Why organisational agility is necessary…

The VUCA environment demands from companies an ever greater willingness and ability to change. Because of the constantly growing globalisation, which can be described as global networking and the use of ever new technologies, they are forced to constantly renew themselves in order to adapt to the environment. An agile organisational model can play a central role here. But what does agile actually mean and where does this term come from?

In 2001, the first agile approach in software development began to gain in importance, which ultimately led to the publication of the “Agile Manifesto”. It was published by 17 leading software developers and consultants. The agile manifesto emphasizes that there are four principles that set new priorities:

1) Individuals and interactions are more important than processes and tools
2) Functioning software is more important than comprehensive documentation
3) Cooperation with customers is more important than contract negotiations
4) Responding to change is more important than following a plan

Over the last two decades, organizational theorists have also explicitly considered the role of agile performance, which allows companies to successfully adapt to rapidly and unpredictably changing environments (keyword VUCA). This coincided with the emergence of hyper-competition as the cornerstone of today’s industrial landscape. More recently, researchers have begun to describe and explain agility with organizational responses in different contexts such as information systems, market orientation, strategic direction and social computing.

The emerging consensus is that agility in relation to the four key points mentioned above is adequately synthesized and formally defined as follows:

“Organisational agility is a company’s ability to sense and respond to the environment by intentionally (1) changing the magnitude of diversity and/or (2) the speed at which it generates that diversity compared to its competitors.” (Singh et al., 2013)

How can agility be described?

The term agility is probably best described by the following three properties:

  • “Nimbleness”: an ability to move around like a weasel. For example, in the case of a customer complaint via Twitter or in a call center, you do not first need 5 meetings to make decisions, but can offer the customer solutions directly and flexibly.
  • “Simplicity”: a characteristic that no longer wants everything to be perfect and professional, but simple and effective. For example, to do without an expensive “to-do list tool” in the project and set up a “post-it” wall in front of which the team gathers every day. Or to waive 300 group guidelines and, unless otherwise possible, to reduce them to a few in order to regulate fundamental behavior and expectations of employees.
  • “Flexibility”: an ability to allow and implement changes and adjustments. For example, not to react to environmental changes in the cycle of 2-year strategic planning or annual budgeting, but also to be able to shift budgets and seize new market opportunities immediately during the year. (Singh et al., 2013)

These three characteristics are partly in conflict with each other. Flexibility, for example, can be at the expense of speed. Therefore it is necessary to develop approaches and concepts that make it possible to realize all three properties simultaneously.

Typical organisational designs – sorted by the extent of their agility

Classic forms of organisation – efficient but not agile

The classic hierarchical organisational structure is probably the mother of all organisational plans. Hierarchical structures are particularly suitable for sluggish mass markets or markets with low volatility (see Morris, Kuratko, & Covin, 2010). In calm waters, these structures lead to enormous efficiency, which is why they were virtually undisputed until the end of the 20th century and were used almost universally. However, as markets change, in times of globalisation and digitisation, the disadvantages of hierarchical structures in an unsettled environment are becoming increasingly apparent.

Bureaucracy and hierarchy often lead to inertia, blindness, resistance to change and contextual concern. In addition, a hierarchical structure often prevents the development of employee potentials, as these cannot come into their own due to bureaucratically regulated processes and structural hurdles. Creativity, autonomy and knowledge networking are typically not encouraged.

Compared to the classical hierarchical model, matrix structures represent a significantly more complex system that brings functions and units together in a matrix. Matrix structures therefore offer a greater distribution of responsibilities, stronger interdepartmental interaction and communication as well as a greater variety of perspectives for all employees. They thus promote transparency, empowerment, creativity, entrepreneurial thinking and organisational learning.

By avoiding classical silo hierarchies, matrix structures appear more open and more receptive to new environmental conditions and the associated information than the classical-hierarchical organisation. However, this also means higher interface costs, bureaucracy, slower decision-making processes and redundancies in responsibilities and roles as well as in communication. Matrix structures tend to force employees to compromise. In a volatile environment, matrix structures are too slow in their strategic rethinking, since many employees are both affected and involved at the same time and consensus building is therefore time-consuming.

The democratic company – participative but not agile

In contrast to traditional hierarchical and matrix organisations, the democratic company relies more on co-determination. Employees can elect executives, vote on products and help determine strategies – stakeholders bring the voice of the ‘people’ to top management. That sounds basically good. On the other hand, however, democracy brings with it tough decision-making processes and discussions – this is familiar from politics. In a democracy, everyone should be involved in the decision-making process – a majority wins, the remaining employees do not feel represented.

