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22 May 2025

How to Build Operating Models That Enable Agility and Innovation

Introduction: Embedding Agility and Innovation at the Core of the Operating Model

In an era marked by rapid technological advances, volatile markets, and shifting customer expectations, organizations must evolve beyond traditional, rigid operating models. These legacy designs—often characterized by siloed departments, slow decision-making, and fixed roles—no longer suffice in enabling the speed and creativity necessary to compete and innovate effectively.

An operating model defines how an organization organizes its people, processes, technology, and governance to deliver value. To thrive, companies must build operating models explicitly designed to foster agility and innovation. This means embracing fluid team structures, modular organization designs, and the dynamic balance between stability and adaptability.

For HR leaders, this transformation demands a shift from traditional administrative or transactional roles to becoming strategic architects and enablers of new ways of working. HR’s involvement is critical in shaping talent strategies, leadership capabilities, workforce planning, and culture to support agile and innovative operating models.

 

1. Designing for Dynamic Reconfiguration of Teams and Capabilities

 

1.1 The Strategic Imperative for Dynamic Teams

In traditional operating models, teams are often static, long-established units aligned by function or geography. While this may optimize efficiency for predictable tasks, it stifles innovation and responsiveness. To be agile, organizations must enable dynamic reconfiguration of teams that can rapidly assemble, adapt, and disband in response to strategic priorities.

Dynamic teams allow companies to break free from silo mentalities, bringing together diverse skills to solve specific problems or capitalize on emerging opportunities.

 

Example: At Amazon, “two-pizza teams” are small, autonomous groups designed to be fed with two pizzas, ensuring nimble, focused collaboration. These teams can be reconfigured swiftly depending on customer needs or project requirements, avoiding bureaucracy.

 

1.2 Key Design Principles for Dynamic Teams

 

  • Modularity and Autonomy: Teams are designed as modular units with clearly defined purpose and accountability. They operate with autonomy within agreed boundaries, enabling fast decision-making and adaptability.
  • Capability-Centric Composition: Teams are formed around needed capabilities, not merely job titles or departments. For example, a new product launch team may include UX designers, data scientists, marketers, and engineers.
  • Temporal Flexibility: Teams may exist for specific projects or timeframes, with members rotating back to other roles or teams after completion. This preserves talent agility and prevents burnout.
  • Leadership Empowerment: Leaders of dynamic teams must be empowered with decision rights and equipped to manage ambiguity and rapid change.

 

1.3 HR’s Role in Enabling Dynamic Teams

HR must transition from rigid role assignment to orchestrating talent mobility and capability matching through:

  • Developing internal talent marketplaces and platforms where employees can be matched to team needs based on skills and availability.
  • Implementing flexible workforce policies that support job rotations, gig roles, and cross-functional assignments.
  • Offering leadership development focused on agile team management, conflict resolution, and coaching skills.
  • Adjusting performance management frameworks to value collaboration, innovation, and learning agility.

 

1.4 Case Study: Spotify’s Squad, Tribe, and Guild Model

Spotify’s operating model is a seminal example of dynamic teams in action. It organizes work around Squads—small, cross-functional teams with end-to-end responsibility for specific features. Squads operate with autonomy but align under Tribes (collections of squads aligned by broader domains), ensuring strategic coherence.

Supporting communities called Guilds cross organizational boundaries to share knowledge and best practices. This fluid model fosters innovation and agility while maintaining cultural alignment.

HR’s role includes facilitating role fluidity, leadership development for squad leads, and sustaining a culture of autonomy balanced with accountability.

 

1.5 Overcoming Challenges in Dynamic Team Design

  • Coordination Complexity: Rapidly shifting team compositions require robust collaboration tools and clear communication protocols.
  • Talent Development: Continuous skill-building is essential as employees move between roles.
  • Performance Evaluation: Traditional metrics must evolve to assess team outcomes and individual contributions in fluid environments.

 

HR must proactively address these to ensure dynamic teams realize their full potential.

