Digital Transformation Requires Agility

Stephen DeAngelis

July 27, 2020

It’s not uncommon nowadays to read about the necessity for enterprises and supply chains to be agile. McKinsey & Company analysts note, “Agility is catching fire, and there is growing recognition of its transformational benefits. But moving to an agile operating model is tough, especially for established companies.”[1] Agility is defined as the ability to move quickly and easily. The reason the McKinsey analysts believe established companies (i.e., companies established during the Industrial Age) have a tough time transforming is because “traditional organizations are built around a static, siloed, structural hierarchy, whereas agile organizations are characterized as a network of teams operating in rapid learning and decision-making cycles.” Established enterprises also maintain a culture that made them successful in the past; however, that culture may be a barrier to transformation. Analysts from Flux7 observe, “Culture is one the greatest enablers (or blockers) of agile transformation success. Seventy-six percent of executives in a McKinsey survey said that transforming the culture was their number one challenge during an agile transformation.”[2]

Why agility is important

The simple answer to the question — Why must my company be agile? — is: Because the business landscape is constantly changing. The sudden outbreak of novel coronavirus, which shutdown the global economy, is a perfect example of how things can change rapidly and why agility is important. The inevitable result of shutting down the global economy was global recession. Recessions are nothing new; however, the world hasn’t witnessed anything as extensive as this one since the Great Depression. Boston Consulting Group (BCG) analysts, Benjamin Rehberg and David Ritter, note, “Companies historically have tended to underestimate the urgency, scale, and breadth of responses necessary to navigate an economic contraction. Those that are prepared, however, can win big. In the last four downturns, an average 14% of companies increased both sales growth (by almost 9%) and EBIT margin (by almost 3%) in the face of challenging circumstances. Downturns present opportunities, but to realize them, companies must do more than take a defensive stance.”[3]

In a separate article, Ritter and his BCG colleague Lindsay Chim, note agile organizations are able to react quickly because they recognize the importance of aligning actions to outcomes. They write, “Agile organizations are especially good at establishing ‘an unbroken chain of why,’ which is simple in conception but far from easy to implement. This unbroken chain establishes links between the business outcomes that the company needs to achieve and the work that individual teams are charged with delivering.”[4] Every corporate journey to becoming agile is unique; nevertheless, McKinsey analysts believe companies generally take one of three types of journeys. The explain, “There are many different paths to enterprise agility. Some organizations are born agile — they use an agile operating model from the start. As for others, broadly put, we see three types of journeys to agile: All-in, which entails an organization-wide commitment to go agile and a series of waves of agile transformation; Step-wise, which involves a systematic and more discreet approach; and Emergent, which represents essentially a bottom-up approach.” The McKinsey analysts further describe the three types of journeys:

Step-wise. “Transforming to an agile organization often feels like a step into the dark for senior leaders. Perhaps understandably, then, the most common transformation archetype shows a clear distinction between the aspire, design, and pilot phase and the scale and improve phase. Many companies will run multiple rounds of pilots and iterate their blueprint several times before fully committing to scaling up across a large part of the organization. It is not uncommon for this process to take one to two years, as leaders and the organization build familiarity with agility and prove to themselves that agile ways of working can bring value in their organization. Organizations may well go through several subsequent rounds of aspire, design, and pilot before scaling up elsewhere.

All-in. “Although less common, an increasing number of organizations gain strong conviction early on and fully commit up front to move the whole organization to an agile model. Leaders from these organizations define a plan to execute all steps of the transformation approach as quickly as possible. Even in these types of transformation it is rare for the whole organization to transform to an agile model in a single ‘big bang’; rather, it is more common for the transformation to proceed through a number of planned waves.”

Emergent. “It is impossible — and not very agile — to plan out an agile transformation in detail from the start. Instead, most agile transformations have emergent elements. Some organizations have chosen to progress their entire agile transformation through an emergent, bottom-up approach. In this archetype, an aspiration from top leaders sets a clear direction, and significant effort is spent building agile mind-sets and capabilities among leaders.

