Making
The Entire Firm
Agile
Steve Denning
Steve’s daily blog on Forbes
[Link]
These slides:
[Link]
Video
Radical Management
Explaining the idea in sixty seconds
1978
Robert McNamara
President, Ford Motor Company, 1960
Secretary of Defence, 1961-1968
President, World Bank, 1968-1981
“the smartest man I ever met”
John F. Kennedy
1996-2000
1996: A knowledge
management
program was launched
2000: The World Bank
was benchmarked as a
leading knowledge
organizations
2000-2008
Teaching the Fortune 500
how to use
the power of
leadership storytelling Why
doesn’t it
stick?
In 2008, I began exploring:
Why don’t
management
innovations stick?
(These are highly intelligent, educated people!)
One clue…
It’s not just leadership storytelling!
Knowledge management
Not just the World Bank
• BP
• Ernst & Young
• IBMa few years, it had
Within
• HP
been put on a back-burner
It’s not just leadership storytelling!
Lean Manufacturing
“Only 1% of lean
initiatives meet their
goals.”
Jeffrey Liker
It’s not just leadership storytelling!
Marketing
25 ways in which traditional
management systematically
kills great marketing ideas
It’s not just leadership storytelling!
Innovation
How management
systematically kills
disruptive innovation
2008 The question was broader
Why did management
systematically kill all the creative
things in organizations?
• knowledge management?
• lean manufacturing?
• innovation?
• marketing?
• leadership storytelling?
•Agile software development
Most management textbooks…
Most articles in Harvard Business Review …
Traditional
management
rests on
five interlocking
principles
Five planks of traditional management
1. The purpose of a firm is to
produce outputs that make money
Five planks of traditional management
2. Managers act as controllers of
individuals
Five planks of traditional management
3. Work is coordinated by
hierarchy and bureaucracy
Rules
plans
reports
Five planks of traditional management
4. “The main value is efficiency”
Five planks of traditional management
5. Communicate by directives
The shifts are interlocking & self-reinforcing
Make money
for
shareholders
Top down Managers are
commands controllers
of indivduals
Efficiency, Bureaucracy:
cost cutting rules, plans, reports
“Single fix” improvements don’t “stick”
Five planks of traditional management
“Traditional management
practices are a success”
“the smartest man I ever met”
John F. Kennedy
CEOs & writers accept this mental model
• Business leaders: Most CEOs still assume these
management principles are sound.
• Journal articles: 90% of HBR articles propose
modest adjustments to the traditional management
model
• Management textbooks: Most management
textbooks accept this as the default mental model of
management, while noting “deviations”.
2009: Conclusive proof of the
failure of traditional management
The rate of return on assets
of large firms is one-quarter
of what it was in 1965
Source: Deloitte’s Center for the Edge: The Shift Index
2009: Conclusive proof of the
failure of traditional management
Source: Richard Foster Creative Destruction; McKinsey
2009: Management has destroyed
whole sectors of the economy
Why Amazon can’t make a Kindle in the USA
The story of Dell and AsusTek
Dell: Ten-year share price
2. Declining life expectancy hidden by quick profits
The early stages of the cost-cutting death spiral are profitable
Cost
cutting Pursue
Inability to short-term
innovate Corporate profits
death
Unable to
compete
Loss of
knowledge Foreign
outsourcing
The outsourcing death spiral
2009: The outsourcing death spiral
Why Amazon can’t make a Kindle in the USA
Industries already “lost”
Compact fluorescent lighting; Desktop, notebook and netbook PCs;
LCDs for monitors, TVs low-end servers;
handheld devices like mobile phones; consumer networking gear
electrophoretic displays; routers, access points,
lithium and NiMH batteries; home set-top boxes;
advanced rechargeable batteries; advanced composite;
crystalline silicon solar cells, advanced ceramics
inverters and power semiconductors; integrated circuit packaging.
Even more industries are “at risk”
G. Pisano & W. Shih “Restoring American Competitiveness” HBR, July-August 2009
Traditional management has also
failed in employee engagement
Only 1 in 5
workers is fully
engaged in his
or her work
Source: Deloitte’s Center for the Edge: The Shift Index
Managers hate their own jobs!
The Three Most Hated Jobs in the USA
1. Director of Information Technology
2. Director of Sales and Marketing
3. Product Manager
[Link]
Managers hate their own jobs!
