People, Mindset and Culture – Prerequisites for agile organizations

    Santiago G. Ponce

In today’s business world agility has become a magic word. It seems that in agility lies a potential solution to tackle the demands of the changing world. However, as many broad concepts in the world of business, the linking signifier between the word agility and people’s perception varies. In this sense, this article aims to provide the basic principles of agile organizational design, understanding its implications, and highlighting the importance of culture and mindset when it comes to the implementation of an agile setting.

Agility is a widespread and interdisciplinary concept that flourished in the IT industry; however, it is highly multifaceted and has been used by many different people to refer to very different phenomena (Conboy 2009). From a management viewpoint, it may be considered as the integration of organizational processes, characteristics, and members with advanced technology. Agility enhances the organization’s ability to provide high-quality products and services and is, therefore, crucial to organizational competitiveness. (Crocitto and Youssef 2003). Organizational agility (OA) has been as well defined as a dynamic capability. According to Eisenhardt (2003), a dynamic capability is defined as a set of specific and identifiable processes such as product development, strategic decision making, and alliancing (Eisenhardt and Martin 2000, p. 1105). Dynamic capabilities are used to reach and sustain competitive advantages and to survive crises and changing environments (Felipe et al. 2017; Dunlop-Hinkler et al.; Nijssen and Paauwe 2012)

Despite the different definitions that we might find, they all agree on agility as the key to thriving in volatile environments. In a VUCA world, no company consistently beats the market. Megatrends such as demographics, digitization, connectivity, global competition, and business model innovation are leading to the emergence of new competitors and driving new ways of doing business. (Holbeche 2015) This trend has profound implications for formal organizations. As “living systems,” they are based upon an open systems model, which is primarily characterized by the interaction between the system and its environments and the exchange of free energy and entropy.

Consequently, changes in the environment affect organizations, as they have to react to these changes appropriately to ensure their survival and growth (Sundarasaradula et al. 2005, p. 367). In this sense, leaders must adopt agile practices and the mindsets that underpin them (Holbeche 2015).

We can distinguish four leading principles. First, self-organizing instead of hierarchy.

The principle of self-organizing is grounded on the idea of heterarchy, defined as the relation of elements to one another when they are unranked. Also, when they possess the potential for being ranked in several different ways (Hedlund 1986). In this sense, self-organization challenges the fundamental postulates of the traditional management mindset, associated with the idea of hierarchy, control and performance. A significant implication of agility is to smash traditional hierarchies and ways of thinking about relationships. It is admittedly tricky for managers, steeped in a hierarchical structure, to abandon the status and position they may have taken years to attain. (Crocitto and Youssef 2003)

From the viewpoint of the organizational design, we can observe the implementation of matrix structures, whose intention is to break up single lines of command. However, heterarchy suggests going one step further. Organizations that decide to move from a hierarchical structure toward an agile one would require much more than a change in their design. Cultivating a mindset that embraces the ideas of self-organizing is probably one of the most challenging steps when adopting agile practices.

Imagine an organization that, for a long time, has been working under the umbrella of hierarchy. People all over the company will share common practices, routines, processes, as well as established patterns of behaviour stimulated and rooted in a culture that we can assume is in harmony with a hierarchical structure. Now, pressured by the external demands, the management decides to jump into an agile setting. However, even applying a matrix structure, which technically speaking should be considered as a transitional phase towards a full agile domain, will represent a considerable challenge, especially from the cultural perspective. Unfortunately, those who neglect the importance of mindset and culture would eventually fail in this endeavour.

The second principle relies on shifting decision-making authority. In a way, it is a natural consequence of heterarchy, when replacing authority by expertise. Besides decision authority, we observe an impact in areas such as the form of organizing, accountability and relations. A decentralized decision authority, based on expertise contributes to shift and distribute accountabilities as well as fostering horizontal relations. 

