What are characteristics and principles of agile organizations?

What are characteristics and principles of agile organizations?

5 Adapt and Rejuvenate: Agile and Learning Organizations

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Learning Objectives

After reading this chapter, you should be able to do the following:

  1. Analyze key traits of successful change leaders.
  2. Describe how agile organizations approach change compared to traditional ones.
  3. Examine the characteristics, levels, and principles of learning organizations.
  4. Explain the relationship between learning and change in organizations, the process a company goes through to become a learning organization, and the importance of leadership.
  5. Summarize the mind-set that both agile and learning organizations must have in the 21st century.

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Introduction

Change is the status quo. Companies the world

over realize that success depends on their ability

to respond to new opportunities and threats as

they emerge, and to keep rethinking their

strategies, structures, and tactics to gain

ephemeral competitive advantages.

—Perry Keenan, Stephanie Mingardon, Harold Sirkin, and Jennifer Tankersley

Pretest Questions

  1. True/False: The traditional leadership traits of decisiveness and composure con- tinue to rank high in current change leadership models.
  2. True/False: Agile organizations tend to have a high tolerance for failure. 3. True/False: A learning organization is holistic, which means it considers how the

entire industry and business market contribute to its specific goals. 4. True/False: Learning organizations respond well to market swings because they can

bring in outside marketing experts to advise them on how to react. 5. True/False: In the 21st century, both agile and learning organizations must accept

that change demands doing things differently. 6. True/False: Tension can actually be a source of energy and renewal for a learning

organization.

Hyundai’s current successes may be surprising to those who know its past. The Korean automotive company has shed its former image of producing low-quality, “me-too” vehicles— and the experience of suffering a near collapse in sales in 1998—and replaced it with that of a $66 billion company that controls 5% of the market today (Holstein, 2013). The company’s cars have vastly improved and are moving to the top of the list in quality: J. D. Power and Associates ranked Kia (owned by Hyundai) as number two, behind Porsche, and Hyundai as number four, behind Jaguar (Levin, 2015).

This change happened by design, not by chance. Hyundai’s skills in design, product launch, and consumer awareness are credited to its recently implemented product management model. The company’s overall success is attributed to the fact that it has focused leadership; a dynamic culture; competitive strategies; high-quality products; innovative design; operational excellence; shrewd marketing; and an empowered, disciplined workforce.

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Introduction

Chung Mong-Koo, chair of Hyundai Motor Company, assumed leadership in 2000. He succeeded his father, Chung Ju-Yung, who founded the Hyundai Group. Chung has rejuvenated the workplace, changing Hyundai’s culture and its overall approach to auto manufacturing. The company’s redefined culture emphasizes learning and innovation. This focus became clear in 2009, when Chung began recruiting top-level design talent from Germany, Italy, and the United States (Holstein, 2013) to execute his new design approach: fluidic sculpture, inspired by natural shapes. The company’s new designers are young and keep an edgier, innovative culture that has a degree of fearlessness (Levin, 2015).

Chung didn’t make these changes alone. John Krafcik, CEO of U.S. operations, helped Chung implement new strategies to move the company forward through 2013, which employees meticulously executed. Hyundai’s workplace culture operates with a mix of Korean superiors and coordinators who are mostly U.S.-educated and more Westernized than their counterparts in Seoul. Coordinators help bridge communications between Western and Eastern employees and in some ways are equals of the U.S. executives for whom they work (Holstein, 2013).

As the company expands its global reach, its major concerns include balancing quality with production and innovation with sustainable reliability, while maintaining an entrepreneurial pace in a hypercompetitive environment.

Critical-Thinking Questions

  1. What are some competitive advantages Hyundai has shown that have contributed to its marketplace success?
  2. What changes has Hyundai made to evolve from a low-quality, me-too company to a significant global competitor? (In your answer, refer to concepts in the text as well as specifics in the opening scenario.)

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Introduction

Introduction: The Road Ahead We began this text by defining different types of change and showing how organizational change can be diagnosed, planned, and implemented. In the chapters that followed, strategies and methods for sustaining change were presented. Here we examine how organizations can adapt to continuous change by emphasizing innovation, creativity, agility, and learning, as is the case with Hyundai.

Leading people is a crucial part of whether an organization successfully adapts to continuous change. Although leaders must facilitate and manage change by articulating clear strategies and creating flexible structures, they must also create a culture that sustains not only the “hard” dimensions of change (like strategies, structures, and systems) but also its “soft” dimensions, which involve motivating and developing people to higher performance levels. While transformational change happens rapidly and sometimes dramatically, organizations must also continue to make equally dramatic adjustments to survive and succeed (Paton & McCalman, 2000). At the same time, developing cultures that attract high-quality talent involves learning, innovation, and creativity.

