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Driving Organisational Transformation

Blog post
By Pam Ashby | 18 April 2018

When Dan North agreed to do an ‘Ask me Anything’ webinar with Jenny Bailey, he may not have expected the breadth and quantity of questions that resulted! Fortunately for Jenny, she recognised patterns amidst the queries that came through and so Dan was able to address some of the key issues on people’s minds. 

Many of the webinar delegates asked for a better understanding about the pain associated with organisational transformation – an area Dan was very pleased to address.

“Transforming an organisation is painful,” he explained, “because ultimately you have to break the organisation and then re-form it along different lines. This needs a full paradigm shift. People in the organisation have to completely reset how they see the world, and this is primarily what causes the pain. Paradigm shift is difficult, abrupt and unpleasant.”

The Need for Paradigm Shift 

Dan painted a picture showing how people’s understanding of how their organisations work can be completely disrupted.  Suddenly things are not at all as they thought they were and they have to rethink everything. Dan reminded everyone about the film The Matrix where programmer Neo sees his understanding of reality disintegrate and has to rebuild his beliefs. 

As an example, Dan talks about the cost accounting model of business, “In a traditional organisation with cost accounting, the structure is defined around the fact that leaders cannot know everything that’s going on across all the functions. So the heads of each function become separate cost and profit centres. This is very divisive. Each area has a separate budget and is encouraged to drive down costs to optimise profit within their area.

“This looks fine on paper” Dan continues, “But this model is now broken.”

Throughput Accounting

Jenny explored the Beyond Budgeting model of accounting in a previous webinar. Dan reiterates this accounting approach, also known as ‘Throughput Accounting’: “In throughput accounting,” Dan describes, “there are no cost centres. The organisation is viewed holistically with a recognition that all functions work together and collaborate to create value.”

He offers a memorable analogy, “You see smoke coming out of the tail pipe of your car’s exhaust, but you recognise that it’s not the exhaust itself that’s generating the smoke.” His point is that revenue may appear from the sales department but is the result of work that’s been done across many different areas of a business. 

This is the paradigm shift that Dan is referring to. “People have to start looking at value streams, and where that value is created, instead of revenue streams” he insists. “It’s all about work flow, not activity. Organisations may well be tempted to assign their best analyst to their four most important projects. On each project, it’s then guaranteed that the analyst won’t be available 75% of the time! This kind of context switching costs businesses money, as a lot of work gets stuck in the process.”

Why aren’t the Cars going Faster?

He recommends that the paradigm shift needed includes a focus away from activity metrics and on to lead time – in other words, the time it takes from commitment to a task, to the ‘thank you’ for a job well done. This kind of focus combats the distractions caused by avoidable meetings for instance. 

“If there’s a massive traffic jam,” he suggests, “You don’t get everyone out of their cars to talk about why the cars aren’t going faster.”

He points to systems thinking as a better way to unblock work flow. “If someone is underperforming, it’s important to remember why they were hired and what their potential really is. Then look into the workings of the organisation, to the system of work that may be preventing their performance.  He refers back to his car exhaust analogy, “When you see thick black smoke coming out of the exhaust, you don’t blame the exhaust.”

For Dan, an Agile way of working can guard against unproductive busyness, redirecting our energies from activity to value, and then looking at that value within the context of whole organisation collaborating towards commonly shared goals.


Dan North will be with Jenny Bailey for Part Two of ‘Ask me Anything’ later in the year. Meanwhile, you can hear more advice and pragmatic thinking from Dan at the Agile Business Conference on 26 & 27 September in London.

 

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