Standardization vs Agility
Business organizations arise to meet specific market needs. The expectation that tomorrow’s environment will be the same as today encourages investment, human and physical, and promotes planning for the future. Revenue and profit growth invariably creates more considerable investment in people, plants, equipment, and technology necessary to maximize advantage and fend off competitors. Shareholders expect to see continuous increases in annual, if not quarterly, profits, causing management to focus on short-term objectives and emphasize scale and efficiency, ratcheting up investments in fixed, specialized assets.
Traditional business strategy to maximize profits and market share relies on:
- Scale – Replacing high variable unit costs with lower unit fixed costs is the historical method to reduce total product cost and gain a market advantage in stable markets.
- Standardization – Identifying, detailing, then implementing the most efficient process for speed and cost savings minimizes costly deviation from the intended result.
- Process control – Ensuring compliance with established systems requires continuous monitoring and reinforcement.
To achieve these characteristics, organizations install elaborate command-and-control management structures (bureaucracy) to minimize deviation. The strategy is most effective in stable environments with minimal short-term changes. At the same time, companies lose the flexibility, i.e., agility, to react quickly to rapid change.
The Impact of Accelerating Change
In 2016, the authors of an article in the Harvard Business Review noted that companies operate in an increasingly complex world: Business environments are more diverse, dynamic, and interconnected than ever—and far less predictable. Businesses are disappearing through bankruptcy, liquidation, merger, or acquisition at rates previously unseen. Companies now die, on average, at a younger age than their employees. And the rise in mortality applies regardless of size, age, or sector. Neither scale nor experience is protection against an early demise. Companies’ management fails to adapt to their changing environment by misinterpreting significant events, selecting the wrong strategies, and supporting inappropriate behaviors.
The next decade will be as disruptive as any period of civilization, with extraordinary challenges for social, environmental, and geopolitical systems. Giles Hutchins, Chairman of The Future Fit Leadership Academy and co-author of Regenerative Leadership, characterizes the period as the “beginning of the VUCA Age – volatile, uncertain, complex and ambiguous times of disruptive innovations and wicked systemic challenges becoming the ‘new norm.'”
Traditional business operations assume a relatively and stable world, a condition that rarely exists for extended periods. The winners in the new environment recognize change and its impact on their purpose, strategy, structure, and culture and adapt before a total disaster. Their managements also understand that change produces opportunities in addition to threats.
Market position, scale, and first-order capabilities are no longer long-term sources of sustainable advantage since they are essentially static. For example, appearing in 1894, the Sears catalog pioneered the mail-order business and was considered indispensable to the American consumer. Failing to see the online sales opportunity, the company abandoned the catalog business in 1993 to focus on in-store business. Amazon was founded one year later, in 1994. Today, the company dominates online sales with an estimated 45% of the market.
Increasingly, company managers recognize and understand that adaptability and flexibility – organizational capabilities that support rapid change – are not only competitive defenses but can be competitive advantages. Rather than being good at doing a particular thing, companies must be good at learning how to do new things.
Success in the modern business environment requires a system that operates in an unstructured, horizontal fashion and maximizes flexibility, learning, and openness to the environment to adjust to constantly changing input conditions. In short, the system must continually adapt to its environment to survive.
A principal feature of a complex adaptive system is its ability to adapt – its ability to surveice significant changes in its environment through changes in behaviour and internal processes. Adaption is the process that enabled this system to maintain its integrityJake Chapman in System Failure
Learning and autonomy are keys to performance in a complex adaptive system. Successful military units are autonomous, using the resources on hand, a condition initiated with the development of Colonel John Boyd’s Observe, Orient, Decide and Act (“OODA”) loop and perfected by guerrilla and terrorist movements around the world. Removing the infrastructure of command-and-control systems is an opportunity to create collaboration and interaction across teams. The relaxing of control generates free flow discussion and genuine feedback.
Breaking down the Silos
The Silo mentality is an outcome of organizational structures that are overly rigid and have strong command-and-control systems in place. In extreme examples, silo mentality can see departments working against each other and refusing to share data. As a result, it can lead to reduced efficiency and poor morale.
Projects have long been an antidote to Silo thinking, with Project Managers tasked with creating ‘temporary environments’ where cross-functional teams can be formed to deliver outcomes, often despite the organization they operate within!
But projects are temporary endeavors, meaning that once the project ends, people return to their silos, and the status quo is restored.
Portfolio PMOs as gatekeepers and brokers
Portfolio PMOs are sometimes put in place to act as negotiators and brokers between silos – especially in IT and technology areas of the business where different departments frequently find themselves competing for scarce resources to drive their digital ambitions. Such models can be frustrating for all concerned. Departments over-inflate business cases and engage in internal politics while tempers flare. Often the PMO becomes the uniting factor for the factions, but only in the sense that all departments can agree that the reason their projects’ failures or rejections must surely be the fault of the portfolio management office!
In organizations where shared-services models are utilized across a group of companies, or where silos thinking is heavily entrenched, The PMO plays an important role in ensuring everyone from executives and senior leaders to architects and delivery experts recognize the importance of aligning the portfolio with the broader organizational strategy. Such PMOs need to maintain a clear view of the portfolio and help all parties understand how every project investment is designed to deliver the organizational strategy, even at the expense of individual silos.
Where does PMO Maturity fit?
There are several PMO and Project Management maturity models on the market. Many of these nudge those who follow them towards increasing standardization. But does this standardization conflict with organizational desires to become more nimble?
