How to recognize a company that will survive the coming economic crisis and why that is not enough
The phrase „Uber yourself, before you get Kodak’ed!“ represents the essence of the digital revolution and the zeitgeist of technological Darwinism. Miss the trend of today and be doomed tomorrow. Myriads of consultants and agility-gurus claim to know how to avoid the fate of Motorola, Polaroid, Kodak, and Nokia. Unfortunately, the authors of this article are yet to meet one of these self-proclaimed experts who can back up his thesis. The “Scrumifization” or “Spotifyzation” of organizations sounds just as alluring as it is deceptive in its implications, ultimately resulting in confusing and complicated forms of cooperation. Even the managers of Spotify acknowledge that their organizational form is really only suitable for new start-ups in Sweden, which are active in the music industry and possess unlimited financial means.
Cybernetics as the magic formula
On the quest for answers to the question of what truly determines an agile company and how it can be recognized, I eventually moved past the stentorian carnival barkers and on to the unsung, almost forgotten, scholars of the past. While most of them are already deceased, every one of them is still vivid, veritable, and convincing. In the end it was a small detour through an antiquarian bookstore in New York that allowed me to get to know one of these knowing ones, Anthony Stafford Beer.
Beer was a cyberneticist, lecturer, and manager all in one person. He was an intellectual titan who accomplished the feat of combining 400 companies in Chile in a network of pure self-organization. If Salvador Allende had not been overthrown with help from the CIA in 1973, then agile companies and corporation forms would be the norm today and not the exotic.
To establish an interconnectedness of companies Beer used a model developed by him. It describes the functionality and design of systems that could rapidly adapt to dynamic changes in their environment. Ultimately, this ability characterizes evolution; only those lifeforms survive that can effectively adapt to their environment and its unforeseeable changes. Beer terms this a “viable system”.
From field test to hard proof
While the model developed by Beer is convincing in its structure and logic, it lacked empirical proof that substantiates its effectiveness. This gap was now closed by a Swiss dissertation. Dr. Michael D. Pfiffner worked as a consultant in Switzerland for two decades. In that time, he accompanied a multitude of companies and was able to analyze them in terms of their crisis resistance. In his dissertation he investigates which factors lead to some companies being able to correctly anticipate crisis situations and implement necessary precaution and safety measures, while others fail to do so. Pfiffner’s hypothesis is that the latter lack the required skills that would enable them to avoid the implications of a crisis, or to at least compensate their negative effects to ensure their own survival.
If Kodak had known that
Instead of asking the unanswerable question of what defines an adaptable — and therefore agile — company, Pfiffner investigated the opposite perspective. He focused his research on what skills those companies lack that either fail to identify crises beforehand or fail to implement successful countermeasures after recognizing the threat.
If we assume that the response and performance capabilities of a company become especially visible in extreme situations, then a crisis is a valid scenario to detect characteristics that are attributed to agility. Among others those are creativity, adaptability, and the capability to react and make decisions rapidly — precisely the characteristics that Kodak & Co possessed insufficient amounts of or lacked altogether.
So, what did Dr. Pfiffner ascertain through his quantitative analysis of 135 companies who had either found themselves in crisis situations (reactive response) or avoided such difficulties in the first place (proactive response)?
In order to be able to draw comparisons between the companies he analyzed, Pfiffner used the previously mentioned model from Stafford Beer as a basis (1). It describes the capabilities of an adaptable, i.e. a viable, complex system. In this deliberation each company constitutes a complex system, in which employees collaborate and interact with an environment that is complex-dynamic, meaning that it is unpredictable and laced with surprises.
135 cannot be wrong
55 % of the 135 companies that were interviewed had experienced crises, according to their own statements. 45% stated that they were not exposed to such situations, but rather identified the critical development beforehand and avoided a crisis through successful preventive measures.
The companies were selected across all industries and included participants from the manufacturing industry, a variety of different services providers, government institutions, and non-profit organizations. It was a representative potpourri of complex systems with a multitude of different orientations and objectives, that all had some major aspects in common: the necessity to identify unpredictable changes in their environment in time, to continuously adapt to said environment, and to develop and implement suitable countermeasures in the respective times frames to repel all kinds of crises.
