Making better, more responsive organizations
Mustafa Dülgerler, MBA, PMP
Today's economic globalization has coerced organizations into combating severe challenges in regulating all aspects of their business, to achieve the necessary agility and effectiveness to remain competitive in the rapidly changing marketplace. Information technologies serve as an imperative part in the organizational management, supply chain management, and in service delivery in widely spread markets. New conceptual and technological innovations have emerged to support knowledge-based processes including total quality management, Six-Sigma, concurrent engineering, strategic outsourcing, business process re-engineering, and flexible manufacturing, which all aim to increase organizational effectiveness. Agile management is a key philosophy that diagonally crosses all these concepts to developing an ability for organizations, by utilizing IT solutions to remain flexible and respond proactively to the constantly changing business environment.
This article investigates how organizations can become more agile to be able to respond to the market changes effectively and in a timely manner. A framework to implement and measure the agility of the organizations will be presented, and practical insights to deliver projects in agile organizations will be reviewed. Finally, the critical success factors for the adoption of agile methods will be discussed.
When Heraclitus said “panta rhei,” we don't know if the people surrounding him really understood what he meant at that time. But today, we truly understand his words, “everything flows; everything changes and nothing remains the same.” This applies to many things, including the world, society, people, economy, and marketplace. These rapid and frequent changes make the marketplace more competitive. Only companies able to adapt to the changing environment can survive, the others disappear due to natural selection (Aldrich, 2007).
Organizational ecology has been changed radically over the last couple of decades, along with technology, market conditions, and customer requirements; changing at an unprecedented speed and in a less predictable manner (Vázquez-Bustelo, Avella, & Fernández, 2007). In this challenging environment, business-as-usual has been constantly threatened by the emergence of disruptive technologies, changes in consumer behavior and customer demands, advances in science, the entrance of new players from geographically dispersed places, new regulations, price changes, demographic shifts, and many more other factors (Gartside, Gossage, Silverstone, Tambe, & Cantrell, 2013). It is clear that in this VUCA (volatile, uncertain, complex, ambiguous) world, the capabilities that have brought the companies where they are today are not enough to carry them to the future. Recently, that is the reason why many firms have been focusing on differentiating themselves from their competitors by adopting different practices. There are a number of examples of these practices used in organizations: automation, standardization, concurrent engineering, total quality management, Six-Sigma, benchmarking, customization, localization, adaptation, aggregation, arbitrage, outsourcing strategy, process re-engineering, and so on. Academics continue to research improving these techniques as well as developing new ones, which will help companies improving themselves to better serve their customers.
One of the organizational study areas is that of organizational agility. It was first introduced by researchers of Iacocca Institute of Lehigh University (USA) in the early 1990s and has received considerable attention since then (Bottani, 2009; Sherehiy, Karwowski, & Layer, 2007; Yusuf, Sarhadi, & Gunasekaran, 1999). Organizational agility refers to agility of an organization as a whole, which also encompasses agility of different functions including the agile strategy setting, agile services, agile product delivery, agile supply chain, agile manufacturing, operations agility, IT agility, etc. That is why the meaning of agility in defining organizations still remains elusive, as it refers to more than one side of the business.
Organizational agility is a firm-wide capability to deal with changes that often arise unexpectedly in business environments, via rapid and innovative responses that exploit changes as opportunities to grow and prosper (Goldman, Nagel, & Preiss, 1995; van Oosterhout, Waarts, & van Hillegersberg, 2006; Zhang & Sharifi, 2000).
Sull (2009) defines it as, “the capacity to identify and capture opportunities more quickly than rivals do.” A recent McKinsey survey found that nine out of 10 executives ranked organizational agility both as critical to business success and as growing in importance over time. The benefits of enhanced agility, according to survey respondents, include higher revenues, more satisfied customers and employees, improved operational efficiency, and a faster time to market.
Before going deeper in organizational agility, it is important to understand the environment where organizations exist, cooperate, and compete. The main components of the environment are organizations themselves, their customers, their suppliers, their competitors and other institutes such as governments, financial institutes, educational institutes, etc. This is shown in Exhibit 1: Typical organization. When we look closer at the structure of organizations, every organization can be defined by three different layers, each of which has different agility requirements:
- Strategy: Responsible for setting the organization strategy, foreseeing the market changes, and calculating the next step in the game, accordingly aligning the capabilities and perceiving the opportunities and exploiting them.
