The Handelsbanken Way

Handelsbanken has for several decades been Sweden’s most profitable bank. What makes The Handelsbanken Way so successful?

The Handelsbanken Way

Volumes have been written in Sweden about Toyota and The Toyota Way. Employees at Japanese Toyota have developed interesting methods to handle uncertainty. However, Handelsbanken in Sweden has developed its own method: The Handelsbanken Way.

Jan Wallander

Jan Wallander was headhunted by Handelsbanken in 1970 and appointed CEO. When he first joined the bank it was facing big problems. The problems were so great that Wallander’s task was to save the bank.

Wallander’s background was as a researcher and he was used to formulating theories, performing experiments to test his theories and drawing conclusions from the results. You have to be able to prove that the theory works in practice or the theory falls apart. There’s nothing strange about this but this kind of science-based approached is uncommon in business management. Instead, companies often copy each other because they believe that what everyone else does can’t be wrong. What Wallander realized is that everyone else can be wrong.

The Handelsbanken Way

Wallander and Handelsbanken developed an approach that in many ways differs from what is seen as the “correct” way to lead and manage a business. “Real” businesses have a budget but this is not the case at Handelsbanken. “Real” businesses have organization schedules yet Handelsbanken doesn’t. Furthermore, “real” businesses have a long-term strategy; Handelsbanken doesn’t.

In the book titled Decentralisation: The Why and How to Make it Work: The Handelsbanken Way, Wallanders writes about how he developed his own unique way to work. Budgets and long-term planning are just forecasts, Wallander explains. A forecast is built on projecting historical patterns into the future. The only thing that can accomplish is encouraging your employees to continue with the same work they are already doing. However, reaching that conclusion has entailed a lot of unnecessary work. Wallander reaches the conclusion that you should instead use the time and work on actions that create value for the business and the employees agree. To quote Wallander, “Now one could finally put this to the side with a sigh of relief and return to working the same way one always has.” What would be really helpful would be to foresee major changes and events such as the real estate crisis in the 90’s or the financial crisis that followed 20 years later but this isn’t possible.

The argument Wallander proposes regarding uncertainty is the same that practitioners such as Karl von Clasuwitz and Taichi Ohno have proposed and the same as scientist and meteorologist Edward Lorentz studied and explained: it’s not possible to create forecasts that are both useful and long-term (read more in my previous post).

Organization Charts

Wallander provides an interesting discussion on organization charts. At Handelsbanken everyone has a clear understanding of who their boss is as well as what responsibilities and authority one has. The problem with drawing up an organization chart, according to Wallander, is that when the chart changes the whole company is informed about someone’s promotion, demotion or transfer and this makes changes in the organization unnecessarily painful. Additionally, organization charts don’t fully describe how the work is done, as it would be to complicated. Therefore Handelsbanken found out that it’s better to not have an organization chart. If you need to know where someone works you can just look it up in the company phone-book.

Decentralization

Wallander’s guiding principle is decentralization. He writes that it’s easy to centralize but difficult to decentralize because of the many pitfalls. In order to decentralize an operation it’s necessary to have an infrastructure with resources that pull the whole operation in the same direction. To develop this infrastructure for a business is a challenge and requires stamina. Wallander mentions that some measures took almost 20 years to develop at Handelsbanken. Handelsbanken wasn’t the first company to develop semi-autonomous units; in fact, Wallander points out GM and DuPont as predecessors. These companies invented the concept of coordination of decentralized units as early as the 1920’s.

There are plenty of examples of decentralized companies being more successful than centralized ones. Wallander mentions ICA and Konsum as examples. Decentralized ICA, with the individual store manager in control, is very profitable while the centralized Konsum loses money year after year.

I can warmly recommend Jan Wallander’s book about the Handelsbanken Way to anyone interested in leadership and organization. Wallander’s ideas might seem radical but they are in line with today’s research.

What is Agile Product Development?

Agile product development is the ability to impact the market, utilize this impact and to have the ability to make use of new opportunities appearing in the marketplace.

In this article I will define agile product development. I will start with a definition of product development, followed by a short history of the term agile. Finally I’ll describe how the different strands of development of agile converge in Pulse.

