How to create
an agile organization
Transforming
companies to achieve organizational agility is in its early days but already
yielding positive returns. While the paths can vary, survey findings suggest
how to start.
Rapid changes in competition, demand, technology, and regulations have made it
more important than ever for organizations to be able to respond and adapt
quickly. But according to a recent McKinsey Global Survey, organizational
agility—the ability to quickly reconfigure strategy, structure, processes,
people, and technology toward value-creating and value-protecting
opportunities—is elusive for most. Many respondents say their companies have
not yet fully implemented agile ways of working, either company-wide or in the
performance units where they work, though the advantages are clear. Respondents
in agile units report better performance than all others do, and companies in
more volatile or uncertain environments are more likely than others to be
pursuing agile transformations.
Few companies are yet
reaping these benefits, but that may soon change; the results also indicate
that organizational agility is catching fire. For many respondents, agility
ranks as a high strategic priority in their performance units. Moreover, companies
are transforming activities in several parts of the organization—from
innovation and customer experience to operations and strategy—to become more
agile. Finally, respondents in all sectors believe more of their employees
should be working in agile ways. For organizations and their performance units
that aren’t yet agile, the path to achieving agility depends on their starting
points. But the results indicate some clear guidance on how and where they can
improve, whether they are lacking in stability or dynamism.
Organizational agility is on the rise
Across industries and
regions, most survey participants agree that the world around them is changing,
and quickly. Business environments are increasingly complex and volatile, with
two-thirds of respondents saying their sectors are characterized by rapid change.
In such environments, the need for companies to demonstrate agility is top of
mind: the more unstable that respondents say their environments are, the more
likely they are to say their companies have begun agile transformations .
To date, though, few
organization-wide agile transformations have been completed. Only 4 percent of
all respondents say their companies have fully implemented one, though another
37 percent say company-wide transformations are in progress. When asked where
their companies apply agile ways of working,respondents most often identify activities that are
closest to the customer: innovation, customer experience, sales and servicing,
and product management. This is not too surprising, since customer centricity
is cited most often—followed by productivity and employee engagement—as the
objective of agile transformations. Companies are also focusing on internal
end-to-end processes. At least four in ten respondents say their companies are
applying agile ways of working in processes related to operations, strategy,
and technology, while roughly one-third say they are doing so in supply-chain
management and talent management.
Looking forward, the
results suggest that companies have higher aspirations for agility.
Three-quarters of respondents say organizational agility is a top or top-three
priority on their units’ agendas, and more transformations appear to be on the
way. Of those who have not begun agile transformations, more than half say
plans for either unit-level or company-wide transformations are in the works.
Respondents across industries also report a desire to scale up agile ways of
working. On average, they believe 68 percent of their companies’ employees
should be working in agile ways, compared with the 44 percent of employees who
currently do. By industry, respondents in telecom and the electric-power and
natural-gas industries report the biggest differences between their actual and
ideal shares of employees working in agile ways—followed closely by respondents
in several other industries: media and entertainment, the public sector, oil
and gas, pharma, and advanced industries.
What’s more, the survey
also confirms that agility pays off. Eighty-one percent of respondents in agile
units report a moderate or significant increase in overall performance since
their transformations began. And on average, respondents in agile units are 1.5
times more likely than others to report financial outperformance relative to
peers, and 1.7 times more likely to report outperforming their peers on
nonfinancial measures.
In previous work, we
have determined that, to be agile, an organization needs to be both dynamic and
stable. Dynamic practices enable companies to respond nimbly and quickly to new
challenges and opportunities, while stable practices cultivate reliability and
efficiency by establishing a backbone of elements that don’t need to change
frequently. The survey scored organizations across eighteen practices which our
research suggests are all critical for achieving organizational agility.
According to the results, less than one-quarter of performance units are agile.
The remaining performance units lack either dynamism, stability, or both.
Of the 18 practices,
the 3 where agile units most often excel relate to strategy and people . More than
90 percent of agile respondents say that their leaders provide actionable
strategic guidance (that is, each team’s daily work is guided by concrete
outcomes that advance the strategy); that they have established a shared vision
and purpose (namely, that people feel personally and emotionally engaged in
their work and are actively involved in refining the strategic direction); and
that people in their unit are entrepreneurial (in other words, they proactively
identify and pursue opportunities to develop in their daily work). By contrast,
just about half of their peers in nonagile units say the same.
After strategy, agile
units most often follow four stable practices related to process and people:
entrepreneurial drive, shared and servant leadership, standardized ways of
working, and cohesive community. When looking more closely at standardized ways
of working, the agile units excel most on two actions: the unit’s processes are
enabled by shared digital platforms and tools (91 percent, compared with 54 percent
for others), and processes are standardized, including the use of a common
language and common tools (cited by 90 percent of agile respondents and just 58
percent of all others).
Among the dynamic
practices, process—and information transparency, in particular—is a strength
for agile units. Within transparency, for example, 90 percent of agile
respondents say information on everything from customers to financials is
freely available to employees. Among their peers in other units, only 49
percent say the same. The second practice where agile units most differ from
others is in rapid iteration and experimentation. More than 80 percent of agile
respondents say their companies’ new products and services are developed in
close interaction with customers and that ideas and prototypes are field-tested
early in the development process, so units can quickly gather data on possible
improvements.
The path to agility depends on the starting point
For the performance
units that aren’t yet agile, the survey results suggest clear guidance for how
to move forward. But organizational agility is not a one-size-fits-all
undertaking. The specific practices a unit or organization should focus on to
become agile depend on whether it is currently bureaucratic, start-up, or trapped.
Bureaucratic units
By definition,
bureaucratic units are relatively low in dynamism and most often characterized
by reliability, standard ways of working, risk aversion, silos, and efficiency.
