Partner and Director
The last time the possibility of recession loomed was 2019, when many managers expected it was around the corner. We didn’t get a downturn; instead, the world was plunged into a global pandemic. We climbed out two years later to be greeted by Russia’s full-scale invasion of Ukraine and a war that continues to rage, affecting economies worldwide.
Downturns may actually be among the lesser of today’s worries. The tech sector is pulling back, but elsewhere the labor market remains tight. (See “Coping with Layoffs.”) Meanwhile, dark clouds—geopolitical, environmental, and economic—hang over the horizon. Another medical calamity (including a rebound of COVID) is not out of the question.
Facing such uncertain times, several of our colleagues have written about the need for CEOs to build resiliency into their companies, tackling such issues as competitive cost position, supply chain disruption, organizational preparedness, and financial strength. Other colleagues have pointed to the need to shift the strategic focus from building scale to establishing more fractal organizations that can win local customers and compete with advantage in micromarkets and fast-developing profit pools.
There’s no question that companies and their leaders need to develop the right capabilities to deal with whatever turns the world throws at them. One of these—and one that supports both resiliency and fractal development—is agility. Another related capability is tying work more closely to outcomes.
We have previously written that more companies have been turning to agile ways of working as a high-potential approach for maintaining resilience through a potential trough. Resilient companies put themselves in a position to spot opportunities that exist amid uncertainty and move more quickly than others to seize them. Agile’s cross-functional teams working in short, iterative sprints informed by customer feedback support greater resilience in multiple ways.
Most companies have experimented with pilots and gained experience in what agile can achieve. Winners move to agile at scale to build organizational strength and capability, becoming stronger in the face of adversity.
Companies that strengthen their resilience can go even further. Fractal companies build advantage by breaking apart their traditional scale-driven, centralized operations and empowering teams with fit-for-purpose capabilities to respond to opportunities at the “edge.” (There are lots of edges: a small market far from the core, for example, or a particular segment of customers, or something related to an important event that just occurred.)
This approach comes easy for many digital natives that were built this way from the start, but it is a tough transition for most incumbents that have spent decades building scale and maximizing efficiency. They need to find the right balance between the traditional strength of scale and the local innovation that is key to winning in a particular country, customer segment, or other defined market.
Many managers may see scale and local autonomy as two ends of a spectrum, a zero-sum tradeoff. But they can break through this conundrum by prioritizing outcomes (rather than work) and dedicating resources accordingly. Agile helps by putting the focus on what’s important at all levels so managers can align resources and work with these goals. This enables companies to better deliver local innovation while still leveraging their scale advantage. (See “Moving to Agile in the Midst of Crisis.”)
Consider the case of a leading wealth management company that saw expanding its business with a specific segment of individual investors as key to strengthening its overall competitive position. In the past, the company might have spent months researching the segment, more months to spec a new online trading platform, then a year or more for IT to design the platform and write and test the software. This time, senior management identified an executive leader to lead the effort and assigned dedicated working teams that included all the necessary skills, including strategy, marketing, technology, data and analytics, and design. The overall effort required more than 500 people, so the company broke down the desired outcomes using fractal principles. Each working unit took on a measurable part of the overall goal and worked mostly independently to achieve it.
For example, one working team of about 100 people was organized into 10 agile “two-pizza” teams (“squads” in the company’s parlance) that took on the goal of generating interest in the target segment, “filling the funnel” with qualified prospects. Another unit took on the goal of converting the people in the pipeline into customers. A third owned the goal of increasing the collective assets under management of these customers over time.
Within the fill-the-funnel working group, one squad had the specific target of defining and identifying potential customers in the segment. This eight-person team had members with marketing skills as well as data scientists who could build and test the models used to assess the attributes most likely to identify good prospects. It also included channel specialists who could direct the team’s test marketing campaigns to the appropriate digital, broadcast, and print media.
To maintain balance between creativity at the edge and the scale and efficiency that would ultimately drive profitability, the company established a set of teams focused on designing, building, and pushing the internal adoption of core shared platforms (for digital applications and mobile access, for example). They set up centers of excellence (CoEs) for data analytics, marketing insights, and DevOps (to guide software development and IT operations). The CoE teams set standards and built tools, but also (critically) spent time working in the agile development teams that were the “customers” for their work to ensure adoption and proper application.
To keep this system organized and focused, the company used a variation of a tool that many companies have paired with agile ways of working: objectives and key results (OKRs). This approach was invented by Andy Grove of Intel and made famous by the exponential growth of Google. Management sets a simple qualitative objective for each desired outcome: fill the funnel with potential prospects. The team sets a few key results, such as awareness scores, number of contacts, number of qualified clients, and conversion rate, by which it assesses progress. OKRs enable the alignment (shared purpose for the organization) and autonomy (freedom for teams at all levels, including at the customer edge, to determine the best ways to achieve the objective). OKRs connect people’s work to desired outcomes and the outcomes to the broader purpose of the organization.
Another wealth management firm developed a program to identify prospects through their interactions with financial advisors. The squad created a set of questions for advisors to identify target customers and the messages that would help these investors understand the products and tools available to them. They designed incentives for the advisors as well as rollout and change management plans to bring the advisors on board. The advisors captured qualified and interested clients in a pipeline tool, giving the firm rapid visibility into the opportunities.
Resilient companies make themselves ready to take advantage of opportunities regardless of what the macroeconomic environment serves up. Fractal organizations move decision-making close to the customer and stay relevant by adapting quickly to evolving “local” conditions. In the uncertain times we seem destined to deal with, these are two approaches that other companies should investigate if not emulate. Whatever course is chosen, the combination of agile ways of working and a cascading system of outcome- and purpose-driven OKRs can be key to success in uncertain times.