The Definition of Product Development

Product development is the transformation of an opportunity on the marketplace into a product in the client’s hands. The opportunity may have been created by the company through analysis, campaigns, technology development, collaboration or other measures. A company can also make use of an opportunity that has appeared on the marketplace. Product development presupposes the ability to (1) create business models, (2) establish cooperation between clients, suppliers, distributors as well as other stakeholders, and (3) develop and nurture products and production systems.

The History of Agile – War

Agile/agility is a term that came into use among military researchers at the end of the 1970’s to describe the need for more agile military operations. A deciding factor of success in military operations is the ability to acquire information about current events, create an understanding of the situation, choose a plan of action and to implement that plan.

The first military strategist to discuss agility was the Prussian general Carl von Clausewitz in the beginning of the 19th century. After a life-long career in the military he drew the conclusion that a battle contained so much uncertainty that the plans quickly turned obsolete once faced with reality. His solution was quite unconventional: instead of creating even more intricate plans (which many still presume to do today), he told the soldiers what the ultimate goal was. Clausewitz’s idea was to let the soldiers solve the challenges as they appeared. It was an idea that a lot of people had trouble accepting. Despite this opposition, this agile philosophy was partially used in the Franco-Prussian War (1870-1871) with great success.

By World War I the Germans had forgotten about this success and once more relied on top-down detailed management with well-known results. After World War I the Germans introduced what came to be called mission command (auftragstaktik) and control freedom (truppenführung). When these were implemented in the German army they realized the importance of keeping the generals at the front –  not to micromanage but to better put what happened on the battlefield in a strategic context. The German army was initially very successful (1939-1944). However, when the war dragged on the British could make use of their agile abilities on a political level. Nazi Germany never understood the purpose of democracy. Their political system was based on strong leaders with overlapping responsibilities and where information was power. In the democratic United Kingdom the power came from the work involved in acquiring and sharing information.

From the military we can learn three things. 1) There is great insecurity in detailed plans  and control needs to be given in small steps as it happens. This step-by-step planning and control is preferably done by the people who have to perform the task. 2) There is a need for a “general” at the front who can put events at an operative level in a strategic context. Overall strategic plans must be able to be adjusted as the situation changes. 3) Superiority in the battlefield is not enough to win a war. One must also be superior at a political level within the highest leadership.

The History of Agile – Car Manufacturing and Lean

The fact that plans become obsolete the moment they face reality is something that Taiichi Ohno, the product engineer of a car company, realized in the 1950’s. His solution was to replace top-down planning with day-to-day control out in the production line. He developed a method that made it possible for the operator in the production line to order more materials as they were being used. This method is known as just-in-time. By working in this manner he decreased the uncertainty involved in planning and management. With just-in-time there is considerable less material in circulation and faults and flaws become more visible. He complimented the just-in-time principle with jidoka, a method to take control of the problem at the source. With these methods, the operators were given the mandate to identify and solve problems themselves. Just-in-time and jidoka created an almost magical increase in both productivity and quality, which were consequences of reduced uncertainty. Much later on these principles came to be referred to as lean.

Visuell styrning sänker osäkerheten.
Visual management reduces uncertainty, which leads to increased productivity.

From lean we can learn that day-to-day management, just-in-time, reduces uncertainty when it comes to planning. We can also learn that management and problem solving at the source improve a company’s ability to make decisions.

The History of Agile – IT Projects

In the 1980’s and 1990’s many companies introduced decidedly more bureaucratic models for product development. These models led to a decline in productivity and quality. As early as the 1960’s, researchers demonstrated that bureaucratic models lead to stagnation. Eventually there was a counter-reaction against the bureaucratic models, particularly among the developers themselves. In the 1990’s Sutherland and Schwaber produced a development model that utilized short planning cycles. They called their model Scrum. Within Scrum the project manager was removed and instead it’s the team that is in charge of planning and solving problems as they come up. A decisive role in this model is that of the product owner, who has a responsibility to put the project work in a strategic context. In Scrum there are few roles and the model is so simple that it can be explained using a few sentences.

Scrum was inspired by research. One example of this is the article The New New Product Development Game in which the rugby term Scrum is used. Scrum is one of the few models that conforms to the Agile Manifesto which was first published in 2001.

From Scrum we can learn lessons about reduced uncertainty through iterative planning, teamwork, how just a few roles are necessary and the importance of an increased role for the product owner.

