The five trademarks of agile organizations

The five trademarks of agile organizations

Agile organizations—of any size and across industries—have five key elements in common.This article was written collaboratively by the McKinsey Agile Tribe, a group of over 50 global colleagues bringing expertise from the digital, operations, marketing, and organization disciplines. They integrate their deep experience and thought leadership to extract the best from McKinsey’s global experience as it helps organizations transform themselves into agile organizations.

Experience and research demonstrate that successful agile organizations consistently exhibit the five trademarks described in this article. The trademarks include a network of teams within a people-centered culture that operates in rapid learning and fast decision cycles which are enabled by technology, and a common purpose that co-creates value for all stakeholders.

The old paradigm: Organizations as machines

A view of the world—a paradigm—will endure until it cannot explain new evidence. The paradigm must then shift to include that new information. We are now seeing a paradigm shift in the ways that organizations balance stability and dynamism.

What is an agile organization?

The dominant “traditional” organization (designed primarily for stability) is a static, siloed, structural hierarchy – goals and decisions rights flow down the hierarchy, with the most powerful governance bodies at the top (i.e., the top team). It operates through linear planning and control in order to capture value for shareholders. The skeletal structure is strong, but often rigid and slow moving.In contrast, an agile organization (designed for both stability and dynamism) is a network of teams within a people-centered culture that operates in rapid learning and fast decision cycles which are enabled by technology, and that is guided by a powerful common purpose to co-create value for all stakeholders. Such an agile operating model has the ability to quickly and efficiently reconfigure strategy, structure, processes, people, and technology toward value-creating and value-protecting opportunities. An agile organization thus adds velocity and adaptability to stability, creating a critical source of competitive advantage in volatile, uncertain, complex, and ambiguous (VUCA) conditions. First, the old paradigm. In 1910, the Ford Motor Company was one of many small automobile manufacturers. A decade later, Ford had 60 percent market share of the new automobile market worldwide. Ford reduced assembly time per vehicle from 12 hours to 90 minutes, and the price from $850 to $300, while also paying employees competitive rates.1 1.“100 years of the moving assembly line,” Ford Motor Company, ford.com. Ford’s ideas, and those of his contemporary, Frederick Taylor, issued from scientific management, a breakthrough insight that optimized labor productivity using the scientific method; it opened an era of unprecedented effectiveness and efficiency. Taylor’s ideas prefigured modern quality control, total-quality management, and—through Taylor’s student Henry Gantt—project management.Gareth Morgan describes Taylorist organizations such as Ford as hierarchical and specialized—depicting them as machines.2 2.Gareth Morgan, Images of organization, Beverly Hills, CA: Sage Publications, 1986. For decades, organizations that embraced this machine model and the principles of scientific management dominated their markets, outperformed other organizations, and drew the best talent. From Taylor on, 1911 to 2011 was “the management century.”

Disruptive trends challenging the old paradigm

Now, we find the machine paradigm shifting in the face of the organizational challenges brought by the “digital revolution” that is transforming industries, economies, and societies. This is expressed in four current trends:

  • Quickly evolving environment. All stakeholders’ demand patterns are evolving rapidly: customers, partners, and regulators have pressing needs; investors are demanding growth, which results in acquisitions and restructuring; and competitors and collaborators demand action to accommodate fast-changing priorities.
  • Constant introduction of disruptive technology. Established businesses and industries are being commoditized or replaced through digitization, bioscience advancements, the innovative use of new models, and automation. Examples include developments such as machine learning, the Internet of Things, and robotics.
  • Accelerating digitization and democratization of information. The increased volume, transparency, and distribution of information require organizations to rapidly engage in multidirectional communication and complex collaboration with customers, partners, and colleagues.
  • The new war for talent. As creative knowledge- and learning-based tasks become more important, organizations need a distinctive value proposition to acquire—and retain—the best talent, which is often more diverse. These “learning workers” often have more diverse origins, thoughts, composition, and experience and may have different desires (for example, millennials).

When machine organizations have tried to engage with the new environment, it has not worked out well for many. A very small number of companies have thrived over time; fewer than 10 percent of the non-financial S&P 500 companies in 1983 remained in the S&P 500 in 2013. From what we have observed, machine organizations also experience constant internal churn. According to our research with 1,900 executives, they are adapting their strategy (and their organizational structure) with greater frequency than in the past. Eighty-two percent of them went through a redesign in the last three years. However, most of these redesign efforts fail—only 23 percent were implemented successfully.

