What you've learned about Agile Organizations is wrong.

The following article comes from the CEIBS Business Review (CEIBS).

In the CEIBS Organizational Capability Pioneer Enterprise Selection, we received many examples of organizational innovation from outstanding companies, showing remarkable practices of administrative change in the digital era from different dimensions.

In the digital era, how should companies strengthen their organizational capabilities in the face of a rapidly changing external environment? How can companies build their organizational capabilities at different stages of development? What should companies choose when facing a wide range of new organizational structures such as agile organizations, flat organizations, and amoeba organizations?

We invited Professor Gao Song from East China University of Science and Technology, Ms. Ruan Fang, Managing Director and Global Partner of BCG, Mr. Cui Shijun, Global Partner of Aon Consulting Co., Ltd， and Dr. Mu Sheng, Founder of Mu Sheng Business Management Consulting, as the guest judges to give answers to the above questions from their professional perspectives. They present a complete management picture from both practical and academic perspectives.

Q1：What is the meaning and direction of organizational transformation in the digital era?

Gao Song: The digital era requires a fundamental disruption and reorganization of organizations.

The tremendous significance of organizational transformation in the digital era lies in the change of the entire organizational paradigm, which is not a minor repair on top of the original organizational paradigm but requires a fundamental overturning and reconfiguration.

There are two reasons here. The first reason is Ronald H. Coase's theory of organizational boundaries, which are formed when there is a balance between market-based transaction costs and management costs.

A prominent feature of the digital era is the information technology and digitalization, which significantly reduces the whole market transaction cost. So, in this case, the cost of the original management, especially the cost of the section hierarchy, rises significantly. So if the organization is not reorganized, it can be squeezed by the market transaction cost.

The second reason is that in the digital era, the speed of change in the whole environment will be further accelerated, and the entire social environment and organizational business environment can be more volatile due to the rapid transmission and communication of information. Therefore, in this era, the biggest problem of such an organizational paradigm as section hierarchy is that the lack of adaptability will lead to innovators' dilemma.

The basic paradigm described here is not simply understood as a structure, nor is it understood merely as an agile organization, but rather as a way to think about how the most fundamental keystones of organizational constructs should be aligned.

Ruan Fang: Digital transformation, transforming the enterprise from a point to a surface structure.

In general, organizations transform whenever there is a change in strategy, so organizational transformation in the digital era is a natural phenomenon. The special significance of digital transformation is that the organization was connected in a point-like manner before digitalization. For example, users were related to the sales and marketing of the company. These sales and marketing departments are then connected to the support system. In the digital era, enterprises are surface-shaped. When enterprises do organizational transformation, they need to look at the value chain of the entire organization from the beginning to the end, from the business side to the support system side, and how they can support the digital transformation.

Mu Sheng: Digitalization makes connectivity ubiquitous.

The business world is becoming increasingly digital, in the form of a network that makes connections everywhere, which determines that enterprises must also become lighter, faster, and more robust and integrate into the digital network of the business world. This requires enterprises to move toward a platform-based business model and a platform-based organizational model, where each enterprise module must be flexible enough.

So I believe that the meaning and direction of organizational transformation are highly consistent with the current trend of the world. The times have changed, digital connectivity requires us to be more flexible, needs us to center around the user, requires everyone to take digital as a direction of action, and organizational transformation is an inevitable trend.

Cui Shijun: Digital change cannot be limited to a technological perspective.

In the digital transformation process, technology is not the decisive factor. More critical is the planning of the new era workforce, the creation of corporate digital culture, and the reserve and attraction of talents with digital traits. Companies that successfully achieve digital transformation be able to achieve their ambitious goals in the future with a broader strategic perspective, a more agile organization, and mechanism, and a more elite talent pool.

Q2：What organizational capabilities should companies focus on at different stages of development?

Gao Song: The organizational capability of enterprises at different stages of development is simply a different combination of "mixture" and "sequence".

Startups emphasize " mixture. " Because in the startup period, companies have to verify the product model, learn quickly, and try to make mistakes in many aspects. Now, companies should be flexible, not rigid, and their core organizational competency is the ability to innovate and experiment. Companies can apply lean innovation and lean startup like this to quickly validate the product and business model, a critical capability in this period.

