In today’s fast-paced business world, being agile is often the crucial element for achieving success. Many companies are striving to shift their work methodologies towards agile principles in order to be more responsive to changes. However, why do so many of these transformation efforts fail? The answer often lies in the lack of preparedness for change within the organisation and the underestimated impact of its own corporate culture. In this article, we will delve into the relationship between cultural change readiness and successful agile transformation, as well as present strategies to effectively navigate these complex and interconnected dynamics of change.

Not All Change is Created Equal

Change management encompasses various levels of organisational change. Depending on whether it pertains to a single team, a department, a business unit, or the entire company, the scope and complexity of the transformation can differ significantly. Put simply, the magnitude of the change determines its intricacy (Kruse, 2004, 2020; Kotter, 2012).

Within the context of agile transformation, change management involves initiating and embedding cultural dynamics that foster a high level of agile maturity within the company over time (Leffingwell and Jemilo, 2019; Grupe, 2022). The focal point lies in shifting individuals’ mindsets and enabling organisational ambidexterity (Grupe, 2022). This means equipping employees with adequate time, resources, and budget to learn new skills and enhance existing ones. Therefore, agile transformations primarily entail a cultural shift. They are often instigated through frameworks like SAFe and inherently encompass intricate processes (Leffingwell and Jemilo, 2019).

Companies planning an agile transformation should recognise that its success hinges upon the capabilities and expertise of their employees (Cohen and Levinthal, 1990; Van Wijk, Jansen and Lyles, 2008). From the perspective of developmental psychologists and cybernetics, individuals are social beings who shape the environment (system) they collectively share in their day-to-day work (Kruse, 2004; Jones, 2014). Hence, companies are essentially viewed as social systems (Schein, 1987, 1988, 2009). These systems are naturally complex and dynamic, influencing not only themselves but also all interconnected elements (Roethlisberger and Dickson, 1934; Lewin, 1947; Katz and Kahn, 1978; Mabey and Mayon-White, 1993).

By acknowledging the interplay between cultural change, employee networks, and organisational dynamics, companies can better navigate the challenges and leverage the opportunities associated with agile transformations.

Change Requires Psychological Safety

Culture transformation is a gradual process, which poses challenges in the face of rapidly evolving market landscapes (Kotter, 1995, 2012). The influences of the VUCA (Volatile, Uncertain, Complex, Ambiguous) world compel companies to swiftly respond to emergent demand shocks, new competitors, or more effective solutions to customer problems (Luecke, 2003; Burnes, 2004; Balogun & Hailey, 2008). Consequently, they encounter shocks that internally disrupt stability (Kotter, 1995, 2012; Kruse, 2020).

Prominent signs include management board reshuffles, mass layoffs, or offshoring endeavours aimed at cost reduction, substantial price markdowns, and the like. In the 1990s, IBM, for instance, underwent a phase of instability where the company incurred staggering losses in the billions. This was precipitated by intensifying competition, as smaller, faster, and more affordable computer manufacturers entered the market. Additionally, IBM’s entrenched corporate culture stifled innovation. Both factors hindered IBM’s ability to promptly adapt to the changing technology landscape. As a result, they closed down facilities and terminated employees.

Shocks of this magnitude engender heightened uncertainty within the organisation. This so-called “cultural entropy” (Barrett, 2013, 2016) gives rise to two significant behavioural patterns:

  1. Shocks can instigate fear-driven behaviour, not only among employees but also within management. Common manifestations include micromanagement (excessive control), manipulation, and assigning blame.
  2. Shocks can also trigger safety-oriented behaviour, whereby employees and management invest a substantial portion of their time and energy in restoring a sense of psychological safety. Consequently, valuable time that should be allocated to day-to-day operations, professional development, or problem-solving gets diverted, potentially impeding revenue generation.

Both consequences perpetuate organisational paralysis (Barrett, 2016; Kruse, 2020). Fear-driven behaviour can lead to disengagement, internal resignation, and attrition, while the quest to restore perceived security diminishes productivity, rendering the company lethargic, thereby affecting revenue streams. Hence, it is vital, during complex transformation processes such as an agile cultural shift, to prioritise the preservation of psychological safety.

Within a psychologically safe environment, team members can focus on critical aspects rather than solely striving to establish stability and predictability. From a managerial standpoint, a stable system is necessary to facilitate ongoing development through organisational learning.

