As macro-economists puzzle over why the economy continues to stagnate after almost a decade of extraordinary cheap money from the central bank, Julian Birkinshaw’s new book, Fast/Forward: Make Your Company Fit for the Future (Stanford Business Books, April 2017) has some useful lessons. It points to “the conservatism and inertia inside typical large organizations,” where “the rate of change outside is usually much greater than the rate of change inside.” (Birkinshaw is Professor of Strategy and Entrepreneurship at the London Business School and Director of the Deloitte Institute of Innovation and Entrepreneurship. The book is co-authored with Jonas Ridderstråle.)
“Corporate generals,” the book says, “continue to fight the last war, using structures and methods that were designed for the previous era, and endorsing plans that are linear extrapolations of what worked before.” The challenge is “how to make the rate of change inside at least as rapid as the rate of change outside.”
“Fast/ forward companies have an evolutionary advantage; they are fit for the future.” First, they demonstrate “the need for decisiveness and a strong action orientation across the organization.” Second, “the direction of travel looks to the future rather than the past.” And third: leaders “make a stronger emotional connection to those around them, rather than allowing sterile, big data-driven decision making to dominate their actions, reactions, and responses.” Fast/forward companies, in a nutshell, are “those that exhibit decisive action coupled with emotional conviction.”
What “worked in prior decades offer only very limited insights into what might work in the future. This is because the business context keeps changing: not in the banal sense that we face increasing levels of technological change and higher levels of competition, but rather in the more fundamental sense that every source of competitive advantage carries with it the seeds of its own destruction.”
• The default management model of the industrial age was the bureaucracy— in which coordination of activities occurs through standardized rules and procedures, and an individual’s formal hierarchical position is what matters. It is by nature slow.
• The now-standard management model of the information age is the meritocracy— in which coordination of activities occurs through the mutual adjustment of self-interested parties, and an individual’s knowledge and expertise is what matters. It is also slow.
• The newly emerging model that we believe is now required is adhocracy—in which coordination of activities occurs around external opportunities, and an individual’s action is what matters, particularly when this is backed by emotional conviction.
Steve Denning: Fast/forward companies are examples of adhocracy. What exactly is an adhocracy and how does it relate to Agile?
Julian Birkinshaw: Agile is the methodology that has gone furthest down the road to operationalizing adhocracy. Adhocracy is an organizational archetype or ideal. Conceptually they are very close to each other. In the last three or four years, Agile has become mainstream, not just an IT thing. It’s a set of methodologies that affect the entire business. Adhocracy is a way of working that puts action at the front.
The Emergence Of Agile
Denning: How important is Agile to being “fast/forward”?
Birkinshaw: A few years ago, many managers were not familiar with Agile. But a lot has happened in recent years, as Agile has steadily entered more into mainstream consciousness.
We are now in the middle of the transitioning from “Agile as the preserve of IT teams and dot.com startups” to “Agile as part of the mainstream in the way every business is thinking about things.” Obviously, those models need to be adapted to the different contexts. But at last, we now have a kind of template for how to build more action-oriented organizations. That didn’t exist before. What we had before were these isolated examples like Semco or Oticon, and some of these crazy one-off companies. Now what we have is a whole tool-kit. So that is a huge step forward.
Why Is The Transition To Agile So Slow?
Denning: If adhocracy and Agile are so important, why is the transition from bureaucracy so agonizingly slow? It doesn’t seem to matter what arguments you give, such as “linear organizations in an exponential world”—your phrase that I really like. It seems to have no effect. Why isn’t there faster movement? Is it that with the pressures of Wall Street and the rampaging financial sector, combined with the ease of solving problems through financial engineering, such as share buybacks and takeovers, inversions and free money from the Fed, there is no need for management to bother? In other words, why go through the hassle and risk of major innovation when you can boost the current stock price and in effect buy your way out of trouble?
Birkinshaw: I share that concern. I run many seminars for executives. I can see that they are embracing the intellectual content, while at the same time struggling to see how they can possibly do anything about it in their own contexts.