Motorola’s 2011 restructuring exem- plifies this type of continuous inno- vation and creativity. The company successfully split from a unified cor- porate parent into Motorola Solu- tions, which houses its businesses that manufacture wireless devices that are sold mainly to enterprises and governments; and Motorola Mobility, which sells cell phones and set-top boxes to consumers. CEO Greg Brown has helped engineer the transformation from cell phone, cable set-top box, wireless network, automotive, and barcode scanner divisions to a pure-play public-safety LTE, a network technology that offers high speeds and low lag times over long distances. (Among other uses, it provides first responders with valu- able photos, video, and other infor- mation via police radios equipped with specially designed smartphones and other devices). The turnaround involved trimming $500 million in annual operating expenses in 3 years, changing out 21 of 70 vice presidents, and adding 20% more sales staff (Pletz, 2015).

Organizations that plan, implement, and strive to sustain change must continually adapt to unforeseen global competition, uneven economic shifts, new technologies, and the rapid increase of available data. Other challenges may be indirect and less dramatic, such as learn- ing how best to incorporate recent graduates into the workforce when they may lack certain skills because educational systems can’t keep pace with changes in the workplace (Marquardt,

AP Photo/Richard Drew

CEO of Motorola Solutions Greg Brown helped Motor- ola Inc. split into two successful companies, Motorola Solutions and Motorola Mobility.

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Section 5.1 The Leadership Challenge

2002). Looking ahead, it is nearly impossible to predict the types of adaptations individuals, leaders, and entire organizations will need to make in order to stay competitive.

5.1 The Leadership Challenge Different leadership styles and strategies relevant to guiding change have been discussed throughout the text. These discussions have highlighted that one of the principal challenges company boards face is finding and developing leaders who can guide their organization through uncertainty. Effective change leaders must fill new roles, many of which have yet to be defined.

Successful Change Leaders

Over the past decade, business leaders and psychologists have attempted to identify the qual- ities of successful change leaders. In a study conducted by the Center for Creative Leadership, 76% of its constituents believed the definition of leadership had already changed, and 91% believed leaders face increasingly complex challenges. Respondents ranked key traits lead- ers must have to be successful under these new conditions. Forty-nine percent believed in the importance of collaboration. They also highlighted change leadership, the ability to build effective teams, and the ability to influence employees without exerting authority as impor- tant leadership qualities. More traditional traits such as decisiveness, composure, and finding ways to get results were ranked low (Martin, 2007).

IBM’s Global Business Services group interviewed more than 1,500 CEOs to analyze the traits they valued in leaders tasked with managing complex environments. Overall, they cited creativity as the most important of a CEO’s skills. Digging deeper, they identified seven approaches exemplified by creative CEOs.

  1. A willingness to change business models to meet goals 2. Encouragement of risk taking 3. Openness to out-of-the-box solutions 4. Comfort with ambiguity and experimentation 5. Valuing innovation 6. Decisiveness 7. Inventiveness with new business models (ChiefExecutive.net, 2011)

Creative CEOs share a willingness to change. In other words, these leaders adapt to change and steer their organizations toward it, rather than clinging to tried-and-true methods of management.

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Section 5.1 The Leadership Challenge

Vineet Nayar, HCL Technologies Ltd. Vineet Nayar, vice chair and former CEO of HCL Technologies Ltd. (HCLT), a $3.5 billion global IT services company based in India, is an example of a creative change leader. Nayar joined HCLT in 1985 and became president in 2005. He led the company in a complete turnaround over the following 5 years, expanding from 30,000 to 75,000 employees, tripling revenues, and doubling market share (HCL Technologies, 2001).

Along with Apple, Google, Lenovo, and Cognizant, HCLT was one of five global technology firms to reach revenues above $2 billion, with a compound annual growth rate over 30%. (Flinders, 2010). In his book, Employees First, Customers Second: Turning Conventional Man- agement Upside Down, Nayar (2010) explains that his leadership approach involves convert- ing an organizational structure into a transparent, accountable, and value-driven culture. Under Nayar’s leadership, HCLT has been recognized as one of the best employers with the most innovative and most democratic workplaces worldwide.

But why redefine leadership away from author- ity and “doing whatever it takes to get results”? Given the variety of changes an organization may encounter and the complexity involved, individual leaders can no longer serve as ultimate authori- ties or experts. As noted in Chapter 4, emotion- ally intelligent leaders and followers have a com- petitive edge with regard to change, as compared to more rigid, closed thinking, and closed feeling professionals. Because effective leaders rely on employees for information and insight to resolve complex situations, collaboration and communi- cation take priority over authority. Today’s lead- ers create environments in which employees can share information and propose alternate solu- tions to problems.