- Portfolio: This layer is responsible for maintaining the existing skills, improving them, and gaining new skills. This layer includes talent, cash, and managerial activities.
- Operations: This layer concerns the production and developing new capabilities through R&D.
Do Organizations Need to be Agile?
Gothelf (2014) highlighted a reality where software has conquered the world. It is difficult to identify an industry or company that doesn't use any sort of software application. Those applications change the way business is done. It pushes the organizations to re-analyze their current processes, reach their rivals, and overtake them. Decisions should be made quickly. In this volatile environment, the organizations definetely need to be agile, with agility increasing everyday. There is no end or predefined limit to do that. But an important question here is, “Up to which level the organizations should adopt agility, which divisions should continue as is, and which should be more agile than others?”
This purely depends on the business, organization, and the organization's strategy. To answer these questions, the companies should firstly examine their environment and identify their current position, the fast-changing components of the market; then, accordingly, they should decide on the agility strategy.
In a marketplace where the entry barriers are high (creating a new company in the marketplace is difficult due to strict regulations and/or very expensive), there is a strong supply chain relationship established; the companies may prefer keeping their lean structure in manufacturing. For example, a shoe manufacturer may produce classic shoes that change little over the years. Here the manufacturer does not feel a need to become more agile. But where there are price wars, customer demands vary day by day; the companies should consider moving to an agile structure. For example, a restaurant facing more rivalry may focus on producing new products and changing the menu frequently. A combination of agile and lean manufacturing can be considered by some firms, as a chocolate manufacturer may have a well-known chocolate brand as well as they try to innovate new tastes to establish new brands (cash cows).
Agile and lean are each more appropriate for different market and product/service conditions. For instance, if the product variety or complexity is high and demand predictability low, then agile principles may help the organizations to be more responsive. The table shown in Exhibit 2: Agility evaluation matrix recommends a way of evaluating required agility for the organizations depending on the product/service complexity and demand variables. By using this table, you can identify where your organization currently is and where you want it to be.
Becoming agile as an organization is not enough. The organizations cannot be agile per se, while the rest of the supply chain operates at normal speed (Christopher, 2000; Ren, Yusuf, & Burns, 2001; van Hoek, Harrison, & Christopher, 2001). The organizational agility should be considered from the supply chain networks to the product/service delivery to the customers. The whole stream should be agile. Consider an agile textile manufacturer that can fulfill any order on demand as long as the suppliers provide the raw fabric on time. Here, if the suppliers are not able to supply the material on demand, the agility of the manufacturer is worthless. Therefore, companies should establish effective and responsive supply chains, the inventory level should be kept at the lowest level possible all the time, and it should be deployed as closely as possible to the customers. In this way, the chain can supply even when dramatic changes occur in customer demands (Slack, Brandon-Jones, Johnston, & Bets, 2012). Exhibit 3 presents a guideline to identify which kind of supply chain is more appropriate for your business.
Critical Success Factors (CSF)
Before planning for agile transformation, detecting critical success factors (CSFs) helps organizations to identify focus areas in their transformation program. This is a sample list of CSFs generally adopted by the high-performing organizations (Gehani, 1995).
- Satisfy customers quickly,
- Maximize customer service level,
- Be able to introduce products frequently in timely manner,
- Get-in and get-out from strategic alliances,
- Meet changing market requirements swiftly,
- Minimize the cost of goods,
- Make training and education a priority,
- Keep agile practices consistent,
- Include other areas of the business,
- Encourage organizational simplicity, and
- Scale the infrastructure
How Can Organizations Be Agile?
There is a wide range of academic papers on defining organizations’ agility for different work streams within organizations. However, the organizations’ transformation area still requires further studies to be conducted, as there is no one-size-fits-all solution available.
Kotter's (1991) research showed that only 30% of the change programs can be completed successfully. Keller and Aiken (2000) confirmed the validity of Kotter's result after 10 years. Therefore, it is very important to follow a scientific method to implement the change in the organizations.