 

2. Enabling Rapid Resource Deployment Through Modular Structures

 

2.1 Understanding Modularity in Operating Models

Modularity breaks the organization into semi-autonomous, self-contained units or modules that operate independently but connect seamlessly to form the whole. This design enhances agility by enabling:

  • Fast resource redeployment to priority areas.
  • Independent innovation within modules.
  • Scalable growth or contraction of units based on market conditions.

 

2.2 Designing Effective Modular Structures

  • Clear Boundaries and Interfaces: Each module must have well-defined scope and clear interfaces for coordination with other modules.
  • Profit and Loss Ownership: Modules often operate with P&L responsibility, fostering entrepreneurial mindsets.
  • Governance for Alignment: Modular autonomy is balanced with governance mechanisms ensuring strategic alignment.

 

2.3 HR’s Strategic Role

HR supports modularity through:

  • Designing leadership development programs that prepare leaders for entrepreneurial, autonomous roles.
  • Creating flexible workforce strategies enabling talent to move fluidly across modules.
  • Implementing compensation models aligned to module performance and enterprise goals.
  • Leveraging workforce analytics to track and optimize talent deployment in real time.

 

2.4 Case Study: Haier’s Microenterprise Model

Haier revolutionized its operating model by restructuring into thousands of microenterprises, each a small, autonomous business unit with its own customers, P&L, and innovation mandates.

This modular design allows Haier to innovate rapidly and respond to market shifts locally while maintaining a cohesive corporate vision.

HR plays a central role in managing talent mobility across microenterprises, leadership development, and aligning incentives with microenterprise performance.

 

2.5 Addressing Challenges

  • Risk of silos emerging despite modularity.
  • Balancing autonomy with enterprise-wide cohesion.
  • Complexity in aligning HR policies and rewards across modules.

 

3. Balancing Stability and Flexibility in Operating Model Design

 

3.1 The Paradox: Agility Requires Stability

While agility emphasizes rapid change, it depends on a foundation of stability. Stability provides predictability, risk management, and coherence. Organizations that try to be agile without stable processes or governance often descend into chaos.

 

3.2 Dual Operating Rhythms: Stable Core and Dynamic Edge

Leading companies manage two simultaneous operating modes:

  • Stable Core: Functions such as compliance, IT infrastructure, and finance run with disciplined, standardized processes.
  • Dynamic Edge: Innovation teams and business units operate with autonomy and rapid iteration.

 

HR must design talent and leadership systems that can function in both contexts.

 

3.3 Governance Models for Stability-Flexibility Balance

  • Establish clear decision rights to separate core operational decisions from innovation initiatives.
  • Use ambidextrous leadership, where leaders excel in managing both routine and novel work.
  • Deploy metrics that measure operational efficiency alongside innovation outcomes.

 

3.4 HR Initiatives to Support Dual Rhythms

  • Tailor performance management to recognize both operational excellence and creative risk-taking.
  • Develop career pathways that enable employees to move between core and edge roles.
  • Facilitate cultural programs encouraging disciplined innovation.

 

3.5 Example: Adobe’s “Kickbox” Innovation Process

Adobe’s Kickbox program provides employees with resources and autonomy to explore new ideas within a structured innovation framework, combining stability and creativity.

 

 

4. Practical Implementation Steps for HR Leaders

Building operating models that truly enable agility and innovation is a strategic journey—one that requires deliberate, phased implementation. For HR leaders, this is not just a project but a critical enterprise transformation endeavor demanding collaboration, deep business understanding, and change leadership. Below is an expanded, nuanced roadmap with practical guidance to lead this transformation successfully.

 

4.1 Conduct a Comprehensive Operating Model Agility Diagnostic

Before redesigning, HR must assess the current operating model’s agility and innovation capabilities. This diagnostic step provides a data-driven baseline and uncovers hidden gaps and strengths.

 

Why It Matters: Without a clear picture of current operating dynamics, redesign efforts risk missing root causes or reinforcing existing inefficiencies.