Scott Cook, Intuit Scott Cook is the cofounder of the software com- pany Intuit, which creates personal and small- business finance products such as TurboTax and QuickBooks. When Cook wanted to revitalize his organization, he imagined a design-driven model like Apple. However, he quickly realized that he was no Steve Jobs, a visionary CEO with the power to inspire and compel his employees.

Instead, he turned his company upside down, let- ting the vision come from designers close to the front lines. He worked with one of Intuit’s design directors to create the Design for Delight (D4D) forums, which encourage employees to engage problems in new ways. Intuit eventually

AP Photo/Al Behrman

Scott Cook, cofounder of Intuit, revital- ized his organization by turning his com- pany upside down. He let the vision come from designers close to the front lines rather than from top management.

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Section 5.1 The Leadership Challenge

developed a D4D customer- and design-centered process. It begins with a “painstorm” to understand real consumer issues and thus better identify ways Intuit can help. These front- line conversations take place directly with customers.

The team then has a “sol-jam” to generate as many solutions as possible and then develops prototypes to test what they come up with. Finally, the team has the “code-jam” to quickly get a product to user testing. From painstorm to testing, the entire process takes 4 weeks and has yielded some of Intuit’s most popular products, including its highly rated smartphone apps (Martin, 2011). Now, with Brad Smith as CEO, the firm is included on Fortune’s 2015 100 Best Companies to Work For list (Fortune, 2015c).

While leaders place increasingly greater emphasis on relationship building and creating open work environments, the idea of leadership has shifted; it is no longer regarded as a quality desired only in management. Leadership responsibilities have been pushed down in orga- nizational hierarchies (Martin, 2007) to enable potential challenges to be identified more quickly and to compress response times. Another way to describe this shift in expectations is empowerment. As we discussed in Chapter 4.2, employees are empowered when they are given more autonomy to make decisions, which is paired with increased responsibility. At Intuit, the initial D4D facilitators were recruited with the following responsibilities:

Actively participate in a one-day brainstorm/workshop.

Commit to the execution of initiatives generated through the … workshop.

Become a more visible Design for Delight leader across Intuit.

Be a D4D coach/facilitator that the larger company can draw upon. (Martin, 2011, “Recruiting the Innovation Catalysts,” para. 4–7)

These designers were at least one step removed from directorships, meaning they were closer to the bottom of the organizational hierarchy than to the top. However, they were tasked with changing the company’s culture and finding ways to more immediately respond to their cli- ents’ needs.

Jason Kayzar, PhishLine Jason Kayzar, COO at PhishLine, a social engineering management platform built for informa- tion security professionals, has a similar mind-set to Cook at Intuit. PhishLine assists Fortune 1000 clients in addressing social engineering threats using risk- and action-based precision techniques and decision-making processes (Schawbel, 2015). When asked in an interview, “How do you approach process improvement within your organization?” Kayzar’s quick answer was “Empowerment” (Schawbel, 2015). He continued:

I have worked in a number of traditional office environments where demo- cratic rule by committee took the place of leadership. In some ways this can be a good process, especially if the goal is one of making everyone feel good but more often than not it slows the process and/or can lead to decision

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Section 5.1 The Leadership Challenge

paralysis. Our business moves at light speed, and is growing in size and scope accordingly. Our people are smart, and therefore they are empowered to make many of the process improvement decisions on a daily basis that help move us closer to achieving our overall goals. We have an internal suggestion process within our software, so all ideas are captured, catalogued and can be reviewed by any employee at any time. There are no bad ideas. Many may be rejected, or added to a future projects list while many others are often implemented immediately. (Schawbel, 2015)

The following section presents roles, resources, and different ways that organizational devel- opment consultants provide help to employees.

OD Consultants as Sources of Empowerment

As organizations move from old to new business models, leaders often employ OD consul- tants. Today many OD consultants view their roles as “educators” or “facilitators” (Rothwell, Stavros, Sullivan, & Sullivan, 2010) rather than as external experts who present solutions. This change mirrors evolving leadership roles and organizational cultures.

To recap from Chapter 1, an OD consultant has several goals, including:

• to deeply understand how the various parts of an organization fit together to com- pose a whole system;

• to communicate that systemic understanding to their clients so that the potential, organization-wide ripple effects of individual and departmental changes become clear prior to implementation;

• to facilitate the empowerment of employees so that they constantly aim for improve- ment and look for creative solutions to problems;

• to consider multiple ideas without judgment and to encourage others to do the same; and

• to step aside as needed (Rothwell et al., 2010).