The latter translates into the creation of cross-functional teams, driven by spontaneous coordination of individuals and groups. Therefore, organizational commonalities, team spirit and collaboration emerge as driving principles when it comes to the definition and coordination of tasks. In other words, challenging the authority’s status quo invites to re-think the current cultural settings of many organizations towards a more people-centric approach. We will start to talk in terms of followers to a specific and temporal project and leader, instead of subordinates or direct reports. As members of agile organizations, we might simultaneously be leaders and followers given the different projects in which we’re working

The third principle is grounded in the self-selection of tasks. On top of the second principle, people in the organization will decide not only joining to different projects based on the leader and its expertise but also based on how they can contribute. In this sense, agile organizations will demand a pretty developed mindset related to knowledge creation, enhancing individual and collective skills. Therefore, knowledge flows and is generated along with shared practices instead of lines of command, putting in perspective the importance of how a group of individuals shares practices from a collaborative approach.

Going back to our example of the traditional enterprise that decided to move towards an agile setting, we could imagine how challenging it might be not only in terms of organizational design but mainly in terms of people and culture. It seems pretty clear that a “pure” form of agility is not for everyone, or in other words, it requires a comprehensive alignment between mindset, culture and system.

However, for most of the organizations, this “pure” agile setting can’t be applied homogeneously across the organization. There are activities which are not so impacted by the changes in the environment. Consequently, the routines do not require this degree of fluency. Imagine, for example, many aspects in the areas of finance and accounting. In this sense, the different subsystems of the organization demand a different treatment.

Therefore a middle ground between hierarchy and pure heterarchy seems to be adequate for the organizations’ realities, which leads us to the following principle.

The fourth principle is balancing experimentation and planning. In other words, ambidexterity. Ambidextrous organizations cope with exploration and exploitation activities, as Wadhaw and Kotha (2006) explain, “exploitation demands efficiency and convergent thinking to harness current capabilities and continuously improve product offerings. Exploration, in contrast, entails search, variation, and experimentation efforts to generate novel recombination of knowledge.” (Wadhwa and Kotha 2006)

In our example, the challenges for a traditional organization, when trying to apply a complete agile design, could result in an overwhelming experience. That is why organizations are interested in finding a middle ground in terms of agility. Previous studies around this topic highlight different types of ambidexterity, such as structural and contextual.

In a nutshell, structural ambidexterity relies on a spatial separation between the exploration and exploitation activities (Tushman and O’Reilly III 1996). In our example, exploitation activities could be assigned to those departments where routines and standards are still crucial (e.g., finance and accounting). At the same time, exploration could be implemented in departments related to innovation (e.g., research and development).

However, let’s imagine the reaction of people in the accounting department. While they keep following a hierarchical and routinized environment within the boundaries of their department, the people working in R&D experience a new and innovate way of working. Such a potentially emerging tension, according to research in this field, is defined as an integration problem (Puranam et al. 2009). In these cases, only an extensive and profound work on people’s mindset could try to overcome this difficulty.

Therefore, contextual ambidexterity emerges as a middle ground. This approach relies on people’s capacity to simultaneously demonstrate alignment and adaptability. In other words, it depends even more on people’s behaviour and mindset. The latter is embodied in the Google 70-20-10 ratio for innovation, where people at Google devote 70% of their time to core business tasks. 20% of time should be dedicated to projects related to the core business. And finally, 10% of time should be dedicated to projects unrelated to the core business.

Nevertheless, this ratio and its benefits are only possible to achieve when empowering people. Unfortunately, companies that try to “copy-paste” this, neglecting the importance of empowering individuals, will face shortcomings.

Overall, shifting toward an agile organizational design requires more than a toolbox of techniques to apply. Underestimating people’s needs, commonalities, people’s empowerment and mutual trust could result in a failed experience when it comes to navigate and survive in today’s VUCA environment. To ignite agility, leaders need to consider the latter and stimulating it acting as role models, cultivating the mindset and ultimately shaping the organization’s structures.

Publication Bibliography

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Wadhwa, Anu; Kotha, Suresh (2006): Knowledge creation through external venturing: Evidence from the telecommunications equipment manufacturing industry. In Academy of Management Journal 49 (4), pp. 819–835.