INTRODUCTION

An unstoppable revolution is now under way in our society, affecting almost everyone. The revolution isn’t being launched by opposition political parties, or by terrorists in secret cells, or through espionage by some obscure government department. The revolution is being conducted in plain sight by some of our largest and most respected corporations. It’s visible to anyone with eyes to see. It’s a revolution in how organizations are being run.

The revolution is very simple. Today, organizations are connecting everyone and everything, everywhere, all the time. They are becoming capable of delivering instant, intimate, frictionless value on a large scale. They are creating a world in which people, insights, and money interact quickly, easily, and cheaply. For some, the revolution is uplifting and beautiful. For others, it is dark and threatening.¹

Dazzling examples of the new way of running organizations are everywhere apparent. Firms like Apple and Samsung offer devices that can be tailored to meet the individual wants and whims of hundreds of millions of users. Firms like Tesla, Saab, and Ericsson are upgrading cars, planes, and networks, not by physically installing new items, but by delivering new software to the products via the Web. Meanwhile, Spotify matches billions of musical playlists to individual users’ tastes and delivers a weekly playlist tailored to each user’s preferences, while Warby Parker sells high-quality eyeglasses for a small fraction of what traditional retailers charge by using a low-friction online model. Online services like Skype, Zoom, and WhatsApp are taking tens of billions of dollars away from old-guard telecom firms by giving customers free or low-cost calls. Amazon has demonstrated what can be accomplished when customer value is pursued ahead of short-term profits: It’s not just the world’s biggest retailer—it’s bigger than all the other retailers put together.² Google has become big and rich very quickly, by providing search capabilities that are offered free.³ The population of Facebook is bigger than that of China. Airbnb, Uber, and Lyft are showing how to unlock the value in existing assets that were previously lying idle. And so on.

At the same time, what is lifting some companies is killing others. The examples here are also abundant. “Market-leading companies,” as analyst Alan Murray has written in the Wall Street Journal, “have missed game-changing transformations in industry after industry—computers (mainframes to PCs), telephony (landline to mobile), photography (film to digital), stock markets (floor to online)—not because of ‘bad’ management, but because they followed the dictates of ‘good’ management.”⁴ In effect, the “good management” that these firms were practicing had become anachronistic. It simply didn’t work anymore.

Spoiler alert. The difference between winners and losers isn’t a matter of access to technology or big data. Both the successful and the unsuccessful firms generally have access to the same technology and data, which are now largely commodities. Traditionally managed organizations also use digital technology and big data but typically get meager results. In some cases, like Kodak, it’s the firm that invented the new technology that has failed to exploit it. It’s not access to technology and data that makes the difference. The difference lies in a different way of running the organization that deploys technology and data more nimbly.⁵

Trying to exploit technology and data with the management practices that are still pervasive in many big corporations today is like driving a horse and buggy on the freeway. To prosper in the very different world that is emerging, firms need a radically different kind of management.

Some firms are embracing the new management paradigm with alacrity. They are happy to shed the traditional management practices of manipulating both staff and customers and instead follow their natural preference to treat people as people and engage in authentic adult-to-adult conversations. Some of them are generating inspired workplaces that create meaning in people’s lives.

Other firms are getting on board more gradually. They reflect on the obvious anomalies of traditional management and feel frustrated that their efforts to fix things don’t work. They find themselves having to run faster and faster just to stay in place. Yet they can also see the extraordinary gains of firms operating in the new way and begin to wonder: “Why can’t we have what they are having?” There often follows a lengthy period of reflection and experimentation before managers finally “get it” and internalize the new mindset.

Some firms are actively resisting the change. For established organizations that have been successfully managed in a traditional fashion for many years with settled processes, routines, attitudes, and values, the new management paradigm can be difficult, even baffling. It is often at odds with the unspoken assumptions about “the way we do things around here.”

Still other firms have sought to avoid the dilemma through financial engineering. They are pursuing ways of extracting value from the corporation through short-term cost-cutting, offshoring, share buybacks, tax gadgets, and other devices. While these expedients can create an appearance of prosperity for investors in the stock market, they are systematically destroying real shareholder value and genuine economic well-being.

When managers do embrace the new way of running the organization and the “Aha!” of how the new management paradigm is happening on a large scale, it can be an amazing and humanizing experience. Why would anyone consider doing things differently?

In short, this book explores how some organizations are learning how to operate in a way that is potentially better for those doing the work, better for those for whom the work is done, better for the organizations themselves, and better for society. These organizations now form a vast global movement that is transforming the world of work.⁶

The movement began many decades ago, but took off in a major way more recently in an unexpected place: software development. It is now spreading rapidly to all parts, and all kinds, of organizations—big firms and small, simple and complex, software and hardware, technology, manufacturing, health, pharmaceuticals, telecommunications, aircraft, and automobiles—you name it.

The new paradigm enables organizations to thrive in a world of rapid and unpredictable change. It enables a team, a unit, or an entire enterprise to nimbly adapt and upgrade products and services to meet rapidly changing technology and customer needs with efficiency gains, quality improvements, or even completely new products and services. It permits an organization to flourish in a marketplace that is increasingly volatile, uncertain, complex, and ambiguous—the so-called VUCA world.

