Throwing the book at digital transformation

London Business School (LBS) has a long and proud tradition of educating future entrepreneurs. The number of students who go on to found companies based on models and concepts studied at length in the LBS classroom is legion and includes many illustrious names. No member of faculty would deny deriving a sense of pride from seeing their sometimes radical, occasionally revolutionary, ideas germinate in students’ minds, then blossom into living, breathing organisms that thrive in the real world.

Cesar Gon and Bruno Guicardi, cofounders of Brazilian digital innovation firm CI&T, did not study at London Business School. In fact, neither had ever so much as set foot on its campus. Moreover, in 2016, when this story begins, they were already highly successful entrepreneurs, having founded CI&T with university classmate Fernando Matt in Campinas in 1995, during the early years of the internet revolution. So how were they influenced by LBS faculty thinking?

CI&T started as a software development consultancy but, as Guicardi recalled, soon “evolved into building things”, seeking partnerships with leading tech companies in the US to help it grow. This gave it a strong competitive position in its home market and inroads into working with US companies.

Not least among the many notable aspects of CI&T’s journey as a company was the commitment of its founders – who all trained in computer engineering – to deploying rigorous methodology in serving clients and growing the business. In the 1990s, this meant deploying a unified process for large-scale software deployment, incorporating industry-standard waterfall methodologies of the day (the company even achieved the highest level of Carnegie Mellon University’s Capability Maturity Model Integration (CMMI) – the smallest company in the world to do so.)

For CI&T, the methodology was as important as having a technology edge. “We had clearly defined the 450 separate practices required to complete a single project and our maximum deviation was about 4%. In software project-management terms, we were superstars,” said one executive.

This sophisticated approach earned CI&T a best-in-class reputation in Latin America; the developer that major brands sought out when a project was too big to fail, with project predictability rates for delivery and cost that far exceeded the industry average.

In 2006, having done some work for Johnson & Johnson in Brazil, the company put boots on US soil for the first time, an expansion which proved hugely successful, with sales to Johnson & Johnson alone growing from $1m to $6m in the following year and leading to follow-on work in several other countries.

The advent of agile

In 2006, having grown from start-up to highly respected mid-tier consultancy, the founders were starting to become aware that radical changes were taking hold of their industry. That same year saw a rather rude encounter with a Senior Vice President from Yahoo!, visiting CI&T to assess it as a provider, who told them: “We love your company and your culture and we can see that you are terrific technically. We want to work with you. But your processes are shit.”

Proving true to his word, the Yahoo! VP took CI&T’s founders on “a four-month experiment” with the internet giant, using fast-moving, cross-functional teams split between Campinas and Yahoo!’s global headquarters in Sunnyvale, California.

It was CI&T’s introduction to the emerging methodologies of scrum and agile and, while the results of the experiment were mixed, the quality of the programming was high and team members loved the new model.

The founders were intrigued by these developments and – as they always had – read up on the latest articles on technology development, which was now all about agile and lean manufacturing. As Gon noted, “The previous model had worked well for a software factory, but to deliver innovation and creativity they were anachronistic.”

Within the space of two years, and having entering the US, where the new models were really taking off with, the founders became convinced that the world of waterfall-based, top-down development was a thing of the past and pivoted their core offering to ‘Adopting Agile at Scale’.

Guicardi recalled: “We became dogmatic about it – [we decided that] we will not take on waterfall work, it’s got to be agile … in retrospect, this bold move paid off, because scaling up agile allowed us to move up the food chain. The marketing and technology worlds were starting to converge. We were no longer selling just to CIOs – we were starting to talk to CEOs and chief marketing officers.”

By the early 2010s, CI&T had transformed itself into a hugely successful provider of agile services, regularly quoted by the International Association of Outsourcing Professionals as one of the best in the world. The company had approximately 1,600 employees in January 2013; 89% in Brazil, 2% in the US and 9% in other countries around the world.

The world goes digital

The business world continued to evolve through the 2010s as digital technology became part of everyday life. For CI&T’s clients, who included many traditional companies such as manufacturers and banks, the imperative was to become more technology-savvy and adapt more quickly to the changing competitive landscape – which often meant looking to the big technology companies, such as Amazon and Google, to learn from their innovative management practices.

For CI&T, this meant an increasing mismatch between what clients were asking for and what it was spending most of its time on. Gon recalled: “Through the early 2010s, the lean-agile model was supporting the organisation well, primarily due to the robust lean leadership model and the meritocracy we had built into the organisation. Nevertheless, it was evident that something new was needed.”

In 2017, the founders came across the book ‘Fast/Forward: Make Your Company Fit for the Future' by Julian Birkinshaw, Professor of Strategy and Entrepreneurship at London Business School and management thinker and author Jonas Ridderstråle, which developed the concept of ‘adhocracy’ first expounded by Warren Bennis and Philip Slater in 1968.

‘Fast/Forward’ began life as an article by the authors in McKinsey Quarterly entitled ‘Adhocracy for an agile age’ that identified the syndrome of internet-age “analysis paralysis”, whereby the gathering of more and more information and an unexamined bias towards rational, scientific evidence leads to endless debate, at the expense of intuition or gut feel.

“These pathologies,” the authors noted, “can have a deleterious impact on the functioning of companies … They can lessen the quality and speed of decision-making and engender a sterile operating environment in which intuitive thinking is quashed. As a result, many companies end up standing still, even as the world around them is speeding up.”

