Why do the traditional business ways no longer work? Is top-down management good for a company?
In The Age of Agile, Stephen Denning argues that changes in the business landscape mean that many of the old ways of managing and leading a company no longer work. He explores three traditional business practices and explains why they’re obsolete.
Let’s look at these three disadvantages of traditional business in more detail.
Obsolete Practice 1: Assuming the Future Will Resemble the Past
One disadvantage of traditional business is that it relies heavily on analyzing past data to forecast future market conditions. The idea is that, if companies collect and analyze enough data about what has happened before, they can predict emerging trends and pre-emptively invest their resources accordingly.
Why It Doesn’t Work Anymore: Unpredictability
Denning explains that this approach falls short because data can only tell us what has happened before—not what will happen in the future. Data cannot predict disruptions and innovations, which are hallmarks of the modern business landscape.
Advancements in technology, communications, and interconnectedness translate into high levels of unpredictability and constant change. To remain viable, businesses must adapt swiftly to changing conditions, often by pivoting to tap new markets, create new products, and adopt new technologies.
As a result, companies can no longer depend on their analysis of data from the past to steer them into the future. For example, a company might develop a five-year strategic plan, only to find that within two years, a disruptive innovation has rendered their product obsolete, and now they have to pivot to a completely new product. Their strategic plan, though well-researched and supported by data, may turn out to be useless.
Obsolete Practice 2: Focusing on Competitive Advantages
The second traditional business strategy Denning targets is focus on competition and creating long-term competitive advantages. This concept, popularized by Harvard business professor Michael Porter, suggests that firms can achieve perpetual profits by positioning themselves in protected market niches where they’re insulated from competition by structural barriers. For example, large pharmaceutical companies benefit from patent protections, which give them the exclusive rights to sell specific drugs for years. They may also face few competitors because barriers like the high costs of research and development and the extensive FDA approval process hinder startups from entering the market.
Why It Doesn’t Work Anymore #1: Rapid Change
Denning explains that in today’s fast-changing, unpredictable business landscape, protected market niches are rarely permanent, as barriers to competition can swiftly collapse. Globalization or deregulation can erode a company’s competitive advantage by opening the market to new competitors. Furthermore, competitive advantages that are based on technological innovation can disappear when competitors adopt new technologies.
Why It Doesn’t Work Anymore #2: High Customer Expectations
Furthermore, a focus on competitors distracts companies from their customers. Denning argues that customers should be a company’s priority because customers have higher expectations than ever. While companies used to have the luxury of offering customers a sub-par experience and relying on marketing and advertising to drive sales, this is no longer a viable business strategy. Companies now have no choice but to provide real value that excites their users.
According to Denning, this change is due to three developments:
1) Many tech companies have succeeded in providing customers with immediate gratification and value, so many customers now expect high-quality user experiences and refuse to settle for anything else.
2) Customers have an easier time sharing and accessing information about products and services through online reviews. This means that companies are now limited in their attempts to maintain the reputation of their products purely through advertising and marketing.
3) The fast proliferation of technology, combined with globalization and deregulation, has resulted in a competitive economy where customers have more power because their range of options is larger than ever—they can afford to be choosy.
Obsolete Practice 3: Top-Down Bureaucratic Management
Finally, Denning discusses the traditional business practice of top-down bureaucratic management. This long-standing practice consolidates decision-making in a few hands through a strict hierarchy of authority. While this approach may have the advantage of clarifying roles and responsibilities, Denning argues that it no longer works in the modern business landscape.
Why It Doesn’t Work Anymore #1: High Level of Complication
Denning argues that as software and other new technologies have reshaped the business world, the work of creating value for customers has become much more complicated. Many digital products and services rely on intricate components working together interdependently. This creates challenges for traditional management, because a single top-down manager may have only a limited understanding of what their team is trying to build.
Why It Doesn’t Work Anymore #2: A Need for Quick Adaptability
Denning contends that top-down bureaucratic management makes companies slower to react to changes and adapt to new practices. Because every idea needs to work its way up the decision-making ladder to be ratified, companies with this management style become inflexible. Since modern businesses must be flexible to survive, the unwieldy nature of this management style makes it difficult for companies to keep up.
The Solution: Become Agile
Denning asserts that in order to thrive in the modern economy, companies must let go of the old ways of doing business and instead adopt agile practices. (Broadly speaking, Denning’s definition of “agility” is a company’s ability to adapt to change swiftly and successfully.)
The rest of this guide will cover Denning’s advice to business leaders looking to make their companies more agile. First, we’ll explore the strategic principles that guide agile companies at the highest level of decision-making. Then, we’ll discuss how management can become more agile to support these strategies.
| Measuring Agility In considering how to make your company more agile, a good first step is figuring out how agile your company already is, and in what areas. Business experts recommend several metrics for assessing your agility. Time to market: How much time does it take for your company to bring a new product or service to market? Development cycle: In developing new products, how long does it take to create each new iteration? Customer satisfaction: As we’ll see throughout this guide, satisfying customers is a core goal of agile companies. How excited are your customers to use your product? Employee engagement: In an agile organization, employees are empowered to generate ideas and autonomously make decisions. Measuring employee engagement can indicate your company’s agility. |