There are a number of different change management frameworks available. One of the most popular is Kotter's 8-Step Process for Leading Change. This article recommends firms to use The Organizational Agility Transformation Framework (OATF) in their transformation programs which provides a set of tools and techniques for a smooth transition. OATF, shown in Exhibit 4: Organizational Agility Transformation Framework, is created based on the best practices of the different change management frameworks, such as Kotter's 8-step framework and validated by a survey conducted by McKinsey & Company in September 2014 (Hatami, McLellan, Plotkin, & Schulze, 2014).
As per this framework: the organizations should follow the following steps during agility transformation.
1. Map where you are (current state)
This is one of the most important steps in OATF. Many of the organizations simply miss analyzing their current position in required depth, apart from their financial situation. They should analyze their strengths and weaknesses and capabilities from different perspectives, such as organizational capabilities, operational capabilities, human resource-related capabilities, and so on. Companies with the higher level of agility systematically assess their capabilities at a granular enough level to allow executives to take meaningful action. Those areas should be analyzed in-depth and recorded to provide a baseline for the transformation.
It is recommended for organizations to draw their capability maps to gain better understanding of their organizations, and these maps should be monitored and updated as per the changes.
A high-level organizational capability map is shown in Exhibit 5.
The “operational capability map,” drawn similar to the organizational capability map, aims to link different products offered to:
- Customer segments that the products will be provided to,
- Channels that will be used in delivering the product to the customers,
- Core business capabilities that are the skills required to produce those products and deliver them to the customers,
- Supporting capabilities that are the skills used in supporting core business capabilities in different levels.
Exhibit 6 exemplifies an operational capability map for a textile company.
This table can be expanded and used by the organization to add more capability perspectives.
2. Map where you want to be (future state)
Organizations also need to define their future position in the market, expressing where they want to be within next n number of years. This plan may be short term or long term. However, the elements of the organizations should be studied almost as deep as the current state analysis. Companies should ask themselves questions to understand what capabilities are needed in the future. There are a few example questions given below.
- Where do we want to be in the next n number of years?
- Still operating within the same region, or internationalizing?
- Which geographical locations will we continue to operate/expand/withdraw?
- Should we grow organically or through acquisitions?
- Which operational capabilities are required to operate in the desired market?
- Which organizational capabilities are required to gain the needed operational capabilities?
- What strengths do we need to gain?
- What weaknesses will be introduced to the organization if we follow this pathway?
- What technological capabilities are needed?
- What human resource-related capabilities are needed?
- Which delivery channels are to be used?
- What new products, for which customers segments, are to be focused on?
- How much finance should be allocated for R&D?
Upon answering those questions, the organizations should attempt to draw their future capability maps by using the similar methods given in the previous step.
3. Plan Transformation
After mapping current and future capabilities, the organization should plan for the transformation. The first step of the transformation is to identify the gap between the current and future state of the organization. The gap size will depend on how ambitious the desired change is.
The quantitative gap size can be converted to a qualitative gap size by using “impact scale matrix” and vice versa. For example, for some organizations, US$1 million needed for this transformation project can be considered as a small gap, but for some others it may be high. Organizational process assets database may have a ready matrix for evaluating the gap size. Exhibit 7 demonstrates the riskiness of the change in a hot-map.
For example, if the identified gap is evaluated as medium and the organization is classified as a risk-seeker organization, the change can be immediately taken into the agenda to be further planned for execution; however, a risk-averse organization may reshape their desired state to bring it down to something more affordable in terms of cost, change, adaptability, and so on, before moving to the execution phase. In either situation, the most important element of the change is the commitment of the higher management, including shareholders. After the gap is actualized, the top management should support the change and commit to that. Sirkin, et al. (2005) listed “commitment” as one of four transformational factors of the change. Keller and Aiken's (2000) survey showed that lack of commitment is one of the main reasons why the transformation projects fail.
When the top management commits to the change, the management should assign a transformation master to lead to the transformation leaders’ group, and the leaders will be selected to form a transformation team (TM).
TM will further elaborate the transformation activities to structure a plan. This can only be done with the endorsement of the transformation project at every level in the company. The top management should be ready to change the vision, developing new leadership and change-management skills. The managers should focus on improving their mentoring and coaching skills while equipping themselves with new required knowledge on the new processes, products, and other skills needed. The rest of the employees should be ready to perform in the changed environment.
