Managerial Ability to Act
June 2015 | Lukas Michel, Agility Insights
To thrive in dynamic times, organizations need to design a strategy for agility and resilience. Why do established companies struggle to act quickly and master the art of an enabling management model?
The main reason for this is the dichotomy of the market environment versus leadership attitudes. The global economy is dynamic, forceful and speedy. These factors have led to a tension between market forces and archaic, inflexible control dominated management.
Essentially, executive teams find it hard to reconcile the much-needed agility with inflexible managerial infrastructures, complex organizational bureaucracies and the legacy of leadership structures built for the industrial era.
Small businesses and start-up firms, without the baggage of strongly domesticated behaviors and institutional habits of larger organizations, are able to move quickly and flexibly. But once these dynamic companies start to grow, bureaucracy takes over as they build the routines, rules and practices required for efficiency and scale. This means they often end up losing some of their initial speed and nimbleness.
In contrast, there are businesses, which have learned to master the tension between speed, agility and resilience. This next generation of organization consists of businesses with a ‘core’ comprised of rules and routines, which provide the managerial rigor, discipline and stability they can always rely on.
This ‘core’ enables organizations to be dependable and robust, reduces friction costs and frees up time and energy for what matters most.
The difference in this new breed, however, is that they also have a flexible ‘shell’ made up of agile leadership skills, dynamic managerial practices and a shared sense of meaning. These components allow such organizations to rise to new challenges and opportunities and thrive in a volatile climate.
This combination of a robust core and flexible shell has enabled these, organizations to fine tune dynamic capabilities, which enhance their ability to act in the increasingly volatile, complex, uncertain and ambiguous (VUCA) competitive environment.
Agility and its allies
Many firms from the technology, pharma and financial services sectors have long been searching for ways to create an environment where talented employees can be allowed to innovate and take exciting ideas to market, free from the ‘red tape’ of larger organizations. Some of these firms have decided to spin-of these teams as start-ups; providing capital and guidance while promising better returns to shareholders. As a result, these companies have the backing and legacy of large, respected organizations with the impression of being exciting new enterprises.
While some such organizations have embarked on the agile theme– attempting to galvanize the components needed to react to volatility, show resilience in the face of uncertainty, ride the waves of complexity and remain focused amidst ambiguity - most are still struggling to combine the old and new world; accepting bureaucracy and nurturing much-needed flexibility.
For years, several business commentators have developed and suggested ways for companies to become agile.
Yet much of the scientific and management literature still focuses on the theory of agility and how to develop it for the new world, rather than the practicalities of creating it.
This is why we have used our 15 years of research and experience of working with executive teams of major global companies to identify the perfect approach to agility; enabling leaders and businesses to act in turbulent times.
Our latest book MANAGEMENT DESIGN: Managing people and organizations in turbulent times, gives readers the opportunity to experience a diagnostic tool, learn about the approach that combines the old and new, that bridges legacy with a high ability to act, and consider the 30 visual thinking aids that guide the design of dynamic capabilities; in short, agility.
The MANAGEMENT DESIGN approach
To review your company’s ability to act, see Exhibit 1.
Today, businesses operate in a dynamic environment with high volatility, mounting complexity, rising uncertainty and ambiguities making it hard to manage with a rules-based toolbox of the past. Companies have definitely left the comparably stable industrial era in favor of a new, creative economy.
Agility Insights has long argued that this fundamental shift, combined with the different attitudes and needs of Generation Y (those people born after 1980 who are now entering the managerial ranks), requires an equally progressive shift in the role of management in order to attract, engage, empower and retain the valuable talent in almost every organization.
However, moving beyond the interfering rules-based trap requires something significantly more strategic than a quick fix. The future of successful business requires enabling managers with dynamic capabilities, which combine with the ability to flex. To do this you must first diagnose your organization’s current operating context and model using the diagnostic in Exhibit 1.
Check the boxes below, which best describe your current work environment in your company. Each box represents 10%. Add each together to work out the percentage for each box. The box with the highest percentage will indicate your dominant operating mode.
Exhibit 1: Diagnostic
How can companies develop and maintain a high ability to act for the new era?
Ongoing change programs and ‘change management’ have become distracting and unhelpful in organizations. In order to escape this and future-proof businesses, Dynamic Capabilities (as outlined in Exhibit 1) form an appropriate solution.