How did this revolution happen? Some, but not all, of the organizations implementing the new management paradigm see the foundational document of the movement as the 2001 Manifesto for Software Development—now commonly called the Agile Manifesto. Others refer to earlier historical antecedents and management practices and use terms like “lean,” “quality,” “design thinking,” or their own home-grown label.⁷

The Agile Manifesto declared that “uncovering better ways of developing software” requires a reversal of some fundamental assumptions of twentieth-century management. It values “individuals and interactions over processes and tools, working software over comprehensive documentation, customer collaboration over contract negotiation and responding to change over following a plan.”⁸

Yet in propounding these values, the Manifesto was implicitly raising a wider and deeper set of questions. What if firms could create workplaces that drew on all the talents of those doing the work? What if those talents were totally focused on delivering extraordinary value to the customers and other stakeholders for whom the work is being done? What if those receiving this unique value would be willing to offer generous recompense for it? What would these workplaces look like? How would they operate? How would they be reconciled with existing goals, principles, and values? Could they operate on a large scale? Could they be reliable?

In 2001, no one really knew the answers to those questions. Experiments were conducted to find out. As with anything new, things proceeded in fits and starts, with frequent setbacks. Many variations in practices were explored. Even when the practices were in essence the same, the approaches often had different labels.

The initial experiments were with single teams. As some of these experiments succeeded, the experiments expanded to groups of teams and eventually to large-scale implementations, even whole organizations. The new way of running organizations spread to manufacturing and other fields.⁹ Some startups that began operating in an Agile fashion continued to be run this way, even as they grew.

For some years, it was hard to make sense of what was going on. Even some of those who embraced the new management paradigm saw it as playing a limited role, mainly in simple software activities in small units or in organizations where reliability was not an issue. Many teams and firms that claimed to be operating in the new way were doing so in name only. Some suggested that the new way of managing, as it expanded beyond individual software development teams, would inevitably mutate into the traditional practices of top-down bureaucracy in order to achieve efficient, reliable management in large-scale operations.

Yet over time what was working and what wasn’t became apparent. As a result, there was a convergence toward a family of goals, principles, and values that is demonstrably more productive and more responsive to today’s marketplace than traditional management and that can operate on a large scale. As the movement matures, and as managing software becomes central to the success of most businesses, the new paradigm is becoming a key to the management of everything.

The new paradigm has not been easy for traditional managers to understand or implement. First, much of the recent momentum came from an unexpected source: software development, which had no prior reputation for excellence in management. It was hard for general managers to accept that they had anything to learn about management from software developers. Managers were slow to grasp the wider significance. In some ways, the new way of running an organization is still the best-kept management secret on the planet.¹⁰

The antagonism is understandable. These managers have spent most of their careers accepting the prevailing management paradigm and proceeding within its assumptions. Their careers have flourished by mastering and implementing twentieth-century concepts and practices. They see that business schools still teach these concepts and practices. The thought that everything on which they have built their careers is changing beneath their feet can be unnerving—even alarming. Yet the change is coming at them willy-nilly. One study suggests that 75 percent of the Standard & Poor’s 500 Index (S&P 500) will turn over in the next fifteen years.¹¹ Another says that one in three public companies will delist in the next five years.¹² The choice for many organizations is simple: change or die.

Second, the illusion that technology will by itself solve the challenge of adaptability is still widespread. Many firms fail to see that since generally all organizations have access to the same rapidly evolving technology, competitive advantage flows not from the technology itself but rather from the agility with which organizations understand and adapt the technology to meet customers’ real needs.

And third, the way of running an organization represents a genuine paradigm shift in management, with fundamentally different goals, principles, and values that disrupt deeply entrenched assumptions, attitudes, and habits. Traditional managers often believe—and hope—that the changes are merely a fix that they can apply to specific issues, rather than a fundamentally different way of approaching management itself.

The revolution is proceeding at different speeds in different sectors. Manufacturing, for instance, which pioneered the early stages of the Agile revolution, is now behind software development. Yet as physical products and services are increasingly software driven and the “Internet of Things” makes its presence felt, the distinction between software and manufacturing is disintegrating. As “software is eating the world,” all firms are becoming dependent on software, thus accelerating the spread of the Agile paradigm.¹³

The central theme of this book—that corporations must radically reinvent how they are organized and led and embrace a new management paradigm—may seem to some readers to be extreme. It is not. This isn’t a management fad that was invented last Tuesday and will be gone by Friday. It is based not just on a handful of recent examples—mere flashes in the pan—but on the experiences over decades of tens of thousands of organizations around the world.

As someone who had been deeply involved in general management for decades as a manager at the World Bank, I have to admit that I didn’t pay much attention to these developments until 2008. It was only then that I suddenly grasped that the management discoveries of these software developers had vast implications for all organizations. I introduced the thinking to general managers in my 2010 book, The Leader’s Guide to Radical Management. Since then, I have been studying the rapidly expanding implications in many different sectors, as whole organizations join the movement. I have written over 700 articles as a contributor to Forbes.com, with many case studies—both recent and historical.