An OD consultant may also serve as an executive coach. Organizations hire executive coaches to advise on complex decisions and individual and/or team skill building aimed at developing personal and professional performance (Executive Coach Academy, n.d.). These professionals model the leadership behaviors that flexible and responsive organizations require. They help establish cultural norms and practices that reflect innovation and change, and then let the players fulfill their redefined roles, trusting their abilities and the updated processes. In this way organizations can “learn by doing.”

Organizations are given an opportunity to step back, reflect, and then implement initial changes under the guidance of a facilitator who eventually exits the process (Rothwell et al., 2010). As the organization moves forward, its leaders facilitate the same type of reflective process in whatever new change scenarios arise. An increasing number of Fortune 500 companies are using executive coaches with OD expertise not only to help leaders and employees develop new skills, but also to strengthen every part of the orga- nization, including its productivity, work flow, and well-being, and to increase the bottom line (McNamara, n.d.).

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Section 5.1 The Leadership Challenge

For example, an organization that plans to move from a hierarchical to a team-based model may hire an OD consultant to facilitate this shift. Prior to recommending changes, the con- sultant needs to understand the organization, its leadership, the vision-mission-values and rationale for desiring the change, the corporate structure, and how various roles fit together. The consultant would also need to understand individuals’ perceptions of their positions and how they contribute to the whole. Once the consultant understands the existing system and the desired outcomes, the shift must be communicated to employees so they understand the reasons behind the changes and buy in to them.

This process allows OD consultants to gain enough knowledge about an organization to coach its leaders and managers on how to model new methods of leadership. For example, OD con- sultants involve employees in the process rather than decreeing change from the C-suite or the executive team (CEO, COO, CFO, and CIO, or chief information officer).

As changes are implemented, the consultant asks employees for feedback and suggestions and makes modifications accordingly. Those involved in the change are most likely to understand what works and what doesn’t, so this reinforces the shift toward employee empowerment. The OD consultant creates situations in which employees can contribute thoughts that posi- tively affect outcome. Employees, in turn, take ownership of a process that otherwise would have been imposed on them. In this way the shift becomes a practical learning experience for everyone in the company, from the employees up to the CEO; all the OD consultant needs to do is step aside and let the revised company run itself.

How Leaders Can Develop Employees for Change

There are five emerging trends that impact organizations: globalization, diversity, flexibility, flattened structures, and networks (Tan, 2015). Globalization and diversity go hand in hand; organizations now span continents, leading to new challenges of managing in terms of creating a consistent culture across the organization, communicating effectively, and understanding local cultures. Organizations attempt to increase flexibility for their workforces by experi- menting with flexible schedules, alternative compensation packages, and revised reporting structures.

Instead of highly structured, top-down management hierarchies, decision-making power is passed to the employee level, flattening layers of management. Rather than communicating vertically across an organizational chart, employees are encouraged to network laterally and to work in teams across divisions. Moreover, surveys, discussions, and feedback sessions are held with teams and employees to obtain information on their need to achieve higher perfor- mance levels and to yield suggestions that would enhance organizational planned changes.

Cisco Systems designs, manufactures, and sells networking and communication devices worldwide. The company employs 71,833 people (Yahoo! Finance, 2015). Its vision has focused on transforming its workplace to “drive employee attraction, retention, productivity and a perpetual collision of creativity” (as cited in Crandell, 2014), according to Alan McGinty, senior director of the Global Workplace Solutions Group. The company identified three objec- tives for its new culture: “Provide different solutions to meet the needs of all types of work, teams and environments; utilize the company’s own collaborative technology; and have poli- cies that support workers to work where and when they want to fit their lifestyles” (Crandell,

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Section 5.2 Agile Organizations

2014). To that end, Cisco holds local employee teams accountable for “the health and happi- ness of their neighborhoods and ensure each employee has an environment that is right for them” (Crandell, 2014). This is a collective approach to managing people and “is all about choice and making sure that everyone has ‘more skin in the game’” (Crandell, 2014).

As part of its revitalization, Cisco tran- sitioned from a centralized model to a decentralized one because it real- ized that creative solutions can come from anyone, and a conventional pyramid can hinder creative infor- mation sharing (Useem, 2009). Tech- nology allowed Cisco to implement a company-wide communication solu- tion. It created a “Ciscopedia,” similar to Wikipedia, for internal use, and the 500 senior managers collaborate lat- erally to make decisions about prod- ucts. This leads to faster facilitation and more localized decision making and deployment (Useem, 2009).