Agility Insights observes organizations that react to every market shift by adopting yet another change program, only to realize that they are no better off than before or simply need another change to make up for yet another market shift. Our research confirms the widely accepted fact: 80% of all change programs fail.
Dynamic capabilities make traditional change programs redundant through the proper balance of embedded speed and control, agility and stability, resilience and renewal.
‘New work’ (engaging employees, democratic organizations), ‘scrum’ (flexible and holistic product development), ‘beyond budgeting (moving away from command and control in terms of setting budgets and goals)’, ‘holacracy’ (the removal of management completely in organizations) and other similar approaches, have moved into the business rhetoric. These movements have long promoted decentralized structures, self-organization and democratic decision-making as the means to more effective engagement of talent in organizations.
Agility Insights’ experience shows, when organizations that have adapted these approaches grow, many end up with struggling with exactly the same problems they were intended to resolve: slow decision-making through committees; high transaction and interaction costs through involving everyone; inflexible in dealing with fast-paced change due to the lack of control.
Organizations, which have successfully moved on from experimental approaches, resolve the tension between creativity and rigor, by developing dynamic capabilities with features that combine both: a stable backbone and flexible or temporary structures.
These insights are consistent with the research of Herb Nold, Agility Insights partner and Professor at Polk State College, Florida, USA and his award winning paper “Linking Knowledge Processes with Firm Performance: Organizational Culture”. Moreover, Ability to Act is a concept and model developed by Professor Johanna Anzengruber, Steinbeis University, Berlin, Germany, as the capability of organizations to cope better with a challenging environment.
The managerial Ability to Act is defined as the sensing, decision-making and implementation capacity in organizations. From Agility Insights’ ongoing analysis of the results from our diagnostic tool with the Agile Management Score, we know that outperforming organizations with a high ability to act have developed capabilities that combine the following three features: speed without losing control, agility around a stable core, and resilience with ongoing renewal. We have long established the scientific evidence of the Agile Management Score as indicator of superior operating and financial performance.
Exhibit 2: Ability to Act
Exhibit 2 groups the levers of a superior ability to act into the simple put powerful Performance Triangle model explained in detail in our book THE PERFORMANCE TRIANGLE: Diagnostic mentoring to manage organizations and people for superior performance in turbulent times (2013).
Consider taking the free Agile Management Score quiz to review your organization’s ability to act with the following link: www.AgilityInsights.com/agile-management-score
Speed, like energy, requires resistance in form of control. No skier would want to reach a high speed only to lose control. Speed and control belong together. Another sports metaphor proves what every golfer knows: a slow swing will enhance control. But, the speed of the club head determines how far the ball goes –and every golfer wants to go further.
In line with these analogies from sport, the clues to superior speed in any organization come from the people that work there. Organizations that strive for superior speed put “people at the center of their attention”. As such, people are placed in the center of The Performance Triangle.
The idea to relate speed to people has its roots in the European Humanisms with philosophers such as Immanuel Kant and Jean-Jacques Rousseau advocating as early as the 18th century that the sole source of motivation is self-responsibility. Self-responsible people are driven the ambition to get things done and the accountability to do things right. As such, self-responsibility combines action with control – self-control.
For instance, a successful services company completely redesigned its engagement policies to take advantage of the intrinsic (and free) energy that comes with talented knowledge-driven people. The company decentralized its structures to allow decision-making power, as far as possible, to go to those dealing directly with clients. The idea behind this is that empowering frontline staff this way will enhance the speed and the quality of decisions, which are better made by those with the most client knowledge.
Simultaneously, the company adapted traditional controls to self-organized performance management and strategic competence management as its fixed elements.
As a result, this company was able to harness the full capacity of its talent and became recognized for providing fast and responsive client services while, at the same time, reduced command and control and saved cost.
In the same way that speed needs control, agility has to be balanced by stability. Like in composite materials, flexible and fixed elements combine to produce the required tension. To continue with our sports examples, snow skis are built to adapt to the surface while providing utmost grip at their edges. Golf clubs, have a shaft that bends during the swing for more tension and the ability to shape the ball.
The Performance Triangle
Culture, leadership and systems are located at the corners of the Performance Triangle and represent the levers of superior agility. Our research has proven strong reinforcing links between the three corner elements of the triangle. Culture acts as the glue for a strong, adaptable and shared mindset among leaders and employees.
