The solution is not to trash what we know and start over but instead to reintroduce a second system — one which would be familiar to most successful entrepreneurs.
You need a dual operating system.
—John P. Kotter, XLR8
Balancing the Dual Operating System
With Ian Spence, SAFe Fellow
Note: This article is part of Extended SAFe Guidance, and represents official SAFe content that cannot be accessed directly from the Big Picture.
SAFe’s focus is to provide the enterprise with the guidance people need to build the innovative, digitally-enabled products and services that businesses need to thrive in the digital age. But there is far more to an enterprise than the development of such solutions. Enterprises must also take care of customers, partner with suppliers, compensate and develop their people, manage funding and expenses, and operate in accordance with industry regulations and the law of the land.
And that doesn’t even include overseeing sales, HR, legal, finance, marketing, health and safety, facilities, administration, manufacturing, production, mergers and acquisitions, and a host of other functions, people, and systems. These ongoing responsibilities require building a long-lived, persistent and reliable organization that has clear lines of accountability for all these functions, pays its bills on time, and fosters an environment for the growth of its people.
The dynamics of sustaining long-term business success while rapidly creating and deploying new digital products present significant challenges. These factors are leading to a changing of the guard and a reduction in the average life expectancy of large companies, particularly those who have not successfully transformed into the new, and digital, way of working.
As described in SAFe (see Business Agility and Organizing Around Value), one of the most significant changes is understanding that long-term survival requires establishing what Kotter  refers to as a Dual Operating System. This operating model balances two needs:
- A dynamic network of people focused on changing the business — developing, evolving, and maintaining new and innovative business solutions
- A stable, functional hierarchy focused on operating and growing a successful, sustainable business that legally and profitably delivers these solutions to market
In SAFe, these two halves of the dual operating system are the ‘Development Value Stream Network’ (Network for short) and the ‘Functional Hierarchy’ (Hierarchy for short) and are illustrated in Figure 1.
Responsibilities of the Network and the Hierarchy
In order to work effectively, each half of the dual operating system needs to fulfill a distinct set of responsibilities. The Network’s responsibility is to improve business outcomes by providing new and improved solutions. The Hierarchy’s responsibility is to sustain and grow current operations and to provide a stable platform for long-term success. These differing goals often lead to tension—and potentially even conflict—within the organization.
Addressing these tensions requires first understanding the differing responsibilities, as Figure 2 illustrates.
Responsibilities of the Hierarchy
As shown in Figure 2, each side of the dual operating system has responsibilities that are essential to sustaining long-term success. The hierarchy has the longest list, including activities such as financial and legal governance, people operations, production, and more. One of these responsibilities is to consistently, sell, produce, deliver and sustain the products and services its customers require to do their business. These responsibilities are addressed by a set of Operational Value Streams that manage the flow of value from receipt of order to delivery of goods and services and collection of payment for same.
Responsibilities of the Network
On the surface at least, the set of responsibilities for the Network is much narrower, as it is focused on product research, development, delivery, and evolution. While it is far from a trivial task—and indeed the enterprise success is fully dependent upon it—it is a single and focused set of responsibilities. To fulfill its mission, the network is the home of the Development Value Streams that define, design, produce and deploy the new innovative digital solutions.
Figure 2 also illustrates the set of shared responsibilities that align the Network and the Hierarchy. These include:
- Strategy – A single strategy and vision aligns the purpose and activities of the Network and the Hierarchy. And it’s not simply strategy. The dual operating system must also be continually aligned on Investment Funding (see Balancing Investments below), Agile Portfolio Operations, and Lean Governance. Each of these is described further in the Lean Portfolio Management competency.
- Customer engagement – The Hierarchy provides the sales and delivery functions that attract and retain customers; the Network engages with customers early in development and ensures that they are delighted by the new products and services.
- Support – The Hierarchy typically provides maintenance and support, consulting and advisory services, and community engagement. The Network is also directly engaged in supporting and maintaining existing products and services.
- Culture – Culture, of course, is shared. Although cultural norms and expected behaviors can vary somewhat based on the nature of the work, successful companies have a unifying culture that encompasses what they do and what they stand for.