In the development period, it means that the company has verified the previous innovation, and now it needs to replicate and promote it in a larger area, which requires the ability of organization management and operation synergy, which is the " sequence" ability. In other words, the company should be able to standardize the existing management style. In this way, the company can quickly replicate and collaborate in a larger area, examining organizational management and operation system capability.

At maturity, the market the company should occupy is occupied, and the organization must continue to grow, combining both. On the one hand, it is essential to maintain the organization's basic operations orderly; on the other hand, the ability of the company to change and adapt becomes extremely important. Companies must not be rigid but introduce organizational change and innovation, introduce more projects, trial and error, and strive to develop the second curve of business.

Ruan Fang: The organization's maturity is the talent pool's continuous maturation.

A company can be divided into three stages of development: the initial stage, the development phase, and the maturity period. The requirements for organizational capabilities are not quite the same at different locations.

In the early stages of development, the organizational capacity of a company requires more leadership, especially the founding team. Can they support the risk resistance of the whole organization, and does the administration have enough risk resistance? On the other hand, does the entire team have enough leadership for forward-looking strategic thinking and innovative approaches to business models?

When we enter the development phase, corporate strategy is still very important. Still, the scale of the organization is already massive during the development phase, and it is not enough to rely on the team of leaders and founders alone. Therefore, at this stage, it is more important to establish a systematic organization and mechanism that can support corporate strategy development. In addition to the executive agency, the company should also have a talent pool. When the company is in the development stage, it is not enough to rely on the top group of talents. There should be a talent pyramid to ensure a continuous flow of skills to be cultivated.

The direction of the maturity strategy is mainly changing because the mechanism has been relatively sound, and discipline and control should be considered here. How does the authorization system proceed when the company achieves internationalization and diversification? Shouldn't some checks and balances be adopted? Where to decentralize and where to take away power? At this time, the importance of government control is raised.

The situation of talent pools in mature companies has been formed; at this time, it is more critical for companies in the process of innovation and change; how should new leaders be generated? At this time, the power of change, the power of governance and control, and the power of lead generation and forging are more important.

Mu Sheng: Creative organizations need a strong supply chain of talent.

I believe this issue should first be corrected, and organizational capabilities do not have a lot of particular direction. Organizational capabilities are mixed; it is the same as Michael Porter's low-cost and differentiation of the two strategies; there are two kinds of organizational capabilities of enterprises; one is the standardization of administrative capabilities, such as the ability to open a chain of stores standardized services; the other is a creative organization, innovation, creative powers. It is not to win with stable output and large-scale production to reduce costs but to win with the creativity of the enterprise.

This question should be broken down into what entry points a company should focus on at different stages of building organizational capabilities. Building innovative organizational capabilities is consistent if a company focuses on creative and differentiated strategies. Therefore, at the early stage, one of the directions of corporate capability building should be to build an excellent organizational structure first so that the front line can directly call for fire. The enterprise's front, middle and back- offices can be connected into a string, following the users to move, which is the first step.

When the enterprise then continues to develop, it can use the incentive mechanism to make every node on the command line filled with motivation. Further down the line, the enterprise will find that when the organizational structure and incentive mechanisms are adjusted smoothly, each node of the enterprise is short of talent. The enterprise has to create a strong talent supply chain this time.

Cui Shijun: Change according to the time.

For companies at different stages, the focus of organizational capability improvement needs to be different.

For those companies that have achieved explosive business growth through popular products, in addition to investment in areas such as product development and marketing, they also need to focus on replenishing their internal organizational capabilities in technical support, customer service, and security. Otherwise, the enterprise can be in trouble and difficult to cope with once the product goes wrong.

For those companies that were fast and successful in the past and now tend to be stable, they need to pay attention to the accumulation of corporate transformation capabilities, such as from heavy to light assets, from B- to C-sides, from single to diversified, from regional to international, etc., to cope with the rapidly changing market and maintain corporate competitiveness.

Those enterprises with large scale and high market share but relatively low profit need to clarify the missing points of organizational capability and start from talent, mechanism, and culture to improve organizational effectiveness as the core goal to achieve healthy development of the enterprise.

Q3：Nowadays, many companies are talking about flat organizations and agile organizations. What should companies pay attention to when using these organizations? What are the common misconceptions?