The History of Agile – Research in Complexity

Wikimol. http://commons.wikimedia.org/wiki/File:Lorenz_attractor_yb.svg. This file is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license.
Wikimol. http://commons.wikimedia.org/wiki/File:Lorenz_attractor_yb.svg.
This file is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license.

Complexity research has helped organization theory explain basic phenomenon. From Edward Lorenz we’ve learned that in complex systems only short-term plans or forecasts are possible. Lorenz was a meteorologist and studied weather patterns. He discovered that weather forecasts are impossible to make for periods longer than a few days ahead. It’s the same mechanics that make it impossible to plan projects in detail. Complexity research also shows us how normal abnormal events are. Each abnormal event by itself is rare but put together they form a major part of the managing product development. This is what causes development models and process models such as PROPS to create more problems than they solve.

Complexity research also show that groups in which people work together and share information have a superior ability to solve complex problems. A team can generate more versatility and more inner complexity, which is necessary for understanding increased complexity in the surrounding world. This explains why mission tactics, teamwork, and other decentralized working methods are better than top-down efforts such as order management and target management.

The History of Agile Product Development – Pulse

Pulsrummet där människor möts i olika grupper.
The Pulse room, where people meet in different groups.

Scrum is a model for managing projects. Pulse is a model for managing an organization. At Pulse we’ve built on earlier, pragmatically developed methods. We’ve advanced the development of these methods and complemented them with new methods based on research in complexity. Pulse is based on day-to-day management, just-in-time. We work in teams in which information is shared through work. The shape of the company’s policy and direction is formed dynamically by company management. Strategies are formed with the aim of creating an impact on the market, and based on the possibility of new opportunities. This happens through a network of daily “pulse meetings.” The strategies are implemented in the form of projects related to, among others, marketing and R&D. We have few roles, namely vice-president, marketing director, development director, program director, mission director and Pulse project manager. The program director is the equivalent of a product owner within Scrum and general in mission command.

At Pulse, the network of Pulse meetings determine the organizational structure. Information is shared at Pulse meetings, in workshops and at demonstrations. By using this network of organization, Pulse builds agility. Pulse is a model for agile product development.

The Agile Product Development Process

Agile Product Development ProcessThe agile product development process is based on a combination of iterative work and strategic positioning. The process is determined by the demands of each particular situation.

According to the current norms it’s necessary to have a product development process. An online search results in several images of what one may look like and all of them are noticeably similar: product development is depicted as a conveyor belt in which every step of the process is defined in advance. Why?

Process as a Noun

Organizational theorists have long championed an events-based approach. However, language is a hindrance to that. Languages are based around nouns – things you can touch. Events are verbs – something one does, change, a process. One of the first pioneers for an events-based approach was Mary Parker Follett in the 1920’s. She pointed out that decision are a result of the work of many people. Decisions should therefore be seen as processes rather than things. However, the images describing so-called processes aren’t verbs – they’re nouns. The fact that we can turn a verb into a noun is a side-effect of our noun-centric language. We can change something living into something dead.

The pictures of processes, oftentimes drawn, all have origins in the 1960’s along with depictions of strategic planning. When strategic planning, together with the conveyor belt principle, had been tested all over the world, heavy criticism from researchers and practitioners emerged. One notable critic was Jan Wallander at Handelsbanken, who claimed that the plans said more about the past than the present.

Process as a Verb

When organization researchers such as Parker Follett talk about processes it’s so we can understand that it’s what we do that’s important. They use terms such as strategizing instead of strategies and processes instead of plans.

When we at Pulse use iterative means to work with visual management instead of a plan, it’s a shift from a noun to a verb. Through people’s work and interaction at daily stand-up meetings and workshops a dynamic process is created. It’s important to understand that the development process can’t be determined in advance. However, it’s possible to plan and to organize but only as long as it’s about planning and organizing. That is to say that one works with the issues all the time, daily and continuously.

Agile Product Development Process

In the picture below the company is portrayed as a network of interacting groups, such as management groups, project groups and working groups. A company that uses their whole organization to understand the world at large can make decisions with far-reaching understanding in their strategies. They can home into the signals of the world at large early, process the information internally and implement the necessary measures. When management works using Pulse meetings in a Pulse room, we refer to it as an agile network organization.

