Agile in share-driven organizations

Photo by Austin Distel on Unsplash

If you are wondering why Agile can’t be “rolled out” to your company, this article might provide you with part of the answer. Also, it combines a little bit of basic finance principles along with Agile knowledge, so if you’re not interested in either, you might as well stop reading further now.

Good, so you’re interested in both, I’m glad!

Share driven organizations are mostly driven by…you guessed it, their share price. We’re talking about huge market cap companies that are listed in the stock market and their share pays dividends (a certain amount paid back for each share owned by someone) each month or quarter. In turn, their share price is owned by the likes of pension funds and investment companies that need a stable dividend in order to pay their investors every month or quarter, e.g. pensioners. These pension funds and investment companies rely on companies whose share pay a dividend, in order to satisfy their investors’ need for cash.

What happens when a company declares that it will reduce their dividend payout, because they want to invest in innovation and systems improvement, hire more people, or in general invest the money back in the company? You may have guessed it: investors are likely to drop its share immediately because, after all:

a) who’s to say that they won’t reduce their dividend payout even further in the near future?

b) they don’t get enough cash to pay back their investors (pensioners etc), therefore they will seek another company with a larger dividend payout to replace this one with.

When someone dumps your share, the share price drops, therefore the value of the company drops. In turn, the shares get cheaper, and the cost of buying a controlling interest goes down as well. All these signify that something is wrong with the company, as opposed to a rising share price that usually shows that a company is doing something right, therefore a lot of investors want to own a part of it, i.e. buy its shares (see Amazon for example).

If you’re with me thus far, well done because the hard part is now over with. Now, let’s have a look at the implications of not reducing a share price: the company has to carry on business as usual (BAU), keep generating cash, pay its dividends, and keep its investors happy. This means that if it wants to increase its revenue, in simplistic terms, it either have to bring in new business, innovate more, or come up with new products and services that will shake the market up and result in extra profits.

How likely is a huge, well-established company, to do any of the above in a timely manner? Remember, these companies have cash cow products that generate a steady stream of profit.

How to use the BCG model by SmartInsights

What do all these have to do with Agile you ask? Well, the majority of these companies opt-in to “go Agile” these days. Why? Because the barriers to market entry become lower, and therefore new companies can get in easier. So, in the longer term, that’s a double hit for the big company because:

a) it chose to pay dividends instead of invest in innovation and

b) new, market-disrupting and Agile-by-default companies are now munching away on its market share

…with the above resulting in less profit and a little bit more frustration in the air. In such cases, we usually see the “transforming company” putting any transformation plans in the back seat (because they move so slowly and ineffectively), whilst zealously focusing on perfecting their BAU processes to ensure that no penny is left unused. Consequently, more and more layers of governance are put in place that in turn remove autonomy from individuals and teams, and contribute to bureaucracy and delays.

Adding up all the above, it shouldn’t come as a surprise when a big organization “fails” to implement any sort of Agile ways of working, or when doing so, it moves so obnoxiously slowly that it misses the whole change train. This is one of the most common transformation anti-patterns, “too slow”, that usually comes coupled with one or more anti-patterns. Agile implementations need just the right balance, retrospection and pacing, or “controlled excitement”, to ensure that companies don’t go off on an anti-pattern tangent or lose their enthusiasm.

The Startup

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