At HotPMO, we work with many PMOs that are starting or evolving. We tend to begin such engagements with a simple question “What problem is your PMO trying to solve?”. Next, we ask the question of the PMO team and the business stakeholders. Too often, we find the answers are misaligned or are overly simplistic. Consultancies installing a paint-by-numbers framework fail to understand the needs of the business. Conversely, cries from the business for a PMO to deliver standardization and consistency can often lead to more blockers, and yet more siloed thinking.
At this stage, more diagnostic analysis is required. Does the organization have clearly defined goals, and do projects align with them? Does the business have good visibility of what projects are delivering, and what change is happening when? Do senior stakeholders have realistic expectations about project outcomes? Do project teams have a good understanding of where their project sits in the portfolio, and do they understand dependencies? Is the PMO and projects team continuously evolving with customers’ needs, or have processes become outdated?
Rather than chasing maturity models, modern PMOs need to focus on alignment with the needs of the business, both today and for the future. Models that can help PMOs align with the business include Duggal’s DNA of Strategy Execution and McKinsey’s 7-S Framework.
When to apply standard processes
Standard processes can accelerate strategic execution. They can speed up decision-making, help projects teams get answers faster, and help the business engage with projects. But the overzealous application of standard processes can have the opposite effect, ultimately slowing down delivery and causing the business to disengage. There is a sweet spot, shown in the graph below, that is our target: Just enough process and control to reduce the cost associated with error and delay down to the level where further process engineering would be inefficient.
The world keeps moving
Processes should not be set once and forgotten about. It is common to see PMO teams running processes that are three or four years old that have never been refined. Such projects may have been in the ‘Green zone’ when the PMO was created. But people and the business evolves.
Think about teaching a child how to make flavored milk. The cost associated with error and delay can be measured in tears and terms of pink powder all over the floor and milk everywhere. Your process is likely to be very prescriptive. “Get a cup, put it on a flat surface, etc.” But fast-forward a year or so. Your child has been making flavored milk every weekend. Do you continue with the prescriptive process? Of course not: It would be inefficient for you and frustrating for your child. You may even find it takes longer to make the drink with you dictating than it does when your child is left alone.
The same is true for the environments our PMOs operate within. Over time, the need for a prescriptive process reduces, and what was considered the right level of process may look over-engineered and costly. PMO teams need to be mindful of this shift and continuously refine their processes to align with the changing needs of the business.
Often the debate between standardization and agility stems from having processes that do not align with the way the business wants to run. An example seen increasingly in software organizations is where finance and the PMO team focus on project accounting and controls. In contrast, software development has organized around value streams and continuous delivery. Simply put, we are trying to put square pegs into round holes.
The Scaled Agile Framework advocates an approach called ‘Guardrails.’ They advocate a Lean budgeting approach. This approach reduces the overhead of traditional project-based funding and cost accounting. The process works well for teams are aligned around value streams and who adhere to a continuous delivery approach.
Such an approach allows for more rapid decision-making but maintains clear accountability for spending required for good governance. There are four lean budget guardrails advocated by SAFe:
- Guiding investments by horizon
- Applying capacity allocation to optimize value and solution integrity
- Approving significant initiatives
- Continuous Business Owner engagement
Of the four, the first two are quantitative, prescribing investment allocation within agreed budgets. The last two are process-focused and qualitative.
Budgets are allocated not to projects but value streams with business owners. There are clear rules concerning investment allocation to ensure funds are allocated not just for immediate needs and wants but also for future innovation and avoiding long-term product risk. Capacity is also allocated to agreed percentages, ensuring agreed targets for feature enhancement, tech debt, and maintenance are met. Where large initiatives are introduced, processes are triggered to provide senior management approval before the team can proceed. Smaller initiatives are approved automatically. Finally, the guardrails ensure Business Owners are actively engaged throughout the delivery process and are responsible for providing continuous feedback to ensure work stays on course.
Approaches such as guardrails can reduce bureaucracy while ensuring allocation of budgets remains in line with expectations. While the example here focuses on budget allocation to initiatives, similar approaches can be adopted to reduce bureaucracy in other areas, such as reducing lengthy architecture design review cycles by ensuring a clear target operating model is defined in advance that initiatives are expected to align to.
Is Standardization the enemy of agility? Not necessarily…
This article has considered the pros and cons of standardization vs. agility. We have explored areas where standardization of processes is beneficial. We’ve looked at how processes that are a good fit today are likely to look expensive and over-engineered in a few years.
But is it really one or the other? Well, no. While standard approaches are often challenged as being ‘anti-agile,’ the reality is not that straightforward. Removing your organization’s processes would not make it more agile and nimble. Chances are, it would make it inefficient and would result in investment drying up rapidly!
Many organizations looking to become more innovative and nimble deliberately introduce new processes to help them achieve their desired outcome. They may choose to implement new agile frameworks to make software development more agile, or they may introduce the Double Diamond model to manage innovation. And if they are embarking on radical shifts in approach, they may invoke models such as McKinsey’s 7-S framework or Kotter’s eight-step change model to help them.
The truth is that standard processes, frameworks, and governance models are not the enemy of business agility; they can accelerate it. But for them to be effective requires continuous attention to alignment and continuous improvement. Misaligned frameworks and legacy, over-engineered process flows are the natural barriers to agility. PMOs should work hard to ensure their frameworks and processes remain relevant to the challenges and opportunities that the businesses they serve face.