The Four Guardrails That Enable Agility

What does it take for a large, established business to be as responsive to changing market conditions as the startups in its industry are? That question is a vital one for leaders seeking to move nimbly to address new customer demands and competitive shifts.

The answer often lies in a single word: empowerment. Startups typically empower their teams to make quick decisions, take risks, and explore novel ideas. These nimble teams operate with a level of autonomy that enables them to rapidly sense and seize opportunities that arise from changes in technologies, competition, and customer needs. In doing so, they iteratively move toward achieving their strategic objectives.

But for large organizations, adopting these practices isn’t quite as simple. With scale and complexity come layers of decision-making, risk aversion, and the need for operational efficiency and strategic alignment across diverse business units. So while greater empowerment is necessary to drive organizational agility, it also needs to be rooted in a level of coordination that keeps the organization moving cohesively toward its strategic objectives.

This is the challenge I’d like to address in this article: How can large organizations foster empowerment in a way that maintains organizational coherence and strategic alignment? I have studied this question for the past five years and found that what’s most required are four decision rights guardrails that define constraints around an organization’s purpose, data, policies, and allocation of resources. Like the barriers on a highway, these guardrails provide a zone within which employees can act autonomously, enabling their organizations to operate faster, reduce risk, and keep teams headed in the right direction.

Ultimately, my research suggests that these guardrails give large, established organizations the potential to be just as agile — if not more so — than their startup counterparts.

Through a 2022 survey by the MIT Center for Information Systems Research (CISR), I found that organizations that had successfully cultivated an environment in which most teams were empowered via robust guardrails tended to outperform their less-agile counterparts, experiencing revenue growth that was 16.2 percentage points higher and net profit margins that were 9 percentage points higher. Revenues from products and services introduced in the past three years — a key indicator of greater innovation — were also 15.8 percentage points higher.1

In this article, I will offer an overview of each decision rights guardrail, with practical examples from case studies at Allstate, Mars, and Toyota.2 Each company, despite its unique contexts and challenges, has found ways to transform the work of balancing empowerment and alignment from a daunting task into a strategic advantage. Their journeys offer insights into how to turn this balance into a catalyst for superior performance and innovation.

Defining Organizational Agility

Organizational agility refers to an organization’s ability to rapidly adapt to environmental changes in both innovative and cost-effective ways. More than just the ability to respond quickly, it also encompasses capabilities such as proactiveness (the ability to seek out or anticipate new opportunities) and adaptiveness (the ability to quickly reconfigure business processes and business models as needed).3

Those capabilities are particularly vital to support innovation; the degree of organizational agility can be measured based on how quickly teams can move through a four-stage cycle in which they identify opportunities and then analyze, decide on, and experiment with ideas for solutions to address them. When teams are empowered, they have operational decision rights: the authority and accountability for how to best achieve strategic objectives, which, in turn, are set by leaders with strategic decision rights. This approach, also referred to as decentralized decision-making by autonomous or self-managed teams, fosters agility by focusing teams on realizing outcomes — as opposed to having leaders dictate processes and required output — through the iterative realization of solutions that are desirable, feasible, and viable.

For instance, when empowered user experience (UX) teams at Toyota Motor North America and its digital subsidiary, Toyota Connected, learned that customers preferred to operate infotainment systems in their vehicles via voice commands and touchscreens rather than trackpads, they quickly created a prototype to test. Similarly, when product development teams noticed the rising cost of collecting and storing petabytes of connected-vehicle data each month, they proceeded to devise new, innovative techniques to pull only the data that was required for their specified solutions. As such instances of team agility multiply across Toyota, they will pave the way for the organizational agility that it requires to achieve its strategic vision of transitioning from a car manufacturer to a mobility company.

Yet empowerment should not be misunderstood as giving teams completely free rein or promoting a laissez-faire approach to management. For instance, Toyota Motor North America’s chief digital officer found that when the entrepreneurial Toyota Connected organization grew from 40 people in 2016 to over 200 in 2019, its empowered teams created silos and began pulling toward the structure of a more traditional company — complete with administrative layers and managers. Teams would prioritize their own speed and progress over that of the overall organization. They would also make their own copies of data and opted for technologies with little regard for their interoperability with those of other teams.

