Synopsis 

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As leaders with prior experience in large organisations that faced the challenge of finding efficiency in how they governed work, we have been grappling with a significant issue that we have experienced and are observing more and more frequently; it’s likely impacting many of you right now as well. Traditional governance structures, once the bedrock of organizations' operations, are now holding them back from truly embracing agility and adapting to the rapid changes in the business environment. This is particularly evident as they look to integrate cutting-edge technologies like AI into their workflows.

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Recent studies, including the Business Agility Institute's 2023 report, have highlighted a concerning trend: governance is often the last area to undergo transformation, despite its potential for significant cost savings and productivity improvements. This resonates with what we have observed in organisations and in conversations with peers across Australia, the US, and the UK.

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The cost of this oversight is staggering. What we initially estimated as a "Complexity Tax*" of tens of thousands of dollars has proven to be a gross underestimation. In-depth analysis reveals that outdated governance systems are costing organisations tens of millions in lost value. This isn't just about money—it's about our ability to innovate, respond to market changes, and stay competitive in an increasingly VUCA (Volatile, Uncertain, Complex, and Ambiguous) world.

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The introduction of AI further complicates this landscape. While AI offers immense potential for innovation and efficiency, it also introduces new dimensions of intrinsic VUCA. Without robust, agile governance, we risk escalating internal complexities and potential liabilities.

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So, what can be done? The answer lies in fundamentally rethinking the approach to governance. It needs to be viewed not as a static set of processes but as a dynamic capability that permeates the entire organization. This means aligning strategic intent, governance systems, and work execution in a way that embraces agility.

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Here are two key areas we believe needs to be focussed on: 

Strengthening the collaborative connective tissues: Creating horizontal  and vertical information flows that enable seamless collaboration across the organization. This means breaking down silos and establishing cross-functional decision-making bodies. Even if those bodies are combinations of machine and man, enabling the rise of the Agentic worker.

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Embedding governance into the everyday flow of work: Moving away from centralized governing bodies and empowering teams closest to the work to make decisions within clearly defined guide-rails and guard-rails. This is particularly critical when it comes to AI implementation, where rapid, context-specific decisions are often necessary.

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The frames of reference outlined in our book "Govern Agility " provide valuable insights into this approach, emphasising principles like Conductive Leadership , Sensible Transparency, and Data-Driven Reasoning . These principles are especially relevant as organisations navigate the complexities of AI integration.

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The call to action is clear: Organisations must apply agility to their governance, not just governance to their organisational practices. This shift is essential for unlocking the full potential of our organizations in the face of increasing external and internal VUCA.

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We urge you to thoroughly examine your organisation's governance structures. Are they supporting or obstructing your agility? Are they equipped to address the challenges and opportunities presented by AI and other emerging technologies?

Let's commit to making true governance transformation a priority. The organisational tax for inaction is too high, and the potential benefits—in terms of efficiency, innovation, and competitive advantage—are too great to ignore.

Together, we can build organisations that are not just surviving in the face of change but thriving because of our ability to adapt and innovate. The future belongs to those who can govern with agility. Let's ensure we're among them.

This article delves into this critical challenge, exploring the patterns that emerge and offering a set of lenses and frames of reference for rethinking governance to truly unlock the benefits of agility.

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The Beginning

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Our journey into understanding the intricacies of organisational governance began with the development of the overarching lenses the Five Stanchions of Govern Agility: Conductive Leadership, Sensible Transparency, Patterns of Work, Data-Driven Reasoning, and Humanity**. These aren't abstract concepts; they are the distillation of years spent collaborating with diverse organizations—agile, traditional, and hybrid—seeking to optimize their systems of work. Just as our initial explorations into Agile Governance informed our first book, “Govern Agility” has illuminated recurring contexts and patterns within organizational governing systems. These patterns, surprisingly consistent across various industries and organizational structures, highlight a fundamental tension.

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This excerpt from our forthcoming book, “Govern AI*,” examines some of these key patterns. A significant observation from our work with organisations undergoing transformation is the common practice of introducing agility into their operational frameworks without considering its compatibility with established governance systems. These deeply rooted governance structures were built on assumptions of organizational and environmental stability—a stark contrast to the dynamic and often chaotic reality of today's business landscape.

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The modern business environment is inherently dynamic, marked by constant change and a scarcity of equilibrium. Even a brief look at the past five years reveals an accelerating rate of instability, fueling increasing VUCA : Volatility, Uncertainty, Complexity, and Ambiguity.

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Organisations are often acutely aware of that extrinsic VUCA emanating from external forces like market shifts and technological disruptions. They understand the need to react and adapt to survive and thrive amidst these changes. However, they are frequently less conscious of intrinsic VUCA, which arises from internal disruptions, sometimes unintentionally and sometimes deliberately as a form of organizational inoculation against external pressures. To effectively navigate both forms of VUCA and thrive in the Age of Software, agility has emerged as the dominant 21st-century management paradigm. 