What we find is that the companies that do this best are privately held or controlled by a very small number of shareholders or founders. That reminds us that if you are going to make these difficult changes, you need people who are taking ownership of the problem, and willing to make the investments with a five-year time horizon. There are not that many CEOs who are that secure in their position.
Yet that’s not the whole story. Let’s take an iconic, privately-held German auto manufacturer which is impressive in many ways: they like these ideas but they struggle to implement them. They don’t even have the pressures of the stock market to blame.
Embracing Agile From Strength: The Case Of ING Group
Birkinshaw: One positive example mentioned in the book is ING Group, a Dutch multinational banking and financial services corporation headquartered in Amsterdam. The reason they could launch the entire firm on an Agile transformation journey was because they had a very solid ten-year track record of successful change projects. So, they could get their board of directors to buy into it. They had the impetus and the insight and the creativity. But they also had that track record that gave them board support and allowed them to do something, which otherwise they couldn’t have.
Denning: We also see examples of the opposite, where a major firm is embracing an Agile transformation when they are in terrible financial trouble. They are using Agile as a way to get out of that financial trouble. They know they have to “do more with less.” They see Agile as a more intelligent way to do more with less, instead of just slashing into muscle and bone.
Birkinshaw: That can work if you have understanding and support from the top. When a chief exec comes in, it often happens that the great plans currently in progress are suddenly thrown up in the air. If you are lucky, the new chief exec goes for it. But sometimes not.
Denning: That’s in part because Agile is still regarded as some kind of deviant form of management, to be used for special purposes, such as R&D, but not for the main game. So long as leaders have in their minds the idea that slow-moving bureaucracy or meritocracy is the standard and the norm and the default mental model of what management should look like, Agile will always be at risk.
Creating Agile Leaders
Denning: You say that leaders of the right frame of mind and approach for adhocracy are rare. Is London Business School going to form and train the new generation of leaders, with Fast/Forward (aka Agile) as the default mental model of management?
Birkinshaw: Good question! I teach an executive MBA course about this. We have students between the ages of 21 and 50. The people who like the course the most are always the older experienced people. The older students absolutely love the idea that there might be an antidote to bureaucracy that they have had to live through for the past twenty years. We do quite a lot of courses for these senior people to help them think differently, and to help them understand themselves. Self-awareness is a big part of this. We try to build those skills. But there is only so much that we can teach. There has got to be a lot of learning by doing. That is the bigger part of it.
Some organizations are much better at developing those skills than others. In some organizations, you are ground down by the bureaucratic processes. But there are others which are actively working to help you build your skills and give you different types of experiences and to simplify the reporting structures.
A lot of our students are going off to work at Amazon, for example. Amazon has its own problems, as we read in the New York Times article in 2015. But at least in their white-collar jobs, Amazon is pushing a smarter way of getting things done, and everything I like to preach about.
The other example I often use is the beer conglomerate, AB InBev. It’s a Brazilian company backed by private equity. It’s like investment banking. It’s incredibly focused on performance. It emphasizes building a shared context around what everybody is doing and creating clear accountability so that they can put the bias on action. They are stripping away the meetings and politics that consume most large organizations.
Role Of Millennials
Denning: Some people put their faith in the younger generation. Do you share that optimism?
Birkinshaw: Not completely. The talk about Generation Y (the so-called Millennials) is in my opinion overblown. Many of them are already in management, even some senior positions. It’s Generation Z which are the new arrivals in the workplace.
In any event, I believe that you can take someone in their forties, and help them to figure out these new and better ways of working. I have no problem with teaching an old dog to learn new tricks. But not all old dogs want to learn new tricks.
When it comes to frame of mind, some people have it and some people don’t. There is the bias for action vs the bias to want to follow rules. It’s a pretty clear psychological split in people. What we are trying to do at London Business School is to free up the people who actually want to get stuff done. We are trying to show them how to do that.
