Mistake #5: Why Failing to Organize Around Value Derails Agile Transformation

The decision was made: the company would go Agile. The entire organization was set for an overhaul. Top managers were ecstatic about the prospect of delivering faster, more frequently, and with higher quality. It seemed straightforward—form Agile teams and get to work. After all, wasn’t this just like any other reorganization?

Each department head instructed their managers to organize teams. In IT, a group of architects struggled to fit their specialized work into the Agile framework. They opted for Kanban, yet their day-to-day operations barely changed, they continued to be this centralized team of architects. Meanwhile, another team defined their “product” as “cloud,” focusing on delivering containers (self-contained environments for software) to other developers who they thought where there customers. Their services were in high demand, prompting them to implement a formal ordering system. Crucial as their work was, it had no direct impact on the external customer—the one who pays the bills.

Have you seen organizations like this? Teams implementing Agile frameworks but failing to deliver that matters to customers? The story above isn’t uncommon—it reflects a critical issue in many Agile transformations: the failure to align organizational structure with the flow of value.

In this article, I’ll uncover the root causes behind such missteps. We’ll explore why traditional approaches fall short, what a dual operating system truly means, and how to organize for agility and customer focus. By the end, you’ll have actionable steps to ensure your organization avoids these pitfalls. So, let’s do it!

The Need for a Dual Operating System

In the perhaps not-so-fictional story from the introduction, the mistakes might seem obvious—or are they? Let’s unravel the issue. The problem isn’t simply the lack of a reorganization but the kind of reorganization attempted. Instead of relying on a traditional reorg from the last century, what’s needed is a dual operating system combining two complementary structures within a single organization: a hierarchical organization and a network organization.

The hierarchical system (the line organization) is the traditional backbone of the organization. It ensures stability, predictability, and efficiency by managing routine operations and maintaining accountability through clear lines of authority and structured processes. This system is excellent for scaling operations and maintaining order but is often too rigid to adapt to fast-changing environments.

The network system, (the virtual organization) on the other hand, is dynamic and fluid. It thrives on cross-functional collaboration, enabling teams and teams of teams to innovate, adapt, and deliver value continuously. Unlike the hierarchy, the network is designed to adapt and evolve continuously, addressing the complexity of modern markets by organizing around value streams and customer needs. This network organization isn’t just about agility—it’s about ensuring the organization stays focused on customer outcomes, aligning efforts across departments to deliver seamless, value-driven solutions.

Together, these two systems complement each other: the hierarchy provides the foundation for stability, while the network drives innovation and responsiveness. By integrating these systems, organizations can balance operational efficiency with strategic adaptability—crucial for thriving in today's fast-changing world.

So what mistake did the organization in the intro do? They failed to realize that they needed to define these two organizations.

A Simple Example of What We Want to Achieve

Instead of building a team around an internal product, like the "cloud" example from the introduction, we organize teams around delivering value to the customer. The reason? To maximize flow by minimizing handoffs, dependencies, and delays. To maximize quality through increased ownership. And to maximize engagement through autonomy and purpose.

We deliver value directly to the customer or indirectly through support systems that the customer doesn’t interact with but that exist to benefit them.

This approach shifts the focus from internal products to customer-focused, customer-value-creating solutions. Moreover, the team takes full ownership of the product life cycle—from idea to operations—embracing true DevOps to continuously deliver customer value. This minimizes handovers and reduces information loss.

So Cross-Functional Means Cross-Functional?

But won’t that require a lot of different skills and people in the team? Yes! Exactly! To deliver value effectively, we need cross-functional teams that include all the skills necessary to deliver the solution from end to end.

This means bringing together developers, designers, testers, operations staff, and even business representatives into one cohesive team. Even UX people and perhaps lawyers, depending on what kind of business value we deliver. Each team member contributes their expertise, enabling the team to own the entire lifecycle of the product or solution. Cross-functional truly means crossing functional boundaries to achieve seamless delivery.

An Example – The Organization from the Intro

The almost entirely fictitious company in the intro had a massive IT department responsible for managing over a thousand systems. None of these systems were ever retired, but new ones were continually developed. This led to the perception of all systems being "products," and the IT organization was structured around them, one team per product or sometimes two or three. And sometimes a couple of products in a single team.

