2,5 minutes video: Agile business management

(Click illustration to start video)

Why? The world accelerates; traditional management cannot cope.

What? Introduce a second management system: Agile business mangement

How? Complementary to traditional management

Acceleration: today the single overriding dominant force in our world

  • Climate change accelerates, Covid accelerates, political development accelerates.
  • Same for businesses: customer needs change faster and faster, sales and marketing accelerate, supply chains accelerate, service of all kinds accelerate, as do our competitors -  to name just a few examples of business processes accelerating.
  • Traditional management can´t cope

    Experts saw this coming already years ago – as for example John Kotter of Harvard Business school in 2012, as did Henry Mintzberg and Claudio Feser of McKinsey.

    Coping with acceleration is now a matter of winning in competition

    in competition with other businesses the business with higher agility will win over its competitors

    The answer is a second management system

    From John Kotter´s article “Accelerate!” in HBR, Nov. 2012:

    • The existing structures and processes that together form an organization’s daily operating system need an additional element to address the challenges produced by mounting complexity and rapid change.
    • The solution is a second operating system, that uses an agile, network like structure and a very different set of processes.”
    • The new operating system identifies key hazards early enough,
    • Formulates strategic initiatives nimbly,
    • Implements initiatives fast enough,
    • And reacts with agility, speed and creativity

    This new, second operating system is agile business management

    This is not an “either or” idea, it’s “both”, two systems that operate in concert.

    Agile business management FOR SURVIVAL (KOTTER, "ACCELERATE!", HBR 2011)

    "The companies that get there first, because they act now, will see immediate and long-term success - for share holders, customers, employees and themselves. Those that lag will suffer greatly, if they survive at all"

    agile management comprises seven new tasks for leaders

    1. Recognize business as ecosystem

    Recognize business as the network of people´s efforts to sustain the flow of matter, energy and information.
    • With elements both inside and outside of the business organization: Customers are elements of this ecosystem, suppliers are part, partners are part, so are competitors,
    • Fluidly and flexibly serving each other
    • By flows of matter, energy and information

    In this framework the approach to adaption is very different and much faster: instead of going up and down the hierarchy for decision making, planning and execution we can focus on one single element to adjust: the constraint in the flow to be resolved. Then we can quickly agree with the concerned owners on how to move forward, in a networked project.

    As Kotter says in his article in Harvard Business Review: “a different methodology than we traditionally use in daily management”

    2. Focus on one single goal, revenue

    Focus on one single prime measure of agility.

    Traditionally we set a large number of performance goals top-down

    By starting from vision and strategy, and define top level KPIs like profit, shareholder value, ROI, Return on capital employed, etc.

    Then, we deploy these as KPIs top-down to business units, their departments and employees.

    • Per unit we select 20-25 performance measures, establish target goals for each, and communicate these as scorecards to managers and employees.
    • This approach works well in stable situations. However, faced with acceleration its hierarchical structure is too rigid, too difficult and too slow to adapt to rapidly changing circumstances.
    • To cope with acceleration we need a much more simple and focused approach

    agile business management requires focus on one single goal: Revenue

    • Instead of setting many performance measures, we focus on one single essential goal "sufficient revenue for today and tomorrow"
    • Focusing on just this one goal, we will manage our business with much higher agility than with our traditional practice

    3. Give priority to revenue generating units 

    Traditional daily business management

    Assigns accountability based on the assumption: “everyone is accountable for this”. Following this assumption we could set, for instance, KPIs for agility in each element of the business, make it part of the mission or assign accountability for agility to every employee.

    Facing accelerated change this “top down” approach makes a business too slow to recognize and cope with changes either taking place or foreseen.

    To cope, in agile business management

    Assign accountability for revenue to those units, which are directly responsible for that flow, Each of these units is accountable to lead its ecosystem to reach its own revenue goal.

    What then about other units, who do NOT generate revenue?

    Like manufacturing, finance, H.R., IT, R&D, …

    These units contribute by assisting revenue generating units to achieve their goals, with initiatives specifically designed for that unit.

    4. Select only initiatives resolving constraints

    Allow only initiatives, which aim at resolving constraints to achieve the goal. Any initiative that does not resolve a constraint fails to contribute to agility and is a waste of time, energy and money.

    Traditional management aims at improving everything

    Traditional management takes the approach that "everything that can be improved, must be improved".

    Agile business management aims at resolving constraints

    Agile business management takes a very different view: It focuses on identifying and resolving the constraints hindering the flow in the ecosystem.

    Eliyahu Goldratt, founder of TOC, called such blocks constraints, because they constrain, or limit, the performance of a business.

    To focus on resolving constraints for reaching the goal is a different frame of mind than we use for traditional daily management. He called fixing anything else "a wast of time and money"

    5. Drive short operational sprints

    In traditional management

    The time horizon for operational plans is mid to longer range, like 2 to 3 years,

    Agile business management 

    In view of acceleration such time horizon misses the point. Today, most business plans are already off the mark 3 months after their creation. 

    To cope, agile business management designs operational plans as operational sprints with a time horizon of max. 3 months – like many other activities in business have today. (Very agile businesses even use faster, like weekly, sprints).

    6. Respond to change after each sprint

    Adjust operational plans to refocus on new obstacles resulting from accelerated change.

    Traditionally: Annual business reviews

    Such reviews are designed to sum up achievements and financial results for the board of directors, shareholders and compliance to legal conditions, typically performed in an annual pattern.

    For agile business management

    This approach is too slow, and adds little value to a business's agility. Instead, after each operational sprint, agile business management

    • Re-focuses operational plans,
    • Directs new initiatives at the constraints for the next sprint.

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    7. Lead the change

    Leading the change means to lead improvement of capability in agile business management.

    measure capability in business agility

    Capability in agile management shows in two dimensions:
    a) How well leaders achieve their sprint goals,
    b) How well they execute their sprint plans.

    Both achieving the sprint goals and executing sprint plans well show high capability in leading business agility.