“The world is now changing at a rate at which the basic systems, structures, and cultures built over the past century cannot keep up with the demands being placed on them. Incremental adjustments to how you manage and strategize, no matter how clever, are not up to the job.”

—John Kotter

Principle #10 – Organize around value

Many enterprises today are organized around principles developed during the last century, which worked to increase efficiency, predictability, profitability, and competitive advantage. But in today’s digital economy, the only truly sustainable competitive advantage is the speed with which an organization can sense and respond to the needs of its customers. Its strength is its ability to deliver value in the shortest sustainable lead-time. Traditional organizational structures “are just not up to the job.”

Instead, business agility demands that enterprises organize around value to deliver more quickly. And when market and customer demands change, as they inevitably will, the enterprise must adapt quickly and seamlessly to reorganize around that new value flow.

Rethinking the Organization

Successful enterprises don’t start as large and cumbersome. Rather, as organizational expert and researcher John Kotter illustrates in his recent book, Accelerate: Building Strategic Agility for a Faster-Moving World [1], they typically begin as a fast-moving, adaptive network of motivated individuals, aligned to a common vision and focused on the needs of their customer. Roles and reporting relationships are fluid, and people collaborate organically to identify customer needs, explore potential solutions, and deliver value in any way they can. In other words, it’s an adaptive ‘entrepreneurial network’ of people working towards a shared, customer-centric purpose (Figure 1).

Figure 1. A small entrepreneurial network focused on the customer

As the enterprise succeeds, it naturally wants to expand on its success and grow. This means that individual responsibilities must become clearer to assure that critical details are carried out. To add expertise, specialists are hired. Departments are created. Policies and procedures are established to ensure compliance and to drive repeatable, cost-efficient operations. Assuming this will increase efficiency, the business starts to organize by function. Silos start to form. Meanwhile, operating in parallel, the network continues to seek new opportunities to deliver value (Figure 2).

Figure 2. Growing hierarchical structure running in parallel with an entrepreneurial network

To achieve increasing economies of scale, the hierarchy continues to grow. However, by assuming the practices and responsibilities incumbent on large business, it begins to conflict with the entrepreneurial network. As Kotter notes, with the mandate of revenue and cost behind it, the hierarchical organization collides with the faster-moving, more adaptive network. The result? Usually, the network gets crushed in the process. (Figure 3).

Figure 3. Entrepreneurial network collides with a growing hierarchy

Still, as long as the market remains relatively stable, the economies of scale provide a barrier against competitors, and the enterprise can enjoy continued success and growth. When customer needs shift dramatically, however, or when a disruptive technology or competitor emerges, years of market domination and profitability can vanish. Now, without its former entrepreneurial network, the organization lacks the agility to respond and change quickly enough. The result is an existential crisis; the company’s very survival is at stake.

Of course, balancing the need for innovation, renewal, and execution at scale is not a new problem. Businesses have been experimenting with solutions for decades. Matrix structures, in which individuals work on multiple projects at the time, have been tried, as well as ‘skunkworks’ intrapreneurial teams, sometimes devoting entire departments solely to innovation.

More radical experiments include ‘sociocracy’ (a governance model which seeks to create harmonious social environments as well as productive organizations) and ‘holocracy’ (a completely flat organization with totally decentralized decision making) [2][3]. But they, too, have their challenges. So far, no obvious new patterns for success have emerged. Moreover, even if they did work in a new company, they haven’t yet been proven to transform existing and successful large enterprises

In addressing the dilemma, Kotter points out, “The solution is not to trash what we know and start over but instead to reintroduce a second system.” This model, which Kotter calls a ‘dual operating system’ (Figure 4), restores the speed and innovation benefits of the entrepreneurial network, while leveraging the benefits and stability of the hierarchical system.

Figure 4. A ‘dual operating system’ offers efficiency and stability with the speed of innovation

Organizational hierarchies do a great job of providing time-tested structures, practices, and policies. They support the recruiting, retention, and growth of thousands of employees across the globe. Simply put, they are needed. But the question becomes, how to organize and reintroduce the entrepreneurial network? SAFe provides an example of a second operating system (Figure 5).

