Re-designing organizations to increase agility: how can firms reconfigure their organization models to compete in a dynamic, post-Covid world

“In today’s era of volatility, there is no other way but to re-invent. The only sustainable advantage you can have over others is agility, that’s it. Because nothing else is sustainable, everything else you create, somebody else will replicate.” Jeff Bezos, 2018 In 2020, Covid-19 irrevocably changed the world. Many of the shifts initiated by the crisis, post-globalization, teleworking, contactless consumerism - to name but a few – will be here to stay. Companies have responded by fast-tracking digital collaboration initiatives while at the same time radically reinventing their supply chains and go-to-market approaches. New forms of human-computer interactions, networked based collaborations, and technology-enabled process redesigns emerged at a pace that would have been unthinkable just months before. (In fact, it was often joked that Covid-19 did more to help companies achieve their Digital Transformation goals than McKinsey ever did). What Jeff Bezos stated in 2018 - that the ability to re-invent oneself is the single most important source of competitive advantage – has gained further ground post-Covid. As a result, many CEO’s are (or are considering) transforming their organizations in order to inject “agility” in their company. The question I will explore is whether and how existing firms should go about redesigning their organisations to incorporate the capabilities to continuously re-invent themselves. --------------------------------------------------------------------------------------------------------------------------------------------- The notion that agility can be a source of competitive advantage for firms is not new. There is a rich body of research (Volberda, 1996; Teece & Pisano & Shuen, 1997; Eisenhardt & Martin, 2000) which argues that - especially for firms operating in rapidly changing environments – the ability to demonstrate dynamic (i.e. able to adapt and renew) capabilities (i.e. structurally embedded in the firm) are prerequisites for sustained firm success. This is a break with earlier strategy paradigms, like those advocated by Porter, which view a firm’s success more as determined by external factors. Teece describes dynamic capabilities as foundations allowing firms to a) sense and shape market opportunities, b) seize these opportunities by mobilizing their businesses, and c) continuously reconfigure and adapt. Many factors contribute to a firm displaying dynamic capabilities, but micro- foundations and particularly organization design - including its supporting hierarchies, structures, routines and governance – are a crucial component (Teece, 2007). In 2020, possessing such dynamic capabilities has gained further relevance. The global context in which firms operate is more VUCA, the possibilities for digital to enhance value have increased and the underlying technologies have become more accessible. To be able to compete in this digital, VUCA world, many firms are embarking on organization redesign efforts to increase their firm’s agility[1]. In a 2018 McKinsey survey, three-quarters of respondents said organizational agility is a top or top-three priority, and nearly 40 percent are currently conducting an organizational agility transformation. There is also increased academic interest to understand and define these “newer” organization models. Lee & Edmondson (2017) for example introduce the concept of self-managing organizations to explain how firms replace traditional management hierarchies with self-managing structures, precisely in order to foster their firm’s agility, responsiveness and innovation. It seems that while at the beginning of the century agility was viewed as relevant mostly for firms competing in rapidly changing environments such as software or biotech (Volberda, 1996; Teece et al, 1997), this scope has broadened. Many more firms are now embarking on agile-enhancing transformations (including large incumbents, established SME’s and firms active in traditional industries like oil & gas). As Felin and Powell noted in 2016, baseline capabilities have become obsolete for many firms, and “competing in volatile industries requires something more: namely, adaptive processes and structures that enable companies to change their baseline capabilities”. Not surprisingly, many practitioners are capitalizing on this trend and advocating radical organization redesigns for firms so that they can inject agility at an enterprise level and thereby “routinize change” throughout (rather than limit it to the field of innovation / specific projects). However, while practitioners preach these so called agile-at-scale transformation efforts, in reality it does not seem that straightforward. Researchers have shown that acquiring dynamic capabilities is both costly and difficult. In fact, given the agility-efficiency trade-off, Teece argued that for many firms occasional change efforts (for example led by a Chief Transformation Officer) are the best option. (Teece, 2012) And in 2014 Kottler proposed a “dual operating system” for firms, whereby the traditional, KPI-run operations are run differently and separately from the more innovative, agile parts for the firm (which typically only cover 5-10% of FTEs) (Kottler, 2014). Furthermore, while agile-enhancing constructs such as the self-managing organizations described by Lee & Edmondson seem to bring many benefits, there are few real-life examples of firms having implemented it in practice. (and examples of large and complex organizations having done it are even rarer) (Lee & Edmondson, 2017). This triggers the following question: can firms redesign their organizations to increase agility, or is this a “fool’s errand” (propagated by management consultants)? In my research I will try to answer this question by shedding light on why and how established firms have sought to integrate agile enhancing dynamic capabilities into their organization models, and whether this in turn has led to superior firm performance. In terms of research angle, I believe focussing on the organizational re-design approach and whether the efforts yield results, closes a research gap. Appelbaum observed that academic literature tends to focus on the characteristics of agile firms, but pays less attention to how firms should go about developing these characteristics (Applebaum, 2017). The 2016 paper by Felin and Powell also illustrates this. The authors describe two design principles (polyarchy and social proofs) that were successfully deployed at Valve (a gaming company), but they do not explore examples of how other firms could/have deployed these practices or what unintended consequences for firms may be (Felin & Powell, 2016). This gap is compounded by the fact that there is a risk of publication bias as case studies report successes and “primary studies tend to be pro-agile without giving a solid motivation” (Dikert, 2016). As Lee and Edmondson also noted, self-managing organizations have gained a lot of attention, but examples of firms who have successfully redesigned are rare (Lee & Edmondson, 2017). While this research angle sits at the intersection of strategy and organization studies, the primary focus is the exploration of the actual organization re-design