In today’s digitally driven world, enterprises face two pivotal and often competing needs to continuously create innovative products and services to meet rapidly changing customer demands, and the need to maintain stable, efficient and legally compliant business operations.

On one hand, the digital age has created an environment of great uncertainty and rapidly shifting customer preferences. To keep pace and satisfy user needs, companies must iterate with agility by quickly developing and launching new offerings. Speed, flexibility and a tolerance for failure are necessities in this innovation-focused domain.

On the other hand, enterprises must also nurture dependable, predictable and financially sound business operations to remain viable over the long term. Smooth operations, risk reduction, legal conformance and fiscal discipline all require a measure of standardization, consistency and careful planning that conflict with “fail fast” innovation cycles.

Challenge with the current way of working

Organization, when it is small, starts with “Customer Centricity” focus.

What does this mean?

Organization revolves around customers and their needs. They deliver value to customers as required with high quality.

customer centricity — img credit: Scaled Agile

While the organization grows, the focus goes on efficiency and stability with the hierarchical organization structure. However, what is NOT addressed is “Customer Centricity” and “Innovation”.

The need for Dual Operating System

In the Digital age, it is hard for the Enterprise to survive without Customer Centricity and Innovation.

To address these divergent needs, leading companies have adopted a dual operating system consisting of both a dynamic, team-based Development Value Stream Network focused solely on innovation, as well as a hierarchical Functional structure optimized for stability and support. By structuring these two operating models to complement each other, enterprises can balance the urgency of innovation with the importance of reliable operations.

The Dynamic Innovation Network Operating System

The Objective the Network Operating System is NOT to replace or remove the Hierarchy in the organization, however it helps bring customer centricity & innovation.

The Development Network Operating System is the driving force for rapid innovation and new product development within the dual operating system. It is optimized purely for speed in identifying and meeting emerging customer needs before competitors.

Structured using Lean & Agile principles, the network consists of small, cross-functional teams with autonomy to decide how best to build solutions. Teams typically include developers, testers, designers, product experts. This diversity of perspective fuels creativity.

Instead of traditional project managers, Scrum Masters guide team coordination and help remove impediments. Authority is decentralized, enabling those closest to the problem to make decisions without bureaucracy. Hierarchies are flat to prevent innovative ideas from being stifled or filtered out prematurely.

The network organizes iterative work in short, fixed-length “sprints” / “iterations” typically of 2 weeks. At the end of each sprint, stakeholders evaluate incremental value and provide feedback to align the next release. This fail-fast mindset reduces risk and quickly steers products to meet real user needs.

Network membership is fluid rather than fixed. As priorities shift, teams rapidly reconfigure to tackle the highest potential-value items from the innovation investment portfolio. Skills and specialized knowledge flow to initiatives where they can make the biggest impact.

While the hierarchy enforces stability through strict controls, the dynamic network encourages variability, decentralization and autonomy. Teams experiment with new tools, techniques and design methods to enhance productivity and creativity. Backlog is unpredictable by nature. The focus isn’t guaranteeing on-time performance but rather accelerating value delivery & learning. Priorities may shift suddenly in response to customer and market signals.

The network’s flexibility, empowered teams and test-and-learn cycles enable companies to keep pace with today’s demanding digital markets. Without this agile innovation engine, even operationally excellent firms can quickly become obsolete.

The Stable Hierarchical Operations

Does the above paragraph mean the Hierarchy is bad? No. It’s not. Only having hierarchy without focusing on Customer Centricity and Innovation is bad.

When the Development Network pursues innovation speed, the hierarchical structure of the enterprise focuses squarely on stability, predictability and risk reduction. This Functional Hierarchy includes departments like Finance, Legal, Backend Integration, Procurement, Human Resources, Sales, Marketing, Support and IT.

The hierarchy codifies business operations into policies, standard operating procedures, controls and oversight processes. Their aim is reliability, compliance and efficiency. Variability, uncertainty and rapid change present direct threats.

Departments are structured functionally for specialized skill building and career progression. Fixed reporting structures, job grades and incentive systems also promote standardized ways of working. Lifetime employment mentalities frequently predominate.

Decision authority flows downward through a pyramidal management structure. Senior leaders retain responsibility for strategic choices and governance through business plans, budgets and performance reviews. Middle managers translate strategy into tactical objectives and policies. Front-line teams execute reliable, predictable work streams crucial for smooth operations.

The hierarchy often measures success through stability, cost savings and risk reduction rather than innovations. However, continuous improvement is still vital for competitiveness. As such, disciplines like Lean and Six Sigma are common for optimizing quality, cycle times and eliminating waste.

While daring innovation happens in the network, the hierarchy supplies the stable platform for those offerings to scale. Without the order, predictability and operational excellence provided by the hierarchical structure, the raw creativity of the network would struggle to impact business outcomes.

