CUTTER BUSINESS TECHNOLOGY JOURNAL  VOL. 30, NO. 12
  

History recognizes the impact of the Industrial Revolution of the late 18th century and early 19th century. That revolution provokes images of smoke, steam, and factories, and resulted in societal disruption on a social, geographical, and economic scale. The digital era, while far less evocative in terms of imagery, is set to mirror the Industrial Revolution’s impact on lifestyle, working practices, and the economy. How­ever, what is its impact on entrepreneurs and business leaders? How does an established organization mobi­lize its resources to participate in an era characterized by rapid technical and market innovation? How do executives harness the organizational knowledge base to explore the opportunities made possible by the speed and breadth of potential developments?

The society of the time characterized leadership and culture in the Industrial Revolution, with innovation being led by the wealthy and well-to-do. In the sub­sequent 200 years, leadership evolved into the corporate and cultural structures that we know today. The recent revolution of the digital era is bringing about social and economic disruption led by entrepreneurs and inventors. The impact on organizational culture will be significant. Today’s organizations are reinventing the leadership and cultural frameworks used in the recent past. Traditional change models (e.g., Kurt Lewin’s Unfreeze-Change-Refreeze model) seem to represent a controlled view of change with a distinct beginning and delineated completion. These are being replaced by a concept of change as rapid, simultaneous, and incremental, based on an Agile conceive-develop-see market experimentation logic.

The conceive-develop-see approach has as its core a culture of generating ideas, rapidly developing them, and market testing them in a controlled environment. In order to create digital market disruption, some ideas will not work, while others will provide the desired results. Conceive-develop-see allows an enterprise to quickly and effectively test market opportunities. Agile, in this context, means using people, resources, data, and analytics to continuously source promising opportu­nities or solutions to problems in real time (conceive); developing them to a point where they can be market tested quickly (develop); and evaluating the results, projecting the potential, and rapidly iterating (see). Interestingly, business strategies are as well defined as they were in the past. It’s the means of achievement that is less so. 

In an interview with Henry Blodget at the 2014 Business Insider IGNITION conference, Jeff Bezos said that “success at Amazon is a function of how many experiments we do per year, per month, per week, per day.” Amazon’s chief executive admits massive failures on market experiments, including the Fire Phone. “I’ve made billions of dollars of failures at Amazon.com. Literally. None of those things are fun, but they also don’t matter,” asserted Bezos. “What really matters is that companies continue to experiment.”

Today’s digital era organizational culture differs significantly from traditional organizational culture. Out are the “fear of failure” or “cautious investments in new products” behaviors of the past; in are innovation, rapid development, and market experimentation. In the digital era, it is thought generally acceptable, within tolerances, to have some product or service failures in the quest for a profitable, innovative market disruptor. A short cycle time from idea to limited market test is essential to control costs or else risk the effects of resource depletion. These test product launches are not explored in a “bet the farm” context but are rather experiments within a controlled organizational framework. 

The digital business is, therefore, an organization that embraces an Agile philosophy along with Agile values at its core, from its people and its use of technology to its culture, and, consequently, its extremely customer-centric nature. The digital leader focuses on business value creation and developing organizational agility.

Many predict that smaller, innovative organizations will lead the digital revolution and that many larger corporations will pass away. This may eventually be the case. However, using the conceive-develop-see approach, it may be that only the larger corporations have the wealth and resources to pursue the digital revolution. This begs the question: how will these larger organizations adapt?

Unless an organization pursues a strategy of innovation for its own sake, then digital era products and services are still subject to the marketing lifecycle with profitability and reward appearing in the market growth and maturity stages. This means that organizations need to create structures and a culture within which they can simultaneously innovate and deliver the new inventions. There needs to be a marriage of innovation expense control and revenue generation. So how does a modern leader engender such a culture? What are the needed techniques? What does this mean for senior leadership behavior? How is this experimental culture developed? 

The Agile Digital Culture

Senior executives who now find themselves as digital leaders initially need to look inward to develop comfort with the digital culture of controlled innovation, rapid development, and measured market evaluations. Namely, they need to shake off some traditional routines and adopt the following Agile practices:

• Encouraging innovation in random patterns from all levels of the organization

• Exploring and market testing ideas even if they lead nowhere

• Giving greater autonomy to Agile development teams

• Rapidly terminating activities that do not create the desired value

• Accepting that command-and-control management has been replaced by self-organizing teams

• Adopting a servant-leader behavioral model of management

• Incentivizing openness, trust, and collaboration

Once comfortable with themselves, senior executives should have the ability to clearly articulate the new business strategy, explaining the organizational vision of the digital future. They then must display the behaviors that encourage a culture of idea creation for new products or services from within their orga­nizations. They should provide frameworks for idea creation and prioritization, Agile product development, and rigorous market testing, as well as safe zones where employees can feel comfortable exploring new digital ideas and opportunities. 