efforts. (Recognizing that the underlying strategy motives that lead a firm to consider agile re-design, may in turn affect the process and success of the endeavour). --------------------------------------------------------------------------------------------------------------------------------------------- Preliminary research scope and questions: As a first step, I will assess the current academic literature both re the definitions/scope of the “enterprise agility” concept (including what elements make up an “agile firm”, recognizing that organization design is only one of several factors) as well as the objectives firms seek to achieve by increasing it . I would expect that these objectives differ per type of firm: SME’s may seek to augment their (digital) skills while larger incumbents may want to speed-up decisioning and foster innovation. VersionOne’s annual State of Agile Survey confirms that firms cite a wide range of reasons for adopting agile, ranging from ‘the ability to better respond to changes’ to ‘project cost reduction’. Lee and Edmondson also noted this in their research, there are “many experiments, some designed to achieve strategic objectives, others more focussed on the individual” (Lee & Edmondson, 2017). I will also try to account for the fact that post-Covid firms may have changed or sharpened their ambitions.  Next, I will seek to understand from a theoretical perspective what organization design constructs firms can implement to increase agility. For example, the self-managing organizations: firms who adopt a model with radical decentralization of authority, in a formalized system and implemented firm-wide. (Lee & Edmondson, 2017). Other examples include post-bureaucratic organization models as well as the more entrepreneurial constructs designed by e.g. Spotify. My subsequent research will build on this theory and aim to shed light on how firms approach developing / acquiring agile capabilities, both from a macro and micro angle: Macro angle: organisation (re)design principles and deployment approach Reconfiguring an organization entails a redesign of at least some of the following structural elements: formal structures, decision rights, decision making routines and governance mechanisms. How have firms approached this in the context of acquiring “enterprise agility”? My current understanding is that there are several open research directions, like the ones described below (exact question to be further refined in next stage): o Decision making and accountabilities: When designing an agile organization model, there are examples of firms who replace Marketing and Sales teams by end-to-end, self-managing teams accountable a.o. for Channels, Products, Journeys, and Experiences. How do firms build structures that avoid overlapping accountabilities (relevant esp. in large and complex organisations)? Relatedly, how do decision-making processes work within and across these teams, especially in times of conflict and crisis? o Coordination and control: Which mechanisms do firms deploy to coordinate and control complex interdependencies across the different teams? Can complex interdependent work be accomplished effectively at scale, in self-managing organizations (Lee & Edmondson, 2017)? In other words, how do firms manage the challenge of ‘letting chaos reign, then reining in chaos”. o Choice of model: Lee and Edmondson illustrated that case studies show different models even within SMO’s (re dimensions of primary unit of organization, source of authority etc). What are the different approaches, and what is the contingent relationship with the nature of the work and organizational context (Lee & Edmondson, 2017). Does ownership (for example, PE owned vs family owned) play a role? o Dual organization models: To manage the balance between efficiency and agility some firms opt to have both “more and less agile constructs” operating side by side. What models exist, how does interaction take place in such a two-speed organization and is it efficient? In other words, how do firms succeed in “combining internal stability with external agility?” (Applebaum, 2017). o Transformation speed: Given the complexity and impact, many practitioners advise a test-and-learn, evolutive (rather than big-bang) approach to organization transformation. What path do firms take in practice, and what are advantages/drawbacks of the different approaches? For example, does an evolutive approach lead to organisation structures that are a “compromise” and allow the old silo’s/ fiefdoms to persist? Micro angle: role of individuals and their interaction models: Structures alone do not suffice to build an agile firm: individuals, and the way they interact in that structure, also plays an important role to explain whether “enterprise agility” is achieved or not. o Role leadership: What is the role of the individual leaders in transforming to the agile firm? For example, it is often stated that a new type of leader, exhibiting servant leadership, is needed to realize an agile transformation. Do we see for example an “augmented manager” emerging, that takes up the role of orchestrating a firm’s newfound dynamic capabilities? In the absence of such leaders, is the transformation doomed? o Individuals’ experience: Are the “jobs and lives of individuals enriched by greater autonomy and lack of subordinate status” as firms implement radical redesigns” (Lee & Edmondson, 2017)? Or are there unintended consequences of such systems on individuals? To get insight into the above questions, I will build on existing research and case studies as well as perform a practical study of firm(s) that have redesigned their organizations. I will pay particular attention to what degree firms have deployed the mechanisms as advocated in theory, in understanding the challenges they face and whether/how they overcame these. The research data and approach will need to be detailed in the next phase, but will include some of the following elements (in addition to a literature review) • Meta-assessment of existing case studies to understand practices, challenges and success factors of agile transformations • Review of existing surveys such as State of Agile, McKinsey Quarterly, … Launch broader, structured survey among (Belgian) companies • In-depth case / observation study of e.g. Telenet who has implemented “agile-at-scale” across the organization • Empirical analysis and/or semi structured interviews of e.g. Gimv’s ~50 portfolio companies (mostly SME’s, active in wide field of industries, PE owned) With the research data and insights I will try to assess whether the efforts have paid off. Assessing the causal impact of organizational (re)designs is notoriously challenging.  Nonetheless, I will strive to find creative ways to understand what the consequences of the new organization for firms have been (as measured vs the stated objectives of the firms and / or in absolute metric like firm relative profitability vs peers who have not adopted agile organization models). The detailed analytical approach is to be refined at the next stage of the process. Out of this research I hope to uncover some, scientifically underpinned, practical implications for firms, thereby contributing to demystifying the “black box” many CEO’s face as they embark on a journey to allow “continuous re-invention” of their firms.