However, the Network and the Hierarchy are not “separate” organizations; instead, they are two sides of the same coin —the Enterprise. Almost everyone in the Enterprise will interact with and be involved in both the Network and the Hierarchy. The level of involvement in each will vary from person to person. But everyone working in the Network has a home in the Hierarchy. And everyone in the Hierarchy sells, supports, and takes pride in the products developed by the Network.
How well the Network and the Hierarchy collaborate and support each other determines the success of the Enterprise. The two systems need to be balanced and work together, not compete with and undermine one another. In their symbiotic relationship, neither can succeed without the support of the other.
Optimized for Different Purposes
To best serve the Enterprise, the Network and the Hierarchy are structured and optimized for different purposes, as shown in Figure 3.
The Network is optimized for the speed of innovation. As the nature of the work changes, the network can reorganize as necessary so that the right people are working on the right things for the right reason at the right time. No changes to job titles, compensation, or reporting relationships are required. It evolves quickly and constantly as the needs change. It reacts to new opportunities quickly. It’s experimental, innovative, and flexible. It fails fast, learns from that experience, and moves on without guilt or blame. Variability is omnipresent. But it isn’t necessarily bad. New libraries, off-the-shelf, cloud-based solutions and design approaches emerge to enhance speed and adaptability.
The Hierarchy is optimized for efficiency and sustainability. There is an intense focus on revenue and profit, which is achieved by delivering existing ‘horizon one’ (see Figure 5 below) products and services to its customers. It provides a stable structure for compensation and career growth for its people. It manages business operations, invoices and collects cash, pays its bills, and assures operation within the law of the land and industry regulatory requirements. Mistakes can be extremely expensive, so it operates with care and prudence. Material mistakes are reviewed and analyzed; policies and procedures are adjusted to prevent further mistakes of that same kind. It’s cautious, prudent, and really good at what it does. Variability is rarely positive; instead, reliability and repeatability are the goals. And for all the appropriate reasons, it views change cautiously—and potentially even as a threat.
Business Agility Requires Agility in Both
While at first glance, one might assume that the network is designed primarily for agility, and the hierarchy primarily for stability, that belies a significant truth: survival in the digital age requires continually increasing agility in both, as Figure 4 illustrates.
Continually Improving the Network with Lean and Agile Practices
A typical approach with a SAFe implementation is to first establish and begin to optimize the Development Value Stream network. Most of SAFe is dedicated to this purpose. With its Lean and Agile underpinnings, relentless improvement is built into the model. Specific elements include:
- Lean-Agile Mindset and Core Values
- The ten SAFe Principles
- Lean-Agile Leadership and the six other core competencies: Continuous Learning Culture, Team and Technical Agility, Agile Product Delivery, Enterprise Solution Delivery, Lean Portfolio Management, and Organizational Agility
- A comprehensive set of role-specific practices and guidance
So, while relentless improvement cannot simply be assumed, it is well prescribed in the model and the mindset and mechanisms to do so are embedded in the people and their daily operations. It is a well-defined and proven path and a disciplined approach to implementation will provide ever-increasing benefits to the enterprise.
Continually Improving the Hierarchy with Lean and Agile practices
Even in organizations with a healthy, thriving Network, the Hierarchy is often much larger and may offer even larger opportunities for continuous improvement. However, optimizing the Hierarchy is more challenging because it’s much bigger and far more diverse in its operations, and it is more conservative in its willingness to embrace continuous change. In addition, while some enterprises have established a Lean journey, especially those with lean manufacturing experience, Agile methods are not as well-known in the Hierarchy, and since they weren’t designed for that purpose, it’s easy to assume they don’t necessarily apply. However, that is not the case, and enterprises are increasingly adopting Lean and Agile methods to enhance operational and overall performance.
