Agile development of complex software systems for large companies presents us with challenges on many levels: cultural, organizational, financial, infrastructural or architectural. In our blog series, we look at various problems of scaled agility from a holistic company perspective and try to give practical suggestions for optimization.
Business agility, which is the ability of a company to react flexibly and quickly to market requirements while also being able to optimally use the available skills, can only fully develop in interaction with entrepreneurship.
Entrepreneurship, on the other hand, cannot be achieved through agile methods and processes alone, but also needs the stimulus and freedom of financial decision-making authority. A promising way to get there is far-reaching self-organization in combination with shared leadership.
By far-reaching self-organization, we mean not only the sovereignty of cross-functional teams over the way the assigned work is organized, as is usually assumed in scaled-agile frameworks, but also the creation of an entity, its purpose, its dissolution and also their financial sovereignty and budget responsibility.
In this article we look at shared leadership and entrepreneurship in the context of extensive self-organization using the example of metafinanz, which has been successfully practicing this principle for over six years.
But can the findings there also be transferred to the context of scaled agility in large companies and corporations? We show that this works and will decisively change and optimize your agile transformation!
Agile Leadership is a Start
In times of constant, rapid change and disruptive innovations, many companies are looking for a solution to this challenge by switching to agility and agile leadership. Specifications, delegation, knowledge of dominance and control in hierarchical structures become role models, treatment at eye level, error culture, participation, openness to new things, transparency and trust in flat hierarchies. Ideally, inspiration and transformational creativity are added.
But has agility already been achieved at business and corporate level?
The Stunted Agile Dream
If you take a closer look at where (very) large software systems are being developed the agile way, you will often find that despite (or perhaps because of) a literal orientation towards scaled frameworks, optimized “flows”, well-intentioned leadership concepts and exciting, innovative products something is missing.
“We are building an innovative partner platform”.
“Are you agile?”
“Yes. We develop in cross-functional teams and now have our 3rd PI meeting (planning interval) behind us.”
“How’s the financing working?”
“We got a budget.”
“Why?”
“The management really wants to enter this market. “
No clearly formulated and operationally measurable goals, no MVP (minimum viable product) that stakeholders could use to review their investment. None of what is at the core of business agility and what is also referred to as the Lean Startup Cycle due to its similarity to the idea of a startup (e.g., in SAFe: https://scaledagileframework.com/epic/). In other words, the entrepreneurial spirit that is characteristic of business agility is also missing here.
Sometimes scaled-agile software development is also reminiscent of a factory (see figure), in which each and every individual or team purrs efficiently to themselves day in and day out. The (not always) generously granted “innovation and further training phases” do not fundamentally change this. Human creativity doesn’t work that way, needs spontaneity and space as needed. Even real empowerment can look different.
At this point it is worth looking at the agile model of metafinanz.
The Path to Self-Organization
In April 2017, metafinanz transformed into an agile company with far-reaching elements of self-organization. The classic hierarchy and the associated roles, processes and thought models were abolished to make room for a customer-centric model of autonomous, flexible business units and quick decisions (“Value Creation Structure”).
Analogous to the idea of Kotter’s “Dual Operating System” (Kotter, John P. Accelerate: Building Strategic Agility for a Faster-Moving World. Harvard Business Review Press, 2014.), at metafinanz structural and process organization (“formal” and “value-added structure”) separately. Added to this was the emphasis and promotion of the “informal structure” for the diverse use of networks between colleagues and teams (see figure).
The value creation structure consists of shops and business areas. The latter have direct market access and are responsible for the business, while the former take on supporting cross-divisional functions such as HR or marketing. Business areas are founded by employees. They adapt according to the market development, grow or dissolve again. There are currently over 80 business areas.
The decision-making powers of a business area are comprehensive and range from the foundation, definition of its business orientation (purpose), market and customer acquisition, recruiting, participation in training courses or events, investments in research activities to its dissolution. As is usual in companies, coordination with the relevant stakeholders is a matter of course, including with financiers and mentors.