Pulse room (obeya)
Pulse room (obeya)

The images seen on Pulse boards are a real-time image of the ongoing process. The image is always in flux. Because there is a collective image that represents reality, the management and others in the company can supervise what is happening and they can act on the company’s needs, just-in-time. Management can’t micromanage what the groups will do, and in that sense they don’t have control of every little detail. However, management exercises leadership through daily stand-up-meetings with full transparency about what is happening. Through their work, management creates strategizing in line with the company’s vision and mission statement. This makes the company agile and it has an agile product development process.

Adaptation

Companies that are successful have the ability to quickly adapt to changes. A company that has the ability to create changes in the market and can exploit new opportunities  has the potential to become very successful.

To adapt is a verb. You can observe the feedback that comes from the market through salespeople, service technicians and other channels. You can make yourself familiar with your current situation and find different possibilities for action. You can choose a course of action. And finally, you can act. This iteration is repeated all the time but the situation is always different. Each time you act the world at large changes. Also, you are not the only one changing the world around you.

Important factors for success include the ability to receive information and understand the world at large, to be able to show an internal versatility and the ability to get things done. A company that demonstrates a low degree of adaptation is low-dimensional. One example of low-dimensional companies are the businesses that work using detailed static process images. These companies risk being put out of  business.

Adaptation

So why do companies try to work using process descriptions? Because there is a notion that companies must have them. Images are powerful. It might be easier to bankrupt a company than to remove the process images.

Pulse Meetings Are Short, Effective and Fun

Pulse meetings are short, daily standing meetings where a team plans their work with the help of a Pulse board. Pulse meetings are more interesting and more effective than standard meetings.

Pulsmöten med visuell styrning och jidoka

Pulse Meetings for Planning and Managing

Pulse meetings are a way to plan, organize and manage an organization. Instead of following traditional management philosophies, by holding Pulse meetings it’s possible to utilize the variety and uncertainty that exist in an organization. Pulse meetings are based on the lean principles of visual planning and fault tolerance (from the concept of jidoka). A Pulse board is required to hold a Pulse meeting.

Traditional planning never makes it past the planning stage in many cases and creates a lot of administrative work but doesn’t add much or any value, since you can’t predict the future. In stark contrast to traditional planning, visual management entails a dynamic planning by a team in the situation they are currently facing. When working with knowledge an activity window is used where post-its visualize the flow of “to do – in progress – done.”

Fault tolerance (jidoka) entails the inclusion of methods that enable the team to handle unexpected effects that the “butterfly effect” might cause and establish resilience and revitalization. Not making use of fault tolerance may lead to regrets about decisions, stress, conflicts and, most commonly, long lead times.

At Pulse we use goals and plans but they are open, meaning they are accessible through the network of Pulse meetings. Since the flow of decisions through the network of Pulse meetings is constant, contradictions and unexpected problems can be resolved within a few hours to a couple of days.

For strategy and development the management team, product management, resource management, task management and development projects use Pulse meetings (see example here). Pulse meetings may also be used for other areas such as sales, commission, delivery and acquisitions.

Pulse Meetings Replace Other Meetings

Pulse meetings replace many other meetings. A Pulse meeting is held standing in front of a board with visualized information and is rarely longer than 15 minutes. Despite the fact that meetings are frequent, total time spent at meetings will actually decrease dramatically.

Finally, most participants are very pleased with Pulse meetings.

Visual Management Of Multiple Development Units

Visual management is a decentralized way of working in which team and project participants plan and manage their own work. Participation is necessary but can take place in different ways.

Visualization is a powerful tool that when used correctly can coordinate the work of both a team as well as the whole operation. Visualization requires some rules for cooperation between groups to work: updating the project status should be easy, highlighting problems must be simple to do and there can’t be any delays that would cause information to become old and unreliable. Also, it’s important to be able to see when the last update was made and this information must be available to everyone involved.

