SEVEN PRINCIPLES 1-3: THE FUNDAMENTALS


Principle 1: Recognize the business as ecosystem

Traditional management

views a business mainly as the hierarchy of accountability for business functions. In this view, to adapt to change is a quite clumsy and time-consuming process, too slow to cope with acceleration.

Especially if - like in most such cases – multiple functions need to engage. 

Agile management

instead recognizes the entire business as an ecosystem.

This means to consider the business as:

  •  A network of elements, generating value for customers,
  • With elements both inside and outside of the business organization: Customers are elements of this ecosystem, suppliers are part, partners are part, s are competitors,
  • Fluidly and flexibly serving each,
  • 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”


Principle 2: Focus on one single goal: Revenue

The second principle answers the question “How to set performance goals for the business?”

Daily management and managing agility offer two answers to this question: 

Traditionally, for daily management

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

Too slow in rapidly changing circumstances

  • 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.

For agile business management we need to take a different approach

  • Here, we focus on just one single measure of performance: the flow of revenue. To cope with acceleration, this is the one single goal to focus on. Sufficient revenue for today and tomorrow, just that.
  • Focusing on just this one goal, we will manage our business with much higher agility than with our traditional practice.

Principle 3: Give priority to revenue generating units

This  principle answers the question “Who is accountable for achieving business goals?”  

Traditional daily business management

assigns accountability based on the assumption: “all owners of hierarchical units in the company are accountable to achieve their KPIs” 

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

For managing agility

we assign accountability for revenue to those units, which are directly responsible for that flow, to put priority on revenue generating units. 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, …

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