These interactions and relationships act as a stable core from which leaders can release and direct the productive energy in every organization. Rich conversations are the binding forces among people that allow individuals to capture opportunities as they arise. A managerial toolbox complete with rules, routines and tools (simply called systems), is too often falsely compared to cumbersome bureaucracy, to which one detours in a bid to get things done fast. Instead, it provides the greatest potential to connect agility with stability. Agility requires, like any mechanical spring, a stable fixed element to be effective.
To consider this in more detail, Exhibit 3, the Leadership Scorecard, shows how the corners of the performance triangle can be extended into 15 practical capabilities that illustrate the reconfigurable, stable backbone of agility.
Exhibit 3: The Leadership Scorecard
In the same way that systems, leadership and culture are the cornerstones of superior agility, five features enhance speed in organizations as seen by reading the Leadership Scorecard as columns.
Imagine driving a car. It takes five things to do that.
First, you need a dashboard that indicates how fast you are going. In organizations, this helps you make sense of information to create the shared understanding of how well we are doing. è Supporting the ability to understand Second, the navigation system directs you to the destination. In organizations, the conversation about the strategy creates a shared intent with the team on what direction to take. è Supporting the ability to think Third, the engine and wheels translate the energy into motion. In organizations, this means implementation –putting the strategy into shared agenda –the things that are being done to get there. è Supporting the ability to deliver Fourth, with the gas pedal, the driver controls speed. In organizations, acceleration happens through a conversation on beliefs –the vision, mission and individual goals that create pull. è Supporting the ability to engage Fifth, every car needs brakes. They ensure that speed remains in control and the proper reaction to unexpected, sudden events. In organizations, this function resides with boundaries –the governance, structures, risk limits that clarify what is in and out of boundaries. è Supporting the ability to adhere
As such, the Leadership Scorecard combines the rules, routines and practices in ways that enhance speed and agility around a stable core.
Systems, leadership and culture frame how people create meaning; how they think about the future; how they implement strategy; how they mobilize their energy; and how they stretch their boundaries without overstepping them. As such, these five levers represent a stable set of principles from which people can learn how well they perform, how they find direction, get things done, accelerate, and slow down. With the proper design of the configurable Performance Triangle elements, leaders can control speed and agility in their organization.
Systems are located at the right corner of the triangle, determine much of the decisions, actions and behaviors of all employees and leaders. The toolbox includes the governance rules, signature routines, and key tools in organizations.
Rules determine how decisions are made in terms of strategy, resources, performance and risks. The fixed elements of governance are often articulated in a corporate charter with detailed decision rights. Rules follow the explicit choice of structure – where the work gets done in the organization. In combination, the right design of governance and structure determines much of the agility in organizations around a stable core.
A client example is a global pharma company that illustrates how it shifted gear in an industry known for its rather long product cycles. In order to strengthen the pipeline and to expedite the product development process, the company decided to shift the primary structure from functions to projects. Rather than simply follow a hierarchy of functions that would typically specify where work was being done and how performance was measured, it determined ‘the function’ as primary home for employees; a sort of anchor where they would receive their training with the infrastructure around their jobs. However, individual and organizational performance management was developed to cut across the formal structure in flexible and temporary projects. As such, the organization is able to better adapt to market cycles and shift resources as needed from one project to a next one. Performance management and strategic competence management are the two stable principles that remain the same for all functions and projects.
In agile organizations, people need choice on how to make decisions. Rather than one simple rule for every decision, the flexibility to address an ambiguous environment comes from a stable set of operating principles that allow sufficient choice. While there is flexibility around how to make the decision, the principle on how to think about a particular problem remains the same.
Another client example is a global financial services company we work with, which changed its organizational model from a structure along product lines to more than 100 client-centric business units worldwide.
Rather than handling few centralized decisions, following the change in model, the company had several executives making decentralized decisions on strategy, resources, and underwriting limits. To ensure seamless, high quality decision-making throughout the organization, it introduced a strategic management roadmap as a guide with a set of principles on how to develop, communicate and implement strategy. Thanks to this fixed set of managerial policies, the company was in a better position to govern how decisions are made with the necessary choice and flexibility to capture opportunities in liberalized markets around the world.