People and operational resources are organized into long-lived value streams, which directly and continually address the changing needs of the customer and provide the organization with the ability to innovate in both what is delivered and how it delivered.

By organizing the enterprise around the flow of value instead of the traditional organizational silos, SAFe provides this second operating system (Figure 5). This allows enterprises to focus on both the innovation and growth of new ideas as well as the execution, delivery, operation, and support of existing solutions.

Figure 5. A view of SAFe as a second organizational operating system

Understanding the Flow of Value

SAFe delivers a system intensely focused on continuous value delivery. To do so, identifying and understanding the flows of value becomes the most critical step, the incentive to organize portfolios around flows of value called value streams. Each is a series of steps used to deliver value (Figure 6).

Figure 6. A value stream

A significant event triggers the flow of value, perhaps a customer purchase order or a new product feature request. It ends when some value has been delivered—a shipment, customer purchase, or solution deployment. The steps in the middle are the activities the enterprise uses to accomplish this feat. Each value stream contains the people who do the work, the systems they develop or operate, and the flow of information and materials, optimized to reduce the lead time required to deliver the value and high quality.

Organizing around value streams offers substantial benefits to the organization, including:

  • Faster learning
  • Shorter time-to-market
  • Higher quality
  • Higher productivity
  • Leaner budgeting mechanisms

Furthermore, value stream mapping can be used to identify and address delivery delays, waste, and non-value-added activities.

Realizing Value Streams with Agile Teams and Trains

The background above provides the context needed for the enterprise to organize around value. In SAFe, it starts with the basic building block of Agile Teams (Figure 7). Agile Teams are cross-functional, which enables them to define, build, test, and where applicable deploy elements of value quickly with a minimum of handoffs and dependencies. Regarding value, the Product Owner (PO) is in a unique position. The PO has the specific responsibility to work with the customer (or customer proxy) to define value and then to work with the team to ensure what is built and delivered represents that value.

Figure 7. Agile teams are cross-functional and have the skills needed to define, build, test, and deploy value

However, a single Agile team can rarely build a large system or realize a full value stream alone. For that, it needs a team of Agile teams that can define, deliver, operate, and support customer solutions This concept is called the Agile Release Train (ART). It operates across functional silos and potentially eliminates them. (Figure 8).

Figure 8. An Agile Release Train realizes part or all of a value stream

In addition, when building extra-large systems, ARTs, along with suppliers, are further organized into Solution Trains, which are designed to deliver even more significant value to the customer.

Figure 9. A solution train of ARTs and suppliers realizes an extra-large value stream

A Portfolio of Value

A SAFe portfolio is a collection of these value streams, connected to deliver more aligned value together (Figure 10).

Figure 10. A portfolio of value streams

This process allows the entire organization—from the building block of Agile teams, to ARTs and Solutions Trains, to the entire portfolio—to organize for a single purpose: delivering value to the customer in the shortest sustainable lead time.

Reorganizing around Value

While it’s advisable to keep teams and trains together to foster high performance, it is the responsibility of the organization to continuously sense the markets and focus on customers, recognizing when a change in strategy is needed. As solutions are created to address new needs in the markets, other solutions, require more or less investment, or may even need to be jettisoned. In short, value streams evolve constantly, and the teams and trains must evolve with them.  The ability of organizations to organize around value, and also reorganize around new flows of value as needed, is a key driver for business agility.

Read More

[1] Kotter, John P. Accelerate: Building Strategic Agility for a Faster-Moving World. Harvard Business Review Press. Kindle Edition.

[2] Hesselberg, Jorgen. Unlocking Agility: An Insider’s Guide to Agile Enterprise Transformation. Addison-Wesley Signature Series. Pearson Education. Kindle Edition.

[3] https://hbr.org/2016/07/beyond-the-holacracy-hype

Last update: 22 August 2019