 

Key Actions:

  • Map Existing Team Structures and Fluidity: Examine whether teams are static or dynamic, cross-functional or siloed. Use organizational network analysis tools to identify collaboration patterns.
  • Evaluate Modularity of Business Units: Assess if the organization is functionally or modularly designed. Identify interfaces and dependencies that limit rapid resource movement.
  • Assess Governance and Decision Rights: Understand how decisions are made, where bottlenecks occur, and whether there are clear escalation paths.
  • Gauge Leadership and Culture: Conduct surveys and interviews to understand leadership readiness for agility, openness to innovation, and cultural barriers.
  • Talent and Capability Readiness: Review skills inventories, workforce planning data, and capability mapping to assess fit for agile roles and rapid re-deployment.

 

Tools & Techniques: Diagnostic heat maps, maturity models (e.g., agile maturity assessments), employee pulse surveys, leadership 360 feedback.

 

Insight: HR must partner with business leaders to interpret data contextually—not just identifying what is broken but why. This co-interpretation builds trust and ensures the diagnostic resonates with strategic priorities.

 

4.2 Co-Create Agile Operating Model Principles with Business Leaders

Agility and innovation cannot be imposed top-down. They emerge when HR and business leaders co-create guiding principles that reflect the organization's unique strategy, culture, and context.

 

Why It Matters: Principles serve as the north star, ensuring that operating model changes align with business intent and that the workforce embraces new ways of working.

 

Key Actions:

  • Host Collaborative Workshops: Engage cross-functional leaders, including HR, operations, finance, and IT, to brainstorm and define agility principles (e.g., “empowerment over control,” “fail fast, learn faster,” “team over hierarchy”).
  • Translate Strategy into Design Criteria: For example, if innovation speed is a strategic priority, principles might emphasize short iteration cycles and autonomous decision-making.
  • Build Consensus on Trade-offs: Agree on how to balance autonomy with accountability, speed with quality, and flexibility with stability.
  • Embed People-Centric Focus: Ensure principles address workforce implications—talent mobility, psychological safety, diversity of thought.

 

Insight: Co-creation strengthens buy-in and uncovers practical constraints early. HR’s facilitation expertise is critical to navigating conflicting priorities and fostering shared ownership.

 

4.3 Pilot Agile Operating Practices in Select Units

Change at scale requires proof points. Pilots enable organizations to test new structures and processes, learn quickly, and refine approaches before broader rollout.

 

Why It Matters: Pilots minimize risk and create momentum through visible success stories that encourage adoption.

 

Key Actions:

  • Select Pilot Units Strategically: Choose business units open to experimentation, with strong leadership sponsorship and diverse work types.
  • Define Clear Objectives and Metrics: For instance, reduce time-to-market by X%, increase cross-team collaboration scores, or improve employee engagement in innovation initiatives.
  • Implement New Team Designs: Establish dynamic, cross-functional teams with autonomous decision rights. Enable modular resource allocation.
  • Deploy Agile Governance Forums: Create decision-making forums with rapid escalation mechanisms and flexible operating rhythms.
  • Collect Real-Time Feedback: Use pulse surveys, retrospectives, and direct observations to capture what works and what doesn’t.
  • Iterate and Scale: Apply lessons learned to refine operating model elements and prepare for broader adoption.

 

Insight: HR plays a vital role as a change enabler—designing pilot frameworks, training leaders on agile management, coaching teams, and ensuring alignment with workforce policies.

 

4.4 Develop Agile Leadership and Capability Programs

Operating models anchored in agility and innovation require a new breed of leaders and a workforce equipped with adaptive skills.

 

Why It Matters: Leadership and capability gaps are often the biggest barriers to successful transformation.

 

Key Actions:

  • Define Agile Leadership Competencies: Emphasize skills like emotional intelligence, collaborative decision-making, change management, and comfort with ambiguity.
  • Design Multi-Modal Learning Programs: Blend formal training, coaching, peer learning, and action learning projects focused on agile mindsets and behaviors.
  • Embed Capability Development in Daily Work: Promote “learning in the flow of work” through team retrospectives, innovation labs, and stretch assignments.
  • Create Talent Mobility Programs: Facilitate internal rotations, gig assignments, and cross-functional projects that build agility muscle.
  • Measure Leadership Impact: Use 360 assessments, engagement scores, and business outcomes to track progress.

 

Insight: HR must advocate for continuous leadership development, breaking away from episodic training models to foster ongoing growth aligned with evolving operating models.