Adhocracy rules

CI&T’s founders took these words to heart. Adhocracy distinguishes business models that prioritise action over authority and knowledge; organising around a problem or opportunity rather than rules or flow of ideas; decision-making by experimentation and trial and error rather than through hierarchy or discussion; and people-motivation by stretch goals and recognition, rather than extrinsic reward or personal fulfilment through ‘interesting’ work.

In short, the concept of adhocracy called for a shift away from bureaucracy towards a more fluid and action-oriented way of working that resonated with the CI&T team. Guicardi explained: “We didn’t want to get stuck in a rigid structure. It has to be fluid, so that we can evolve with the market. We need a model where teams are opportunity-focused and entrepreneurial. It is also important to bring more executive leadership directly to client teams, as we did with [leading Brazilian bank] Itau.”

A group of senior executives took time out to think about how to apply the concept of adhocracy to the company and identified strikingly text-book like organising principles. These were based on organising around opportunities and recognising that opportunities are transient, speed is essential, activities must be transparent, management should be light touch, and governance needs to be flexible. Guicardi said: “This way of thinking also underlined that some activities still benefit from formal rules (bureaucracy) or deep analysis (meritocracy). This helped us to focus our adhocracy model in the areas that needed it most – where responsiveness and agility were key.”

Central to the proposal was to restructure around client-facing growth units (GUs), each with its own executive squad of two to three executives and a small group of senior managers, all client-facing and cross-functional by design, consisting of people with different skills working together on client problems.

This meant disbanding many expert competence units and departments and putting those people into growth units. There were significant concerns about doing this; particularly relating to the risks of breaking up well functioning groups of specialists and duplicating effort.

To allow the growth units to deliver on CI&T’s ambitious plans, a new approach to performance management was also needed: “We don’t want to fall into the budgeting trap,” said one executive. The company adopted the OKR (objectives, key results) methodology from Google. The executive explained: “We gave everyone a stretch goal or objective. For example, if we wanted CI&T to grow at 25% per year, we would ask each GU to try to double that, so 50% per year. Obviously, not everyone is going to get there – that is why it’s a stretch goal.”

Rolling out the new management model

During 2018 and 2019 the new, experimental way of working was gradually put in place; first in Brazil, then in the US and Asia. For the most part it worked well, with people valuing the greater sense of accountability they were afforded. However, there was a loss of formal power for some executives; particularly those who had headed up the major functional areas and were now working in client-focused teams. Redeploying large numbers of people also had its challenges. In Brazil more than 2,000 people moved out of horizontal structures into new growth units. Around 100 people relocated in the US and there were practical challenges in getting people to move to the right places. Many ended up commuting weekly.

By August 2019, it was clear that, despite the massive challenges thrown up by such a radical and all-encompassing transformation, the commitment to the new business model was paying dividends. CI&T had recorded annual growth of 25% for the last five years, the shift had been well received internally and by clients, and growth was looking promising for coming years.

Meanwhile Julian Birkinshaw, co-author of the work that had sparked CI&T’s digital transformation, still knew nothing about its remarkable journey – until, in a rather pleasing twist of fate, Carolina Wosiack, then CI&T Head of Strategy for Digital Transformation (she is currently Managing Director EMEA), undertook an MSC Sloan Masters in Leadership and Strategy at London Business School in 2019 and told him how instrumental ‘Adhocracy’ had been in informing the philosophy underpinning the company’s recent transformation. The two then documented CI&T’s transformation in a case study now available on the LBS case portal (see below for details).

While quick to play down his and Jonas Ridderstråle’s role in CI&T’s success, Professor Birkinshaw does admit to a small measure of gratification at seeing their ideas bear fruit, and points out how unusual it is for individuals to adopt business management theory so wholeheartedly, without having had any personal contact with its proponents.

He is also quick to say how having the courage of one’s convictions in executing strategy is key to success: “One thing that particularly impressed me about CI&T’s founders is that they are prepared to evolve constantly. When they founded the company, they committed to using the traditional Carnegie Mellon waterfall model, and doubtless part of the reason for their success was their courage in adhering to base principles. But, when they saw the world changing around them, they saw very early that it was time for a new paradigm and had the bravery to overthrow established orthodoxy and commit to a new, radical one.”

Another aspect of the CI&T story that stands out is its sheer scale, as Professor Birkinshaw notes: “Of course this type of transformation is comparatively easy to do when you are small or starting out and using that kind of model from the beginning. It’s a very different proposition when you are a mature, established organisation, and this is compounded when you are bigger in size – to do it in a company of 3,000 people is really some achievement.”

As for adhocracy as a concept, he says: “There’s no doubt that it’s a model whose time has come – the need for radical decentralisation, organising around where new growth opportunities are and being extremely client-centric, versus being organised around your own company functions and structures.”

That begs the question: is adhocracy the end of history for businesses, particularly given its suitability to business organisation in a distributed-working, post-Covid world? Its progenitor is quick to dismiss such notions: “Of course, the world of work as we know it has changed radically since the advent of the internet and the intense globalising forces that we have become accustomed to over the last decade or so, and it will continue to evolve in ways that we cannot foresee.

“However, as ‘Adhocracy’ makes clear, there is no single, one-size-fits-all model that is good for all organisations, for all time. The three main distinctive types of organisational model – bureaucracy, meritocracy and adhocracy – all have advantages and disadvantages which make them more or less relevant according to the circumstances a company finds itself in – and these constantly change. The trick for businesses is to change with them.”

 

The case study ‘CI&T: Building an entrepreneurial management model’ by Julian Birkinshaw and Carolina Wosiack is now available at the London Business School case collection. An accompanying Teaching Note for educators is also available.