The most progressive hierarchies apply targeted Agile and Lean techniques beyond IT to enhance collaboration, customer focus and speed in areas like HR, Finance and Sales. However, wholesale volatility is prevented through governance so that innovating doesn’t undermine quality, controls and compliance.

By balancing dynamic innovation with steadfast operations, the dual operating system allows enterprises to achieve both critical elements necessary to compete today – breakaway solutions and a foundation of excellence.

Dependency between Network and Hierarchy

While the Development Network and Functional Hierarchy have different priorities and ways of working, their fates are tightly intertwined. The success of one depends directly upon the effectiveness of the other in the dual operating system model.

The Network relies upon the Hierarchy in several key areas:

Funding – The Hierarchy funds all innovation investment horizons, from the long-range emergent initiatives to the continuous improvement of existing products. Prioritizing spending across horizons is vital for strategic balance.
Infrastructure – The operational excellence of corporate functions like Finance, Legal, HR and IT provides efficient backbone support so the Network can focus solely on building solutions.
Domain Expertise – Groups like Sales, Marketing and Support lend critical product and customer knowledge to development teams to help guide solutions design.
Scaling Innovations – The Hierarchy plays the crucial role of taking innovations to market. This includes manufacturing, sales, distribution, service and support.

Conversely, the Hierarchy depends on the Network for:

New Offerings – The Network’s real-time customer feedback and Agile iteration rapidly produces the new products, services and enhancements that keep the company competitive.
Improved Productivity – By coaching the Hierarchy in applying Lean and Agile techniques appropriately, the Network helps amplify operational throughput and cost efficiencies.
Market Responsiveness – The Network reacts to market changes through autonomy, decentralization and reorganization unavailable to rigid hierarchies.
Shared Vision & Culture – Perhaps most importantly, a shared vision and cultural alliance ensure the two operating models complement rather than compete.

By recognizing their symbiotic relationship, enterprises can best orchestrate the strengths of the Network and Hierarchy to achieve the agility, innovation and stability necessary to lead in their markets. Neither side can afford to undermine, devalue or ignore the contributions of the other. A spirit of mutualism must prevail.

Collaboration is Key to success

While the Development Network and Functional Hierarchy play complementary roles, the friction between fast-paced innovation and methodical operations can also breed conflict.

The Network’s need for speed, autonomy and agility can be interpreted as indisciplined, risky or disruptive by hierarchical leaders accustomed to standardization and control procedures. Staff may see support functions as bureaucratic barriers rather than enablers.

Meanwhile, the Hierarchy’s institutional caution around change can be perceived as resistant and short-sighted by Network teams anxious to deliver the next big customer innovation.

These tensions often manifest in suboptimal ways including:

Innovation teams launching efforts without sufficient infrastructure or operational readiness
Hierarchical debottlenecking delays and frustration from overprocessing network requests
Difficulty transitioning emerging innovations into mainstream funding and sales models
Network innovations increasing short-term operational costs and complexity

Without concerted leadership to develop mutual understanding and aligned vision between the two structures, there is danger of drift into resentment, competition and working at cross-purposes.

To enable the dual operating system to thrive, executives must intentionally foster a spirit of collaboration by:

Establishing shared business goals, key results, and success metrics
Communicating consistently across the organization on strategy and progress
Building relationships, empathy and appreciation across functional boundaries
Involving both groups in innovation investment decisions
Encouraging willingness to assist partners and try new methods

By promoting cultural hallmarks like trust, transparency and teaming — in addition to reinventing structural linkage points between groups — leaders can catalyze a symbiotic partnership between builders and operators.

When unified by common purpose, the marriage of bold innovation by the Network and solid execution by the Hierarchy becomes an enterprise’s competitive advantage rather than a source of conflict.

How do both help in achieving Agility & Resilience?

While having Hierarchy that focus on efficiency & stability, the network value stream organization helps understand the customer’s need, their challenges, release high quality product increments faster to market. The network organization also enables the organization to be innovative and fit for future.

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Conclusion

The urgent pace of digital disruption requires enterprises to pursue two interconnected imperatives – dynamic innovation as well as operational stability. By structuring a dual operating system with a nimble Development Network and steady Functional Hierarchy, companies can meet both needs.

The Network supplies the experimentation, customer focus and speed necessary to rapidly respond to market shifts. The Hierarchy provides the essential foundation of predictability, compliance and support upon which bold innovations can scale to enterprise success.

However, achieving the potential of this two-pronged system requires thoughtful leadership and committed collaboration across groups with very different optimize-for outcomes. Executives must actively nurture a shared vision, mutual understanding, and a spirit of partnership between these inversion-oriented creators and operationally-focused executors.

With balance and interdependency prevailing, the dual operating system model unlocks the best of both worlds for enterprises: the unrestrained creativity to lead markets and the discipline to translate ideas into profits. In today’s digital climate where agility is only accelerating in importance, forward-looking companies must leverage this duality or risk extinction. The future will be won by those who master both Speed and Stability.