To overcome the established norms that keep them from moving fast, these units
need to develop further their dynamic practices and modify their stable
backbones, especially on practices related to people, process, and structure.
First is the need to
address the dynamic practices where, compared with agile units, the
bureaucratic units are furthest behind. Only 29 percent of bureaucratic
respondents, for example, report following rapid iteration and experimentation,
while 81 percent of agile respondents say the same. A particular weakness in
this area is the use of minimum viable products to quickly test new ideas: just
19 percent of bureaucratic respondents report doing so, compared with 74
percent of agile respondents. After that, the largest gap between bureaucratic
units and agile units is their ability to roll out suitable technology,
systems, and tools that support agile ways of working.
At the same time,
bureaucratic units also have room to improve on certain stable practices . For
example, bureaucratic units are furthest behind in performance orientation; in
agile units, employees are far more likely to provide each other with
continuous feedback on both their behavior and their business outcomes. What’s
more, leaders in these units are better at embracing shared and servant
leadership by more frequently incentivizing team-oriented behavior and
investing in employee development. And it’s much more common in agile units to
create small teams that are fully accountable for completing a defined process
or service.
Start-up units
Start-up units, on the
other hand, are low in stability and characterized as creative, ad hoc,
constantly shifting focus, unpredictable, and reinventing the wheel. These
organizations tend to act quickly but often lack discipline and systematic
execution. To overcome the tendencies that keep them from sustaining effective
operations, these units need to further develop all of their stable
practices—and also broaden their use of the dynamic practices related to
process and strategy in order to maintain sufficient speed.
First is focusing on a
stronger overall stable backbone. On average, 55 percent of start-up
respondents report that they implement all nine stable practices, compared with
88 percent of agile respondents who report the same. According to the results,
a particular sore spot is people-related practices—especially shared and
servant leadership. For example, just under half of start-up respondents say
their leaders involve employees in strategic and organizational decisions that
affect them, compared with 85 percent of their agile peers. Similar to
bureaucratic units, respondents at start-up units also report challenges with
process, particularly with regard to performance orientation. Within that
practice, only 44 percent of respondents at start-up units say their people
provide each other with continuous feedback on both their behavior and their
business outcomes; 80 percent at agile units report the same.
Start-up units also
have room to improve their use of dynamic practices, particularly in process
and strategy. According to respondents, the agile units excel much more often
than their start-up counterparts at information transparency—for example,
holding events where people and teams share their work with the unit. Moreover,
agile respondents are much more likely to say new knowledge and capabilities
are available to the whole unit, which enables continuous learning. On the
strategy front, the start-up units are furthest behind their agile peers on
flexible resource allocation—more specifically, deploying their key resources to
new pilots and initiatives based on progress against milestones.
Trapped units
The trapped units are
often associated with firefighting, politics, a lack of coordination,
protecting turf, and local tribes. These organizations find themselves lacking
both a stable backbone and dynamic capabilities. In applying the stable
practices, the trapped units are most behind on those related to people:
specifically, shared and servant leadership and entrepreneurial drive. Just 13
percent of respondents at trapped units say they follow shared and servant
leadership, compared with 89 percent of their agile peers. The dynamic
practices in which they are furthest behind are process related, especially
continuous learning and rapid iteration and experimentation.
Looking ahead
In response to the
challenges that the survey results revealed, here are some principles
executives and their units or organizations should act upon, whether or not
they have already begun agile transformations:
·
Embrace
the magnitude of the change. Based on the survey, the biggest challenges during
agile transformations are cultural—in particular, the misalignment between
agile ways of working and the daily requirements of people’s jobs, a lack of
collaboration across levels and units, and employee resistance to changes. In
our experience, agile transformations are more likely to succeed when they are
supported by comprehensive change-management actions to cocreate an
agile-friendly culture and mind-sets. These actions should cover four main
aspects. First, leaders and people across the organization align on the
mind-sets and behaviors they need to move toward. Second, they role-model the
new mind-sets and behaviors and hold each other accountable for making these
changes. Third, employees are supported in developing the new skills they need
to succeed in the future organization. And finally, formal mechanisms are put
in place to reinforce the changes, rewarding and incentivizing people to
demonstrate new behaviors.
·
Be
clear on the vision. The results show
that agile units excel most at creating a shared vision and purpose and aligning
on this vision through actionable strategic guidance. In contrast, at companies
that have not yet started a transformation, one of the most common limitations
is the inability to create a meaningful or clearly communicated vision. An
important first step in deciding whether to start an agile transformation is
clearly articulating what benefits are expected and how to measure the
transformation’s impact. This vision of the new organization must be
collectively held and supported by the top leadership.
·
Decide
where and how to start. Respondents
whose organizations have not started agile transformations most often say it’s
because they lack a clear implementation plan. While the right plan will vary
by company, depending on its vision, companies should first identify the
part(s) of the organization that they want to transform and how (for example,
by prototyping the changes in smaller parts of the performance unit before
scaling them up, or by making changes to more foundational elements that go
beyond a single unit). Second, they should assess which of the 18 agile
practices the organization most needs to strengthen in order to achieve
agility, so that the actions taken across strategy, structure, process, people,
and technology are mutually reinforcing. Third, they should determine the
resources and time frame that the transformation requires, so the effort
maintains its momentum but the scope remains manageable at any point in time.
SurveyOctober 2017
https://www.mckinsey.com/business-functions/organization/our-insights/how-to-create-an-agile-organization?cid=other-eml-alt-mip-mck-oth-1710&hlkid=688bb1391e7b4892b69f9a3c70d9412e&hctky=1627601&hdpid=4a9d271f-c149-4bf1-8033-2361b4685b6f
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