The Agile practices outlined earlier are equally appropriately applied to the delivery of the resultant products and services as they are to the innovation activities themselves. The digital products and services need to be reliably delivered and costs must be managed in a way that generates a cash base for further product or service innovation. Organizations can also apply Agile practices and the subsequent developed management behaviors to operational cost reduction and the improvement of service provision. 

Digital leaders, therefore, need organizational clarity so that both energy and resources focus on the development and delivery of winning concepts. Inappropriate activity and unnecessary costs should be avoided. The difficult question in an innovative Agile culture remains: which activities are inappropriate? Being Agile does not imply a reduction of managerial control; indeed, it’s quite the opposite. If uncontrolled, conceive-develop-see and suboptimal business operation will burn resources, leaving the Agile organization starved of the ability to innovate. To manage this situation, executives must use control frameworks that encourage agility yet provide mechanisms for risk reduction, efficiency, and cost control. 

Vital Mechanisms for Building the Agile Digital Organization

According to the Agile Business Consortium, the central tenet of the controlled organizational framework is that people, not processes, drive innovation. Yet the framework also acknowledges the need for continuous review and management of the innovation portfolio. In many traditional organizations, the linkage between strategy and project execution is broken. In the digital organization, this cannot be allowed and rigorous management at the portfolio level is essential.

Portfolio management is a technique that addresses how an organization goes about identifying, prioritizing, initiating, and governing the conceive-develop-see activities. It is a lightweight and streamlined approach that seeks to maximize the creation of business value in a long-term, sustainable manner. To be effective, the process demands information: organizational strategic intent, initiative objectives, desired business outcomes, market timelines, budget, and time-to-market forecasts. Delivery risk and operational risk-impact assessments are also crucial.

Agile organizations need a description of how teams work from beginning to end. This description (or framework) specifies accountabilities and how the activities of conception, market testing, digital solution realization (analysis, design, and development), and operational delivery all fit together in a cohesive, streamlined whole. The Agile product development framework will illustrate how operational and delivery risks are evaluated and reduced in an innovative environment. In doing so, an enterprise risk culture appropriate for the market sectors in which the organization operates will emerge.

Moreover, the means for requesting, obtaining, and justifying funding need to be explicitly identified in the Agile product development framework. Nothing can be more demotivating than a team having funding withdrawn without understanding why it was withdrawn. Similarly, the process for seeking additional funding needs to be unambiguous. Nothing defines an organizational culture more than the way financial matters are managed. All of senior management’s intent regarding agility, openness, and trust can be completely undermined by an expense process that does not support Agile product development and rapid market testing. Generally, finance functions are the last to embrace changes in pace, agility, and market testing. To be successful in making this culture a reality, the finance function needs to be embedded in the vanguard of the organizational change process.

In fact, the Agile project or product development budgeting process opens a new cultural world to finance functions as well. When you prepare project budgets in an Agile way, you budget in sprints, either monthly or quarterly; you can easily calculate exactly how much each sprint is going to cost. Using Agile, the cost of an initiative is usually in direct correlation with project time because Scrum teams consist of dedicated team members. They have a set team cost — generally expressed as an hourly or fixed rate per person — that should be the same for each sprint. Consistent sprint lengths, work hours, and team members enable the accurate prediction of development speed. This allows for checkpoints, where the organization can review progress and sanction further funding or stop activity. After determining how many sprints your project will take (i.e., how long your project will last), you can know how much your Scrum team will cost for the whole project. However, to be effective, this way of budgeting and forecasting needs to be transparent and understood throughout the organization, from senior executives to team members. 

To operate these lightweight mechanisms there needs to be a new type of control function. The traditional project management office (PMO) function needs to be redefined to one that focuses on:

• Proactively managing the portfolio

• Stopping initiatives from going wrong

• Assisting initiatives to progress at a faster pace

• Constantly evaluating the business case for each investment, with an emphasis on continuing only the forecasted most beneficial initiatives

• Buffering Agile initiatives from less Agile elements of the organization

• Providing assurance to stakeholders that investments are being well managed and controlled

This new breed of PMO, often called a Lean-Agile PMO, seeks to minimize waste while promoting speed of delivery. 

The mechanisms described above provide an organizational “safety net” but do not in themselves create an Agile culture. British inventor and industrial designer James Dyson observes that “failure is an enigma. You worry about it, and it teaches you something.” It is the culture which these practices engender that enables an organization to be an effective digital player.