The Three Most Hated Jobs in the USA
1. Director of Information Technology
2. Director of Sales and Marketing
3. Product Manager
These are bad
situations,
not bad people
[Link]
Management is not just ill
Management is fatally ill
Management is systematically killing
the organizations it is meant to be helping
• knowledge management
• lean manufacturing
• innovation
• marketing
• leadership storytelling
•Agile software development
Why did
management
fail?
Unless we understand
a problem, we cannot
expect to solve it.
We have to get to
root causes
Root cause #1:
Discontinuity replaces continuity
“Corporations, which
operate with management
philosophies based on the
assumption of continuity,
are not able to change at
the pace and scale of the
markets.”
2001 2011
Root cause #2:
The marketplace has changed
Big firms used to own the marketplace
Global competition and instant information to
customers changed the balance of power.
The customer is now the boss.
Many firms haven’t yet grasped this
Root cause #3:
Partial fixes don’t work
Make money
for shareholders
Top down Managers are
commands controllers
of indivduals
Efficiency, Bureaucracy:
cost cutting rules, plans, reports
The elements are interlocking & self-reinforcing
Even successful experiments don’t stick
Make money
for
shareholders
Top down Managers are
commands controllers
of indivduals
Knowledge
management
Efficiency, Bureaucracy:
cost cutting rules, plans, reports
“The interlocking culture prevails …
When only part of the firm is Agile
Making
money for
shareholders
Top-down Role
Communications
commands
From controller
to enabler
Agile
Radical From bureaucracy
transparency to dynamic linking
Values
The organization is at war with itself
This has proven to be remarkably resilient
Make money
for
shareholders
Top down Managers are
commands controllers
of indivduals
Efficiency, Bureaucracy:
cost cutting rules, plans, reports
We need systemic change!
This has proven to be remarkably resilient
Make money
for
shareholders
Top down Managers are
commands controllers
We need a new of indivduals
interlocking pattern
that is equally resilient
Efficiency, Bureaucracy:
cost cutting rules, plans, reports
Partial fixes don’t stick!
“The significant problems we
have cannot be solved at the
same level of thinking with
which we created them.”
Albert Einstein
To get lasting change, we need all at once
1. New goal for the organization
2. New role for managers
3. New coordination mechanisms
4. Shift from value to values
5. New way to communicate
And 70+ practices ….
To get lasting change….
Goal
Delighting
customers
Role
Communications
From controller
From command
to enabler
to conversations
Radical From bureaucracy
transparency to dynamic linking
Values Coordination
You have to change all five dimensions…
11. NEW GOAL: delight the customers
from outputs to outcomes
1. Delight
the
customer!
11. NEW GOAL: delight the customers
from outputs to outcomes
The bottom line of the firm
shifts from
making money for
shareholders
to
delighting the customer
Roger Martin: The Age of Customer Capitalism, HBR Jan 2010
11. NEW GOAL: delight the customers
i.e. from outputs to outcomes
An epochal shift in the balance
of power in the marketplace:
The customer is now the boss!
Sorry
about
that!
11. NEW GOAL: delight the customers
from outputs to outcomes
Customer delight
is not a new idea:
Ancient Romans
e.g. Vitruvius’s treatise on
architecture
11. NEW GOAL: delight the customers
from outputs to outcomes
Is “customer delight” a serious business proposition?
“Providing a continuous
“Customer delight” =
stream of additional
value to customers and
delivering it sooner”
11. NEW GOAL: delight the customers
from outputs to outcomes
Is “customer delight” a serious business proposition?
“happiness” “enchantment” “joy” “raving fans”
11. NEW GOAL: delight the customers
from outputs to outcomes
Is “customer delight” a serious business proposition?
• “customer success”
• “customer trust in us”
• Net Promoter Score
11. NEW GOAL: delight the customers
i.e. from outputs to outcomes
Is “customer delight” a serious business proposition?
“Customer delight”
is
measurable.
11. NEW GOAL: delight the customers
Shift from an inside-out to outside-in perspective
“You take “We want
what we to understand & help
make!’ solve your problems!”