Dr. Pfiffner was able to gain to the following results and insights from his empirical analysis:
With the aid of a comprehensive questionnaire, 31 different criteria were analyzed that quantify and discern the quality and the extent to which the configuration of the evaluated organizational form is survivable. I.e. how the cooperation and communication of different organizational areas (management, executive board, employees, teams, departments etc.) function, and how capable and survivable their cooperation makes the company.
The result of the analysis is, in strongly simplified terms, that those companies who can act, respond, and make decisions more rapidly have an advantage in crisis situations, compared to organizations with a large distance between problem and decision-making body. The agile companies were more successful in the following dimensions.
7 dimensions of effective organizational agility
1. Deciding and acting in the areas where knowledge and expertise are located. The organizational structure is made up of independent and autonomously functioning units that have the authority to decide and act in their areas of responsibility. These traits are found in all areas of the company in recursive form. Every activity inside and outside the company, e.g. towards customers, competitors, and cooperation partners is coordinated universally and transparently. The left hand always knows what the right hand is doing.
2. Resources go to those who perform.
An operative management ensures the allocation of necessary resources and continuously measures the universal state of the company regarding its productivity and efficiency. Management itself is a part of this measurement. Continuous, quality-assured, interdisciplinary communication and the provision of data regarding all internal and external decisions and questions are guaranteed.
3. Continuous situation analysis and feedback.
Influence factors and changes in the environment (industry, competition, customers, politics, society etc.) are consistently observed and analyzed, and an assessment that determines their relevance and whether the company is forced to act on them is carried out.
4. Sensitive, effective control loops.
Actions to adapt normative, strategic, and operative areas of the company to future environmental influences are immediately and instantaneously planned and prepared.
5. The purpose of the organization is omnipresent and guides its actions.
The companies have the capabilities to create meaning and build an identity on a normative level, as well as to develop, adapt, and enforce binding guidelines.
6. Every level acts like one company — in the overall context
The entire organization can adapt working methods, procedure models, business processes, business models etc. to environmental influences directly and in a suitable timeframe, on every recursive level.
7. All communication channels are open, neutral, and effective.
All organizational units are connected, and an uninhibited communication structure combined with comprehensible communication channels ensure a universal and interdisciplinary flow of communication. The knowledge of the company is accessible at any time.
The more strongly these seven dimensions were pronounced in companies that participated in this analysis, the more survivable and resilient they were. The caliber of the crisis that was overcome or avoided was also captured in detail and included in the empirical evaluation.
No more agility blah-blah — Facts!
Obviously, the results of the study are far more detailed and comprehensive than can be covered in this article. Nevertheless, this extract already conveys a very concrete idea of the structure, culture, and cooperation form of an organization that wants to be able — and is able — to identify any surprise coming from its environment and react immediately and appropriately to it. Errors that are not existential threats to the organization are considered as opportunities and actively used to improve the system. Therefore, the goal is not to avoid errors, but rather to constructively and naturally act on the insights they provide.
It also becomes clear that the usage of methods which offer approaches to specific problems are not suited to transform an organization as a whole into an agile state of collaboration. The answer does not lie in simplified panaceas, but rather in the development and operation of viable systems that are able to continuously develop appropriate reactions and skills in response to new environmental influences.
So, who has the more effective understanding of the approach that is necessary to develop and organize an agile company: the method advocates or those who choose an interdisciplinary and empirically plausible path? This question will, at the latest, be answered during the upcoming economic crisis, that an organization either fails to recognize, chooses to ignore, or fails to overcome.
Andreas Slogar worked in 23 countries in the USA, Europe, the middle east and Africa and has, inter alia, as CIO gained significant expertise in strategic and operative management. He is the founder of the Blue-Tusker expert network. All fees collected by the network are donated to charitable organizations. As an expert Slogar is specialized on the transformation of entire companies into agile states of collaboration. He authored a variety of scientific articles and the book “Die agile Organisation”, which was published by the Hanser Verlag.
Lukas Jochem recently graduated from Münster University with a BSc in Business Administration and is currently doing an MSc in Finance and CEMS International Management at ESADE Business School in Barcelona. He worked together with Andreas Slogar on an agile transformation project in a large German insurance company.