This scenario of misalignment is one that managers dread — and what often keeps them from providing greater operational decision rights to teams. Yet the leadership teams at both Toyota Connected and Toyota Motor North America ultimately managed to put effective governance mechanisms in place that enabled team agility without adding greater complexity. Their example shows how enabling greater empowerment lies not in eliminating constraints but in carefully defining them — in the form of four decision rights guardrails: putting purpose into action, democratizing data, establishing minimum viable policies, and providing appropriate resources.

1. Put purpose into action. Ideally, decision-making in an organization reflects the company’s future aspirations, value propositions, and core values, which it has articulated in statements of purpose and/or mission. Ingraining this purpose in planning and decision-making processes by frequently reflecting on whether choices are aligned with it serves as both a rallying cry and a compass. It motivates teams by infusing their work with meaning yet also serves as a beacon that guides their efforts toward a shared ambition.

Consider the case of Allstate Insurance. Its aspiration is to “empower customers with protection to help them achieve their hopes and dreams” via its value proposition: “providing [customers with] affordable, simple, and connected protection solutions.” In addition, Allstate has defined 11 values, including “Collective success is achieved through empathy and prioritizing enterprise outcomes ahead of individuals.” Together, the aspirations, value propositions, and core values provide organizational stakeholders with a comprehensive understanding of their shared purpose.

Allstate’s challenge, however, was using this purpose to empower cross-functional teams. Like many insurance organizations, Allstate’s Claims division used to be steeped in a traditional, solution-driven approach to strategy. Its annual strategic planning process, which involved months of meticulous groundwork, created hefty tomes that outlined not just what its strategic objectives were but also described at length how teams across Claims should achieve these objectives through specific projects. But the reality on the ground often disrupted its plans. Changes in business and customer needs would render the static plan obsolete before it had even been shared with the rest of the division. So in early 2021, Claims leaders realized that in order to plan for and capitalize on these changes, they had to transition to a dynamic, purpose-led planning approach that could empower teams.

Today, Claims leaders craft a strategic plan each year that’s focused on how their strategic objectives will enable Allstate to achieve its purpose. The planning process takes six weeks and begins with a reflection on Allstate’s purpose statement. After anchoring the division’s strategic objectives in this purpose, leaders describe how the current business landscape — including customer and employee expectations, macroeconomic trends, and digital developments — has informed the strategic objectives they set. Then they present the plan not as a cold and sterile set of facts but as an engaging and relatable narrative that is illustrated through the experiences of fictional customer personas.

With a thorough understanding of the reasoning behind the strategic plan, cross-functional teams are responsible for determining how to best realize the organization’s objectives. Guided by a product manager and a business architect, teams go through a process called Discovery and Framing to identify and qualify initiatives to pursue. This involves mapping potential initiatives to strategic objectives, devising actionable deliverables with defined measures of success, and designing experiments to achieve them. Throughout this analysis process, the emphasis is on collective decision-making, as each team member, regardless of role or reporting line, is ultimately accountable for achieving the chosen initiatives’ measures of success.

To maintain momentum, teams focus only on the initiatives they commit to, referring to both the strategic plan and Allstate’s purpose statement to guide their decisions. In addition, they rely on frequent and open communication to retain stakeholder support and further ensure organizational alignment. Road maps are updated weekly, and anyone who is interested can join daily standups, weekly problem-solving sessions, and demos. The values outlined in Allstate’s purpose statement mandate that these gatherings be platforms for collaboration in which attendees are encouraged to challenge existing ideas and provide feedback that is candid, actionable, and independent of hierarchy. With this purpose-driven approach, if experiments falter or conditions change, teams can swiftly pivot. The results are rapid learning and a faster realization of strategic objectives, which keep Allstate headed in the direction of its purpose.

2. Democratize data. Lack of access to information and data often holds cross-functional teams back from making operational decisions in large companies. Data ownership has traditionally been so compartmentalized that teams drive decisions up the organizational hierarchy because those at the top have better access to the data and are thus in a better position to make evidence-based decisions. To foster more efficient decision-making at the team level, organizations need to provide teams with regulated access to more and better data in a timely manner — and at its intended level of use. Doing so is both enabling and constraining: It helps teams analyze and experiment with relevant solutions more quickly while simultaneously keeping them from jeopardizing data integrity, endangering company compliance with legal and governmental regulations, and working on similar problems in isolation.