11. NEW GOAL: delight the customers
i.e. from outputs to outcomes
This changes the game completely
Outputs Outcomes
Things People
11. NEW GOAL: delight the customers
i.e. from outputs to outcomes
The goal is: delighting the customer
• “Making money” is not the goal
• “Being agile” is not the goal.
•“Working software” is not the goal.
• Agile & Scrum & working software
are means to achieving the goal.
• Everyone must focus on the goal
11. NEW GOAL: delight the customers
i.e. from outputs to outcomes
Aim for the simplest thing!
20th Century
54 buttons DVD
controller
L ESS Complicated
IS
21st Century
MORE ! 4 buttons
Simple iPod
Easy to use
11. NEW GOAL: delight the customers
i.e. from outputs to outcomes
Deliver it sooner !
In a bureaucracy,
large amounts of
work wait in
queues
11. NEW GOAL: delight the customers
i.e. from outputs to outcomes
A paradoxical discovery!
Customer delight Costs come down of
their own accord!
This is why the shift is inexorable
…
It makes much more money…
11. NEW GOAL: delight the customers
i.e. from outputs to outcomes
1. New goal: “Delighting the customer” means ….
a different way of running the organization.
2. New role for managers
3. New coordination mechanisms
4. Shift from value to values
5. New way to communicate
22. NEW MANAGER ROLE: from controller to enabler
2. Enable
self-organizing
teams
22. NEW MANAGER ROLE: from controller to enabler
Puzzles Mysteries
What is the What will
square root be the next
of 9? really
big thing?
Single No single
right answer right answer
22. NEW MANAGER ROLE: from controller to enabler
Puzzles Mysteries
Making Delighting
money for the the
shareholders customer
Single No single
right answer right answer
22. NEW MANAGER ROLE: from controller to enabler
Controls can solve Controls cannot solve
puzzles mysteries
22. NEW MANAGER ROLE: from controller to enabler
Controller of Enabler of self-
individuals organizing teams
22. NEW MANAGER ROLE: from controller to enabler
Self-organizing teams
are a very old idea
Legal juries in England, 1166
A diverse group of citizens
was preferred over decision
by one or more “experts”
22. NEW MANAGER ROLE: from controller to enabler
Diversity
defeats
intelligence!
The Difference: How the Power of Diversity Creates Better
Groups, Firms, Schools, and Societies by Scott E. Page
33. COORDINATION: From bureaucracy to dynamic linking
3. Dynamic
linking
33. COORDINATION OF WORK: Dynamic linking
Short
cycles
Client
driven
Hierarchical bureaucracy Dynamic linking
33. COORDINATION OF WORK: Dynamic linking
Dynamic linking: work in short cycles
direct customer feedback
the customer is the boss
In software
Agile
Thousands of organizations
Scrum
Kanban
Even “lumpy” work!
E.g. Quadrant Homes
Naval radar system
Polaris submarines
33. COORDINATION OF WORK: Dynamic linking
One of the biggest surprises for me:
• Learn management from geeks?
“If there was a Nobel prize What on
for management, the founders earth is
of Scrum would win it.” Scrum?
• Yet HBR has never heard of Scrum
33. COORDINATION OF WORK: Dynamic linking
Progress is measured by direct client feedback
The case of
“Most changes
the missing
make things
worse for the
customer”
button
4 4. FROM VALUE TO VALUES: radical transparency
4. From value
to
values
4 4. FROM VALUE TO VALUES: radical transparency
“Just do it” Alan Mullaly CEO, Ford
44. FROM VALUE TO VALUES: continuous improvement
Get the product out The status quo is
never good enough 74
55. INTERACTIVE COMMUNICATON: conversation
5. From top-down
to
conversation
55. INTERACTIVE COMMUNICATON: conversation
Commands
kill
motivation
55. INTERACTIVE COMMUNICATON: conversation
Money
kills
inspiration
55. INTERACTIVE COMMUNICATON: conversation
Top-down commands Peer-to-peer conversations
55. INTERACTIVE COMMUNICATON: conversation
How can Apple be a model when Steve Jobs was a tyrant?
Robert McNamara: Steve Jobs:
“Just get it out!” “Get it right for
the customer!”