The Pulse Board

By following the requirements stated above, physical boards, Pulse boards, become superior to an IT-based system. By writing down the meeting times on every board everyone can see when the information was last updated. If the group holds daily Pulse meetings at 8:45 am, the board was updated during the last Pulse meeting. Events that have taken place since then can probably not be seen on the board. By using post-its that are moved in an activity window we can see what is being worked on and what has been recently completed. You also get an understanding of how quickly the group attains results and if the group, or a person, takes on too many tasks at the same time. The board shows which activities the group’s members need to deal with next, which is necessary when assigning work. You can also see if the group has any problems that need to be dealt with. With an overarching plan you can also see their progress so far and if it’s in line with previous aims and goals of the schedule. All of this is kept updated with very little administration and is easily visible to everyone simultaneously.

Furthermore, if all Pulse boards are gathered in one Pulse room you then in just a few minutes you can get a complete picture of the organization and its current challenges. However, this assumes that everyone works under the same roof. How does Pulse work when work is spread out over several locations?

Visual Management of Multiple Development Units

It’s common nowadays that product development takes place in many locations around the world and there is a need to coordinate efforts in projects and strategy work. This is also true for many businesses that utilize the Pulse guide. I’ve noted that the better the visualization and interaction works in one location the easier it is to coordinate with other locations. The internal interaction furthers a common understanding of plans, problems, expectations and opportunities. This is of great use when coordinating work with other development units. This leads to the conclusion that cooperation between development units works better when more units use the Pulse method.

If a company’s suppliers and clients also use Pulse it’s even better. If so it’s possible to easily coordinate in the same way with the as between development units.

A good video-link (meaning a clear picture and a minimal time-delay between image and sound) eases communication between units. Remember that it’s more important to film the participants of the meetings rather than the Pulse board. The information shown on the board and the one that groups wish to share between locations already exists digitally since it’s part of overarching shared plans and not small details on post-its.

As I mentioned previously, each group member will not participate in every Pulse meeting. However, since the meetings are frequent (daily to weekly) it’s not that important if a meeting or two is missed. It’s quick and easy  to be updated on what happened in the last meeting by studying the Pulse board. Since the teams are self-organized the meetings will be held even if the project leader or chairperson is absent.

To sum it up, visualized management between several development units is easy with Pulse.

Obeya – 20 Years Old

An Obeya is a large room for visual management and jidoka. Obeya was invented in 1993 as part of the Prius project with the aim to shorten lead times.

I first heard about Obeya and periodic stand-up meetings in 1998 while working with operation development at Scania. What I heard about Obeya had so many surprises that it really took me a while grasp. At this point in time I had, from time to time, been involved in different efforts to increase the productivity in product development. Until then, the development engineers had always been the focus of our work. We tried to increase productivity with the help of planning and different project models. Obeya changed our ideas of how problems should be solved. Not only do you meet standing up at an Obeya but Obeya meetings are considerably shorter –  minutes instead of hours – compared to normal meetings. However, the big surprise for me was who participated in the Obeya meetings: management.

Clues to the Secret of the Obeya

It took me several years to understand what made these visual meetings with management so powerful. I found clues in books written by organization theorists (such Herbert Simon and James G. March). Further clues came during the development of The Pulse guide in the early 2000s. During this time Ulla and I created a model with a Pulse room that suited the organization and culture of Nordic technology companies.

In a Pulse room information and feedback is visualized so that everyone can see what’s going on. Besides frequent meetings between designers that work with projects and tasks there are also regular meetings with management. These managers represent different areas such as construction, acquisitions, production technology and marketing. Joint decisions are made and mutual action is taken. This creates heavy leveraging at the top of the operation, increasing the organization’s ability to take appropriate actions. Learning increases.

Obeya was invented between 1993-1994 when Toyota created the development project for the Prius hybrid. To develop a new car model is normally an incredibly complex task. However, with Prius they also had to develop a new driveline. These kind of projects can take a lot of time with lead times reaching up to ten years. The goal of the Prius was to launch the car in 1997 which was seen at the time as “mission impossible.” Against all odds, Toyota reached its goal and the car was developed in just three years. With this success Toyota didn’t just have a new product to offer the market but a whole new organizational model! This model might have been a more important success than the hybrid.