In contrast to the Kotter model (https://scaledagileframework.com/advanced-topic-balancing-the-dual-operating-system/), which is also propagated by SAFe, the governance structure at metafinanz has only three levels (management, staff Development Manager and employees) very lean. In addition to key advisory functions (e.g., compliance) and special advisory functions (e.g. health & wellbeing), disciplinary management and employee welfare obligations are anchored here in particular. However, disciplinary leadership is kept to a minimum and is rarely visible in everyday life. For example, many classic tasks of disciplinary management such as vacation and travel permits, or employee evaluations are no longer required because they are simply not needed at metafinanz.
Shared Leadership in Practice
However, the decisive differences to the “Dual Operating System” model lie in the great dynamics of the business area structures and their very extensive autonomy, as well as the principle of shared (agile) leadership (“Shared Leadership”) in the shops and business areas.
It is not just the sheer number of business areas that is constantly changing, but also their size. As a rule, a business area initially consists of a team of three to five people and can then grow to three or four times the size depending on market requirements. The optimal size depends heavily on the business model of a business area.
There is no business area lead, but that doesn’t mean there is no leadership. This organizes itself, and quite differently, depending on the existing skills, the needs and the culture of the people in the team. And: it is dynamic and can basically develop anew with every change in the team.
This (shared) leadership includes the so-called technical leadership, more precisely all leadership without authority. In addition to classic specialist management such as in the area of software development, strategic business development, sales or agile coaching, this also includes personnel development, for example personal advice and assistance with career development or conflict resolution. This is supported by the Staff Development Management and their more corporate global orientation as required. Last but not least, there is a special role for agreeing on salary adjustments. This process is also carried out in close coordination with the Staff Development Managers. Last but not least, in addition to shared leadership within the business area, further external leadership skills are required: in dealing with other business areas, other organizational units as well as customers and partners.
By the way: how are decisions made in a self-organizing team? To avoid a typical misunderstanding: Decisions in a business area do not have to be made by consensus. Rather, a very pragmatic Laloux procedure has prevailed, in which decisions are made by those who are concerned (Frederic Laloux, Reinventing Organizations, 2015). But it is also true that there are people in the meta, and sometimes old leadership patterns break through. Nevertheless, one observation remains: Compared to conventional, hierarchically structured companies (also of a similar size), the speed with which decisions are made is usually many times faster.
And now about Money
Why has the model worked in practice for years? Attractiveness factors such as management commitment, a high level of empowerment, incredibly short decision-making processes and extensive entrepreneurial freedom for individuals and teams certainly play an important role – also at the price of higher demands on proactive behavior and networking ability. But that is only one side of the coin. The other is financial. Business areas are profit centers that initially receive a start-up loan and are supposed to repay it with a profit.
Of course, that doesn’t always work. There is always a certain entrepreneurial risk involved. It is one of the core tasks of the management to find the right risk mix for the time. If no positive trend emerges for a business area after a defined period, it must consequently be dissolved again. The team members then apply to other business areas or coordinate a new business idea with management, the establishment of a new business area.
Two tools are available to the business areas on their way. First: Complete transparency of all company key figures in almost real time, both those of your own area and all others. Second: regular alignment meetings with various stakeholders including management and pairs from other business areas. These meetings serve to provide mutual orientation and support on strategic issues.
In essence, we are dealing here with the deal “freedom against entrepreneurial commitment”. However, we are not all equally entrepreneurial, not all colleagues use this entrepreneurial model equally.
But that doesn’t have to be the case – as long as each team member contributes to the success of a business area in their own way and can enjoy the advantages of autonomous efficiency. Diverse teams can – and need – that.
How are the cross-sectional tasks financed? Shops are managed as cost centers and financed by the business areas via a percentage fee. The Chinese company Haier, one of the world’s leading manufacturers of white goods and an almost unknown pioneer in self-organizing structures (https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/a-business-of -its-times-haiers-self-evolving-organization), takes a different approach here. There, supporting services must be purchased via specific fees. Both models have advantages and disadvantages, which we cannot go into in detail here.