The shifts are interlocking & self-reinforcing
Goal
Delighting
customers
Role
Communications
From controller
From command
to enabler
to conversations
Radical From bureaucracy
transparency to dynamic linking
Values Coordination
WHAT’S NEW: doing all at once
Goal
Delighting
customers
Role
Communications
From controller
From command
to enabler
to conversations
Radical From bureaucracy
transparency to dynamic linking
Values
Individually, none of the shifts is new
Without all five shifts ….
Making
money for
shareholders
Top-down Role
Communications
commands
From controller
to enabler
Agile
Radical From bureaucracy
transparency to dynamic linking
Values
… an organization is at war with itself
The transition is inevitable
Two- to four-times
gains in
productivity
Economics will drive the change!
Firms that delight their customers,
are also HUGELY PROFITABLE
Six-year share price 2004-2011
Firms that delight their customers,
are also HUGELY PROFITABLE
Ten-year share price 2001-2011
Firms that delight their customers,
are also HUGELY PROFITABLE
Ten-year share price 2001-2011
While the other firms
STRUGGLE just to STAY IN PLACE
Ten-year share price 2001-2011
While the other firms
STRUGGLE just to STAY IN PLACE
Ten-year share price 2001-2011
Change is inevitable…
The transition won’t be easy
The world’s best plant:
Ford’s Hermosillo plant
in Mexico
1990s: Ford’s Romeo plant
in Michigan
2006: The new CEO,
Allan Mullaly, embraces it
1990
How could
management have
failed when the
economy had
three decades of It didn’t
growth? feel like
failure
1. Declining life expectancy hidden by quick profits
The early stages of the cost-cutting death spiral are profitable
Cost
cutting Pursue
Inability to short-term
innovate Corporate profits
death
Unable to
compete
Loss of
knowledge Foreign
outsourcing
The outsourcing death spiral
2. The bubble economy: 1980-2008
Economic growth
fueled by consumer demand
The economy felt ok
Flat median salaries
2. The bubble economy: 1980-2008
Economic growth
fueled by consumer demand
Student Credit
loan card Housing
bubble bubble bubble
Financial sector bubble
Median salaries are flat
In 2008, the bubbles burst …..
The apparent
economic growth
of the last decade
evaporated
The illusion of growth is now revealed
Economic growth stops
with little consumer demand
Growing sector
deficits
Student Credit card Housing Growing public
loan debt debt debt sector deficits
Structural
unemployment
Financial sector Structural
debt unemployment
Declining median salaries
1980-2008
Apparently
thriving
economy
Dispirited Frustrated
employees customers
Society could live with this
We may have reached a tipping point
Failing
economy
Dispirited Frustrated
employees customers
Society can’t live with this
3. Executive pay hid corporate performance
No incentive for top management to change
275x
24x
1965 2007
Executive compensation Fortune 500 have
vis-à-vis worker pay 4x declines in life
shows 10x increases expectancy
[Link]
3. Executive pay vs corporate performance
Little incentive for top management to change
Jeff Immelt, CEO, GE
Ten year market cap Ten year compensation
Minus
Minus $ 267 billion Plus
Plus $ 126 million
3. Executive pay vs corporate performance
It is difficult to get a man to
understand something,
when his salary depends upon
his not understanding it.
Upton Sinclair
4. Firms may prefer to die than to change
“A new scientific truth does not
triumph by convincing its
opponents and making them see
the light, but rather because its
opponents eventually die, and a
new generation grows up that is
familiar with it.”
Nobel laureate Max Planck
Change is inevitable…
Company death rates will accelerate…
We are looking at:
Decade of low or no economic growth
Declining personal incomes
Low aggregate demand
Traditional management can’t generate demand
Survivors : those who delight customers
Firms who delight their customers will survive
They generate their own demand
By 2020, more than half of the Fortune 500 will be new
The opportunity for Scrum and Agile
Lead the revolution!
• Be the strategy (not support the strategy)
• Master leadership storytelling
• Educate your bosses: what management is about
• Join with others
• Take charge of your future
“Your time is limited: don’t waste it
living someone else’s life.”
Steve Jobs
Reinventing management requires systemic change
“Once you introduce this,
it affects everything in the
organization—the way you
plan, the way you manage,
the way you work.
Everything is different. It
changes the game
radically.”
Mikkel Harbo
VP, Systematic Software (Denmark)
More than a new set of management tools!
The real voyage of
discovery consists not in
seeking new landscapes,
but in having new eyes.
Marcel Proust
