I consult, write, and speak on running better technology businesses (tech firms and IT captives) and the things that make it possible: good governance behaviors (activist investing in IT), what matters most (results, not effort), how we organize (restructure from the technologically abstract to the business concrete), how we execute and manage (replacing industrial with professional), how we plan (debunking the myth of control), and how we pay the bills (capital-intensive financing and budgeting in an agile world). I am increasingly interested in robustness over optimization.

I work for ThoughtWorks, the global leader in software delivery and consulting.

Friday, August 31, 2018

Organizing for Innovation, Part VI: Putting It All Together

As we saw in the previous posts in this series, organizations of autonomous teams can scale. Scaling requires different team characteristics (requisite variety, redundancy of function, double-loop learning and minimum critical specification), a different mental model of organization (brain, not machine), a different kind of hierarchy (purpose, not control), and a different style of leadership (guide, not command).

This sounds like it would be chaos in practice on a small scale, let alone enterprise scale. And even if it does work, it sounds like a revolutionary approach to organization. Visualizing it helps explain how all these things combine to create an organization that innovates as well as operates.

The organization of autonomous teams is not chaos. Teams are invested with authority, communication pathways develop along the hierarchy of purpose, the structure adapts itself to the domain, and organizationally-driven objectives plus team incentives align behaviors and outcomes. Of course, this looks nothing like traditional organization, in which hierarchy is the principal means of control, communication, and alignment. Still, while an organization of autonomous teams may be unfamiliar and conceptually unsettling, it isn't chaos.

And, although it may seem revolutionary, it isn't new. Academic research on organizations of autonomous work teams dates to the 1950s, and the early adopters of it were industrial firms. While it may be a way of working that a lot of tech companies happen to adopt for themselves, it is not an organizational phenomenon that has sprung out of tech. So it isn't all that revolutionary, either.

It may not be chaotic or revolutionary, but it is a big leap from how just about every enterprise functions today. The way they work reflects the board's priority for the company. I've written before that companies are financial phenomenon more than they are operating phenomenon. Executives tasked by their boards to prioritize returning cash to investors will look to maximize cash earnings (EBITDA) and free cash flow. In so doing, those executives create an environment where managers must be more concerned with costs than creativity from operations. Managers, in turn, condition employees and contractors to value activity over learning, output over outcomes, and narrow individual independence over broad group autonomy. In this environment, employees, managers and executives are rewarded for every dollar not spent for output; they will not be rewarded for any dollar spent on learning.

With enterprises increasingly feeling the heat from new companies, technologies and products, executives charge managers with extracting more innovations from the business. Managers go about looking at changing ways of working, recognizing that innovation is partially a byproduct of "how" things are done. But as long as the priority of the board is to return cash to investors, the first mission of "how" things are done is to be predictable, because predictability ensures consistent cash flows and consistent cash flows ensure that interest payments, dividends and buybacks can be made while protecting the bond rating. The autonomous team structure is incompatible with predictability.

The autonomous team structure is internally consistent (not chaos) and been around for long enough with enough successes (not revolutionary) that it can succeed, even at scale. Pursuing it is ambitious, and operationalizing it is plenty difficult. But success with it has less to do with operationalizing than it does with the tolerance for it in the capital structure in which it operates. Autonomy - that is, abdication of centralized control - is the price of admission for innovation. Innovation at scale requires autonomy at scale. Autonomy at scale requires the board be committed to innovation, not cash returns, as their top priority.