Agile is as much about culture and core values as it is about principles and practices. Adopting a framework does not automatically change the culture and values to ones that allow a digital Agile enterprise to flourish.

What Does All This Mean for Senior Leadership Behavior? 

Thus far, the digital era has been a driving force of change across industries, and the pace of transformation is accelerating. Back in 2001, Apple launched the iPod. In just three years, the iPod caused the sale of music CDs to fall to their lowest level in 35 years. Uber got its start in March 2009, launched its beta version in May 2010, and starting from 2011 the organization digitally reshaped the San Francisco taxi industry. This digital disruption to traditional cab operators took Uber just over one year to achieve. While the pace of the digital revolution can often be measured in months, it typically takes years for an organization and its people to fully embrace such fundamental changes in the way they operate.

Senior management behavior is vital to the foundational change of establishing an enterprise culture for the digital era. Increasingly, organizational responsibility is moving from head-office functions down to the positions where the decisions are most effectively made. In many organizations, this means that real decisions are no longer the exclusive remit of senior management. Using Lean concepts, organizations are becoming flatter and focusing on process efficiency and adding value. Inevitably, this trend will test the role of middle and senior management, as they find they are no longer needed for regular business decisions but are now required to develop visions of the enterprise’s digital future. In fact, many middle management roles are already disappearing as a result of the adoption of artificial intelligence (AI) and digital process automation, both of which have come out of the digital era. It is a significant step for middle management to lead the introduction of new practices and culture while at the same time their positions are threatened. However, perhaps this pressure itself provides the incentive and catalyst for change. 

Business leaders have historically focused on outcomes. In today’s digital era, there are technological enablers that make it possible to measure and test the soundness of decisions quickly and easily. These enablers, such as big data and AI, permit leaders to harness digital tools and techniques to test and evaluate business outcomes. However, senior executives should also fine-tune their decision making by referring to the enterprise operat­ing model, which outlines the business objectives and operation of the enterprise. Failure to do so would be making judgements in an operational vacuum.

Typical operating model concerns are:

• Strategy. How will the investment in digital capabilities drive organizational value? What future role does the organization want in the digital space?

• Market. How will prospective customers be engaged and relate to the organization?

• Operations. How will the business plan establish the value created by digital initiatives? How are innovation and operations to be optimized?

• Resources. How will the skills and capabilities of the workforce enable or inhibit organizational growth in the digital environment?

The emphasis of senior executive behavior is on pro­viding leadership and fostering the development of people and capabilities. Enterprises should preserve the organizational knowledge base by enabling a learning environment and investing in the development of existing capabilities. The digital organization encourages ideas from all areas of the enterprise; it is within the existing work pool that the source of many of the ideas for digital disruption will lie. After all, an organization is likely to base its digital disruption upon the markets and geographies in which it already operates, and the existing workforce understands the customers and needs of both the current market and the current geographies. It is therefore essential that leaders utilize their existing resource pool by providing employees with the learning and tailored development to facilitate their transition to the digital era.

Developing an Experimental Culture

The experimental culture is developed by positive intent and the measurement of progress. The digital enterprise primarily requires transparency and a simple set of metrics to help people understand their roles and to allow them at the team level to make meaningful decisions within the corporate governance framework. The corporate governance framework sets out the roles, responsibilities, and limits for decision making within the organization. Using self-managing teams does not imply any element of self-directing; the leadership role of senior management is clear. Senior leaders need to engender, show, and sustain cultural change.

Organizational culture is not changed by the flick of a switch; a changed organizational culture is the result of deliberate actions and leadership to move behavior in a certain direction. It emerges from a change in business objectives and leadership behavior and is facilitated by the adoption of processes and frameworks that encourage a certain type of conduct. Typically, orga­nizations begin by taking small steps, making certain teams or product areas adopt the new modus operandi.

However, a “tipping point” quickly emerges, where the complete organization needs to become Agile. This factor may be why some suggest that only new companies will succeed in the digital era. For larger corporations, a significant level of organizational design and restructuring is required. Once the desired organization has been designed and implemented, these changes should then be tested to ensure that the desired behaviors are evolving. Cultural questionnaires and staff feedback sessions are means of measurement, but the ultimate test is whether the desired new products and services are appearing.

Becoming Agile in the digital era is a strategic imperative. For larger organizations, it takes time and planning to achieve the necessary agility. 

Conclusion

This article outlined the cultural developments required for larger corporations to be active participants in the digital era. By making use of Agile principles and empowering teams, collective creativity can be harnessed into a strategic force. However, to be effective, senior executives must first look within themselves to see if they are able to display and encourage the behaviors necessary for organizations in the digital era. They then need to create the processes and organizational structure that facilitates conceive-develop-see market experimentation within an organizational control framework.