Denning: What I find encouraging is meetings with software developers in their twenties and thirties. Once having experienced Agile management, there is no going back. When you ask them what they would do if the management suddenly announced they were going back to the old ways, they almost always say, first that’s unthinkable, and then, if it actually happened, they say, “I’m out of here. I’m gone! You simply cannot do software in that old way.” So they have become a de facto lobby group within the organization to preserve the change to Agile. Some of those big organizations, like Ericsson and GE, have whole divisions which are massive advocacy groups for Agile. At GE Health, they have even called themselves a “sleeper cell for Agile.”
The Sustainability of Adhocracy
Birkinshaw: But unfortunately, they are still in the minority. It’s an endless struggle. We talk about new ideas. But in reality, these ideas are not too different from ideas that were talked about 20 or 30 years ago.
Denning: In my forthcoming book about Agile, I point to the long historical record of efforts in this area, including Mary Parker Follett in the 1920s, Elton Mayo and Chester Barnard in the 1930s, Abraham Maslow in the 1940s, Douglas McGregor in the 1960s, Peters and Waterman in the 1980s, and Smith and Katzenbach in the 1990s. Even back in the 19th Century, the Prussian general, Helmuth von Moltke was promoting essentially the same approach for the Prussian army in the 1860s. Some of this was written up in Art Kleiner’s book, The Age of Heretics: A History of the Radical Thinkers Who Reinvented Corporate Management. It reflected a lot of pre-Agile thinking, but it fell by the wayside. It didn’t stick. Why not? Is this time different?
Birkinshaw: I genuinely believe that the techniques that have now been developed, that we now call Agile, are more systematic and more fully embedded in practice, than the ideas that were around 15 to 20 years ago.
Denning: That’s true. And the eventual outcome is clear. When you have “a linear organization in an exponential world,” the outcome of the encounter is obvious. The linear organization operating in exponential world is simply not going to survive. It’s not a question of whether. It’s a question of when.
Birkinshaw: That’s right. And obviously some companies, by virtue of accumulated resources and market power cling on longer than others. Banking is a funny one, because banking is the ultimate digital product. In Europe and in the US, the banks that are around are the same ones that were around 30 years ago. But we do see them working very hard to stay current. They are feverishly working behind the scenes to try to keep up.
Denning: They see the writing on the wall. But acquiring an Agile mindset, and then getting the whole organization thinking the same way, are not things you can accomplish by investing in a bunch of Fintech startups on the side.
Changing The Ecosystem For The New World
Birkinshaw: We also have to think about the context for adhocracy. When we look at the way business is evolving, we can see that we are still using an industrial-era institutional framework to make companies work. All of the institutions that support business were invented 100 years ago. For instance, the legal incorporation of companies, copyright law, employment law, anti-trust policy: all of these things were created for big industrial companies. They are gradually being reinvented for the current digital age, but at varying paces.
Denning: Very slowly!
Birkinshaw: True! But there is some progress. Take the Creative Commons. That was an example of people figuring that you needed a copyright law that was quite different from traditional copyright. And the “benefit corporation” is an alternative to the traditional joint stock company.
Denning: We do see innovations.
Birkinshaw: But they are almost all lagging innovations. Uber is fighting with the Californian courts as to whether it has employees or contractors. The truth is that it is neither. It is something in between. Unfortunately, Californian law doesn’t know what to make of “something in between.”
Denning: It’s going to be a very slow evolution, so long as there isn’t a common understanding shared by businesses, regulators, business schools and legislators as to what is happening and why and where things are headed and what needs to be done. When all of those actors are on different pages, or simply trying to turn back the clock, then you have chaos.
Birkinshaw: Absolutely. It’s going to be the subject of my next book and it’s going to take about three years to research it. It’s a huge topic.
Denning: I’m sure those issues will still be there in three years time.
Birkinshaw: I guarantee it.
And read also:
Julian Birkinshaw on The Age of Agile
Julian Birkinshaw on Reinventing Management
How To Make The Whole Organization Agile
Beyond Agile Operations: The Holy Grail Of Strategic Agility
Four Keys You Need For Strategic Agility
Steve Denning is the author of the forthcoming book The Age of Agile. Follow him on Twitter @stevedenning.
