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THE JOURNAL OF PEOPLE + STRATEGY

Designing HR for Digitally-Enabled Agile Organizations

February 23, 2021

Designing HR for Digitally-Enabled Agile Organizations

Becoming an agile organization is more than digitalizing processes. Scaling agility requires deeply embedding change activities and creating an organizational development hub.

By Christopher G. Worley, Pepperdine University

This article was published in print in the Fall 2020 Issue of the Journal of HR People + Strategy.

Even with our attention appropriately focused on Black Lives Matter and COVID-19, it’s hard to escape discussions of agile and digital transformation. But when I talk with managers and executives today, I have to ask, “What do you mean when you say agile/digital transformation?” The answers vary. It could mean that the organization is struggling to digitalize the customer experience, or that it is trying to stand up agile teams, or it could mean changing the business or operating models. In debates on change and technology, organization agility is consistently associated with digitalization, and because digital technologies will continue to evolve in significant ways, digital transformation “requires the organization to deal better with change overall, essentially making change a core competency.”1 But we have to look at this with our eyes open.

During the early stages of the pandemic, many organizations acted with agility out of necessity. These rapid organization changes revealed an important learning and one important caution. First, digital technology helped organizations change faster than most people assumed possible. Second, such change rates are not sustainable under existing designs and design assumptions. We want to understand what it means to act with agility by design—a repeatable capability—and how digitalization may help. By clearly understanding how agile organizations are designed and how they change, we can help HR executives develop the necessary objectives and structures to support a sustainable digital transformation.

This article will address what is usually only given lip service in these discussions—the design and change features of agile organizations and HR functions at scale.

What Is Agility?

First things first: Organization agility is the ability to make timely, effective and sustained change when and where it results in a performance advantage.2

Although employees won’t admit it, Nike is an agile organization. For decades, it has consistently outperformed its rivals not just in terms of profits but also in social and environmental outcomes. And yes, Nike has stumbled from time to time, but no definition of agility includes the word “perfect.” Nike has changed its differentiating capabilities more than once and it is currently building a more digital organization. This history of performance and change is no accident. Nike has the four routines of agility that help it make the right changes at the right time (see Table 1).

Agile organizations actively strategize in ways that keep the organization aligned to environmental demands; accurately perceive changes in their environment; test a variety of possible responses; and implement changes in products, technology, operations, structures, systems and capabilities as a whole. Nike’s “just do it” culture and brand keep the organization’s product lines fresh and current. Their strong connection to the sports world imports the voice of the customer into internal discussions, their research and development centers are thinking about the future, and their highly matrixed structure moves information around quickly. Nike is constantly innovating, they consider failure part of learning, and while the matrix can be frustrating, when a decision is made, the organization is capable of moving quickly. These routines allow Nike to maintain or enhance its relative advantages in ways their competitors fail to see or do not fully implement. Done right, agility is strategically applied; although agile organizations often change, they do not pursue change for change’s sake. They pursue it for the sake of competitive advantage.

The good news is that agility rests on many of the lessons learned from operating traditional organizations successfully. That is, Nike doesn’t possess some secret structure or performance management system unavailable to others. Each routine is operationalized by management systems and practices that are fit for purpose in the traditional sense and different in ways that support adaptation, including digitalizing the processes that matter most.3 For example, it’s difficult to be successful if leadership promotes cost-cutting and efficiency when the strategy and environment requires innovation; any team-based structure will suffer if reward systems call out individual performance. However, these same systems must also be designed for flexibility and the ability to change in timely ways. The hard work necessary to orchestrate these routines and their underlying systems and processes for consistent high performance is advanced and uncommon.

The Process of Change in Agile Organizations

It’s one thing to describe the design of an agile organization, but it’s quite another to describe how agile organizations operate on a day-to-day basis. As the design features of agility emerged from our research, it became clear that old change management processes with a “let’s get this over with” logic were too linear, too reliant on top management support, and unable to handle the intricacies of multiple changes. If agile organizations are built to change, how does that happen?