Most “born agile” companies have been established during the Digital Age and are digital enterprises from the beginning. All other companies need to make the agile journey to digital transformation. Dilshad Simons (@DilshadSimons), Senior Vice President for Products at TriNet, insists, “Every company wants to be an agile business, able to quickly take advantage of opportunities and stay ahead of customer demands. But for most, this requires fundamental changes in thinking and processes. For most, agility goes hand in hand with digital transformation and the ability to quickly develop new products and services to meet changing customer needs and get a jump on competitors in pursuing new opportunities. As they seek to become fleet of foot and more digital, enterprises must create and deliver products and services with speed, quality, and efficiency.”[5]

Becoming agile

Former IBM executive Irving Wladawsky-Berger asserts, “A quarter century into the digital age, many corporations and institutions still struggle to embrace digital technology advances.”[6] He adds, “Agility, the ability to respond to rapidly changing technologies and markets, is the overriding objective of becoming a digital business. Doing so requires significant and constant changes to help companies deliver compelling value propositions, which in turn requires a fast cycle of decisions and actions across functional and business silos. … It’s not an end state. … Digital business transformation is a long journey.” Although McKinsey analysts defined three types of agile journeys, they note, “Successful agile transformations need strong and aligned leadership from the top. A compelling, commonly understood and jointly owned aspiration is critical for success.”

Another characteristic of agile enterprises identified by analysts is teamwork. Working in teams is one way of creating a new agile culture, even within traditional enterprises. Stefan Franck, a co-founder of Netcentric, observes, “Many companies are still struggling with agility. We’re now seeing larger corporations implementing agile methodologies in a bid to keep up with their more flexible startup counterparts — but the results are often underwhelming, and people blame large corporations’ strict hierarchies, legacy infrastructures and established corporate flows. Actually, agile projects can be successful in these environments as well if the application sticks true to the essence of agile, instead of agility being ‘yet another process’ applied without understanding. … There are four core aspects of agility: direct, transparent communication; flexibility; working software; and teamwork.”[7] Regarding the last two aspects (i.e., software and teamwork), McKinsey analysts assert pilot (or proof of concept) projects implemented by small teams can be a stepping stone to agility. They explain, “The purpose of a pilot is to demonstrate the value of agile ways of working through tangible business outcomes. Early experiments may be limited to individual teams, but most pilots involve multiple teams to test the broader elements of enterprise agility. Nothing convinces skeptical executives like teams of their own employees having verifiable impact through agile working.”

Ritter and Chim conclude, “When teams understand their purpose in customer and business terms, and when they act within well-defined guardrails, the alignment provided by architecture and other standards allows teams to innovate within defined parameters. Though it may seem counterintuitive, alignment on the basis of why actually enables autonomy, which is why agile works.” Franck adds, “The most complex technical and organizational tasks can be solved much better with the help of agile methods. As agility spreads from the startup ecosystem to the corporate metropolis, it needs to be seen as a tool rather than a catch-all solution. Agility won’t save you from complexity, and it won’t solve your business’s problems overnight. It needs a foundational framework, and it needs to empower all employees — so, keep it realistic.”

Footnotes
[1] Daniel Brosseau, Sherina Ebrahim, Christopher Handscomb, and Shail Thaker, “The journey to an agile organization,” McKinsey & Company, 10 May 2019.
[2] Flux7, “Building an Agile Enterprise Starts with Culture and Technology,” CIO, 25 June 2020.
[3] Benjamin Rehberg and David Ritter, “The Agile Upside in a Downturn,” Boston Consulting Group, 30 April 2019.
[4] David Ritter and Lindsay Chim, “Why Agile Works,” Boston Consulting Group, 29 April 2019.
[5] Dilshad Simons, “The Characteristics of an Agile Enterprise,” CIO, 26 April 2018.
[6] Irving Wladawsky-Berger, “How to Transform a ‘Big, Old’ Company into an Agile Digital Business,” The Wall Street Journal, 8 November 2019.
[7] Stefan Franck, “Beyond the buzzword: going agile,” Computing, 7 November 2018.