Harnessing Feedback Loops to Drive Business Agility

by Michael Hugos on April 30, 2014

You came into work recently and realized a customer or a product or a whole economy had finally lost your trust and you no longer believed it was stable. And you’re right; it isn’t stable. Welcome to the 21st century. So why keep trying to organize and operate your business as if the world was stable and predictable? Maybe it’s because the only model we have for business operations is still the assembly line; that process that served us so well for the last 100 years when the world was a bit more stable and predictable.

As the world becomes steadily more unpredictable we need a new process that is more appropriate to the realities of today. This process is the feedback loop. Where the assembly line was a strict linear process that put everything in its place and maximized efficiency, the feedback loop is a flexible circular process that drives change and maximizes responsiveness. It’s time to get agile. And business agility is driven by three main feedback loops.

Three Agile Feedback Loops lowres

Circular, Flexible and Self-Adjusting Instead of Straight, Rigid and Etched in Stone

The trick is to find a way to be agile and responsive without losing control. And that is what this combination of three feedback loops does. Loop 1 is the executive function, it’s where management continually assesses what’s happening and makes decisions about what to do. Loop 2 and Loop 3 are where people who do the work get to figure out how to do what management wants done.

The combined effect of these three feedback loops is what creates a responsive and self-adjusting organization. The challenge is learning to embrace these three feedback loops and letting go of that hallowed tradition called the assembly line. That’s a big shift.

We need to continually respond to changing customer desires and changing market circumstances. Changing procedures can no longer be a once every five or ten years event (anyone remember re-engineering?). Change has to be an everyday event and it needs to be done by the people who do the work, not by committees of experts and managers two steps removed from the scene of the action.

Systems Infrastructure to Enable the Three Feedback Loops

In Loop 1 business intelligence and analytics systems sift through the flood of real-time big data now generated in business looking for events that are unexpected (non-standard input). Those systems bring unexpected events to the attention of management (the Yin-Yang symbol denotes the awareness this creates). Management focuses on the unexpected because that’s where the opportunities are, and responding to unexpected events means either improving an existing process or product (Loop 2), or creating a new process or product (Loop 3).

Loop 2 is a process of continuous adjustments to respond to fluctuations in supply, demand, prices and competition in whatever markets a company is in (the sunflower is a symbol of continuous adjustment as it follows the sun across the sky every day). There are no optimal solutions that last for long. Instead, everything from truck delivery routes to the mix of components and labor used to make a product is adjusted all the time as changing situations demand.

Here’s where business process management (BPM) systems really provide value. People need a way to monitor and adjust workflows on a daily basis. Underpinning the BPM systems there needs to be a stable foundation of appropriate transaction processing systems (ERP, CRM, SCM, etc.) that allow people to adjust process parameters and settings every day as needed.

Loop 3 is project based; it has a beginning and an end. It is where agility happens and new things get created (the leaping panther symbolizes seizing opportunities as they arise). People design and build new products and procedures in short iterations and if what they build delivers business success then it becomes part of standard operations; if it doesn’t deliver success then they stop or try again.

Systems that support agility and creativity are real-time collaboration and coordination systems. These are social media and SaaS applications like Facebook, GoToMeeting, Yelp, YouTube and Skype or equivalent systems built for business that provide more control and security. Distributed project teams need to share ideas and designs, reach consensus, lay out plans and keep track of work getting done.

After Skepticism Comes Acceptance

We forget that the assembly line was once a controversial idea, but when people got over being skeptical, it was adopted as the organizing paradigm for work in companies from manufacturing to financial services. For its time, it was a powerful innovation and it delivered the productivity that made the consumer economy possible.

Now business is transitioning out of the stable assembly line world and looking for a new paradigm. These three feedback loops are simple enough for people to understand (as the assembly line was) and they are flexible enough to control change without stifling it. These feedback loops are about guiding continuous response to change.

There is certainly more research to be done and there are many skeptics who have questions that need to be answered. Yet one thing is clear: If change is the most predictable thing in a world where so much else is so unpredictable, then companies organized to deal with change will be more successful than companies not organized to deal with change. And harnessing feedback loops to drive change is a powerful innovation for these times.

Learn more in my book Business Agility: Sustainable Prosperity in a Relentlessly Competitive World

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