TM should create a road map for the change, identify the milestones, and divide it into logical, achievable phases with short-/medium-/long-term goals. After the road map is completed, it should be shared with employees, explained, and buy-in sought before moving to the execution phase. There will always be some persistent people in the organizations. Ledford (1985) argued the impact of the employee persistance in the change projects. Pasmore, Woodman, & Shani (2011) discussed that the high rates of failure in organizational change efforts call attention to the need to identify and address employee persistent problems. Therefore, TM should plan how to address potential problems caused by the persistance of the people, departments, managers, and so on.
4. Execute Transformation
After the plan buy-in is acquired at the organization level, TM is ready to kick off the program and execute the transformation plan. This process also takes care of monitoring and controlling the implementation of the change.
5. Score Quick Wins
Transformation projects will not succeed unless substantive short-term wins are gained within six to 12 months. Otherwise, the commitment of the organization may degrade. Typically, the best companies build momentum by focusing first on initiatives that have early impact—and help fund the transformation—then on building a case for further change efforts.
6. Commit to the Change
The organization should continue endorsing the transformation and reconfirm their commitment. During the transformation program, TM should perform the variance analysis between the baseline and the achieved agility to confirm if they are on track or not.
Sometimes the team may recognize some side effects introduced to the organization that were unpredicted before. The organizations should evaluate those and rectify them as early as possible to prevent greater deviations from the plan.
7. Re-evaluate the agility
In the fast-moving world, the only thing that is constant is the change. Therefore, organizations systematically re-evaluate their agility level and confirm their commitment to being a high-performing organization.
Organizational Agility Frameworks
In the literature, the agility consists of three basic elements: drivers, enablers, and outcomes, as shown in Exhibit 8.
- Drivers (Reasons we need to change): These are “enterprise environmental factors” that enforce organizations becoming more dynamic. The market dynamism is explained in different ways by the academics: Some academics market that dynamism comes from uncertain customer demand; some defend that it is due to market growth. Whatever the situation is, we should consider the existence of uncertainty in the dynamic markets. This makes it harder for the firms to grow organically and sustain their business as usual. The companies operating in those dynamic environments need to adapt to:
- Unpredictable changes in the environment;
- Scarcity of critical resources;
- New modern technologies;
- Scarcity of information;
- Social and cultural pressure;
- Strong relationships between buyers and sellers, distributors, customers, and competitors; and
- Diverse product range, multiple customer segment, and distinct business lines.
- Attributes (What do we need to change?): Attributes are useful in identifying what exactly we need to change in the organization to be more agile.
- Enablers (How do we change?): Enablers are the agile practices that can be adopted to change the organizations to make them more agile.
- Outcomes: These are the end result of agile transformation programs. The organizations become more flexible, faster, responsive, dynamic, innovative, reconcilable, and tolerant, and they deliver high-quality product at a low cost, with a better service and shorter delivery times (Goldman & Nagel, 1993).
Agile organizations are characterized by both attributes and enablers (Bottani, 2009; Bottani, 2010; Lin, Chiu, & Chu, 2006). While enabling the agility in an organization, TM should follow the below framework in Exhibit 9:
Agile attributes are the capabilities of the organization that will implement the transformation plan to confirm the achievement of critical success factors. Exhibit 10 provides a list of different agile attributes along with their domains. Different industries can develop their own attribute list depending of the nature of the business.
While selecting which attributes will be playing a key role in the transformation program, TM should consider evaluating them by using the attribute evaluation matrix. For example, in Exhibit 11, “Breakthrough Improvement Capability” is evaluated.
There are a number of different enablers. Vázquez-Bustelo, Avella, and Fernández (2007) recommended to group these enablers into five different groups, shown in Exhibit 12:
Agile Technologies: Systematic implementation and integration of advanced design, production, manufacturing, and administrative technologies, integrated relationship information systems to empower the supply chain network and planning systems.
Agile Human Resources: Transformation of human resources should be focused at the most in the transformation projects. Organizations should develop highly trained, motivated, and empowered people working as a team. There are a number of different practices to be implemented:
- Cross-functional teams: Working in cross-functional environment, employees may better understand the business as a whole. This leads to greater performance;
- Empowerment of front-line;
- Training, up-skilling, re-skilling;
- Reward programs, motivation;
- Organizational restructuring;
- Broad banding, grading;
- Employee involvement and participation.