We are looking for a consensus that is not necessarily the best solution, but a compromise of different ideas – and often loses radicalism and innovation as a result. Another problem: the employees are not really held accountable; they now only choose those who are to take responsibility for them. A democratic company enables committed employees to take responsibility from their colleagues and thus to apply their skills and develop their potential. But the political inertia, the compulsion to compromise and the danger of political games remain – the democratic company is therefore rather not agile.

Holacracy and network organisation – agile, but with little potential

Theoretically, holacracy is based on the concept of sociocracy, a form of organisation in which self-organisation, collective responsibility and intelligence form the pillars. It is based on participation and decision making after consensus. This means, in contrast to democracy or consensus, that there must be no argued objections to a decision. Holacratically organised companies define dynamic roles based on work and not on the person. Decisions are made locally, since authority is highly decentralised and teams thus work autonomously and autonomously without having to wait for bureaucratic and lengthy decision-making processes.

Holacracy is therefore more agile than the previous organisational models, but at the same time it has a great intrinsic complexity with numerous rules and schedules for roles and responsibilities. In a holocratic system it will probably be difficult for employees to develop their individual potential, since they often have to slip into new operational roles, cannot always focus on their strengths, and must retain control of the complex processes and networking points. Likewise, employees in holocracy have no manager at their side who is available to them as a supporter, coach and interlocutor for their personal development. Individual potential development does not really play a role in this operating system.

Network organisations are defined by a decentralised organisational structure, high interaction and communication. Intensive networking is the guiding principle of such a structure. Employees can connect quickly and easily, work together effectively as partners and exchange information and knowledge efficiently. Employees with different areas of responsibility can complement each other and work together to solve complex challenges. Network organisations offer greater agility and flexibility and strengthen the internal exchange of information.

This enables the organisation to learn and act more quickly and thus achieve competitive advantages through its adaptability. However, the coordination of such a network can turn out to be complicated and time-consuming. The communication effort can also increase many times over. The danger of a network organization is to develop redundancies through multiple processing, i.e. to create situations in which “one hand does not know what the other is doing”. Network organizations lose agility and efficiency because they have to spend a lot of time coordinating, clarifying roles and finding an overall organizational focus.

Cell organisation and an adaptive system – agile and performance-enhancing, but also efficient?

The basic idea of the “Podular Organization” or cell organisation is the emergence of so-called “pods”, i.e. freely working, interfunctional and self-responsible and self-governing units, which represent their own organization within the overall organization. These “pods” can work independently, develop their own processes, make autonomous decisions and join together in larger networks. The cell organisation provides a central platform that provides support services, defines standards and common principles that regulate collaboration within the organisation.

On the one hand, the extreme degree of self-organisation offers natural advantages, but there is a danger of many teams working in an uncoordinated and redundant manner. To avert this danger, organisational principles must be clear and transparent. As a regulating force, the platform must attach great importance to efficient collaboration and communication between the individual pods. The cell organisation therefore offers high agility and enables individual employees and teams to work relatively autonomously, to focus on their strengths and to develop their potential. Similar to the holocratic model, however, at least in the basic theoretical assumptions, no attention is paid to customers and markets.

This changes in the adaptive system, in which customers also have a place in the way the organisation is presented. Adaptive structures are a concept developed by REFLECT within the framework of a healthy organisation, which combines the advantages of different organisational forms and uses their synergies. The idea of a central instance and peripheral autonomous teams is based on the ideas of holocracy and cell organisation and promotes the efficient agility of the company. While peripheral teams can work agile and flexibly in proximity to customers, the central platform offers the necessary degree of standardisation and the most important normative and technological foundations for fast and networked cooperation.

At the same time, adaptive systems have ambidextrous properties: Teams and employees do not have to be agile, for some functions it makes sense to organise them more classically (e.g. production or logistics) in order to promote the efficiency of the business model. Adaptive structures are based on the various organisational forms described above and enable organisational agility on the one hand and the best possible promotion of individual performance through autonomy, self-management, and service-oriented and context-shaping leadership on the other.

Challenges for agile organisations

The new organisational designs offer outstanding possibilities and clearly outperform conventional forms of organisation in terms of agility. However, in some cases they neglect both the factor’efficiency’ and the factor’individual performance’. Efficiency is also important in a complex and dynamic market environment, because agile organisations can only be economically successful if they make their value creation as efficient as possible. At the same time, they should pay attention to individual performance and potential development, because simply giving employees room to manoeuvre is overtaxing.

Therefore, agile organisations should implement service-oriented leadership models that are essential to the personal development of all employees. However, many new organisational designs do not provide any indication of leadership design. The REFLECT model with its adaptive structures meets these aspects and combines “the best of both worlds” – efficiency and agility. At the same time, it offers a framework for individual development of potential through balanced leadership.

Details on adaptive systems and balanced leadership can be found in our reference book “Leadership in a Healthy Organisation“. We also recommend the Health Check to locate your own organisational design – are you already agile enough?