Agile Transformation Part 1: Unlocking the Benefits of Agile

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:

1. Speed to market. Markets move fast and global competition across sectors has grown exponentially, driven by the proliferation of digital technologies and solutions. Global events also have the power to upend markets overnight and accelerate change — the unprecedented economic and social disruption caused by COVID-19 is a prime example, and further disruptions will follow.
2. Organizational complexity. Many international companies have become so large that siloed operations are now ubiquitous, making it nearly impossible to establish cohesive and effective leadership. Mistakes, delays and failures are commonplace because management is too far removed from critical decision-making.
3. Technological revolution. Technology is a driver of rapid change across all industry sectors. Incumbents that are slow to adapt find their business disrupted by competitors with more nimble approaches, including new market entrants. The software development industry has demonstrated to other sectors that there’s a more effective way to manage operations — one that is less hierarchical, entirely iterative, and more collaborative and team driven. The success of this approach for software developers has inspired action from C-suites across an array of industries as business leaders explore new avenues for organisational improvement.

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.

Understanding agile: key outcomes and benefits

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. 

Powering commercial success with an agile road map

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.

Deconstructing agile: identifying critical components

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).

• Organisation design: The organisation design needs to address key configuration choices in transforming a traditional organisation (often hierarchical, with command and control structures between working teams and different layers of management) into an agile organisation (typically non-hierarchical network structures with empowered cross-functional teams).
• Ways of working: A major consideration for those embracing agile is the way employees work — the challenge is to move away from long-established waterfall project plans that define the product and the required budget upfront, plan its implementation through sequential milestones over long time periods, and require handovers between different teams throughout the process. Agile ways of working leverage the perspective of all relevant teams from the beginning and replace the upfront definition of final product with a minimum viable product, which will be iterated throughout the development process. In all cases, the responsible team maintains end-to-end responsibility throughout the delivery process.
• Agile enablers: An agile organisation requires a simple and common working model between different entities and across the supply chain. It includes using common software tools and testing processes to facilitate easier collaboration between teams. Throughout the agile journey, KPIs monitor traction and day-to-day delivery performance.

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).

Transformation starts here: embarking on an agile journey

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.