Routines. The stability and flexibility of structures and governance are further enhanced by a set of signature processes, which make up the stable backbone of businesses. These define how organizations measure and manage performance, coordinate work, energize people to get things done and set the boundaries for what is inside and outside the limits in the search of new opportunities.
Hard-wired routines are hard to replicate across businesses, as they standardize work and managerial tasks; they establish a shared language and clear decision rights; and they coordinate and align across organizational boundaries. These few key processes drive the corporate cycle and help executives save time with their rigorous timetables.
When this standardization is lacking, then agility suffers. Employees and leaders will find themselves spending time in endless internal meetings debating best practices. They continually reinvent the wheel on their search for methodologies and frameworks on how to get work done effectively and efficiently, rather than actually improving their own ways of working. Without standardization it is hard to coordinate and align work as clear common hand-offs are missing. Without these linkages, collaboration across boundaries brakes down.
Agile processes have a common operational language. They codify and harmonize work across organizational boundaries with the necessary degrees of freedom. Functional process owners are responsible for developing, maintain and improving these signature processes, while business experts integrate processes across organizations for collaboration, implementation and performance management.
In a local supply company we have worked with, performance management required an update to allow for both, the legacy part of the business and the new technologies that transform the entire industry. Over the years, well-intended staff kept tightening the performance management systems in ways that enhanced the alignment and coordination with goals throughout the organization from top-down to bottom-up. Confronted with corporate routines, leaders from the new part of the business felt that these processes were slow, cumbersome and ineffective for them to compete with start-up firms from the solar and communications sector. But it only took a one-time executive decision to scrap the old system for managing individual performance objectives completely. This was replaced with a simple one-page routine, based on self-responsibility to align, coordinate and share. As a result, the simplified fixed system allowed the entire organization to remain nimble and fast.
The main purpose of routines is to standardize work and make sure it is done efficiently and effectively. Well-designed routines therefore help employees understand what is required of them.
A warning: delegating too much decision-making without a high level of awareness for the context in which decisions are made, is risky. This is what the signature routines of a company require executive attention.
They determine how things get done.
Tools. Performance measurement is one of the tools that helps leaders and employees to focus their attention on the things that matter most. Responsible and skilled people don’t need goals – they need measurement tools that tell them how well they are doing. When managers and employees look for the same key performance indicators, the feedback instantly facilitates their natural alignment. There is no need to wait for regular performance reviews. It happens at the right time: when fast learning alters the way things are being done. Agile tools focus attention and deliver feedback instantly. The proper design of these tools establishes a stable platform that supports all roles, accountabilities and capabilities throughout the company.
The CEO of a global financial services company we work with struggled to control the agenda and the cycle of his executive team. Over the years, executives learned what they had to do to get airtime and push their own agendas. Assistants and lobbyists determined who was on the agenda of the boardroom. As a result, the executive team meeting was a place to show and tell – filled with presentations - and a place to realise that important decisions would actually be made elsewhere. To alleviate the problem, the company installed a CEO office that managed the corporate cycle and the meetings. As a result, executives spent time interacting and making decisions. These meetings were well prepared and had actionable outcomes. Moreover, this stable infrastructure made sure that no issues fell between the cracks. The proper sensing, triage and meeting management systems freed up both time and energy and got the executive team focused on the agenda of the company again.
Leadership. The personal, face-to-face interactions between leaders and employees matter most - not emails and remote instructions. Next to managerial systems, rich leadership conversations are the means to steer decisions, actions and behaviors in organizations.
Based on our research and experience, as part of the Leadership Scorecard, we have identified five conversations to direct and control the work of employees. Sense making helps employees to find purpose. The strategy conversation points to the desired direction while the performance conversation raises the awareness for organizational performance. The contribution and risk dialogues, as outlined, are the means to speed-up or slow down.
Agile organizations deliberately develop these capabilities as a means to better engage employees and use their full talent. One pharmaceutical company we have worked with built an entire leadership development program on conversations that enhance collaboration, relationships and purpose (the resilience part) in line with a new structure. As a result, the company can move more quickly based on a fixed set of capabilities.
Culture. Culture represents a stable element in the triangle. We have long argued that culture is an outcome and, therefore, it cannot be altered in the short term. Unlike the people who implement traditional change programs, which try to revolutionize culture, we know that culture is the outcome of interactions guided by the routines, rules and practices in any company. A stable, shared mindset with a shared understanding, shared intentions, a shared agenda, shared believes and shared boundaries enables leadership teams to be nimble and adapt to a changing business context. As such, culture serves as the secure anchor for people to search for fresh opportunities as old ones close.