To some, this may sound utopian. How can a large organization stay produc- tive and competitive in these conditions? And how can a hierarchical organization, designed for stability, reinvent itself? The key is to develop human capacity within the organization. Rather than simply executing assigned tasks, employees are asked to contribute ideas and are recognized for their successes. They take on increasingly creative roles and solve prob- lems, so they become invested in the organization’s overall success, staying focused on the big picture and finding ways to meaningfully contribute to the organization’s growth. Moving forward, leaders and employees are not the only ones that must change; organizations, too, must transform.

Check Your Understanding

  1. Identify some methods that Cisco Systems has adopted to stay competitive in its industry. 2. What are some specific changes organizational leaders can implement to increase employee

effectiveness?

5.2 Agile Organizations An agile organization is one that can quickly react to changes in the market. This means that companies can and do successfully respond to new competitors, technologies, and shifts in the market (BusinessDictionary.com, 2015). Stated another way, agile organizations stay competitive by identifying and implementing opportunities faster than their competition (Sull, 2009). Having the ability to respond to changing environments can mean life or death for an organization. More uncertain, turbulent environments and market changes require more agility.

AP Images/Chang xu/Imagechina

Cisco changed from a centralized to a decentralized structure to allow for creative solutions from all lev- els of the organization, instead of just management.

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Section 5.2 Agile Organizations

Two traditional methods of managing a large-scale enterprise—delegation and specialization—work well in stable environments. All employees know and understand their roles, and work flows in a predictable manner. However, when this type of organization faces a threat, whether from an internal or external source, it often struggles to respond effectively and rapidly (Reeves, Morieux, & Deimler, 2010). Rather than make an adjustment or try an alternate process, employees turn to managers for decisions, who in turn look to senior man- agement. Rapid responses can become lost in a maze of hierarchy.

In a traditional organization, once a threat has been identified, a proposed solution moves up the chain of command, laterally across divisions, and then down again once a decision is finally made and is ready to be executed. This process is time-consuming, and, as in a game of tele- phone, the initial proposal may evolve, perhaps in less productive or efficient ways, in each subsequent telling as each person reinterprets the suggestion according to areas of expertise, sometimes adding personal stakes. The individual or team that identified the problem and pro- posed a solution doesn’t have the decision-making power to execute it and instead must find a supporter in management. This causes a second problem, in addition to slow response time.

Many organizations that emphasize hierarchy have low tolerance for failure and adopt cul- tures that favor consensus and obedience (Reeves et al., 2010). In this environment employees

have little incentive to suggest bold solutions or innovate. They stick to tried-and-true methods that are sure to be approved by management rather than attempting to convince multiple lev- els of hierarchy to take a risk. These organiza- tions lack flexibility in both process and culture and therefore struggle to respond to change in quick and meaningful ways.

When Bob Iger became the CEO of Disney in 2005, he inherited a company that had stag- nated. It was centralized and hierarchical, due in part to an ingrained culture in which division leaders were afraid to make decisions without the leader’s approval. The company simply could not respond to new technologies or opportuni- ties because it lacked the flexibility and freedom to take small, independent risks that could lead to new products.

Iger restructured the company and empowered divisions to make decisions quickly and locally. The meetings he led changed from directives to conversations, setting the tone for the rest of the corporation to engage, ask questions, and listen. Under Iger, Disney experienced some spectacu- lar failures, such as the ESPN phone that was meant for sports fans but never took off. It also became much more aggressive about acquisi- tions and launching entire new product lines.

AP Photo/Reed Saxon

When Bob Iger took over at Disney, the company was stagnant. Iger restructured the company and empowered divisions to make decisions quickly and locally, result- ing in some failures but ultimately herald- ing a new era of growth and innovation.

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Section 5.2 Agile Organizations

Iger’s success prompted the company to make him chair in March 2012, a title he will hold until he retires in June 2016 (Smith, 2011).

Agile organizations are similar to the built-to-change firms discussed in Chapter 4.4. They can quickly adapt and respond to new situations, whether these are opportunities or threats, because change is already central to their culture and practice. These organizations value experimentation, communication, decentralized decision making, and modularity.

Modular organizational structures particularly allow divisions to come together and disband as needed. A temporary and new organizational structure may form to create and launch a new product. This may include product development, testing, marketing, sales, and customer service. Once the product is released, the structure can dissolve and each component can join other projects, so the engineering team that worked on one product may join another while the sales team continues to add new products to its overall portfolio. In addition to offer- ing flexibility, modular structures facilitate the transfer of skills and knowledge across the organization.