The nature of change itself was different, and so we developed the “engage and learn” model (see Figure 1).4 It is not a change management model or a framework guiding organization development (OD) practitioners how to implement a particular change or transformation; that implies way too much control over the process. IBM’s transformation under Gerstner and Palmisano entailed hundreds of intertwined change projects that could never be controlled from the top. Rather, it is a descriptive model of how agile organizations catalyze, orchestrate and accelerate multiple changes happening simultaneously and continuously.

In the center are two continuous and complimentary modes of operating—engage and learn—that motivate four change activities: awareness, designing, tailoring and monitoring. All four of these change activities are happening at once, in various parts of the organization, and may be loosely or tightly coupled. Think about a spinning fan—you cannot see the individual blades but you can feel the result of their work. Different actors in the organization may be working on innovative digital initiatives while others are working to radically reduce costs. These changes may appear contradictory but people throughout the organization need to develop a more complex understanding of what is required for competitive success in today’s environment.

Any change agent’s first motivation—whether HR business partner (HRBP), OD practitioner, or executive—is to engage.5 Just as agile organizations are designed to perceive their current and future environments, change agents must engage in awareness of the external issues facing the organization as well as its various internal initiatives. They must understand how designing structures, systems and processes can govern, coordinate and drive these changes as well as provide options for eliciting and reinforcing new behaviors.

Organization members engage in tailoring change and redesign interventions to operate effectively within the culture and identity of the organization, its strategy, and its resources. Tailoring recognizes that each unit’s purpose, role and situation is unique and must be accounted for when implementing change. Finally, change is likely to be fast and iterative. Monitoring activities involve the rapid collection and interpretation of appropriate data to understand whether innovations, interventions and new designs are having the intended impact. Agile organizations take advantage of monitored information to hone their capabilities. This orientation is quite opposite of the traditional change prescription to freeze and institutionalize change.

“Nike doesn’t possess some secret structure or performance management system unavailable to others.”  (<<call out quote)

The second motivation, learning, is the outcome of intentional engagement in the four change activities. Through engagement in continuous and simultaneous awarenessdesigningtailoring and monitoring activities, change agents learn. Capital One Financial Services, for example, developed a system-wide change capability through repeated change projects, cross-functional coordination and transparently sharing experiences. This capability depended not only on knowledgeable individuals, but also on collective processes that became core routines of how the organization operated.

Learning allows each change activity to become more efficient and effective as people throughout the organization become proficient at changing. Systems and processes for learning and exchange, such as after-action reviews, reflection and discussion, and transparent sharing of information, become embedded in the change activities, which themselves become embedded in the way the organization functions. It supports development of an organic change capability rather than the imposition of various frameworks by “experts.”

Leaders Need to Radically Rethink How HR Operates

To achieve the agility routines and workforce competencies necessary to operate the engage and learn process, HR executives need a radical rethink of the way their function operates. The assumption that HRBPs possess the necessary change and design competencies and can rely on centers of excellence to help when the need arises is much too kludgy a process in today’s world.

For the organization to become agile, HR must model the engage-and-learn competencies and transfer them out into the organization, creating versatilist managers who not only understand their customers, markets and technologies but how to continuously align their organization to a changing context. To do that, organizations should focus their attention and resources on an integrated design and change function. Organizations like W.L. Gore, the International Monetary Fund, USAA and Google are experimenting with different versions of this logic; and research units like the Corporate Research Form in the UK and the University of Southern California’s Center for Effective Organizations are developing prototype models.

Thus, while not fully formed, the initial boundaries of this model are emerging. Borrowing from Galbraith’s Star Model logic, consider the following thought experiment (see Figure 2). The organization development hub is a network of expertise acting as a team and working with the enterprise, its businesses and functions to build an agile organization under the direction of the CEO. Practically, even networks need direction and coordination and a hierarchy is likely to emerge. However, the assembly of cross-functional expertise differentiates this thought experiment.

