To succeed in today's fast-moving economy, traditional corporate structures are holding back companies, even great companies, from being creative enough and speedy enough to compete effectively.
What's needed, argues Harvard Business School Professor John P. Kotter in a new book, is an organizational design that has not one, but two "operating systems." One system conducts the everyday business of business, while the second system, more like an agile network, sits alongside to focus on the opportunities and demands of the future.
Kotter outlines the five principles and eight "accelerators" that fuel this new dual system in Accelerate: Building Strategic Agility for a Faster-Moving World, released this week.
The book is Kotter's latest to address large-scale organizational change. Fifteen years ago, in Leading Change, Kotter offered eight steps companies could use to create more speed and agility in their processes. Accelerate takes those steps and "turbocharges them," he says. Under a dual operating system, all processes and activities that involve what a company already knows how to do stay on the regular, hierarchical side of the company. High-stakes initiatives that involve change, speed, innovation or agility, go to the new agile network.
"The world is moving too fast," Kotter says. "You can't add on a little thing and another little thing. There has to be dual structure driven by the accelerators."
Two Is Better
A dual operating system is a nod to what Kotter believes is some of the most interesting management thinking of the past few decades, from Michael Porter's "wakeup call telling us that organizations need to pay attention to strategy much more explicitly and frequently," to Clayton Christensen's insights about how poorly companies handle the technological discontinuities inherent in a faster moving world. Kotter also credits recent work by Nobel Laureate Daniel Kahneman, who describes the brain as two coordinated systems, one more emotional, the other more rational.
In a typical organization—from the federal government to a pharmaceutical giant—a hierarchical operational structure meets daily demands through clear reporting relationships and responsibilities, Kotter writes. This structure minimizes risk, keeping people in boxes and silos, sorting work into departments, product divisions, and regions. Trouble is, managers in hierarchical organizations don't promote or reward risk and innovation—they rely on routine, and turn to the same trusted people to run key initiatives.
Kotter isn't suggesting that the top-down structure be toppled—in fact, he calls it "one of the most amazing innovations of the twentieth century." Instead, he wants executives to consider how their own companies formed and developed at a young age.
"All organizations start with a structure that looks like a dynamic solar system," Kotter says. "They can be very fast, agile. They attract people who play around with crazy ideas." The idea is to bring back that agile, experimental, silo-free network.
Under his new system, everyone works within a traditional hierarchy, but that hierarchy assigns innovation, agility, and big change to an agile network of employees who volunteer for the effort. The initiative is launched by top management or an executive committee.
The principles of Kotter's dual operating system are:
- Important changes are driven by many people from everywhere in the company. "You need more eyes to see, more brains to think, and more legs to act in order to accelerate," Kotter writes. In a hierarchy, top management typically has a limited number of people they trust and return to them time after time. That system doesn't work, Kotter says, because these trusted lieutenants eventually burn out and the system isn't inclusive enough.
- A mindset of "you get to" rather than "you have to." With this approach, which emphasizes to workers the privilege of working with great people on important work, "you don't ask anyone to do anything," Kotter says. Historically, people who feel privileged to be involved in an effort will volunteer.
- Action that is head and heart driven, not just head driven. Most people won't want to help if you appeal only to logic with numbers and business cases. You must also appeal to how people will feel about doing important work to make big change at their company.
- Much more leadership, not just more management. To take advantage of unpredictable windows that might open and close quickly, and to spot and avoid unpredictable threats, leadership is required "beyond one larger-than-life executive," he says.
- An inseparable partnership between the hierarchy and the network, not just "enhanced hierarchy." The two systems work as one constant flow of information and activity. The approach succeeds partly because the people who volunteer for the network are already working within the hierarchy.
The five principles are only part of Kotter's plan, which includes eight accelerators intended to help top management tackle big opportunities. The accelerators are:
- Create a sense of urgency.
- Build guiding coalition.
- Form strategic vision and initiatives.
- Enlist volunteer army.
- Enable action by removing barriers.
- Generate short-term wins.
- Sustain acceleration.
- Institute change.
The Urgency Team
In the book, he follows how the accelerators are used by Paul Davidson, a top sales executive at a B2B tech firm, who was grappling with sales growth decline. Davidson shared four goals at the start of building the company's agile network: work with a broader range of partners to buy and sell the company's product, move into markets faster, focus on high-growth in Asia, and reduce sales costs.
A so-called urgency team of 21 people spent three months working on a plan, developing support material, and creating a portal with information, videos, blogs and stories about the ways people were already making change to support the big opportunity. After a year, Davidson formed a "guiding coalition" of 210 volunteers to attract and help guide other volunteers for the new network.
The network built up small wins that grew in magnitude over time, helping it gain credibility, Kotter says. After just two years, the company reported it had hastened the creation of partnerships by 55 percent, grew sales by 44 percent, boosted operating income by 300 percent, increased market cap 155 percent to over $10 billion, and enhanced its reputation as an exciting place to work.
Of course, there are stumbling blocks and challenges when creating something so new as an agile network. The most powerful person who reported to Davidson hated the dual system and "everything that went with it," Kotter writes. He argued there was no way to track a volunteer-led initiative and worried that the system would make it impossible for him to meet his aggressive revenue plan. He did nothing to help.
But overall, people who found the new network "cool and exciting" figured out ways to get their normal jobs done in less time, Kotter says. "They are incented to use 20 to 30 percent of their time to do this other thing that they find important," he says. In the book, Davidson's critic began to warm toward the network as he saw signs of morale improving in his own group and the posting of several impressive wins.
The idea for a dual operating system emerged from what Kotter and his colleagues learned while working with clients through his consulting firm, Kotter International. As Kotter was writing the book, he spent time meeting with C-level execs and their teams, observing the dual operating system ideas in action, he says.
The payoff, he said, was the "aha moment" when they realized how well the system works.
"We had middle management cheering after an employee meeting," he says. "That's heavy-duty stuff."