The evolutionary organization (Part I)

By Gary O’Brien, Thoughtworks Digital Transformation Director

Darwin’s theory of evolution was never about ‘survival of the fittest’. It describes how individuals with traits that allow them to adapt to a changing environment are more likely to survive and pass on those traits to their offspring. Over time, the characteristics that enable a species to survive become more frequent in the population and the species changes – or it evolves. Like the process of evolution, digital transformation enables businesses to adapt, survive and thrive. 

The COVID-19 pandemic has been the catalyst for accelerated evolution, across the public and private sectors. Business leaders have been forced to reimagine how they create and deliver value in a digital economy. Heightened customer expectations have accelerated decision making, which in turn has required more resilient structures and less rigid organizational architectures. This shift is both profound and permanent.   

Like evolution, transformation never ends

For too long, public and private organizations have failed to recognize the conditions that necessitate a business adjustment or adaptation. Just as hard water stains form on a porcelain sink over time, subtle market shifts and associated business impacts accumulate gradually. Small issues may be evident but individually they’re not drastic enough to divert attention away from more pressing business priorities, like meeting the next revenue target. 

By the time a ‘digital transformation’ initiative is launched, monumental effort is required to drive radical changes. The transformation is so confronting it inevitably leads to compromise and underwhelming results – despite significant technology investments. 

So if transformation is about improving efficiencies to survive and gain a competitive edge in the digital age, why would a business ever stop? 

While the term itself implies an end point, transformation is better viewed as a continual process that must be ingrained in the strategic planning muscles of an organization. It requires investment in both skill sets and systems, so people and processes can continually adapt to new threats and opportunities as they emerge. 

This is why business leaders now need to see transformation as a natural shift to becoming an ‘evolutionary organization’. 

The COVID era

The global pandemic has created a distinctive moment in time that we will one day look back on as ‘the COVID era’. And like many other definitive eras in history, it is a period that demands change. Organizations will need to keep adapting and accelerating the pace at which they can move, just to survive. 

Eras can also be a period of creation – such as innovations that anticipate the changing needs of customers. The increased availability and widespread use of digital platforms has empowered customers, who now demand consistency and immediacy as well as personalized services across their preferred channels. 

These shifts are challenging management theory, which has remained largely unchanged for decades. Traditionally, operational structures focus attention and decision-making on four key areas – business models, strategy, financials and operations. 

Until recently, technology was viewed as an ‘operations’ function. However, the pandemic has thrust it to the forefront of all these areas.  It’s no longer a cost center within operations – it is the beating heart of the entire business. 

Evolutionary organizations understand the opportunity technology provides. They leverage it to help redefine and reimagine their business model, enter new markets and acquire new customers. It helps them drive down costs in certain areas, and address single points of failure across their operations. Importantly, their leadership team and the board understand that digital is the strategic differentiation that enables them to evolve and survive. 

Lean in to continual evolution

You can upgrade technology, create new digital channels, or move legacy apps to the cloud – but that won’t be enough to ensure long-term business resilience. 

This is particularly true of larger, older organizations that have well-established distribution channels, brand assets and investments. These can be strengths, but they can also create bureaucracy and complexity that make the organization less nimble and resistant to change.

Evolutionary organizations also make sure their work is driven by customer outcomes and set measures around that. This helps to resolve the disconnect between what transforming organizations are investing in, and what they think they are trying to change. 

For example, a financial services firm might aspire to help its customers retire comfortably. Their work could then focus on finding ways to better understand customer retirement aspirations – such as collecting data on what is required for a comfortable income, and what that actually means, beyond money for individual investors. Understanding more holistic goals can then unlock an opportunity for differentiation.

Three measures can give you a rapid indication over whether the work is progressing towards its outcomes:

1. What percentage of work is born from this outcome? It might be zero at the start, and it may never reach 100%. But if it’s still zero after 12 months, there is a problem. The gradual shift in this number shows continual improvement. 

2. How much work needs to leave the team in order to be completed? This measures the amount of autonomy and control you give the team by reducing the amount they need to share for review, approval or to outsource to specialist providers.

3. How much work stops or changes based on new knowledge? Not everything will work, so if this number is zero you are not learning anything – teams are blindly focusing on completing the work rather than achieving the outcome. It can take courage to act on what you learn from the measure. Ideally teams will not be penalized for failure. They can change strategy without losing budget. 

Too often, we see big fanfare around the introduction of Agile ways of working – but the majority of the investment is in pre-existing work. This is not real change. And it may have little to do with what customers want or need. 

Overcoming resistance with a thin slice approach

Of course, you’re likely to face barriers to change within your organization and even some leaders who resist the challenge to the status quo. By iterating, testing and learning in incremental stages, you will quickly identify resistance or constraints.

In digital transformation, we implement change in incremental end-to-end thin slices. A ‘thin slice’ is a company outcome that is ‘thin’ enough to be containable and large enough to demonstrate value creation through adopting new ways of working. It also needs to be inclusive across the organization – from executives to development teams and all functional units – to create visibility of the constraints and low hanging opportunities for improvement. As an example, for a bank a thin slice could be ‘simplify financials for small businesses’. 

Using the ‘thin slice’ approach, you can stress test the impact on your organization as well as users, and learn more about the best way to drive sustainable change within your environment. At the completion of the first thin slice you can add another, to test out scaling patterns. Typically, by the third or fourth thin slice, momentum will take over as the company ‘rolls in’ to adopt the culture of an evolutionary organization. 

As work cascades through this ‘outcome – measure – work – test’ cycle, the results will start to show success. And once you stop discovering new constraints or blockers, you can scale out what works with critical mass. It’s the same way species are able to adapt and reproduce – and the key to evolution.

Evolutionary organizations compete differently

Rather than assuming proven core markets will remain stable or pursuing traditional organic and inorganic growth strategies, evolutionary organizations are always seeking new ways to give customers value – to meet unmet needs or solve problems incumbent providers never perceived as being within their scope. These may be in completely new or adjacent markets. 

This is how entirely new models are born – like the ‘buy now, pay later’ phenomenon that has disrupted traditional credit payment services or ‘round-up’ investment apps that put small but high-volume amounts of money to work.

In the past, organizations typically grew from within or made acquisitions to scale quickly. Evolutionary organizations are willing to send an expedition on a new path into completely unchartered territory.

Transformation for the greater good

Evolutionary organizations do not emerge by chance. They require conscious investment into new structures and resources – and then the impact needs to be experienced before it can become embedded as new behaviors and mindsets across every part of a business.

This approach can create the fundamental capabilities needed to survive in the face of constant and unpredictable changes in our environment. It can empower teams to be more resilient, and to overturn complacency to actively seek out change. And, crucially, it prepares organizations to thrive in the post-COVID era – a humanistic era enabled by technology.

In my next article, I’ll discuss the three guiding principles of evolutionary organizations – how they use predictive modelling to make decisions, capture the potential of collective value and look for ways to disrupt themselves.