Agile coaches struggled trying to make the teams "agile" or at least "do agile".

Here lies a significant symptom of the mistake: small, selfish products. Each product requires its own Product Owner and backlog, forcing teams to focus narrowly on their product. The backlog is always filled. Teams become feature factories and the crucial question remains unanswered: What business opportunity or problem are they solving? What business value are they delivering? Rarely does this align with the organization's overarching business strategy.

What could have been done?

Instead, imagine the IT organization as a value-delivery machine. A need is introduced, and a solution emerges. Another need arises, and the solution evolves automatically. Continuous updates are made based on changing customer needs, ensuring that IT serves as a true enabler of business value rather than a siloed system factory.

This approach reimagines the IT organization as a dynamic, value-delivery engine, responding to evolving customer needs rather than managing isolated "products." The key difference lies in shifting focus from maintaining individual systems to continuously solving business problems and enabling opportunities.

Furthermore, this requires not just IT involvement but seamless integration with business teams. IT and business must collaborate to identify and prioritize the highest-value needs, ensuring that solutions address real customer problems and deliver meaningful outcomes. This holistic alignment transforms the organization into a unified engine for value creation, where every effort drives business growth and customer satisfaction.

The solution delivered by the value stream is focused on delivering indirect and direct value to the customer or to the users of the system.

A Naive Example

Take a barbershop as a simple example. The barbershop wants to replace its outdated booking system with a modern, customer-friendly one. They believe this upgrade will attract more customers by offering features like mobile booking, flexible rebooking, and on-demand appointments.

This initiative isn’t just about deploying IT—it’s about solving a business problem: improving customer satisfaction. Ultimately driving revenue. By focusing on customer value, the barbershop ensures its efforts align with real business goals.

In the best-case scenario, the IT team co-creates the system with the barbers and owners, continuously delivering and adapting the solution as they learn. This collaborative, iterative process keeps customer needs at the forefront and ensures the system evolves with their requirements.

The opposite approach would involve simply purchasing computers, cables, and an off-the-shelf solution without anyone taking full responsibility. This often leads to unresolved problems, misaligned solutions, and unmet business goals, leaving the barbershop frustrated and unable to realize its full potential.

Why Do We Need This Type of Organization?

A modern organization needs to align itself around value delivery rather than internal systems or processes. The reason for this lies in the evolving demands of customers and the competitive nature of today’s market. Using the barbershop example, the goal isn’t just to build a booking system—it’s to solve a business problem: attracting more customers and improving their experience to generate revenue.

Traditional siloed structures, where IT builds systems in isolation, can’t effectively deliver on such business outcomes. They focus narrowly on internal tasks, like creating a "booking app," without understanding the broader context of customer needs or business goals. This misalignment leads to wasted effort and solutions that fail to generate value.

By adopting a value-focused, dual operating system, the organization ensures:

1. Customer-Centricity: Teams are directly aligned with solving customer problems or delivering business opportunities, ensuring their work has a clear purpose.
2. Flexibility: A network structure allows for quick pivots and continuous updates to meet evolving needs, rather than being constrained by rigid processes.
3. Collaboration: Cross-functional teams integrate business and IT, breaking down silos to deliver holistic solutions.
4. End-to-End Accountability: Teams own the entire lifecycle of the product, from idea to operation, ensuring quality and alignment with customer outcomes.

This type of organization enables both stability in operations and adaptability for innovation. It ensures that every effort is tied to delivering meaningful customer and business value, making the organization more resilient and competitive.