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The rise of Artificial Intelligence (AI) further intensifies this dynamic. While AI offers immense potential for innovation and efficiency, it also introduces a new dimension to intrinsic VUCA. The rapid evolution of AI technologies, the unpredictable nature of their emergent capabilities, and the ethical considerations surrounding their deployment create a continuous internal churn. Organisations adopting AI without robust governance risk escalating their intrinsic VUCA, leading to unforeseen complexities and potential liabilities. AI's ability to automate, analyze, and generate at unprecedented speeds further accelerates the pace of change, demanding a level of organizational responsiveness that traditional governance simply cannot match. Therefore, a proactive approach to governing AI is not merely a best practice; it's a strategic imperative to avoid exacerbating internal chaos and ensure responsible, effective AI integration.

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Since the release of "Govern Agility," a consistent theme we've encountered is the difficulty traditional governance frameworks—built for conventional organizational hierarchies—face when trying to incorporate modern ways of working, especially those now utilising AI. This misalignment often becomes a convenient explanation for broader organisational challenges. We repeatedly hear, "This approach isn't right for us! We tried it, and it failed. These new methods are not structured enough for our organisation. 

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The root cause of the problem, however, is that “organisations have dis-enabled their ability to harness the benefits of both AI and adaptive workflows by neglecting to address their governing systems holistically. “Leaving them with governing systems that are tied to the past.” 

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How Can Organisations Succeed When the Governance Underpinning AI is Tied to the Past?

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Many organisations embark on transformational journeys to respond to VUCA situations, both internal and external, yet fail to address their fundamental governing systems. Despite substantial investment in redefining how work is executed, sometimes even extending to portfolio-level planning, and now the integration of AI, the foundational systems of governance and funding remain largely untouched. These unaltered systems often operate in direct opposition to the intended rapid flow of value and the iterative nature of modern ways of working, including AI-driven capabilities. Consequently, traditional governance systems often move in a different direction, operate on a conflicting rhythm, or, even worse, pull against each other entirely.

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This misalignment is a primary reason why transformations are often perceived as failures within organisations. The reality is that by not addressing the governing systems comprehensively, organisations limit their transformation to a transitional state, falling short of true agility.

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Adding to this complexity, the responsibility for governance is frequently assigned to specific departments or layers within the organisation, such as Project Management Offices (PMOs), Enterprise Portfolio Management Offices (EPMOs), or Transformation Management Offices. This centralization creates bottlenecks and cumbersome processes.

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The inevitable outcome is a "three-speed economy*" within the organisation, a limiting factor that significantly hinders its ability to leverage agility. This observation is supported by the Business Agility Institute’s 2023 Business Agility Report, which highlights that governance is often the last area to undergo transformation, despite its potential for significant cost savings and productivity improvements.

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Governance: The Last Area to Transform

“Despite significant potential cost-savings and productivity improvements, most organisations do not begin to invest in transforming governance policies and procedures until at least 5 years into their journey.”

Source: 2023 Business Agility Report: Business Agility Institute

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This multi-speed environment leads to a "complexity ceiling," which in turn generates a significant "Complexity Tax.*" This tax manifests as inefficiencies affecting people, time, and the value delivered. Our initial estimates of this cost being in the tens of thousands of dollars proved to be a gross underestimation. Through deeper analysis with our clients, calculating the true cost of delay, we discovered that overly complex governance systems were costing them tens of millions in lost value.

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Alarmingly, the complexity tax also extends to risk management. When governing systems operate at different speeds or in isolation, the overall system becomes so convoluted that risks are obscured. This lack of visibility prevents proactive risk management and mitigation, leading to substantial losses for both the organisation and its stakeholders. This self-inflicted burden is one that no organisation in today's dynamic business environment can afford.

Keeping Pace with the Exploding AI Ecosystem

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In essence, while any organisation can superficially adopt new ways of working practices, truly leveraging agility requires a fundamental alignment and redesign of the entire governing infrastructure—encompassing funding, strategic intent, governance systems, and work execution. This necessitates a shift in perspective: viewing governance not as a static set of processes but as a dynamic capability that permeates the entire organisation. This requires a holistic approach, adjusting people, processes, and technology in a symbiotic manner. The addition of automated processes and workflows that learn and adapt, the Agenti worker, demands this even more. 

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To initiate this integral shift, consider the following frames of reference  to begin the journey of unraveling complexity within your organisation:

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1. Collaborative Connective Tissues**

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Think of these as the vital horizontal and vertical information flows that enable collaboration throughout the organisation.

