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Anatomy of Agile Enterprise

Janne J. Korhonen

Challenges for the Decade, Part 2: Governance

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The emergence of extended enterprise surpasses a mere horizontal trend and denotes a major transition to the next order of complexity: from the relatively stable, closed and controllable system of a self-sufficient enterprise to the relatively fluid, open and transformational system of networked, coadaptive entities.

The upcoming decade will see this paradigm shift gain strength and shake many conventional structures. The increasingly interlinked and coevolutionary nature of extended enterprise entails a number of challenges. In this series of blog posts, I am addressing some of these challenges in terms of strategy, governance, leadership and enterprise architecture, and outlining rules for the whole new ball game that ensues.

  • Part 1: Strategy
  • Part 2: Governance
  • Part 3: Leadership
  • Part 4: Enterprise Architecture

Governance

As defined by IT Governance Institute, corporate governance refers to "a set of responsibilities and practices exercised by the board and executive management with the goal of providing strategic direction, ensuring that objectives are achieved, ascertaining that risks are managed appropriately and verifying that the enterprise's resources are used responsibly". As the definition implies, it is generally seen as the concern and responsibility of top management and top management only. The primary reason for corporate governance is to promote the financial and functional integrity of the corporations and to align the goals of shareholders with the strategic goals of the management.

More often than not, the underlying assumption of corporate governance seems to be that people are inherently self-interested, greedy and lazy, and that their behavior needs to be reined in through control and compliance frameworks. Not only does this negative view of employees -- McGregor's Theory X -- lead to mistrust, restrictive supervision and a punitive atmosphere, but it creates a vicious circle that instigates the type of negative behaviors the governance framework is designed for in the first place.

In contrast, by opening to a more positive view of workers, it is more likely to develop the climate of trust that is conducive to shared decision making, which is the cornerstone of organizational agility. The culture of trust is also of importance in an extended enterprise, as a company must trust its partners, share information and sub-optimize its own operations for the best of the larger system. The mere belief that employees enjoy their work, are trustworthy and carry out their commitments -- Theory Y -- creates a virtuous circle that perpetuates the kind of conditions that render control frameworks more or less obsolete.

It can even be conjectured that top-down predict-and-control measures resist the natural, self-organizing dynamics in the organization. A considerable amount of energy is dissipated to uphold structures that intend to mitigate conflicts of interest in co-operative behavior, while these structures, in fact, inhibit co-operation to start with.

A network is managed by negotiation, not command. In the extended enterprise environment, governance should therefore be built around co-adaptive strategy, rather than ownership, as a unifying concept. Strategy drives transformations, and transformations must involve the entire organization. Prevalent governance frameworks fall short in serving organizations in uncertain, fluctuating environments, where a clear sense of direction and just-enough coordination is better than a precise plan and tight control.

Management cybernetician Stafford Beer maintained that an effective organization should maximize the freedom of its participants, while fulfilling its purpose as a whole. The founding CEO of Visa International, Dee Hock, shares this sentiment and adds that healthy, adaptive systems exhibit a "chaordic" balance between chaos and order. Similarly, a governance model for an agile enterprise should distribute decision-making rights to the maximum degree and allow self-organizing mechanisms to determine what is requisite.

Agile Governance. Sounds like an oxymoron at the outset. Governance generally bears connotations pertaining to conformance such as defining policies and setting controls, whereas agile is about adaptation: minimal planning and iterative development. But on another look, these two share some common goals. At best, governance defines expectations that people hold to each other. In the form of roles, accountabilities and decision-making rights, it sets the framework of mutual understanding within which the daily business can run smoothly and decisions can be made readily. In a similar vein, agile software development encourages individual work within the expectations that the self-organizing team engenders.

Agile Governance is an adaptable means for continual definition of requisite organizational roles, accountabilities and policies in congruence with the organization's role in the wider ecosystem. It enables independent yet interconnected decision-making at all levels, allowing dynamic steering and propagation of requisite change throughout the organization. It is a departure from traditional views on organizational governance that assume people as inherently self-serving agents who need to be controlled by autocratic means or by introducing democratic devices. Agile Governance starts from the very purpose of the organization and aligns the entire organization for the benefit of the whole. It is based on the tenet of "requisite alignment", in which people and organizations find the best fit for the mutual benefit.

I will elaborate on the notion of requisite alignment in the next post, Part 3: Leadership.

Janne J. Korhonen provides insights into how information technology can be applied strategically to catalyze organizational change and responsiveness. Drawing from both theory and practice, he discusses agile enterprise and its governance.

Janne J. Korhonen

Janne J. Korhonen is an independent business and IT consultant,specializing in enterprise architecture, business process management,service-oriented architecture and pertinent governance models. He has over ten years of experience as an architect and consultant in a variety of extensive and mission-critical IT projects. With strong theoretical underpinnings, his consulting encompasses systemic co-development of business, organization and information technology.

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