Obeya and Prius

The Obeya used during the Prius project was in many ways a kind of “project room.” We refer to this kind of project room as a Pulse room. In the Pulse room multiple projects can be developed. In the Pulse room the whole operation’s strategy and development work take place. All levels and functions are included in the Pulse guide and by doing so we could replace traditional project management with visual management. Furthermore, we could let the project’s Pulse board become the information and feedback that management use in order to help with decision-making. We also supplemented the concept with the organization’s strategic development. This meant that management and specialists that developed new markets, new products and new production technology solutions became a part of Pulse.
Anyone who has tried an Obeya or a Pulse room with management meetings has probably realized one thing: it’s a big success. However, there are pitfalls that can cancel out part of the positive effects. In some cases I’ve seen a bureaucratic viewpoint visualized when the management use visualization to control and monitor the project workers. In the bureaucratic tradition it’s also common for management, probably subconsciously, to have a personal agenda. When correctly implemented, management needs to place the problems and progress achieved within the strategic context of the operation. There is also a need to work together with the use of visual decision-making meetings; this type of coordinated action leads to success.

In an article in Ny Teknik, a Swedish technology publication, you can read about how Toyota has now created a new development center based around the Obeya concept. This is a strong  indication of how important Obeya is for Toyota.

Visual Decision-Making Structure

The visual decision-making structure is the foundation of an agile network organization. The organization is visualized through the network of Pulse meetings in the Pulse room.

Organigram-hierarki

“Let me show you our organization” are words you might hear when first meeting a company as a job seeker or potential business partner. The picture that is oftentimes shown is that of a hierarchical structure. You can see which departments are organized under the CO and the different staff. If you look closer, the names of managers and personnel appear. The organization that is shown is based on people and their relationship towards each other. However, today it’s rare that a single boss can make all of the important decisions; instead they are made during board meetings.

Hierarchical Linear Organizations

Hierarchial-organisation-network

The organization chart doesn’t show what discussion forums already exist. You can only vaguely imagine a management team and departmental meetings. Additionally, cross-functional meetings that are necessary for the organization are missing. Production might have planning meetings, quality service meetings and daily management meetings. Within projects there are project meetings, board meetings or a product board. Besides daily management, these are not frequent meetings, maybe just weekly or monthly. They take place sitting around a meeting table with no aids besides presentations and summaries shown using a computer and projector. When the projector is turned off, accumulated picture disappears. Since a hierarchical structure is dependent upon people developing the organization, individuals are supposed to carry the knowledge and decisions between meetings. Here it’s possible to see big gaps in the structural level since the individuals move around in different spheres that don’t overlap and have a tendency to forget. It doesn’t help if individuals reappear in different meeting constellations when issues and decisions aren’t being shared between the meetings as well. Information and feedback don’t flow through the organization; they tend to stop and get lost between different decision-making forums. This creates frustration since the meetings both take up a lot of time and the decisions are unclear or non-existent due to the lack of up-to-date information.

Visual Decision-Making Structure Using Pulse

Agile-network-organisation-hubb

With a network of Pulse meetings a visual decision-making structure is established in the Pulse room that has the capacity to make decisions quickly with the help of up-to-date information. The Pulse meetings are frequent and are part of the same feedback loop in order to create a decision-making network that moves questions, decisions and information to the right forum. The Pulse boards are left after the meetings are over and remind the group and other parties of what decisions were made at the previous meeting and any new unfinished business.

The organization is constructed by institutions (the Pulse meetings) and the connections (questions, decisions and information) that exist between them. It’s this network that creates a visual decision-making structure.

The connections are partially supported by people yet Pulse boards have a crucial role to play. When a problem comes up it’s possible to take care of the problem by writing on a Post-it and putting it up on the appropriate Pulse board. The Post-it will remain on the boards until the problem is dealt with and how the problem is being handled can be traced by looking at the board. Information and feedback flows through the decision-making network and is used daily by the participants of the meetings to act, interact and relay information.

The Pulse room, Pulse boards and the Pulse meetings create an integrated and continuing flow that processes information. In other words, the Pulse guide has created an agile network organization.

Agile Network Organization for Demanding, High Tempo Work

The agile network organization is a new way to run an organization. An agile network organization can handle complex, high tempo tasks.

During the years we’ve worked with implementing the Pulse guide at various businesses we have learned holding more Pulse meetings and involving more people in the Pulse network will improve results.
In order to understand what a network is and how it differs with the approach during the Industrial Age, Foton lab has put together the following video:

Pulse is a network organization where certain nodes have more contacts than others and therefore more influence.