Signs You’re in an Organization Suffering from This Issue

1. Siloed Teams: Teams are organized around internal products or systems, not customer or business value. "Cross-functional" often just means developers and testers.
2. Never Meets the Customer: Delivery teams lack direct interaction with end customers, relying on secondhand information and failing to understand true customer needs.
3. Business Orders, But Doesn’t Collaborate: Business teams issue requirements rather than co-creating solutions with IT.
4. Disconnected Operations: Operations teams are in separate locations, causing delays and inefficient handoffs.
5. Misaligned Priorities: Teams focus on filling backlogs, becoming feature factories instead of solving critical business problems. For example, a team spends weeks refining a feature for an internal dashboard while a critical customer-facing opportunity in another product remains unresolved
6. Internal Focus: Teams deliver solutions for internal stakeholders, defining "customers" as internal users rather than the actual end customers.
7. Inefficient Value Streams: End-to-end value delivery remains unoptimized, with teams failing to align efforts across the customer journey.

These signs highlight systemic misalignments that hinder agility, value delivery, and customer focus.

Impact of Failing to Organize Around Value

Failing to organize around the flow of value leads to significant challenges that derail Agile transformations:

• Misaligned Priorities: Teams become feature factories, focusing on filling backlogs and delivering features instead of addressing the most pressing customer or business problems, leading to wasted effort and delayed outcomes.
• Reduced Customer Satisfaction: Disconnected operations and internal focus result in solutions that fail to meet customer needs, diminishing satisfaction and retention.
• Siloed Decision-Making: Without cross-functional collaboration, decisions are made in isolation, slowing delivery and creating inefficiencies.
• Dependency Bottlenecks: Cross-organizational dependencies increase, making delivery harder and more complex to coordinate.
• Queues and Delays: Prioritizing work becomes difficult, as critical parts of the value stream face bottlenecks and long queues.
• Missed Opportunities: Without clear value streams, organizations struggle to respond to market changes or innovate effectively, falling behind competitors.
• Demoralized Teams: Teams working on low-impact or misaligned initiatives feel disengaged, leading to lower morale and productivity.

What Can You Do? – Five Steps

If you recognize any of these symptoms, it’s likely you’re facing Mistake #5 – Not Organizing Around the Flow of Value. But don’t despair—there are practical steps to move forward:

1. Identify one Value Stream:
   • Identify the Customer: For whom are we delivering value? Tip: It’s not an internal IT stakeholder.
   • Define the Value: What business outcome do we enable? Is it bookings, like in the barbershop example? Or what?
   • List Products and Systems: Identify all products and systems required to deliver this value—new or existing.
   • Identify the Trigger: What action initiates the value stream, how does the flow of value start? Where is the problem or need identified?
2. Assemble a Cross-Functional Team:
   • Bring together all the people needed to deliver value. Expect team members to come from different organizational units. If dependencies exists, bring the dependent teams or individuals in.
   • Form a team or team of teams using your preferred Agile framework.
3. Start Small and Experiment:
   • Begin by organizing around this value stream.
   • Avoid overanalyzing—start, deliver, and learn as you go.
4. Inspect, Adapt, and Evolve:
   • Continuously evaluate the experiment. Adjust the value stream as needed, or try a new approach.
   • Expand to another value stream as you learn and refine.
5. Celebrate Success:
   • Celebrate successes, foster innovation, and enjoy the process of transforming your organization.

By starting small, experimenting boldly, and iterating thoughtfully, you can align your organization with the flow of value and unlock its potential for delivering meaningful customer outcomes.

Remember:

• Value Streams Evolve: The network organization is not fixed. New value streams emerge, and old ones may be dismantled as business needs change.
• Solutions Are Flexible: A solution can span multiple systems and products, which may shift between value streams over time.
• Some Value Streams Support Others: Certain streams serve multiple operational value streams, enhancing the entire system’s efficiency.
• Dare to Start: The hardest part is beginning. Don’t wait for the perfect value-stream identification—start, and improve as you go.
• Dare to Question: Challenge outdated assumptions and rethink established truths to unlock the organizations real potential.

Conclusion

Reorganizing around the flow of value is more than a structural change—it’s a mindset shift. Success comes from continuous learning, experimentation, and alignment with customer needs. And it takes time. Reflect on these questions as you consider your transformation:

• Are your teams focused on delivering real customer value, or are they stuck in silos working on internal products?
• Do your solutions reflect actual customer needs, or are they driven by internal demands?
• How might aligning teams with value streams improve customer satisfaction?

Start small, but start boldly!

Last updated Nov 20, 2024