Mars Inc. has empowered employees by granting regulated access to data more broadly across the organization, with the goal of fueling employees’ use of data analytics to better understand customers. It has done this by deploying a data science group, Digital Demand and Analytics, to assist teams with data insights. Mars invested in this group by hiring over 100 data scientists and surfacing hundreds of existing employees who had sufficient knowledge of both Mars and data science to help teams solve customer problems.

For teams to solve problems even faster, however, every team member needs to be able to extract meaning and insights from data assets that were intentionally created in the context of specific customer problems. To achieve this, Mars’s Digital Technologies unit provided data platforms that enabled employees to transform and disseminate data assets securely and efficiently through advanced data visualization tools and self-serve diagnostics. But perhaps more important, its internal training resource, Mars University, delivered a multilevel data science curriculum that trained more than 30,000 employees in the basics of data science.

Organizational agility hinges on data being accessible, understandable, and actionable for all teams. Mars’s example shows that this requires companies to foster an environment in which data literacy is a shared value and data access is democratically distributed while, simultaneously, proper data management and utilization are ensured. Emphasizing user centricity and encouraging a collaborative environment for data analysis transforms data into a strategic asset that drives efficiency and innovation.

3. Establish minimum viable policies. If empowered teams are to make the most of their own operational decisions, then organizations should reasonably aim to simplify existing heuristics in the form of policies and standards. Setting the guardrail of minimum viable policy safeguards business continuity without overly restricting teams.

Policies and standards help to manage exceptions. Thus, one way to achieve minimum viable policy is to follow the “comply or explain” method: Rather than imposing rigid, one-size-fits-all solutions, provide teams with strong recommendations that are balanced with the flexibility to deviate when necessary. It’s about establishing foundational, high-level principles that can clearly guide decision-making, especially when teams are faced with trade-offs. Such high-level principles could be “data is an asset that must be shared” or “purchase rather than develop.” If teams were to choose to disregard those principles in a particular case, they’d be expected to explain their rationale.

Figuring out which particular policies, procedures, and standards to put in place at the enterprise level, which ones to suggest for potential adoption because they appear to be best practices, and which ones to simplify or remove safely can be a difficult exercise, however. Toyota Connected and Toyota Motor North America’s digital leadership team therefore let their various shared services groups determine for themselves how prescriptive they should be, weighing the need for customization by product teams with the need for companywide standardization. Through matrix-based organizational structures that embedded (horizontal) members of the shared services groups across (vertical) product teams, the organization instilled discipline and efficiency in its teams but also ensured that policies and standards reflected teams’ need for agility.

For instance, members of the UX design group created a design system — a mix of design and engineering processes and standards, partially instantiated in reusable code — that every product team was expected to adopt. The processes helped teams validate ideas and build solutions for testing with customers; the standards provided recommended use patterns for modular design elements; and the reusable code allowed engineers to quickly instantiate these elements in their applications. As a result, teams moved faster in software development while the UX design group maintained a coherent look and feel across the company’s wide spectrum of user interfaces, such as in-vehicle systems, mobile applications, and websites.

To further determine what might hamper their teams’ ability to deliver offerings that met customer needs or otherwise stand in the way of making progress, Toyota Connected’s leaders relied on Executive Action Team meetings. A group of executives met every day at 5 p.m. to review roadblocks that teams had brought to their attention. Each roadblock was self-assigned for resolution within a day. If an executive didn’t or couldn’t meet their deadline, the roadblock was automatically escalated to a more senior-level executive for removal, signifying the organization’s commitment to enabling team agility by reducing excessive complexity.

In addition to reducing or simplifying policies, minimum viable policy relies on reuse: Leaders set expectations for teams to componentize their solutions and rely on centralized platforms or repositories where those reusable components — whether they be data, processes, or digital assets — can be placed. At Toyota, this meant moving away from closed, monolithic platforms that became difficult to scale and expensive to maintain. Instead, it shifted to open-source code repositories and created microservices that it could distribute globally via platforms like its global Mobility Service Platform. This allowed teams across Toyota to avoid duplication of work, create customer value incrementally, and recombine services into locally customized solutions (such as car-sharing services in Hawaii, Japan, and Europe) that could get to market faster.

