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The largest and fastest growing organizations in the world, including Amazon, Facebook, Google, and Microsoft, are making massive gains from rapid experimentation. So why are so few firms following their example? According Harvard Business School professor Stefan Thomke in an article in the current HBR entitled, “Building A Culture Of Experimentation,” the reason is that most other big firms lack “a culture of experimentation.”
To create a culture of experimentation, the article says, firms need “a new model of leadership,” which cultivates curiosity, emphasizes data-informed decisions, experiments ethically, sets grand challenges and establishes systematic training and support for rapid experimentation. Those are all positive steps in the direction of creating a culture of experimentation. But they won’t be enough.
How Most Big Firms Are Run
That’s because the underlying management model of most big organizations is explicitly aimed at preventing the kind of experimentation that the HBR article is recommending. As Gary Hamel has explained: “Strategy gets set at the top. Power trickles down. Big leaders appoint little leaders. Individuals compete for promotion. Compensation correlates with rank. Tasks are assigned. Managers assess performance. Rules tightly circumscribe discretion…. That constitutes the operating system for virtually every large-scale organization on the planet.”
This modus operandi is reinforced by bureaucratic systems of HR, budget, planning, strategy, finance, and risk management. These systems are generally designed to support the continuation of the business “as is”. The systems reward those who do what the top wants and offer disincentives to any who attempt anything different. In other words, the systems are set up to discourage the very kind of organization-wide experimentation that the HBR article is recommending.
The fortress is run from the top, with an assumption that the top knows best. The fortress is “built to minimize risk and keep people in their boxes and silos,” as business school professor John Kotter writes. People “are working with a system that is designed to get today’s job done—a system that asks most people, usually benignly, to be quiet, take orders, and do their jobs in a repetitive way.” Exploitation of the existing business model takes precedence over the exploration of new possibilities.
These arrangements may have made some sense in the mainly stable world of the 20th Century. Bureaucracy was designed, in the words of Peter Drucker, to “make common men do uncommon things.” The “uncommon things” were those determined by the top and were essentially more of the same.
In the scientific management of Frederick Taylor as explained in The Principles of Scientific Management (Harper Brothers, 1911), management was about making the existing business run more efficiently. The experts figured out the best way to shovel pig iron and told the worker—Schmidt—how to do it, and then monitored whether he had done it. The last thing they wanted was for Schmidt to start suggesting experiments. Such organizations were “built to last.” Their strength was their very robustness and immovability. Fighting the system was meant to be futile.
While workers might feel that their talents were being underutilized, particularly as workers became knowledge workers, the management could rest assured that their commands were being efficiently implemented, without time and effort being wasted in a myriad hare-brained schemes.
As the management considered themselves better informed and more intelligent than the workers, they saw nothing was lost by not listening. Even when firms like Toyota started systematically listening to their workers ideas—with around a million suggestions per year—and encouraging the workers to pull an andon cord if they perceived a problem on the assembly line, the suggestions that the management received were still limited to adjustments to the management’s schemes, not about what the firm should be doing differently.
Why Experimentation Is Necessary
Those management arrangements no longer make sense.
For one thing, uncertainty. Most big firms no longer live in a stable world. Except for a few sheltered industries, the current context is VUCA—volatile, uncertain, complex and ambiguous. A key reason for the volatility and complexity is that power has shifted from the seller to the buyer. The customer has options and accurate knowledge about those options and can communicate with other customers. As a result, the customer is the firm’s new boss.
It is the customer who determines what the firm must do. The firm can only survive by obsessively understanding the customers’ shifting needs and finding new ways of of delighting them. “In an increasingly digital world,” as Mark Okerstrom, the CEO of Expedia Group told Thomke , “if you don’t do large-scale experimentation, in the long term—and in many industries the short term—you’re dead.”
Second, in a digital world, technology has made it radically simpler and quicker and cheaper to carry out and evaluate multiple experiments. In the old world, the firm might do a few big experiments with focus groups, but the results were often problematic. With the advent of the web and big data, firms like Etsy found it easy to do scores of experiments every day.
Moreover, as routine work is increasingly done by machines, workers are often better educated, more technologically skilled and more knowledgeable about customers than their managers. As a result, leadership and strategy have started shifting inexorably towards the periphery. Whereas in a traditional bureaucracy, encouraging everyone to carry out experiments was management’s worst nightmare, in a VUCA world that becomes the essence of what management needs.
The Advent Of Business Agility
As a result, firms like Amazon, Facebook, Google, and Microsoft have embraced a radically different kind of management. It involves three key elements that enable business agility: an obsession with delivering value to customers as the be-all and end-all of the organization; a presumption that all work be carried out by small self -organizing teams, working in short cycles and focused on delivering value to customers; and an interacting network of teams rather than a steep command-and-control hierarchy.
This approach includes both operational agility (making the existing business better) and strategic agility (generating new products and services and so bringing in new customers). In substance, it is the management model that underlies firm-specific terminology, labels, processes or brands of firms like Amazon, Facebook, Google, and Microsoft. In those firms, HR, budget, planning, strategy and finance systems are also increasingly aligned to reflect and enhance business agility.
Whereas in traditional management efforts to create a culture of experimentation are likely to be crushed, in a firm practicing business agility a culture of experimentation is simply an inevitable consequence of the normal way of managing.
Thus enabling large scale experimentation requires more than “nurturing a different culture” or “a new model of leadership.” The whole power structure of top-down bureaucracy has to be dismantled, piece by piece, and replaced with different set systems, values, and attitudes. For most firms, this will take a number of years and involve multiple stages. Fortunately, there is now several decades of experience in learning how to do this.
Thus creating a culture of experimentation involves more than adding a fix on top of the static machine with a vertical reporting dynamic. The whole organization needs to become an organic living network of high-performance teams. In such firms, managers recognize that competence resides throughout the organization and that innovation can and must come from anywhere. In an Agile organization, continuous experimentation is the normal way of life.
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