Agile-network-organisation-hubb

Random Networks

At an ordinary organization without a Pulse network, spontaneous interaction between people occurs in order to solve tasks. Some of this interaction is recurring and partially institutionalized through meeting forums. However, a large part of the interaction is random. The connections that exist between different parts of the operation are weak and information and demands are lost on the way, leading to loss of energy and more disruptions.

Agile Network Organization – Guided Networks

An agile network organization institutions are established that are supposed to handle all work and questions, both recurring and unique. Within a visual decision-making structure the institutions take the form of Pulse meetings. These are by necessity cross-functional so that information and interaction can spread to the relevant parts of the operation. Additionally, there needs to be enough institutions to handle demands and problems as well as have the knowledge and capacity to deal with them. For example, questions about technical choices are dealt with primarily by the developers of the projects, while questions about what investments are the responsibility of management. However, both these questions will affect each other, which makes it vital for information to flow between Pulse meetings. The greater the frequency of Pulse meetings and the greater the proportion of the operation involved leads to greater transmission of information throughout the organization.

Channelizing Energy

I like to explain the transportation and flow of information within an operation by comparing it to energy being transported through waves. Waves transport energy from the wind over large distances without transporting the water itself. Only a small current occurs when the wave passes by. It’s only when the wave hits the beach that the current breaks since the top and the bottom can’t move at the same speed anymore. When the wave breaks, the energy of the wave is lost in turbulence. The flow of information within an operation works in the same way: as long as information can be transported through the operation there are only small losses of energy. However, as soon as there are no connections between different parts of the organization the flow of information will slow down. The wave of information breaks and energy is lost in the form of stress and conflicts.

In order to turn an organization into an agile network there must be enough nodes with frequent intermediate connections and a network focused on letting management direct resources. Therefore, how the the network is created and where the nodes are established is important in order to ensure efficiency and adaptability.

Cross-Functional Work and Network Organizations

The best way to create cross-functional work is with the help of a fractal, shell-less network. This kind of an organization is quick and agile.

Cross-functional work (for example, projects, Scrum and management groups) are nowadays normal aspects of most operations. However, this was not the case when I started working in the early 80’s. Back then collaboration between different functions was handled by management and it wasn’t common even for engineers that had the same roles to talk about work with each other. Nonetheless, even at the time the complexity of the tasks was so great that managers were finding it difficult to handle collaboration effectively. The solution to this turned out to be projects.

Cross-functional Work and the Challenge of Decentralization

There is a saying that “yesterday’s solutions are today’s problems.” Projects led to faster and more effective communication between different groups (i.e., acquisitions, marketing or production), however, at the same time management lost influence and perspective of what was actually going on. When we analyze different companies, we can see many new problems popping up: overload from taking on too many projects and tasks at the same time, lack of clarity in decision-making and unclear goals.
Project models of the 90’s were built around standardized work-processes and push planning yet these created more problems than they solved. Every project is more or less unique and needs to create its own work methods based on the situation at hand. Projects are also much more effective when utilizing visual management (pull). What was missing from the project models was what the network between people should look like. The networks became random, which made them unreliable and inefficient. However, these types of networks were the only known ones before the turn of the millennium. Then small world networks and shell-free networks were discovered and these changed everything.

Agile Network Organizations

Tvärfunktionellt arbete
The Pulse meeting is a node in the network. Certain Pulse meetings are n (hubs) with many contacts. Certain Pulse meetings are hubs with many contacts.

Most of the time a shell-free network belongs to the small world network category. A small world network is a network in which the distance between people is short, regardless of a person’s  function or position. We create a small world network through implementing Pulse as an agile network organization.

A problem within Pulse is never more than 2-3 steps (Pulse meetings) from the managing director. A shell-free network is never fractal, which means that it looks the same everywhere. This makes it easy to adjust the network according to needs. A new project is added as a node in the network and is removed when finished. The same method assures us that any node can be added and removed without any taxing changes to the organization

What we refer to as nodes are different types of Pulse meetings that create permanent and temporary institutions. The network consists of the collaboration that happens between the different Pulse meetings where needs, decisions and results flow between them and a cross-functional work is created. Through a network of Pulse meetings a new formal organization with greater efficiency, shortened lead times and greater understanding is created and we call this an agile network organization.