Why companies still need to invest in people, according to a Columbia business professor 

In recent years, being innovative is not enough—you must now innovate at speed. For example, digitalization and developments in artificial intelligence and data analytics require constant changes to companies’ business models.

New entrants—either international firms or smaller and much nimbler startups—require quick competitive reactions. Rapidly changing consumer preferences for different purchasing channels (such as self-service on a computer or mobile phone or an online chat) or product and service attributes are making historic competitive advantages obsolete. The unprecedented level of volatility, uncertainty, complexity, and ambiguity (collectively known as VUCA) in organizational environments requires organizations to keep up with the rapid pace of change. Innovation is now a given for high-performing organizations. The ones that do not figure out how to keep pace will not survive. The solution is to create agile organizations—and agility is almost by definition people-first.

Agile organizations are set up to react quickly to changes in trends in the marketplace and the environment. But to achieve that, companies need to completely change their organizational structure and processes. A hierarchical and top-down organization must give way to a flat organization in which power and authority go to employees and teams. The whole organization should be set up in cross-functional teams that are encouraged to experiment, fail, and learn. Those teams have end‑to‑end responsibility, which means that they are autonomous in delivering new products without having to rely on other parts of the organization.

This is a substantial shift for managers. Not only do many have to transition from managers to “just” team members, but they need to relinquish the control that comes from planning and reporting, which does not fit this agile model.

ING, the global bank headquartered in the Netherlands, successfully undertook such an agile transformation starting in 2014, one year after Ralph Hamers was named its new CEO. Hamers realized that the bank needed to change in light of significant shifts in its business environment. Customers had become accustomed to fast and personalized service from tech companies such as Amazon, Apple, and Spotify and were getting more demanding as a result. Once people are used to one-day delivery, waiting multiple weeks to get approved for credit can be quite frustrating.

ING’s quality of customer experience and customization now had to keep up with these customer-centric tech companies. The digital companies were not only much better at offering their services online; they were also much quicker in coming up with new features and products. Many of the new fintech competitors such as PayPal, Square, or Venmo (or Amazon with its short-term loans to small and midsize companies) also offered disintermediation, meaning it was possible for customers to interact directly without going through a bank. ING needed to adapt.

Transforming a large and established bank such as ING is not an easy task. Large organizations in general are difficult to change, and banks are known for being particularly slow to transform. ING first had to completely overhaul its organization. It got rid of layers of hierarchy and organized the whole company into squads. These squads are cross-functional teams of around nine people who have end‑to‑end responsibility—that is, they are able to come up with a new product without the help of anybody else in the organization. As a result, the bank got much faster and more innovative. ING went from having “five big releases a year to thousands of new releases a month.” Releases can be new product launches but also smaller changes, such as new search functions in payment apps or a software update.

At the core of any successful agile transformation are people. ING’s former chief operating officer, Bart Schlatmann, defines agility as the “flexibility and the ability of an organization to rapidly adapt and steer itself in a new direction. It’s about minimizing handovers and bureaucracy, and empowering people.” ING’s agile transformation required a completely new employee-centric way of working, as all the initiatives had to come from employees. The bank was very explicit that agile innovation would only happen if it prioritized people over processes and tools. That meant a stark departure from working with strict protocols and tools to providing freedom, support, and resources to employees.

ING organized “pizza sessions” in which employees were asked to give honest feedback about what was working, and what was not working at ING. As the name of the sessions suggest, ING would provide the pizza and communicate the received feedback to the board. For example, in those sessions it became clear that employees hated meetings and thought that most of the meetings were a waste of time. Schlatmann explained that as a result of input from those sessions and from reimagining work as employee-centric, ING “gave up traditional hierarchy, formal meetings, overengineering, detailed planning, and excessive ‘input steering.’” After ING’s transformation, Schlatmann said, “There is so much more freedom, happiness, and empowerment.”

ING’s people-first agile transformation was unquestionably a business success: Its innovation speed increased, customers were more satisfied (as reflected in an increased net promoter score), and its financial performance improved. But the bank also became a better place to work. It moved up two ranks, from seventh in 2014 to fifth in 2017, in the Dutch equivalent of the Fortune 100 Best Companies to Work For list. But it’s important to point out that being employee-centric was not the result of the agile transformation, but the necessary precondition for being agile.

The four trends all point in the direction that companies need to put employees first and be truly employee-centric. But to be really employee-centric and generate the benefits of it requires more than mentioning in a letter to shareholders (as Jeff Bezos did) that “we are going to be Earth’s Best Employer.” It requires a mindset shift: Putting employees first does not put profits second. Leaders must have internalized that, rather than creating higher costs for a company, employee-centric strategies will provide more value. Just like a customer-centric organization in which both customers and shareholders win, being employee-centric results in mutual gains for both employees and the organization itself.

Unfortunately, the either‑or view that either employees or shareholders win is still very prevalent—a lesson that 3M, the company that created the Post‑it note, learned the hard way.

This article has been excerpted from The Employee Advantage: How Putting Workers First Helps Business Thrive by Stephan Meier. Copyright © 2024. Available from PublicAffairs, an imprint of Hachette Book Group.