The new CEO of a specialty food company we work with struggled getting his leadership team to do more than just informing about individual activities during their frequent meetings. He quickly learned that his predecessor’s meetings did just that and, therefore, required time-consuming bilateral meetings in addition, for key decisions, to coordinate work and to consider the future of the industry. There was simply no common ground established among the members of the team that would lend itself towards natural collaboration, shared decision-making and focused implementation. To address the problem, the CEO altered the charter of the firm that determined where decisions would be made. He made the executive team accountable for the overall direction and the performance of the company. As a result, the executive team meeting became the anchor and platform to establish a culture with a shared sense of meaning and purpose.
What is your company’s shared agenda? Use the questions in Exhibit 3 with the Leadership Scorecard to find out where your management team has done the essential development work such that people find purpose, collaborate and connect around a stable core of key behaviors on how things are being done. With your answers, the Leadership Scorecard turns into a practical tool to help people find purpose.
Purpose, collaboration and relationships are the key levers for the resilience in organizations. They are the glue between the corners of the triangle with culture, leadership and systems.
Resilience comes with its counterpart renewal. Imagine skiing on a bumpy slope with changing snow conditions. Even for a professional skier, this requires ample elasticity to absorb sudden shocks, to navigate through dense fog or to prevent a collision with other skiers. Moreover, when uncertainty rises, skiers know that they need to trust their own capabilities when ice limits the ability to turn or stop. To use another sports metaphor, experienced golfers rely on their individual setup routine to tee off for the hole. They build a mental fence around themselves that limits noise and other interferences, which can influence their game, in order to focus their attention solely on their swing. As such, skiing and golf requires ample resilient forces to fend disruption.
Resilient organizations adopt similar ‘fences’ by developing three capabilities: First, they provide people with the means to find purpose. As outlined in detail in The Performance Triangle, employees need to find purpose. Purpose is not something that can be delivered to, or commanded, of employees. When your people find purpose, their motivation will be guaranteed – so there is no need for leaders to “use carrots and sticks”. Second, these resilient organizations that have found ways for people to collaborate cannot be shaken by a new structure or changes in colleagues’ relationships. Third, these organizations deliberately strengthen the connectivity within and around the company. Engaging with internal and external networks and communities becomes part of the normal way of doing work. We know that organizations with a high sense of purpose, a culture of collaboration and strong relationships are hard to break. They withstand external shocks better and recover faster from downturns.
On the other hand, organizations can deliberately alter their purpose, cut collaboration or remove relationships to disrupt undesired behavioral patterns and faulty habits that prevent them from adapting to changes in the environment and markets. As such tThe continuously reinvent and renew themselves.
Focus on dynamic capabilities rather than ‘change’
Every good leader knows that the immune systems of organizations is strong. The temptation is high to embark on yet another change program, when viruses infect accustomed routines. As stated previously, 80% of change efforts fail and the main reasons come from addressing the symptoms of missing performance such as an infected culture, the lack of collaboration or faulty processes rather looking at their cure.
Exhibit 4: Performance = Potential - Interferences
Having observed clients using the diagnostic tool to identify their Agile Management Score, we can see that a deep understanding of organizational viruses (the interferences) and capabilities (potential) for higher-speed, agility and resilience, is a prerequisite for them finding the right design of management – the stable and dynamic operating environment that will help them address dynamic challenges.
Good design ensures that these successful organizations have built self-reinforcing and self-repairing capabilities. In short, the task is to develop dynamic capabilities like composite materials, instead of embarking on another change program.
What is there to do? Rethink and necessarily re-design your operating model, the structures, systems and connectivity in your organization. Build capabilities for sustainable real change by putting in place the behaviors and norms required for success rather than posting new cultural and value statements. Higher speed, agility and resilience comes from the socialization of “how we do things around here”.
For an in-depth discussion on how to develop your organization’s managerial ability to act, read our new book Management Design: Managing organizations and people in turbulent times and review your organization’s Agile Management Score with the Agility Insights Diagnostic tool.
Lukas Michel is the founder and CEO of Agility Insights AG, a Swiss-based management services company with a global network of Diagnostic Mentors and management scientists.
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