Each of these disciplines already exist inside the organization, but their relative and collective impact is depressed because they are structurally siloed from each other and often compete for resources. The thought experiment attempts to remedy that problem. There is no defensible logic today for separating strategy, design and change. In addition to its accountability for the strategizing and implementing routines (and the associated outcome metrics), the hub is also measured by how well it is transferring the awareness, designing, tailoring and monitoring change activities into the organization.

In reshuffling HR assets and processes, transactional processes and shared services, such as employee relationships, learning and development, or benefits administration, must be separated from the HR processes that drive competitive advantage and change. It’s not that they are not required, but they are a distraction to building versatilist managers and the agile capability. In turn, advantage drivers, like talent management and organization design, need to be paired with other drivers of change and performance, such as strategy, that have been traditionally separated from the change and design process. Such a design will encourage the emergence of these new competencies rather than continue with a siloed approach.

The strategy and sustainability/corporate social responsibility nodes leverage awareness activities and work closely with the design orchestration node. They work with different organizational units to develop clear directions in terms of economic, social and environmental strategies and think through implementation issues with the other nodes.

These nodes are most closely associated with the awareness activity. The Korean carmaker Kia increased awareness by tapping into its perceiving routine. Realizing that Trump’s election would signal a shift in foreign policy, they created multiple scenarios that have kept them prepared for a variety of unknown futures. In short, awareness leads to preparation; preparation leads to flexibility; flexibility leads to speed.

The constant barrage of environmental disruptions can result in myopic, internally focused organizations. Change management’s traditional predilection for internal process issues reinforces this internal bias. However, environmental trends, customer shifts, competitor moves and technology changes create new contexts, call for innovation and drive the need for new business models. To be clear, awareness also includes having one’s fingers on the pulse of employee satisfaction—a process enabled by the analytics hub—and being vigilant about other internal change initiatives and their interdependencies. However, it is the external focus that must be increased, shared with other nodes in the hub and with the organization, and used in shrewd strategic thinking. While digital technologies can contribute to this process, they cannot substitute for executive insight.

The design orchestration node relies on designing and tailoring change activities and is responsible for sequencing changes in structure, systems and processes, including incentive systems. It coordinates closely with other nodes and the businesses to build versatilist executives. That is, the process of organization design is a powerful leadership development intervention.

The core competence of this node is organization design. Today’s HR functions understand too little about how organization changes relate to design frameworks, such as Galbraith’s Star Model. They cannot discuss the strengths and weaknesses of different structures in changing contexts and cannot recommend one structure over another for a given situation. They may not understand the range of options for coordination and integration of different functions, regions or other units, nor can they articulate the rudiments and criticality of setting decision rights (and often confuse this with RACI charts).

Digitalization is determining the way we work, how we interface with customers and how we partner with ecosystem members but our organizations are ill-equipped to understand how to adjust. There is a clear technology lead, social lag problem. For example, health care technology firms are wielding outsized influence over physician behavior. The promise of technology’s insights, the fear of missing out and HR’s lack of credible design perspectives means that technology is dictating the way care is delivered. Business and HR leaders need to have a point of view about how design components can be used to leverage technology in service of human purposes.

At the same time, designs cannot be monolithic “blueprints” for every function or business to follow. Far from seeking uniformity, the design orchestration hub recognizes that some units should be designed for innovation, other units for efficiency. All designs are temporary and change efforts should tailor unique, valuable and difficult-to-replicate resources to support strategies and capabilities. Even well-designed and defined agile methodology processes cannot be “cut and pasted” into the organization without tailoring.

“Training leaders to behave in the “right” way and throwing them back into the system that produced the bad behavior in the first place is crazy-making.”

The analytics and talent management nodes leverage new technologies to develop and sustain monitoring activities, and as technologies develop, strategies evolve and organizational capabilities shift, the organization’s talent needs to be ready and prepared. Both nodes support monitoring and tailoring activities and contribute to a powerful human capital capability.