Value Chain Integration: This category used for grouping practices relating to internal organization and external relations, including the development of mechanisms for integrating and coordinating the value chain. This would be based on cooperation and integration of operations amongst departments in the firm and between the firm and external agents (suppliers, customers, partners, stakeholders, etc.).
Concurrent Engineering: This level is concerned with the product development and/or design processes leading to concurrent engineering. For example, these activities can be counted here: simultaneous product and process development, product re-design, R&D, early involvement of different divisions in the product development, collaboration.
Knowledge Management: Considering “knowledge is power” today, organizations that intend to become agile should include the development of a well-trained and motivated workforce, with the right set of skills, expertise, and knowledge as an essential element of their strategies. Such organizations are driven by knowledge and information possessed by and available to the work force.
Measuring the Agility
Agility is the ability of an organization to sense environmental change and respond efficiently and effectively to that change (Plummer & McCoy, 2006). Similarly, companies should monitor success of their agility enablement and also confirm whether their intuiting ability is still active or not.
Before Starting the Transformation Program
Organizations should measure the performance of their existing processes and capabilities, before the transformation program starts. The results of these measurements will be the baseline for the future analysis to confirm the success of the program.
While measuring the agility more systematically, the qualitative and quantitative methods can both be used.
Return on Agility (RoA)
This is a ratio between the after agile versus before agile. The organizations may use any condition, such as:
Setting Key Performance Indicators (KPIs)
Identifying the right KPIs to measure the performance is critical. Organizations generally fail at this step. They either can't identify the right KPIs, or they identify too many KPIs where they can't focus adequately on any of them. Therefore, organizations should critically analyze and assess which KPIs are needed then identify a set of KPIs that are essential in sustaining business and decision-making. During determining KPIs, businesses should have a good understanding of the current and future states of their businesses. This again requires clear business strategy, vision, and set of objectives. TM and experts should analyze the transformation strategy in order to select the most appropriate KPIs that are in-line with the agility concept and address the requirements of the company operating in a turbulent market. It is a best practice to rank KPIs from different dimensions (Deshpande, 2013). There are some examples here, but they can be extended as needed.
- Priority: The importance of KPI in relation to short-term goals, such as reducing call center call handling time 30%.
- Criticality: The importance of the KPI in general terms, such as overall financial expenditure related KPIs. Those are the continuously-watch-closely KPIs.
The number of KPIs selected should not be excessive; otherwise, it may be too overwhelming to track them. A dashboard is one of the most common ways used in monitoring KPIs.
Organizations should not consider the selected KPI list as a static list. Considering the business requirements and customer demands change overtime; KPIs need to be adaptive. Hence, they should be reviewed regularly to ensure their validity, priority, and necessity. Sometimes new KPIs need to be introduced.
Exhibit 19 shows a set of KPIs companies can use in measuring their agility.
In the decision-making process, these KPIs can be evaluated individually; however, it is better to consider them in correlation with the other KPIs. One way of doing so is creating composite KPIs, such as, “What is the influence of passing the exam on sales agent's sales performance?” However, there is a better proven way that is called the “balanced score card” (BSC) approach.
Balanced Score Cards
Companies always seek a higher market share in the dynamic market environment. Therefore, they design their strategies in line with their goals. Based on the strategies, short-term objectives, and organizational and administrative activities at all levels, an organizational hierarch is developed. Therefore, utilizing BSC to identify the gaps in the current organizational processes and improving them will not only enhance the speed of achieving organizational strategies, but also improve the level of organizational agility (Nejatian & Zarei, 2013).
Balanced score cards were introduced in 1992 by Kaplan and Norton as a performance measurement tool and have been the most used performance measurement tool since then. Performance is measured from four different angles:
- Internal Business Processes
- Learning and Growth
As the transformation program targets to enable a new culture in the organizations, qualitative methods can be used in measuring the adoption of the new culture.
Interviews, Surveys, and Questionnaires
One of the qualitative methods is the use of surveys/questionnaires. The companies may better understand how successful they are by using qualitative techniques.
Interviews: The organization can get better insight of the actual impact of new culture on employees by interviewing them face-to-face or via technology (telephone, video conference, or online via web).
Interviews can generate both breadth and depth of information about a topic (McCawley, 2009). It can lead to better understanding and rapport with the interviewees in comparison to other methods such as questionnaires. Because the interviews are dynamic, interviewees can further clarify if the question is unclear to them; similarly, the interviewer can ask further questions to better understand the interviewee's feedback.