Each team learns unique lessons, and when disbanded, individual members can apply their experiences to new situations. This type of flexibility relies on a relatively flat hierarchy so that groups don’t compete with each other or report to each other; rather, they meet on equal footing and exchange ideas.

Responding Rather Than Predicting

Agile organizations are different in that they don’t use in-depth research and analysis to attempt to predict what will happen. Instead, they watch the market and try to quicken their response time in situations that require action. For example, the clothing industry has a 6-month production cycle, and organizations typically attempt to predict consumer habits two seasons into the future. Mistakes are costly, as is the research that goes into making pre- dictions (Spark, 2011).

One clothing manufacturer, Zara, addressed these challenges by shortening its production timeline. Instead of trying to research, analyze, design, and manufacture its clothing over the typical 6-month cycle, it skips the research and analysis stages and focuses on manufacturing popular, in-season products as quickly as possible and in 15-day cycles. The company simply observes what people are wearing and produces similar styles. This was a radical shift in its business model, but one that minimized risk and focused on responding to demand.

Agile organizations face two main challenges: (a) to communicate effectively and (b) to empower employees to make decisions. Tony Haile, the general manager of Chartbeat, a real- time web monitoring company, notes that monitoring can only do so much. Companies must be able to respond in real time, or the information does not help (Spark, 2011).

With a 15-day product-development cycle, Zara employees do not have time to navigate mul- tiple layers of hierarchy to reach and then implement decisions. Instead, they must take in new information, make necessary decisions, and dive into implementation. They will quickly receive feedback on their products and can make adjustments in time for the next 15-day product cycle.

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Section 5.2 Agile Organizations

As a part of a flattened structure, agile organizations rely on leaders to shape the context for decision making rather than giving top-down directives, so the emphasis is on guiding principles rather than strict procedures (Reeves et al., 2010). When employees understand a company’s values and vision, they can make decisions that align with these overarching goals.

For example, Apple’s mission aims to provide the best and most innovative products in the world (Investopedia, n.d.). When proposing new products, Apple employees will avoid large- scale business solutions. Microsoft’s mission, on the other hand, aims to help every person and organization reach their potential (Microsoft, n.d.), so their products and services target a different market with specific needs.

The Microsoft Solution Framework (MSF) is another example of how a large business incor- porates agility into its project management process. The MSF is flexible, allowing develop- ers to use the software-development approach that works best in a particular situation. This allows them to quickly produce high-quality technology solutions while using fewer people and creating less risk, thereby addressing the most common issues related to project failure (Microsoft Developer Network, 2013).

Influenced by learning organization principles—which are discussed later in this chapter— the MSF includes mind-sets (attitudes, dispositions, ways of viewing how things work), mod- els, processes, and disciplines that guide planning and implementation of technology proj- ects. Teams can produce quality products together once the MSF principles are understood. The nine foundational principles of the MSF include the following:

  1. Foster open communications. Communication is needed for teams to be effective and efficient. Team members must understand what needs to be done and how to communicate internally across the company and externally to clients and vendors. The challenge is determining the appropriate level of information to share with each group.
  2. Work toward a shared vision. Sharing a vision creates empowerment throughout the team. Team members have the appropriate context needed to make decisions quickly, since they have clear goals and know how to achieve them. Team members are also able to fill requirements gaps as they arise.
  3. Empower team members. As we saw earlier in the chapter, employee empowerment facilitates creativity and innovation within a company, allowing it to survive and be successful. A lack of empowerment creates a low morale and diminishes team mem- bers’ creativity and the ability to create a high-performance team.
  4. Establish clear accountability and shared responsibility. When team members are empowered, they feel accountable and responsible for a project and are more likely to work at a higher caliber and provide better quality products and services. Team leaders should encourage positive growth and responsibility for project tasks. In this way team members share responsibility for the solution and its deliverables as a whole, fostering collaboration and motivation.
  5. Deliver incremental value. This means that teams should provide deliverables that are of optimal value to stakeholders and correctly determine at which stages to pro- vide deliverables, also known as frequency of delivery.
  6. Stay agile; expect and adapt to change. Change is inevitable and often occurs at the most inconvenient times. Because of this, teams must remain flexible and open to new possibilities. Teams and organizations that are agile can smoothly adapt and adjust to the disruptions caused by change.

