Agile Transformation Part 1: Unlocking the Benefits of Agile
- Volume XXII, Issue 35
- Executive Insights
Leadership teams are using agile as a methodology for driving organisational transformation as they address three critical business issues: speed to market, organisational complexity and technological revolution.
The benefits of agile centre on faster and more cost-effective delivery of outcomes valued by customers. Research demonstrates that a high degree of organisational agility leads to superior financial performance.
We think of agile as comprising three key components: organisation design, ways of working and agile enablers.
Successful organisations consider four critical dimensions when applying agile: scope, duration, application and pace.
Introducing agile is a strategic rather than a tactical endeavour. It requires an appreciation of the different approaches and risks, the ability to change mindset, and a central source of energy to drive support in the organisation.
Executives and leadership teams are looking to agile as a methodology for driving organisational transformation, and as a strategy to address three critical business issues that are endemic in global companies today:
But where to start? How should leaders think about agile, and which, if any, of the frameworks for scaling agile working methods in large organisations should be applied? These are challenging questions to answer and require a nuanced understanding of an organisation’s strategy, its internal culture and context, and the countless agile methods and techniques that have been developed over the years.
This Executive Insights is the first in a series on agile transformation and aims to show executives how agile can benefit their companies. The ensuing publications will address how to design and scale an agile transformation journey, and the different approaches companies can apply to accelerate and spread an agile mindset across teams.
Agile was developed in 2001 in the software development industry, and its principles are defined in the Agile Manifesto. The birth and evolution of agile has been well documented and will not be covered here. It is helpful, however, to consider its key values and benefits, which largely centre on faster and more cost-effective delivery of outcomes valued by customers (see Figure 1).
Agile began in what could best be described as a greenfield environment. Teams tended to work in start-up type environments — small software houses or large organisations with a preference for establishing separate, specialist teams to trial agile, before deploying it more broadly. As such, practitioners were able to work largely unencumbered by ingrained cultures, strictly mandated processes and rigid hierarchical structures. These characteristics are often at odds with those of many industries and larger corporate environments.
The benefits of agile in software development and start-ups did not go unnoticed. There has been a growing drive to deploy agile in other industries and in larger corporates — not just in technology departments, but across the technology-business interface and in core business and support functions. In some cases, the board or C-suite has provided a top-down directive, while in other instances it has come from individuals or teams that have had exposure to agile methods.
Agile is increasingly seen as the formula to being and staying commercially successful. Research provides empirical evidence that a high degree of organisational agility — defined as the ability to make timely, effective and sustained changes when and where it confers a performance advantage (Worley, Williams and Lawler, 2014) — leads to a superior financial performance (see Figure 2).
Agile can be seen in action in the automotive industry, which is undergoing seminal change with the emergence of new technologies (autonomous drive, shared drive, advanced electronics to enhance productivity and entertainment options while driving, etc.). This change challenges the product-centric view that prevailed for decades. In contrast to the traditional approach of offering a wide range of auto models and configurations, Tesla’s e-vehicles are only available with very limited choices. However, while most premium manufacturers deliver a finished product that lasts for the lifetime of the car, Tesla’s user experience and software content are subject to continuous updates and improvements, much like smartphones. While many of the updates may be concerned with incremental improvement and bug fixes, the concept of continually delivering customer value-add during the lifetime of the product challenges the traditional perception of a defined product at the beginning of the development process. It also upends the concept of final product definition at the start of production — one of the cornerstones of non-agile waterfall software development. The key to winning is the shift in focus of agile teams from incremental enhancements to new user experience propositions informed by customer needs.
Another example of responding to intensive competition is agile-enabled ecommerce application development in consumer goods. Agile software development in a global sports shoe online store enabled best practice product selection and order processing, consumer customisation of chosen products, and a new level of end-customer engagement by the brand owner. The key to that product innovation was the ability of agile teams to be more customer centric and engage across the internal value chain to create new propositions.
Customer centricity and continuous innovation are key characteristics of agile companies. A good example of a customer-centric, open innovation system is Lego. As part of its turnaround programme, an extensive customer interview programme gathered evidence that assembling bricks in a creative, concentrated manner remained the core value of the company brand and that individual customer groups had different interests and needs. When the management team decided to dedicate a whole brick set series (Lego Friends) to girls, they actively involved fathers and their daughters in the product design process to continuously receive ideas, feedback and recommendations. Encouraged by the huge success of this initiative, Lego decided to include customer engagement as a long-term strategy and establish the ‘Adult Fans of Lego’. Via a special online forum within ‘Lego user groups’, part of the ‘Lego ambassador network’, users can communicate directly with the product designers “to provide valuable insight on ad hoc business decisions and intelligence.”
The challenges and opportunities described are common across many organisations. But how can agile help to navigate them? To address this question, we must deconstruct the term ‘agile’. At L.E.K. Consulting, we think of agile as comprising three key components: organisation design, ways of working and agile enablers (see Figure 3).
Organisations that successfully implement agile select and tailor the components described to fit their unique circumstances. Taking and applying a single agile framework is rarely sufficient to deliver and sustain the desired outcomes. In our experience, narrowly following textbook approaches is an ineffective way to meet company-specific requirements. Although these frameworks provide excellent points of departure, each company needs to consider its unique situation, capabilities, processes and culture. As a result, there are complex choices to be made and no shortage of examples where implementations have failed. Successful organisations consider four critical dimensions when applying agile (see Figure 4).
Thinking through these dimensions is just the start. Once leadership is committed and the critical choices are made, executives must articulate a compelling story to cultivate support among staff and other stakeholders. Organisations may also need to hire or invest in developing the required capabilities. The human resources department therefore plays a crucial role in every agile transformation, often driving change management activities throughout the organisation. The mindset change required is not something that all managers and key personnel can make, and organisations may need to make some tough decisions if they are genuine about completing the transition.
When planning the journey, a number of other factors must be considered. For instance, organisations with values that are strongly aligned with agile principles can be bolder in earlier phases. Others will need to be more measured when they start the journey.
Separately, the organisation’s culture and its change management track record must also be factored into the change narrative and transition plan. Introducing agile, and therefore becoming agile, is a strategic rather than a tactical endeavour. It requires a nuanced appreciation of the potential approaches and risks, along with the ability to change mindset and behaviours (see Figure 5).
In working with the senior leadership of major listed and midsize companies to establish and optimise agile programmes, we learned that an agile transformation requires both bottom-up and top-down commitment, and a central source of energy and oversight to drive enthusiasm in the organisation. However, the real challenge is to scale agile. We will share our proven approach to this challenging task in the next part of our series on agile transformation.
Editor’s note: Agile Transformation Part 1: Unlocking the Benefits of Agile was written by Karin von Kienlin, Sebastian Olbert, Stephanie Newey and Michael Ringleb. Vassilis Economidis and Aubry Pierre also contributed to this article.