Like Toyota, Mars’s Digital Technologies group also encouraged the use of reusable components. This meant that teams could rapidly (re)configure user experiences on a weekly basis, which enabled them to exercise initiative and judgment to make decisions that delivered the most value to the company. Still, teams had to take a few high-level policies into account. For instance, each team initiative had to be run by a central architecture group, a cybersecurity group, and sometimes the procurement team. The involvement of these groups meant that Mars’s Digital Technologies group could readily identify solutions that had great promise within or across business segments and bring them to the fore while simultaneously safeguarding security and compliance of components. It shows how minimum viable policies ultimately need to take the overall interdependence of teams into account and that sometimes the agility of individual teams needs to be sacrificed to drive greater organizational agility.

4. Provide the required resources. A major constraining factor to a team’s agile operations involves organizational resources — physical, financial, and talent. Teams without the required resources are not empowered; they are abandoned. Yet traditional resource allocation processes fail in an empowered context because of their inefficiency and inability to accommodate rapid changes. Because these processes are project-based and fixed for a specific duration (typically a year, based on an annual budget cycle), it can be difficult for teams to pivot or change plans based on the results of their experiments.

To ensure that teams have adequate resources when pursuing uncertain outcomes, some organizations use venture capital-type funding approaches or provide explicit mechanisms for teams to unlock contingent budgets. At Toyota Connected, this approach keyed on three stages of maturity: proof of concept, development, and operation. When engineers had ideas for initiatives they were passionate about, they asked their respective chief product owners for approval to build out a prototype offering. If the prototype showed market potential to solve a unique problem, the developers brought it to members of the executive team (through a product review board and investment council) for further development funding. Once an initiative reached the stage of a (successful) minimum viable product, Toyota Connected pitched it to other Toyota entities for adoption in order to obtain funding for further development and operations. Teams would continue to receive funding for their initiatives as long as they showed meaningful progress in working toward the next stage of maturity.

The venture capital approach to funding initiatives meant that teams at Toyota Connected had to think in terms of business considerations, including price points, potential market share, and, most important, cost. Even when teams were looking to incorporate additional features into existing offerings, they considered the recurring cost of doing so: Would a new feature increase the hardware requirements for vehicles or drive up telematics costs? For instance, enabling customers to view their vehicle’s fuel level through the Toyota or Lexus app increased the functional value of the app but also added a data point that the company had to repeatedly capture, transmit, process, and store.

Like teams at Toyota Connected, teams in Allstate’s Claims division were expected to focus on outcomes. But because these outcomes were explicitly tied to shared strategic objectives, the teams’ funding wasn’t incremental. Instead, Claims funded functional areas and met regularly to ensure that teams had the right capacity to deliver on their intended outcomes. For instance, most initiatives involved one or more analysts, developers, or engineers from the Technology organization, so new initiatives were evaluated each week by the Pod, a committee run by Claims’ Innovation unit that included leaders from Claims, Data Science, and Technology. The Pod dynamically prioritized demand for the Technology organization’s resources based on an initiative’s ability to realize value or otherwise validate an initiative’s biggest unknowns or risks. This weekly process ensured that the talent allocation process was swift and conducted by those who had a thorough understanding of both customer and business needs.

Allstate’s example shows that the guardrail that provides teams with the resources to run is about more than just funding; it’s about creating a responsive, dynamic resource allocation framework that supports and adapts to the evolving needs of empowered teams. As a result, this approach not only streamlines resource management but also aligns it closely with the organization’s purpose, its strategic goals, and the changing landscape of business needs.

Charting the Path Forward

As you critically assess your current organizational practices through the lens of these guardrails, identify areas where you can increase empowerment while ensuring alignment with strategic goals. To do that, keep these four questions in mind:

• Are you and your teams considering purpose in every decision to ensure that it is aligned with shared strategic objectives?
• Are you enabling rapid access to the well-managed data that’s required to make informed and timely decisions?
• Are you streamlining policies and reusing standard components to speed decisions and development?
• Are you regularly adjusting resources based on evolving team needs?

Shifting a large organization and its culture toward agility is a continuous and ever-evolving process. It requires a commitment to ongoing assessment and adaptation of the four guardrails that empower agile thinking and action. The payoff? Greater innovation and responsiveness for organizations that recognize that empowered teams are the key to greater resilience and adaptability and a sustained competitive edge in a rapidly changing world.

In this short companion video, MIT CISR research scientist Nick van der Meulen shares examples on how Toyota uses corporate guardrails to boost its corporate agility and retain a startup-like mindset.