Start by examining your organisation's ”collaborative connective tissues”. Identify areas where these flows are strong and where weak connections are hindering agility. Where is collaboration fluid and natural, and where do silos or hierarchical structures impede communication? This lens can also be used to analyze the vertical bi-directional flow between strategic intent and the execution of work, and vice versa. The goal is to redesign these connections to facilitate a smoother flow of governing information, gradually dismantling the complexity ceiling and therefore reducing the complexity tax created by information silos and hierarchical divisions. The desired end state is a fully aligned organisation working towards shared outcomes.

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Here are a couple of examples that we have seen improved using this approach: 

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Problem Example 1: Imagine a marketing team needing approval from a separate product development governance body for a campaign that directly impacts a new feature. The information flow is often linear, hierarchical, and slow, leading to delays and missed market opportunities.

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Redesigning Connections: Implement cross-functional forums or virtual teams with representatives from both marketing and product development who have the authority to make decisions collaboratively. Establish shared communication channels and transparent reporting mechanisms.

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Expected Outcome: Faster decision-making, improved alignment between marketing and product efforts, and increased responsiveness to customer needs.

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Problem Example 2: Consider an AI model being developed by one team that requires access to sensitive customer data managed by a separate data governance team. The current process involves manual data access requests, lengthy review cycles, and potential delays due to misinterpretations of data usage policies.

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Redesigning Connections: Implement an automated data access request system integrated with the data governance platform. This system would use AI to pre-screen requests against established policies, flag potential compliance issues, and route complex requests to relevant data stewards for expedited review. Establish clear, machine-readable data usage agreements that the AI system can interpret.

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Expected Outcome: Significantly reduced data access times, improved compliance with data privacy regulations, and accelerated AI model development and deployment, leading to faster innovation and value creation.

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2. Governance Must be Part of the Everyday Flow of Work**

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While many organisations claim their governance is "democratic," closer examination often reveals centralised governing bodies that ultimately control decision-making. 

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By analysing workflows through this method, organisations can identify opportunities to decentralise decision-making, moving governance-related requirements closer to the individuals and teams performing the work. This "close in person, place, and time" approach accelerates decision-making and reduces the complexity arising from multi-speed economies. 

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This is particularly integral with AI, where rapid, context-specific decisions are often necessary. Delegating decision-making authority for AI model deployment or adjustment to the teams that understand the immediate context and impact, within a well-defined governance framework, can prevent the complexity tax associated with centralised AI approval processes.

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This is an example that we have seen improved using this method:

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Problem Example: A development team identifies a critical bug requiring immediate attention but must wait for approval from a weekly change control board, delaying the fix and potentially impacting users.

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Addressing the Problem: Empower teams closest to the work to make decisions within clearly defined boundaries and guidelines. Implement peer review processes and automated compliance checks to ensure quality and adherence to standards. Consider how AI tools, when properly governed, can assist here by automating compliance checks or flagging potential issues for review, further embedding governance into the flow.

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Validating and Auditing: Establish transparent metrics and reporting mechanisms that provide visibility into team decisions and outcomes. Implement periodic audits focused on adherence to principles and guidelines rather than rigid process compliance. AI can play a role by providing continuous monitoring and analysis of these metrics, identifying deviations or areas of concern more rapidly than manual processes.

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Leader Confidence: Equip leaders with real-time data and insights into team performance and decision-making processes. Foster a culture of trust and accountability, emphasising outcomes over strict adherence to centralised control. When considering AI, this means providing leaders with a clear understanding of AI's capabilities, limitations, and the safeguards in place to ensure ethical and effective use.

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Finally, complement these frames of reference with the five stanchions of governance outlined in Govern Agility: Conductive Leadership, Sensible Transparency, Patterns of Work, Data-Driven Reasoning, and Humanity. These stanchions provide a holistic set of lenses for governing any modern system of work. When considering AI, for instance, Data-Driven Reasoning becomes paramount for evaluating AI model performance and impact, while Sensible Transparency addresses the need to explain AI decisions, and Humanity ensures ethical considerations are at the forefront of AI deployment. By understanding and applying these principles, organisations can forge more effective connections between existing and emerging governance systems, including those related to AI, and foster greater levels of agility across the entire enterprise.

Modern Governance is the Foundation to Enabling Growth, Progress and Reducing the “Complexity Tax”. 

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With the world becoming increasingly VUCA and organisations developing internal complexities in response—now further amplified by the accelerating pace and intrinsic VUCA introduced by AI—agility is paramount. However, without a foundation of Modern Governance, organisations will continue to be hampered by unnecessary complexity. Don't let outdated governance models, especially in the context of burgeoning AI adoption, impose an exorbitant complexity tax on your ability to adapt and thrive.

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Don’t continue to apply governance to your agile. Instead, apply agility to your governance!

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If this article piqued your interest or helped you identify problems within your organisation, you can find us at https://www.governagility.com.au/.

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*© Phil Gadzinski & Tony Ponton 2024

**Govern Agility © Phil Gadzinski & Tony Ponton 2024

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