SAFe’s recent evolution has been driven in part to help address this larger challenge. Three of the core competencies, Lean-Agile Leadership, Continuous Learning Culture, and Organizational Agility apply equally well and are designed to include that purpose. In addition, SAFe has extended guidance in a number of specific areas, each intended to help the large enterprise on its journey to business agility. These include:
Agile Marketing – Marketing groups are increasingly challenged to help their companies meet business objectives while competing for customers’ attention and loyalty. Marketing organizations—and more specifically product market functions—across industries are rapidly adopting Agile because it helps improve collaboration, gets products to market faster, and better adapts to changing priorities. See the Agile Marketing with SAFe whitepaper for more details.
Agile Development Contracts – Enterprises often outsource complex systems development to suppliers who have the ability to build the systems buyers need to integrate with their delivered solutions, and also to run their business. Traditional approaches to contracting ranging from firm ‘firm-fixed price’ to ‘time and materials’, with almost every point in between. In general, however, most understand that neither extreme delivers the best overall economic value. What’s needed is a more Agile approach to contracts, one that benefits both parties in the near and long terms. See the Agile Contracts for more details.
Agile HR – Competing in the digital age requires a level of competence in the development and delivery of technology-enabled systems unlike that which came before. Such new competencies can no longer be mastered through industrial age people structures and practices. A new mindset challenges Human Resources (HR) to realign their approach to better address the motivation and compensation practices for knowledge workers. Responsive enterprises act by a) acknowledging talent, knowledge, and leadership as the new currency for competitiveness and by b) embracing Lean-Agile values, principles, and practices. See the whitepaper Agile HR with SAFe: Bringing People Operations into the 21st Century with Lean-Agile Values and Principles for more details.
Optimizing Operational Value streams – In addition to the functional areas described above, the hierarchy has an important role in actually delivering the products and services to its customers. This is accomplished by the Operational Value Streams that live within the hierarchy. Unlike the Development Value Streams, which have a fairly standard form, operational value streams are as many and varied as the products and services provided. And the nature of Operational Value Streams makes them hard to bound. They don’t just move across the people and functions in the organization. They move across customers and suppliers and occasionally even touch the competition. Optimizing these vale streams requires ‘Lean Thinking People and Agile Teams’ as well as ‘Lean Business Operations’ throughout the enterprise. For more on this topic, see the Organizational Agility core competency.
In addition, more SAFe guidance is constantly under development on this important topic.
Obviously, in order to operate, the enterprise must fund both the Network and the Hierarchy. Figure 5 illustrates how funding is typically allocated.
The Hierarchy consumes most of the expenses. They support the functional and administrative areas, revenue generation, and extract profit from existing products. To ensure that the quest for short-term profits doesn’t override the need for longer-term investment, all three investment horizons for the Network must be considered.
The expense profile on the right of Figure 5 reflects how the Hierarchy is heavily focused on Horizon 1 and getting the biggest impact from exploiting the existing product set. But investment, energy, and resources are also required for Horizon 2 products, which will not create a return in the current period. Typically, this puts a strain on both sides of the operating systems as innovative but unproven and products must eventually make their way into current sales and revenue forecasts. That transition can get a little messy as horizon one resources are required, and they were quite busy before this shiny new object appeared. Horizon 3, however, may operate more stand-alone, with a minimal impact on the operations of the hierarchy, other than funding.
In addition to Horizon 2 and 3 efforts, the Network must also continuously invest in innovation and relentlessly improving the Horizon 1 solutions. In this way, the Network is as practical as it is futuristic and helps balance these forces. This topic is described further in Lean Budgets.
Summary: Business Agility Requires Agility Across the Entire Enterprise
The dual operating system has proven to be an effective mental model for understanding, organizing, and fulfilling differing responsibilities in the enterprise. It also acknowledges the fact that real business agility requires agility across all Enterprise activities—from research and development to management to legal to HR to manufacturing, sales, and beyond.
But it’s important to understand that there is only one enterprise, the Network and Hierarchy are simply two halves of the same whole. Each is responsible to the other for enterprise performance. Each has the mandate to increase agility, responsiveness, reduce waste and hasten time to market. But taken together, they can deliver real business agility and better assure that the enterprise survives and thrives in the new digital age.
Learn More Kotter, John P. Accelerate: Building Strategic Agility for a Faster-Moving World. Harvard Business Review Press, 2014.
Last update: 19 August 2021