Managing Culture Risk: A Matter of FLOW

Amid accelerated, technology-driven change, the key to good conduct and continuous performance improvement is more cultural than technological.

Today’s enterprises need to innovate more quickly than ever, but they need to do so in a more delegated manner. These new facets, speed and deeper delegation, introduce more risk to firms as they transition to digital work. A recent Deloitte white paper, Managing Conduct Risk, identified some of the challenges of this faster innovation cadence.

Eight potential sources of conduct risk were identified. Among them: innovation and product development is not guided by customer needs; performance is not being judged in a balanced way, or individuals are not held accountable for poor conduct. And the authors propose a variety of technologies that could help to establish proper oversight.

An assumption behind conduct risk is that it arises out of dysfunctional conditions, or processes that are not functioning well. While that is probably the case, there is a problem with trying to address it through technology. The very rapid cadence of change we are seeing calls for a deep cultural change anyway. It cannot be achieved within traditional corporate cultures. What that means is that it entails quite a different kind of conduct to begin with, very different relationships between people, new forms of leadership and new work processes.

My argument here will be that the focus of attention should be on techniques that form appropriate conduct, rather than technologies that compensate for poor process and culture.

Innovation and Behavior Risk

For rapid innovation to take place, people need to feel as though they are in a supportive environment where failure-risk is tolerated. An over-regulated and over-supervised environment cuts against the grain of what we know about high performance. Management literature is now replete with references to the right to fail.

Less prominent in the literature, but well known in IT circles, is that innovation is accelerating to levels unimagined only five years ago. Excellence in IT would set the bar for innovation delivery at 20+ times per day, that is, a minimum of 20 updates per day to key platforms, as opposed to 20 updates per year. Some companies now talk about automating innovation to the point where thousands of updates take place each day.

One reason for this new pace of change is the move away from large monolithic software to what are called microservices, small software packages that communicate with each other. Microservices can be added or pulled out of a loosely coupled architecture at any point in time. They introduce a new flexibility to what a business can plan to do.

This change is accompanied by a shift away from sequential handovers in software. Why is this important? Development projects used to begin with a requirements document that was passed to developer teams and onto testing teams and then to operational teams. In the new “DevOps” paradigm, as much as possible in software development takes place within multidisciplinary teams with no handover. Handover risk is reduced, and so too the old risks associated with software integration.

The result of these changes is that Innovation has become continuous, hence the terms continuous delivery and continuous integration. Along with that, the need for continuous learning and continuous process design is also emerging.

The trend towards integrating teams in IT is extending to integration across the business. So not just holistic IT teams, but also teams that incorporate staff from data analytics, customer resource management, billing, and sales.

New Culture of Work

There is a new work culture that goes along with this more holistic, continuous innovation credo. New work cultures are visible at companies such as Netflix, which pioneered much of the process innovation; ETSY, the craft selling platform; and SkyScanner, the travel platform. And of course, companies like Google and Facebook embrace fast paced innovation.

You might say, well, these are all high-tech platform companies and they behave differently. Rapid change is in their DNA. Yes, they are, and yes, it is. They are also companies that have an eye on scale economics (pushing beyond the concept of diminishing marginal returns). But it might surprise you to know that one of the pioneers of this new culture is Aviva, a 300-year-old insurance company.

In a forthcoming book, FLOW, Aviva’s international chief information officer Fin Goulding and I describe the cultural underpinnings of continuous innovation and how it can be captured by any company.

The reason we used the word FLOW to describe this culture needs elucidating. FLOW reflects the fact that these companies have a culture that drives continuous change. There is not a before and after of digital transformation; there is no end goal where these companies reach a digital culture and can put their feet up.

They continuously move new ideas through the organization, teasing out the value for customers, prioritizing the ones that should go into production first, meanwhile making every effort to ensure that every project delivers new value quickly.

Total Involvement

The idea of FLOW is not just that a mass of work flows through the organization without disruptive handovers, or that the size of workpackage makes daily delivery of innovation possible. It also reflects the fact that high paced innovation cannot be managed by a leadership team. Everybody engaged in the work has to be a participant in managing the process by bringing their own unique knowledge and experience to daily judgments about value and technique.

Until FLOW-like cultures began to develop, there was a feeling among business strategists that the modern economy left very few avenues for gaining and sustaining competitive advantage. One writer even titled her book The End of Competitive Advantage.

Continuous innovation is a competitive advantage, but it calls for significant cultural change. In a globally competitive economy, anything less is risky. Customers have simple switching mechanisms and don’t tolerate poor service for long. Conversely, finding ways to improve customer satisfaction is a never-ending challenge for a very simple reason: the power of segmentation.