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Section 5.2 Agile Organizations

  1. Invest in quality. Many organizations fail to quantify what quality stands for. Success- ful organizations are able to do so and incorporate this level of excellence into the solution delivery life cycle.
  2. Learn from all experiences. Learning from the past—processes and deliverables that did and did not work—is imperative to improvement. Team members must embrace learning at all levels: the project level, such as refining a project-wide process; the individual level, in interacting with fellow team members; and the organizational level, by adjusting quality metrics that are collected for a project.
  3. Partner with internal and external customers. Collaboration with customers increases the likelihood of project success. When customers work with the team throughout the process, valuable feedback can be provided and the solution created will better meet their needs. This collaboration is mutually beneficial, since it reduces uncertainty and the time needed to resolve requirement questions and increases the team’s under- standing of the solution value propositions (Microsoft Developer Network, 2013).

There are more elements to the MSF, including a section on governance and team planning and implementation roles. The section also reflects the type of mind-sets related to learn- ing organization principles that Microsoft expects of its leaders, managers, engineers, and business professionals. Stories of companies that have worked with Microsoft teams pro- vide examples of how the nine principles work in organizational settings (https://customers .microsoft.com/Pages/advancedsearch.aspx?mrmcverticals=Hospitality%20&%20Travel).

Learning Agility

Agile organizations’ success depends on the people involved and how comfortable they are with change. Leaders must be able to adapt to new situations, and one of the predictors of success in managers and executives is learning agility, or the ability and commitment to learn from previous experiences to perform successfully in other situations (Lombardo & Eichinger, 2000). Another phrase for this is leadership versatility (Kaplan & Kaiser, 2006). In addition to a willingness to change, successful leaders expand their repertoire of strategies so they have multiple ways to approach each situation.

It can be challenging to identify learning agility as a trait in potential leaders; past perfor- mance does not necessarily predict future potential. This means that it is impossible to assess a manager or executive until he or she faces a new situation. It usually takes several trials to understand how well a leader learns from experience and adapts to new situations.

Learning agility involves practical skills rather than simple intelligence. A leader who can adapt often will show common sense, strong interpersonal skills, and “street smarts” (Sternberg, Wag- ner, Williams, & Horvath, 1995). Effective leaders also need to balance humility with confidence so they can learn from mistakes and continue to grow (McCall, Lombardo, & Morrison, 1988). Learning requires emotional investment, so the challenges that transform leaders tend to have high stakes and involve risk. Leaders need to be resilient so they can keep pushing forward.

An example of leadership agility and humility as applied to an organization is Netflix’s CEO Reed Hastings, who was once touted for being a visionary leader who brought record growth to his start-up company. Hastings faced harsh criticism in 2011 when licensing costs for streaming content spiked, leading to a near 60% increase in Netflix’s monthly rates. Rather than explain the rationale behind the rate hike (of $10 to $15.98 per month),

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https://customers.microsoft.com/Pages/advancedsearch.aspx?mrmcverticals=Hospitality%20&%20Travel
https://customers.microsoft.com/Pages/advancedsearch.aspx?mrmcverticals=Hospitality%20&%20Travel
Section 5.2 Agile Organizations

Hastings essentially dismissed it by saying that for most of the company’s consumers, the price difference amounted to the cost of a latte. Customers criticized Netflix’s arrogance and lack of concern for its customers and began to switch to other services. This was not the end of this story.

Hastings apologized several months later in a message that was sent to all customers and posted on the Netflix blog. He said:

I messed up. I owe everyone an explanation.

It is clear from the feedback over the past two months that many members felt we lacked respect and humil- ity in the way we announced the separation of DVD and streaming, and the price changes. That was certainly not our intent, and I offer my sincere apology. I’ll try to explain how this happened. (Hastings, 2011, paras. 1–2)

Hastings then outlined the reasons for the change and his decision to split Netflix into two companies: one that focuses on streaming video, the other on DVD rental by mail. This was met with a second round of outrage from consumers who craved a simple, seam- less experience. Netflix stock, consumer base, and stockholder confidence plummeted by taking this risk (Sandoval, 2012), but it may have been the only way to save a company faced with rising licensing costs and a still-evolving market. Hastings learned the impor- tance of communicating directly with customers, acknowledging mistakes, and continuing to build toward a positive future with all of the organization’s constituents. Making hard business decisions does not mean that leaders have to treat customers and employees disrespectfully.

Experimentation

Agile organizations encourage experimentation. Companies that attempt to vary their prod- ucts and processes can respond to change more quickly, in part because they’ve established a culture of innovation. Instead of fearing failure and sticking to the status quo, they test alternatives and then scale them (Reeves et al., 2010). These experiments add to an agile organization’s cumulative knowledge, so when new situations arise, it can pull from deep and varied experience.