However, this method may fail to overcome the issue of bias opinions. As the interviewee's identity is open, he or she may not desire to reveal what he or she actually thinks about the change.
Defining the target audience for interviews is generally a challenge, as interviewing the entire organization is very expensive and time-consuming. Therefore, a key interview audience should be selected; preferably, this group should include the key decision-makers and key employees.
Surveys and Questionnaires: This method is very useful when reaching a greater audience. However, it requires deeper analysis to populate the questions, as they should be as precise as possible.
Project Management in Agile Organizations
PMI (2012) conducted a survey in August 2012 among 1,239 practitioners around the world who are involved in project management. As per the report, the organizations have become less agile since 2008.
Exhibit 20 shows some results related to how respondents described the practices or characteristics of organizational agility, as per the report:
Conforto, Rebentisch, and Amaral (2014) debated that being “agile” is not simply the use of so-called “agile methods.” On the contrary, it is more a “team's competence” that goes beyond practices and tools and relies on people's skills, culture, abilities, experiences, and diversity to be able to work in a very dynamic and innovative project environment. This is a competence that may be useful in many different contexts and industry sectors.
Due to the dynamic environment, the project management practices followed by the agile organizations differ to other traditional organizations. Agile organizations have developed new hybrid methods to overcome the issues they face in project management.
The characteristics of the projects in the agile organizations are as follows:
- The projects become more unique; number of repetitive activities comparably is lower than traditional practitioners.
- The projects are more innovation-focused.
- The project durations are lower than the ones in the traditional organizations.
- Project team has a more positive attitude toward dealing with and accepting changes during the project lifecycle.
- Greater autonomy is granted in the projects.
- Greater technology/management/expertise competences are possessed.
- Client-vendor-customer relationship is more carefully managed.
- Risk analysis practices are more mature.
- Portfolio, program, and project management practices are more standardized.
Opportunities Introduced by Being Agile
There are a number of opportunities introduced to the organizations:
- Multi-skilled human resources: The mobilization of resources increases.
- Constant learning, rapid-reskilling: The needed skill set can easily be acquired by the employees via training programs.
- Collaboration: The team will be more open to collaboration across silos, jobs, hierarchy levels, and organizations. Team better communicates.
- Performance management: Frequent, real-time performance feedback from multiple sources help project team to improve their skills.
- Processes: As the work processes are less scripted, and the employees are empowered, it keeps room for improvising the processes.
- Change implementation: The team will be more open to the changes, and they can manage the change requests easily.
- Improved adaptability: As in the projects, the uncertainty is always high; the team will benefit from improved adaptability characteristic substantially. It will be easier for the teams to adopt the new situations and changes to the new projects in a shorter time.
- Motivations: The team will be motivated by intrinsic motives.
- Technology adaptation: The new technology integration will be faster.
- Projects can be completed faster.
- There are more cost-saving opportunities.
- Risk identification and mitigation processes get more mature.
Also, PMI (2012) noted the respondents identified the following benefits of increased organizational agility, as shown in Exhibit 21:
As the world markets become more unpredictable day by day, the only way for the organizations to outpace their competitors is by enabling them to adapt to the fast-changing business conditions. To be able to compete in those volatile markets, the companies need to reshape themselves and reconsider their organizational capabilities.
This paper introduced the organizational agility concept to understand the basics of the concept. Then, different approaches in organizational agility were discussed. An empirical list of critical success factors was considered. Based on these models and literature review, I proposed a practical methodology for implementing organizational agility transformation programs.
The measurement of agility has been presented by detailing both quantitative and qualitative methods. Lastly, based on different surveys, the success of project management practices in high-performing organizations was provided to compare agile organizations versus lean organizations. Finally, the additional opportunities introduced to the project teams in the agile organizations were listed.
I highly recommend organizations start with mapping their organizational and operational capabilities first, then analyze their greater environment to identify their competitive edges. Afterward, they should focus on making the management of those capabilities more agile. I hope the proposed model will help organizations better plan their agility enablement programs.
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© 2015, Mustafa Dülgerler, MBA, PMP
Originally published as a part of the 2015 PMI Global Congress Proceedings – London, UK