Transfer to Scaled Agility
If so, what would be the equivalent of a business area in a scaled-agile environment? What would be the smallest unit in which market-relevant innovation happens? Can this be dynamically adapted to the needs? Where can we find entrepreneurial elements pitching and fighting for an idea? Where could credit or advances be made, which can then be turned into successful business by a group of people and teams? The answer may lie in the concept of initiatives (in SAFe: Portfolio Epics) and the Lean Start-up Cycle (see figure above). Here is our suggestion…
Entrepreneurship needs Dynamic Structures
If a big idea condenses into a concrete innovation project or epic, a business case is presented, money is made available for an MVP and further financing depends on the success of a pilot, this corresponds to the process of a start-up or a business area at their Establishing or pursuing a new strategic project. The counterpart in scaled-agile: The “founder” or the “founding team” convinces investors, namely the executive board or higher management, of an idea and its implementation within the framework of an epic.
The staffing now also follows this cycle and relies on the need-based, gradual development of agile resources. In the beginning, small agile teams are often enough to try out an idea and its feasibility. Later, other teams or even ARTs (Agile Release Trains) or tribes can be added along with all the necessary roles such as Business Owner, Product Manager and System Architect. Agile teams can be newly assembled or taken over from existing ARTs or tribes.
Incidentally, innovation does not always have to be disruptive. The above ideas also apply to “everyday” innovation projects.
Let’s look at an example: Brokers want to open up the retail business and realize that the processes are not digitized well enough. The real digital enablement of the brokerage houses is missing. The entire investment would require 15 to 20 million euros. The MVP is around EUR 2 million, should verify the market hypothesis, has clear OKRs. The MVP in the above case, for example, can be implemented very easily with just one team. Only after the pilot has been successfully completed will it be scaled, and additional teams and roles will be added.
Dynamic Business Clusters as Entrepreneurial Units
Based on the metafinanz model, we call this entrepreneurial, self-organized, dynamically adaptable grouping for the implementation of a strategic initiative Dynamic Business Cluster (see figure above). Similar to a business area, dynamic business clusters can grow as needed, but can also be dissolved again if a benefit hypothesis does not materialize or if a solution has reached a high level of product maturity and is to be transferred to regular operation. Clear ownership is required for a dynamic business cluster. The topic must be driven, further developed and represented to investors and other stakeholders. We propose the role “Cluster Representative” (CR) for this. In SAFe you could also expand the tasks of an epic owner. Like all of the roles mentioned, this is an overall and shared leadership model.
In addition to the dynamic business clusters, which in the sense of efficient team topologies mainly consist of “stream-aligned” teams or ARTs or tribes (see also our article: LINK on efficient team structures), we may also need the counterpart to Shops at metafinanz: Supporting Cluster. These can offer common (technical) services (e.g., libraries or APIs) via platform teams (see also our blog article on team topologies and verticalization: LINK) and make them available to their customers, the business clusters. Depending on requirements, supporting clusters can be set up as cost centers (like the shops at metafinanz) or also as profit centers. We need to postpone an in-depth discussion of this topic to a future blog.
Key Take-Aways
Significant advantages of agility such as the ability to react, innovative strength and employee satisfaction are often lost when scaling in large companies because the entrepreneurial doer spirit could not be anchored in the organization. This spirit needs more than “just” empowerment and “agile leadership”, namely entrepreneurial decision-making autonomy and highly adaptable structures that follow the business value. Both are still very difficult for large companies today.
The example of metafinanz shows the potential that can be developed through the model of real self-organization in combination with shared leadership and how inseparably closely self-organization is linked to entrepreneurship and a highly dynamic process organization.
In order to be able to integrate this successful model – in a targeted manner and as required – into scaled-agile structures in large companies, we propose expanding the agile approach to include self-organized dynamic business and supporting clusters. These are based on the process of the lean start-up cycle and can grow dynamically with the respective need or, in the case of unfulfilled benefit hypotheses, shrink again or be dissolved.
A real ability to react to the highly dynamic market environment is crucial for companies. This requires the establishment of a value-driven portfolio, supported by an agile process organization that is dynamic from the basic design.
Of course, large areas (e.g., products, teams) of agile process organization will remain stable in a medium-term perspective. At the same time, a constant focus on market changes and a consequent adjustment of the agile process organization are required.
This focus and this entrepreneurial mindset are at the heart of a real agile organization, and thus real business agility.