Two large-scale agile organizations have consistently outperformed their competitors. The first is Reckitt Benckiser, the company that owns 17 “powerbrands,” including Lysol, Woolite,

Kyodo via AP Images

Netflix CEO Reed Hastings learned the hard way about the importance of communicating openly with cus- tomers when, in 2011, he came under fire for dismiss- ing concerns about a near 60% rate hike.

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Section 5.2 Agile Organizations

and Air Wick (Mac Iver, 2010), in addition to other smaller brands. CEO Bart Becht described his four keys to creating a highly successful adaptive (or agile) organization:

  1. Ruthless focus 2. Leveling the playing field 3. Encouraging organizational learning 4. Embracing conflict (Mac Iver, 2010)

Ricardo Semler, CEO of Semco Group, has taken more extreme measures in reinventing the company his father founded. Semco is a democratic organization that engages employees in all aspects of the business. Employees choose their jobs and salaries, determine the work that should be done, decide to open or close plants, and actively participate in board meetings. All employees have access to all company information, and the company trusts them to handle it appropriately (Mac Iver, 2010).

When Semler first began to chronicle this approach, no one believed he could succeed or cre- ate a sustainable corporation in the long term. Employees had flexible schedules, so they could work anytime. What would stop them from arriving late and leaving early? How could work be completed in this type of environment? Wieners (2004) describes what happened at Semco:

The more freedom [Semler] gave his staff to set their own schedules, the more versatile, productive and loyal they became, and the better Semco performed. Nor did he stop with flextime. He did away with dedicated receptionists, org charts, even the central office—it now resembles an airlines’ VIP lounge, with people working in different areas each day. He encouraged employees to sug- gest what they should be paid, to evaluate their bosses, to learn each other’s jobs, and to tolerate dissent—even when divisive. He set up a profit-sharing system and insisted that the company’s financials be published internally, so that everyone could see how the company was doing. (p. 1)

Semler opted for complete transparency and gave his employees both personal and professional freedom. In return he received more loyalty and higher productivity on a company-wide level.

Whereas Becht focuses on building flexible structures within his organization, giving each brand independence and institutionalizing experimentation and discussion, Semler empha- sizes personal connections and investment. In both cases the company’s culture reinforces the values of an agile organization: experimentation, communication, empowerment, and learning.

Managing Change

The Agile Organization

We all know the story of how the Borders Group was unable to respond in time to keep up with the Kindle and the Nook. One of the fundamental aspects of business—and one that relies heavily on the expertise of change managers—is being agile and able to quickly adapt to consumer demands. Getting any company to turn on a dime is difficult, but it is a necessity in

(continued)

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Section 5.3 Learning Organizations

Check Your Understanding

  1. What are characteristics and principles of agile organizations? 2. Can employees learn agility? Explain your response.

5.3 Learning Organizations Whereas agile organizations move quickly and deliberately, learning organizations take a “big picture,” reflective approach. Agile organizations can and must adopt learning organization characteristics and practices to become great. Massachusetts Institute of Technology profes- sor Peter Senge published a seminal work on organizational development in 1990 called The Fifth Discipline. In it he introduced the concept of a learning organization, reframing orga- nizational growth and development in the language of education. This concept remains one of the most influential and relevant cornerstones of organizational change to date. A learn- ing organization adapts and evolves at individual and holistic levels, in which individuals increase their ability to create results, new ways of thinking are cultivated, collective goals are conceived, and people learn to see the whole organization together (Senge, 1990).

Although this definition has sometimes been criticized for being too abstract and idealistic, it offers a principled framework by which to exact ongoing, sustainable, and effective change. Senge (1990) states that real learning is at the heart of being human and is what allows indi- viduals and organizations to re-create themselves. However, while “survival learning” or

Managing Change (continued)

the modern world. As with other aspects of society, technology has sped up the pace of business Whether you’re a brand-name snack and soft drink manufacturer responding to the focus on obesity and healthy eating, a restaurateur responding to customer demand for quicker service by doing away with paper tickets, or a doctor responding to technological advances by using a tablet during appointments to research and electronically submit prescriptions— agility is a business imperative for competitive advantage.

Just as it takes the right ingredients to make any business work, it takes the right combination of leadership, strategy, culture, and employee initiative to achieve agility. All companies must grow, but agility is the ability to do it quickly while not compromising the core of the business.

Discussion Questions

  1. How can organizations best address customers’ needs and preferences? 2. How can organizations be managed for continuous improvement? 3. What are some agile practices that individual customers want from organizations? 4. What needs might organizations meet that users haven’t yet thought of?

(See the end of the chapter for possible answers.)

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Section 5.3 Learning Organizations

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