An illustrative example of a company with similar experiences is Google. In 2012, Google initiated “Project Aristotle” to identify the key factors distinguishing its most successful teams. One of the pivotal findings underscored that psychological safety emerged as the most critical determinant of team success. Consequently, concerted efforts were made to foster an environment where employees feel comfortable expressing themselves without fear of negative repercussions. As part of this project, a feedback tool was implemented that transcended hierarchies and functional silos, enabling the early detection of adverse impacts resulting from changes.

The Interpretation of Change Readiness Differs Between Viewpoints

To prepare a company for profound change, it must be change ready. This goes beyond organisational change readiness in terms of preparing IT systems, data (databases), processes, or company structures such as locations or departments. In the context of cultural change, the focus is on the employee, who is shaped by education, upbringing, and personal and professional environments, resulting in a mindset (Hofert, 2018a, 2018b). So, how does an employee become change ready?

From the perspective of developmental psychologists and cyberneticists, individuals develop core values over time that influence their social norms (something feels right or wrong), which in turn determine their behaviour (Hofert, 2018a; Grupe, 2022). The development of behavioural patterns is deeply rooted in one’s own self. When employees join a new team, it typically triggers a mutually reflective process of group formation (typically known as forming, storming, norming, performing, adjourning). The individual influences the group through their behaviour, norms, and values, and vice versa. Over time, a group identity emerges with shared behaviours, norms, and values – in other words, a team is formed.

Transformation frameworks like SAFe utilise this process (Leffingwell and Jemilo, 2019): By introducing roles, processes, and artifacts (terminology, symbols, certificates), behaviour is changed – no longer working on a project but within an iterative-incremental development process in a scaled environment. Essentially, it is an attempt to change norms and values (“Lean-Agile Values”) to deliver customer-oriented and continuous value.

The principle underlying the development of teams, or the transformation of a company is universal: networking.

From a sociological perspective, networks are complex, adaptive systems interconnected in mutual dependence (Gell-Mann, 1992; Chan, 2001; Kruse, 2004; Morowitz, 2018). At the employee level, these networks can help individuals support each other in evaluating new ideas or making decisions (Grupe, 2022). This not only reduces the mental load on individuals but also fosters innovation through shared knowledge (Roberts, 2007; Harford, 2011; Johnson, 2011). The exchange among employees has an even more significant aspect: the experience of how colleagues handle information increases transparency into their behavioural patterns (Hofert, 29018a, 2018b). When a colleague uses sensitive information as agreed, trust can be established. However, if the information is used for personal gain, trust will be eroded. As companies are hierarchical systems, the role of management is particularly important. Leaders must actively enable employee networking (Kotter, 1990, 2012; Kruse, 2020). Moreover, they must actively promote it through consistent messages and authentic actions. Transparency must also be exemplified to set the cultural foundation for networking.

Two companies that have successfully applied the principle of “trust through transparency” are Zappos and Patagonia. At Zappos, collaboration and mutual support among employees are prioritised. They have introduced “Circle Meetings” where open discussions about ideas or challenges in the daily operations take place. These meetings strengthen trust among employees and foster a culture of collaboration. On the other hand, Patagonia has established an internal social network called “The Footprint Chronicles,” which allows employees to exchange and discuss information about the company’s supply chain. This increases transparency regarding the origin and quality of materials and products, perceived as a trust-building measure. Furthermore, Patagonia offers employee training and workshops to raise awareness of the environmental impact of production and promote employee engagement in sustainability. Both companies demonstrate how networks can cultivate trust and transparency and create a positive corporate culture.

Conclusion

When companies are surprised by unexpected and significant events, they experience a shock and are thrown into a state of instability. The transition from a state of instability to a state of stability must be managed by actively gathering and evaluating cross-hierarchical opinions, experiences, and ideas through moderated discussion processes. If the results of these discussions, such as the future direction of the company, location policies, or personnel strategies, are jointly reached and implemented through change initiatives, the company can sustainably achieve a new, stable state. Companies can only develop cultural change readiness and successfully accomplish agile transformation if they promote the formation of personal networks and actively exemplify the universal principles of transparency, consistency, and authenticity.

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Dr. Fabian Grupe

Dr. Fabian Grupe

Principal

Dr. Fabian Grupe is experienced in agile transformations and culture change. He combines deep knowledge of agile change methodologies, social dynamics, and behavior patterns with a tech background and entrepreneurial experience to build resilient delivery organizations based on value-driven outcomes.

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