Start-up Thinking and Market Segmentation

Since the dawn of social media, many firms have been able to augment their market segmentation (traditionally based on demographics, salary levels and geography) with more cultural characteristics drawn from social behavior online. They developed customer personas, in effect caricatures of different cultural types that they were serving.

The reality is that companies like Amazon have long demonstrated the need for extreme segmentation, or what Chris Anderson has called The Long Tail. Companies need what I have called elsewhere new economies of scope. If you cannot provide scope, then a start-up somewhere, or a nimbler competitor, will spot the holes in your offer and move in with a segment buster.

In financial services, this has happened in remittances, working capital and payments, and even in the basic notion of what the term “currency” actually signifies.

What is common to financial services challengers is that they have identified a market segment that they can serve more cheaply and efficiently than the incumbent. The business models of these new companies are far from complete and often not very exacting, but that’s an entrepreneurial failing. The potential to displace financial services companies is very much feasible because incumbents are weak at granular market segmentation and economies of scope (and often also lack the right kind of scale).

Innovating in the FLOW

In many firms, there is a sense that the agility they need in order to compete with more tech-oriented companies could come from Agile methods that began in software development.

Agile, ostensibly, promises a faster way to get things done. The trouble is that Agile does not necessarily get the right things done. It can easily over-commit teams to inappropriate projects and can take on the form of a continuous inquisition into who is performing well and badly, in some cases actually causing precisely the issues Deloitte draws attention to.

In other words, poor conduct is often a consequence of inappropriate process. However much you may wish to monitor and supervise that, it makes more sense to tackle the root of the problem, rather than add an overhead cost to it.

There is a technical reason why Agile actually works against agility and can also promote poor conduct. Agile delivery cycles can vary from 20 to 80 days. Agile projects are also divided among different teams. That can mean, say, five teams, on a three- to 12-week development cycle, each delivering at different times. This is partly a “cycle time” problem, and it has all kinds of consequences.

In FLOW projects, the software delivery cycle tends to be around 24 hours, whatever the project. That means each day, a project is developing multiple packages of finished, tested code, ready for deployment. The same discipline can be developed in any area of business of course.

This kind of innovation cadence is going to be the norm, as more companies switch their focus to real value creation.

FLOW represents work processes that continuously clarify and respond to issues of value, performance and accountability. In place of technology it draws on a different tradition – the use of visible work in knowledge-rich environments.

Visible Work

Less than a decade ago, a small group of analysts drew attention to one of the primary risks of knowledge work. Prior to digitization (and work-from-home), most work was visible or observable. With digital knowledge work, work becomes invisible. It resides in people’s heads, occasionally to be shared in meeting rooms.

To produce something as simple as a presentation used to be a visible, shared process. A scientist or engineer might sketch out some initial ideas and pass these to a graphic artist who would create a first pass of a slide deck. The two would iterate back and forth, sharing ideas and background, drawing in a colleague or two for advice, drawing out meaning together as they built a good way to communicate intricate knowledge. The process was interactive, iterative and visible. Therein are some clues to good culture.

Today it is more likely that somebody creating a deck will just do it in PowerPoint. The whole process of sharing information and background in order to clarify and express ideas is skipped over. Because it is so isolating, nobody learns from the process. The bulk of knowledge stays in one person’s head.

Visible work was all too briefly an Internet meme, along with “working out loud” and “radical transparency”. But these ideas are now infused into FLOW-like processes.

FLOW requires every element of work to be drawn out on a series of walls. These walls document the core objectives of the firm or department, the requirements of customers, the projects that will deliver value, the risks and issues arising with each project, their interdependencies, the work breakdown that makes tasks easily deliverable within 24 hours, appraisals of colleagues left in open view.

So far we have seen Customer Walls, Customer Feedback Walls, Executive Portfolio Walls, Project Walls, Team Kanban Walls, Risks and Issues Walls and many more. Here is an example of an Executive Portfolio Wall:

When all work is visualized, good conduct becomes good culture and vice versa. The peer group itself becomes the monitoring and supervisory mechanism.

That is not to say it diminishes the role of risk management. In fact, understanding the interdependencies of projects within a firm is a key enterprise risk skillset. So too are tasks like ensuring all work is broken down according to some value-metric that the firm buys into; making sure that Risks and Issues visualizations are fully fleshed out; monitoring responses to customer issues.

Conclusion

The idea of FLOW is to create the conversations that create a good culture, one that constantly aspires to improvement.

It is difficult to argue for culture as a solution (everybody sees it as a problem!). However, the alternative of layering on technology costs risks alienating staff and adding to cost. It makes behavioral monitoring the objective when the objective should be good a culture that aspires to do better and is self-policing because everyone’s objective is customer value.

No technology will create good behavior. Talking more, working out loud, making everything visible, will.