 

4.5 Leverage Technology to Enable Agile Operating Models

Technology is a critical enabler for agile teams and modular structures, providing the platforms and data needed for dynamic resource allocation, communication, and performance management.

 

Why It Matters: Manual processes and legacy systems hinder the rapid, data-driven decision-making agility requires.

 

Key Actions:

  • Implement Talent Marketplaces: Digital platforms that match skills with project needs enable rapid team formation and redeployment.
  • Adopt Collaboration Tools: Real-time communication and project management tools (e.g., Slack, MS Teams, Jira) support cross-functional collaboration.
  • Use Workforce Analytics: Advanced analytics identify skills gaps, predict workforce risks, and optimize resource allocation.
  • Integrate Performance and Feedback Systems: Agile models require continuous feedback mechanisms rather than annual reviews.
  • Ensure User-Centric Design: Select tools with intuitive interfaces that foster adoption and minimize resistance.

 

Insight: HR must lead the digital enablement agenda, collaborating with IT and business to ensure technology solutions align with agile principles and deliver measurable value.

 

4.6 Manage Change with a Clear Transition Blueprint and Readiness Strategy

Operating model transformations challenge entrenched mindsets and behaviors. Sustained success depends on proactive change management and readiness assessment.

 

Why It Matters: Without managing the people side of change, even well-designed operating models fail in adoption and impact.

 

Key Actions:

  • Develop a Detailed Transition Blueprint: Define phases, milestones, roles, communications, and governance for transformation execution.
  • Conduct Change Readiness Assessments: Regularly evaluate readiness across leadership, teams, and individuals using surveys, interviews, and workshops.
  • Design Tailored Communications: Craft messages that resonate with different audiences, addressing “what’s in it for me” and mitigating resistance.
  • Build Change Networks: Identify and empower change champions within business units to model and reinforce new behaviors.
  • Measure and Adjust: Track adoption metrics, engagement levels, and performance impacts, adapting tactics as needed.

 

Insight: HR’s expertise in stakeholder management, communication, and training is indispensable for guiding people through uncertainty and embedding new operating paradigms.

 

4.7 Institutionalize Continuous Improvement and Agility Culture

Agility is not a one-time project but a continuous organizational capability. HR must help embed agility into the cultural fabric.

 

Why It Matters: Without institutionalizing agility, organizations revert to old patterns when pressures mount.

 

Key Actions:

  • Establish Feedback Loops: Use regular retrospectives, innovation forums, and pulse surveys to capture lessons and drive iterative improvements.
  • Recognize and Reward Agile Behaviors: Align incentives and recognition programs to celebrate adaptability, collaboration, and experimentation.
  • Promote Psychological Safety: Foster environments where employees feel safe to take risks and voice ideas.
  • Support Cross-Functional Learning: Encourage communities of practice, guilds, and informal networks for knowledge sharing.
  • Align HR Processes: Continuously evolve talent acquisition, development, and performance systems to support agility.

 

Insight: HR’s stewardship of culture and values is foundational to sustaining agile operating models—transforming them from initiatives into identity.

 

5. Extended Examples of Agile Operating Models

 

5.1 Google’s Project Aristotle: Team Effectiveness

Google’s research highlighted psychological safety as critical for team agility. HR redesigned performance feedback and coaching to foster open communication and innovation.

 

5.2 ING’s Agile Transformation

ING bank transitioned from hierarchical to agile squads, tribes, and chapters. HR redesigned roles, introduced agile coaching, and aligned rewards to team outcomes.

 

5.3 Zappos Holacracy

Zappos adopted Holacracy, a self-management system emphasizing decentralized authority and fluid roles, supported by HR-facilitated role clarity and conflict resolution.

 

Conclusion: HR as the Catalyst for Agile and Innovative Operating Models

The future of work demands operating models that can rapidly adapt and innovate. HR’s strategic leadership in designing dynamic teams, modular structures, and balancing stability with flexibility will enable organizations to thrive amid uncertainty.

By embracing this role, HR leaders not only optimize talent and culture but drive enterprise-wide agility and sustained innovation.

 

 

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