Monitoring is central to the organization’s capacity to detect error and learn from success in today’s environment where changes must be made quickly, where there are many changes going on simultaneously in diverse parts of the organization and where tight control is not possible or desirable. The breadth, complexity and pace of change in agile organizations means monitoring is required to understand a strategy’s progress and to create the conditions for emergent, self-managed and rapid adjustments to changes based on what is learned. In combination with awareness and guided by design, interdependent change activities can adjust to and influence one another. The organization must have the talent to pull this off.

The technology lead/social lag problem identified earlier applies here as well. Digital technologies must be harnessed for engage-and-learn activities, not for surveillance and manipulation. Microsoft’s Carl Watson is on top of this. He notes how digitalization opens up whole new data streams that were previously unavailable and can be used to make better, faster decisions at lower levels in the organization.6 In turn, teams must have the skills and knowledge to leverage this information. Such capability, however, challenges traditional definitions of supervision but also opens up new ways of thinking about leadership.

Thus, a major contribution of the analytics and talent management nodes in this landscape of change activities is to help the organization develop rapid detection approaches, such as opening up routes for immediate feedback and using sophisticated data analysis techniques to detect and direct attention to performance deviations. Guiding the development of people and monitoring systems capable of dealing with a continually changing organization may represent one of the most promising frontiers for workforce competence in the future.

In summary, our thought experiment—an organization development hub—is clearly incomplete but it prompts new thinking about the structure and role of HR in agile organizations. The proposed separation of transactional from strategic processes will not be without controversy. In particular, some people will recoil at the suggestion that learning and development (L&D), including leadership development, remain in a transactional-focused HR function. Surely L&D should be part of the design and development network. My argument is different. Leadership development programs are important today because existing strategies and designs are producing the wrong behaviors. Training leaders to behave in the “right” way and throwing them back into the system that produced the bad behavior in the first place is crazy-making. Changing the design of HR to build the routines of agility and the competencies of engaging and learning will produce the leaders we need and embrace the diversity we want.

Conclusion

Understanding, causing, and accelerating change is the topic of our age. That has always been true to some extent; it is even truer today. However, becoming an agile organization is more than implementing the agile methodology and adopting agile teams; it is more than digitalizing processes to achieve higher degrees of efficiency. Becoming agile means implementing the structures, systems and processes that create the ability to make timely, effective, and sustained changes when and where they are necessary, including the requisite competencies for operating such an advanced form of organization.

The engage-and-learn model posits that the scale and pace of change in today’s world can only be handled if the four change activities become deeply embedded in an organization. That will require a revitalized HR, a new configuration of change-related disciplines coordinated and focused on building robust agility and change capabilities. Awareness, designing, tailoring and monitoring derive from an understanding of the requirements for organization effectiveness in a volatile, uncertain and disruptive world.

Christopher G. Worley, Ph.D., is the Research Professor of Management at Pepperdine University and an Affiliated Research Scientist at the Center for Effective Organizations. He can be reached at cworley@pepperdine.edu.

References

1 Bloomberg, J. (2018). Digitization, digitalization, and digital transformation: Confuse them at your peril. Forbes, 29 April, accessed from https://www.forbes.com/sites/jasonbloomberg/2018/04/29/digitization-digitalization-and-digital-transformation-confuse-them-at-your-peril/#ea89be52f2c7 on 18 June 2019.

2 Worley, C., Williams, T. and Lawler, E. (2014). The Agility Factor. San Francisco: Jossey-Bass.

3 Worley, C., Williams, T. & Lawler, E. (2016). “Creating management processes built for change.” Sloan Management Review 58(1), 77-82.

4 Worley, C. &Mohrman, S. (2014). Is change management obsolete? Organizational Dynamics, 43(3), 214-224.

5 We are aware of the potential confusion that may exist between our use of the term “engage” and “engaging” and the popular notion of “employee engagement.” We use the term as a verb—to engage, connect, make contact with or sense—rather than as a noun describing someone’s affective state.

6 Carl Watson, personal conversation with the author, August 2020