization – Rusell L.Ackoff Business Model Generation – Alexander Osterwalder Diagnosing the system – Stafford Beer The fractal organization – Patrick Hoverstadt Complexity and organizational reality – Ralph Stacey Organizational Systems – Raul Espejo, Alfonso Reyens The wealth of nations – Adam Smith Management – Peter Drucker The art of War – Sun Tzu On war – Claus Von Cluasewitz Drive – Daniel Pink Implementing beyond budgeting – Bjarte Bogsnes Inspirational articles BetaCodex-CellStructureDesign2 Valve – handbook for new employees The Agile organization – Simon Atkinson Scaling Agile @ Spotify – Henrik Kniberg & Anders Ivarsson