Digital transformation is not a matter of ideas, it is a matter of organizational execution. To successfully transform your firm, it is key to adapt the organisation’s governance to deliver the value the company is aiming for.
A common problem seen in the corporate world is a lack of fit in governance when pursuing a digital transformation. While introducing agile and digital business models, companies still rely on their long-established governance process with annual budget cycles and planning projects. Worse comes to worse, when IT is operated purely as a commodity, focussing singularly on cost efficiency.
Why is that a problem? Putting technology at the core of your organisation's value delivery is essential to deliver a digital business model. Under a digital business model, emphasis shifts to the customer. Thus, an organisation will shift to building software with an external, customer-centric, product orientation rather than an internal, project-based approach. This implies a change in the operating model of your organisation — crucially, in its governance.
Thoughtworks’ EDGE operating model is a modern approach on operating models to cope with this kind of challenge. It is both evidence-based and value-driven. It is an operating model that explicitly brings strategy and execution together in an ongoing virtuous cycle. Crucially, the right form of adaptive governance will substantively change the underlying culture of the organisation to one that embodies the organisational agility, continuous learning abilities, and innovative product mindset required for transformative shift. This product mindset is the foundation of the most successful digital organisations of our era that allows them to operate with a clear focus on speed, scope, and scale.
What is EDGE-based Governance?
The EDGE operating model leverages agile principles, applying these to the work of strategy development and execution. Governance of today has fallen into a similar path of imbalance as software development has around the year 2001. Back then, the agile manifesto sought to emphasise working software over comprehensive documentation. Most governance models emphasise activity and often put measures and controls into place which actually limit value creation. Specifically, governance, as it is commonly practiced in larger organisations, is among the greatest roadblocks to business agility and product mindset.
Under EDGE, the primary objective of governance is to:
- Ensure that goals, bets, and initiatives meet their customer value goals (this includes budgeting);
- Allocate and manage the decision-making rights required for accountability; and
- Ensure that initiatives are in compliance with internal and external regulations and standards.
What we find in most companies is that traditional portfolio management and project governance approaches place a strong emphasis on documenting deliverables and completing activities to eliminate mistakes and mitigate risk. The EDGE operating model acknowledges that it is simply not possible to eliminate mistakes. What EDGE advocates for instead is a governance model that increases organisational ability in order to “recognise mistakes earlier and respond rapidly, thereby mitigating losses and reducing risks”. In clear words: The EDGE governance model supports learning from experiments to optimise for customer value.
How does it work?
EDGE-based governance centres on accurately measuring customer value (what is actually in it for the customer). It rates customer value much higher than commonly used measures of activities such as milestones achieved or budget spent. The starting point is always a business hypothesis which can be measured in terms of outcome representing the value delivered to the customer. The measures of success enable value to be confirmed or denied and allow improved results to emerge from collaborative activity. EDGE governance further encourages fast testing of hypotheses and value learnings whilst enabling continuous improvement. Therefore, this approach to governance enables safely bounded experimentation and growth.
The new governance process empowers the organisation by allocating decision-making rights in a federated or distributed fashion so that local teams close to the customer can make value decisions more quickly. They are accountable for these decisions through transparent, speedy, and measurable feedback mechanisms. The governance process supports organisations to be faster, more innovative, and more adaptive.
So what can you do?
Transforming organizational governance is never an easy task; it is part of the everyday culture of an organisation. It is therefore required that such a move is fully supported by the management board and ideally, even the shareholders or their representatives. In fact, changing the governance structure fundamentally changes the way money is spent and how the strategy of the company is executed. It will thereby strongly influence the future of the organisation, its products, customers, and profits. To implement an EDGE-based governance model requires the full trust of the shareholders in the ability of the organisation to decide in favor of the customer value and spend the organisation’s money wisely. While it may appear like a large one-time investment, it is instead an ongoing process. The adaptive governance process will evolve over time and develop with the organisation and its agile maturity in an evolutionary fashion.
A modern approach to governance enables the organisation to steer before it’s too late. It puts focus on achieving value, and to pivot when hypotheses are shown to be unviable. You are never done to develop and adapt a modern governance and to ensure long-term success of the organisation.
Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.