For the last couple of years, I have been leading a learning consortium of major organizations that are passionate about discovering together what these changes mean for their goals, principles, and practices. This book is in part a progress report on their discoveries.¹⁴

Implementing the new management paradigm isn’t easy. It’s not for the faint of heart. All the firms that we studied experienced major setbacks in the early going. The leaders persevered and eventually succeeded through adherence to their goals, principles, and values.

Nor should we be distracted by the fact that a great deal of fake change is still rampant. In some cases, organizations claim to be operating in the new way while offering no more than a thin veneer laid on top of traditional top-down bureaucracy. These companies are doing what they’ve always done; they’re just giving it a new name.

The new management paradigm is a journey, not a destination. It involves never-ending innovation, both in terms of the specific innovations that the organization generates for the customer and the steady improvements to the practice of management itself. A firm never “arrives” at a steady state where it can relax because “we are now Agile.” Embracing the new paradigm requires continuous commitment and leadership from management.

This book offers snapshots of firms that are at different stages of their respective journeys. What got them to where they are now is no guarantee of future success. These firms will only continue to prosper if they persist in their embrace of the new goals, principles, and values and go on delighting customers with continuous innovation.

This book does not of course begin with a clean slate. There is a vast and growing body of literature on the new management goals, principles, and practices. Particularly practices. Much of the literature is written by software developers for other software developers, often in software-centric jargon and often focused on tools and processes. This book distills the essence of the new management paradigm, particularly the relevant mindset, in nontechnical language.

The first part of the book (Chapters 1 through 7) covers the principles of Agile management. To master the heart of the new management paradigm, we will begin in Chapter 1 by visiting two very different firms—a very young firm, Spotify, the music streaming service, and a very old firm, Barclays, the global bank—with one key thing in common: a ferocious commitment to the new management paradigm.

Then we’ll explore the three laws of the new management paradigm: the Law of the Small Team, the Law of the Customer, and the Law of the Network. We will see how the new management mindset applies the three laws. This isn’t just a methodology or process to be implemented within the assumptions of current management practice. It involves a fundamentally different concept of what an organization is and how it must operate to succeed in today’s marketplace.

We’ll begin with the Law of the Small Team (Chapter 2) because it’s the aspect of management that received most of the attention of the early Agile implementations. In our visits to Menlo Innovations (the developer of mission-critical software in Ann Arbor, Michigan) and Etsy (the handicrafts marketplace), we’ll see how, in a VUCA world, big and difficult problems need to be disaggregated into small batches and performed by small cross-functional autonomous teams, working iteratively in short cycles in a state of flow, with fast feedback from customers and end-users.

We then take a look at the Law of the Customer (Chapter 3). It’s the most important of the three laws because it makes sense of the other two. We’ll examine the implications of the epic shift in power in the marketplace from seller to buyer, and the need for firms to radically accelerate their ability to make decisions and change direction in the light of unexpected events.

Then we’ll take a tour of the lynchpin of Agile management—the Law of the Network—which ties together the other two laws. We’ll see (in Chapter 4) what’s involved in making the whole organization Agile. We’ll learn how even the U.S. Army has discovered that a steep, vertical hierarchy is no match for a committed, interactive network, even one that is underresourced and underskilled. We’ll probe yet more Agile paradoxes: Control is enhanced by letting go of control, and Agile leaders are less like fierce, conquering warriors than curators or gardeners.

We’ll pay a visit to an old global behemoth in Seattle that, against all the odds and the predictions of Agile experts, is undergoing an Agile transformation at scale (Chapter 5). Then we’ll explore what’s involved in making major financial gains by moving from operational Agility to Strategic Agility (Chapter 6).

Achieving Strategic Agility will often involve a shift in an organization’s culture (Chapter 7). We’ll pay a call on a Silicon Valley icon that was on the verge of bankruptcy and that turned its toxic culture into a dynamic innovative culture that is now generating huge profits through market-creating innovations.

In the second part of the book (Chapters 8 through 11), we’ll explore key constraints or traps to implementing Agile management. First up is the pervasive goal in publicly owned corporations: maximizing shareholder value as reflected in the current stock price. We’ll see the havoc caused to Agile management and to the economy by managers who focus on extracting, rather than creating, value (Chapter 8).

We’ll look at the mind-boggling use of share buybacks and examine what organizations—and society—need to do about it (Chapter 9). We’ll examine the problems caused by cost-oriented economics and the resulting large-scale offshoring of jobs over the last several decades (Chapter 10). We’ll see how a backward-looking strategy became a constraint instead of an enabler (Chapter 11).

In the epilogue (Chapter 12), we’ll explore the historical precedents over four centuries for making paradigm shifts in management and the leadership implications for the emerging age of Agile, which offers the possibility of a great awakening—the foreshadowing of a transformation in the way our organizations and our society function.¹⁵

This book answers three simple questions. How do organizations flourish in a VUCA world, where the customer is in charge of the marketplace? Why has embracing this new way of running organizations become a necessity? What can leaders at all levels of the society do to create a more energizing, prosperous, and meaningful mode of working and living?