Gao Song: Agile companies don't need "giant babies".

I have found that many companies that do agile organizations do not work well in practice because they overdo the superficial things and lose the fundamental foundation of the organization. They are flattening for the sake of flattening and agile for the sake of agile. Flattening and agile are only superficial. The fundamental cornerstones of the organization are not considered. Specifically, we have to consider the following aspects.

First, full empowerment. Empowerment involves the adjustment of organizational structure, an essential part of which is the construction of the empowerment team. The essence of the empowerment team is that it should have the right to operate, which is not the same as the amoeba and other organizations, it is not only independent accounting but also has the autonomy to run.

Like Huawei's Iron Triangle, there are three people on the client-side, product manager, account manager, and delivery manager, tied together with only one goal: to respond quickly to customer needs and create value. So the iron triangle is a business subject. It has the right to make decisions, can fully authorize, and the unity of power, responsibility, and benefit. Matching in terms of the assessment of the mechanism, it has to transform from KPI to the setting of autonomous goals and results, and even the sharing of profits.

Second, it's about Personnel. Personnel is essential for an organization to run. In the past, an organization was a brain that then drove all the execution; now, it has changed, and countless brains are working spontaneously at the grassroots level, which requires empowerment from the leadership team to the front line.

Third, in terms of culture, we understand that section-based organizations have been around for hundreds of years, and the entire organization is used to managing the top subordinates used to control. And when the organization is genuinely transformed, there are demands on everyone. We demand that subordinates are not "giant babies" but "adults" who are expected to take responsibility. For example, Nuffield proposes that all the people it recruits be "adults," the core of which is to take responsibility for themselves, be leaders even if the employees are not subordinates, and be self-driven to get things done. Therefore, we must move from a top-down control mindset to an empowered leadership that requires leading co-creation and asking questions rather than giving answers, which is the key to culture and leadership thinking.

Ruan Fang: Go back to the beginning and don't stick to the form.

When we talk about flattening and agile, we might want to step back and think about the original intent and purpose of doing agile and flattening in the first place.

Because the essence of agile is customer-centric, the nature of flattening is that I want to make decisions more efficiently and give users faster feedback. So it's not a big deal if I see that it's customer-centric, flattening, or agile. I can make a structure and still be customer-centric as long as I'm efficient in making decisions.

If companies do flattening or agile, we must be aware of some potential risk points. Many companies have learned the "form" but not the "spirit". By "form," we mean that some agile teams still have to hold many meetings when making decisions, and it is challenging to collaborate across departments. This requires companies to decentralize and have a mechanism for independent decision-making, which is a foundation.

At the foundation of this, there is also the leadership at the top of the company that can easily be overlooked. Because many companies transitioning to Agile often want to lead the pilot in a team somewhere but will care whether the leadership above that team is still thinking in a section-based way? The administration is still on top, giving orders from the top down, and the delivery must be 200% perfect.

In this case, the agile team still can't play because the essence of agile is to iterate in the process of rapid response, which means the first delivery may only have 60% of perfection. Still, he slowly reaches 100% perfection or even 200% perfection by having different touch points with customers. This requires leadership to be agile and have a customer-centric, fast-iterating fault-tolerant mind.

One more thing to focus on is risk management. In the past, the risk points of the enterprise were embedded in the process, but agile is another mechanism to iterate the process continuously. Therefore, it is challenging for enterprises to control these risk points, and their support system should leave some space for agile to develop. Consequently, it is generally recommended that enterprises learn the "God" of Agile, make Agile truly customer-centric, starting from leadership and the decentralization mechanism of the team, and do an excellent job of supporting the system to realize the Agile of the organization truly.

Mu Sheng: Don't use the enthusiasm of garage entrepreneurship to avoid management.

I think there are a few things that people should go to avoid. The first is sentimental management, i.e., using the enthusiasm of garage entrepreneurship to prevent the system's design. The second biggest problem I see is "playing checkers." It's not right to transform into a platform organization directly when the company's hierarchy is not ready.

Platform-based organizations can KPI decentralization because they used to have KPI; they can de-process because they used to have the process, and the process has entered the marrow of everyone. Under the condition that the management foundation can support, the enterprise can do platform management.