The new paradigm: Organizations as living organisms

The trends described above are dramatically changing how organizations and employees work. What, then, will be the dominant organizational paradigm for the next 100 years? How will companies balance stability and dynamism? Moreover, which companies will dominate their market and attract the best talent? McKinsey’s article “Agility: It rhymes with stability” describes the paradigm that achieves this balance and the paradox that truly agile organizations master—they are both stable and dynamic at the same time. They design stable backbone elements that evolve slowly and support dynamic capabilities that can adapt quickly to new challenges and opportunities. A smartphone serves as a helpful analogy; the physical device acts as a stable platform for myriad dynamic applications, providing each user with a unique and useful tool. Finally, agile organizations mobilize quickly, are nimble, empowered to act, and make it easy to act. In short, they respond like a living organism (Exhibit 1).Exhibit 1

When pressure is applied, the agile organization reacts by being more than just robust; performance actually improves as more pressure is exerted.4 4.We include in our sense of agile the idea—coined in the work of Nicholas Taleb—that it is “anti-fragile.” Research shows that agile organizations have a 70 percent chance of being in the top quartile of organizational health, the best indicator of long-term performance.5 5.Michael Bazigos, Aaron De Smet, and Chris Gagnon, “Why agility pays,” McKinsey Quarterly, December 2015. Moreover, such companies simultaneously achieve greater customer centricity, faster time to market, higher revenue growth, lower costs, and a more engaged workforce:

  • A global electronics enterprise delivered $250 million in EBITDA, and 20 percent share price increase over three years by adopting an agile operating model with its education-to-employment teams.
  • A global bank reduced its cost base by about 30 percent while significantly improving employee engagement, customer satisfaction, and time to market.
  • A basic-materials company fostered continuous improvement among manual workers, leading to a 25 percent increase in effectiveness and a 60 percent decrease in injuries.

As a result agility, while still in its early days, is catching fire. According to the results, few companies have achieved organization-wide agility but many have already started pursuing it in performance units. For instance, nearly one-quarter of performance units are agile. The remaining performance units in companies lack dynamism, stability, or both. However, while less than ten percent of respondents have completed an agility transformation at the company or performance-unit level, most companies have much higher aspirations for the future. Three-quarters of respondents say organizational agility is a top or top-three priority, and nearly 40 percent are currently conducting an organizational-agility transformation. High tech, telecom, financial services, and media and entertainment appear to be leading the pack with the greatest number of organizations undertaking agility transformations. More than half of the respondents who have not begun agile transformations say they have plans in the works to begin one. Finally, respondents in all sectors believe that more of their employees should undertake agile ways of working (on average, respondents believe 68 percent of their companies’ employees should be working in agile ways, compared with the 44 percent of employees who currently do). The rest of this article describes the five fundamental “trademarks” of agile organizations based on our recent experience and research. Companies that aspire to build an agile organization can set their sights on these trademarks as concrete markers of their progress. For each trademark, we have also identified an emerging set of “agility practices”—the practical actions we have observed organizations taking on their path to agility (Exhibit 2).Exhibit 2

The five trademarks of agile organizations

While each trademark has intrinsic value, our experience and research show that true agility comes only when all five are in place and working together. They describe the organic system that enables organizational agility.Linking across them, we find a set of fundamental shifts in the mind-sets of the people in these organizations. Make these shifts and, we believe, any organization can implement these trademarks in all or part of its operations, as appropriate.

1. North Star embodied across the organization

Mind-set shiftFrom:“In an environment of scarcity, we succeed by capturing value from competitors, customers, and suppliers for our shareholders.”To:“Recognizing the abundance of opportunities and resources available to us, we succeed by co-creating value with and for all of our stakeholders.” Agile organizations reimagine both whom they create value for, and how they do so. They are intensely customer-focused, and seek to meet diverse needs across the entire customer life cycle. Further, they are committed to creating value with and for a wide range of stakeholders (for example, employees, investors, partners, and communities).To meet the continually evolving needs of all their stakeholders, agile organizations design distributed, flexible approaches to creating value, frequently integrating external partners directly into the value creation system. Examples emerge across many industries, including: modular products and solutions in manufacturing; agile supply chains in distribution; distributed energy grids in power; and platform businesses like Uber, Airbnb, and Upwork. These modular, innovative business models enable both stability and unprecedented variety and customization. To give coherence and focus to their distributed value creation models, agile organizations set a shared purpose and vision—the “North Star”—for the organization that helps people feel personally and emotionally invested. This North Star serves as a reference when customers choose where to buy, employees decide where to work, and partners decide where to engage. Companies like Amazon, Gore, Patagonia, and Virgin put stakeholder focus at the heart of their North Star and, in turn, at the heart of the way they create value. Agile organizations that combine a deeply embedded North Star with a flexible, distributed approach to value creation can rapidly sense and seize opportunities. People across the organization individually and proactively watch for changes in customer preferences and the external environment and act upon them. They seek stakeholder feedback and input in a range of ways (for example, product reviews, crowd sourcing, and hackathons). They use tools like customer journey maps to identify new opportunities to serve customers better, and gather customer insights through both formal and informal mechanisms (for example, online forums, in-person events, and start-up incubators) that help shape, pilot, launch, and iterate on new initiatives and business models. These companies can also allocate resources flexibly and swiftly to where they are needed most. Companies like Google, Haier, Tesla, and Whole Foods constantly scan the environment. They regularly evaluate the progress of initiatives and decide whether to ramp them up or shut them down, using standardized, fast resource-allocation processes to shift people, technology, and capital rapidly between initiatives, out of slowing businesses, and into areas of growth. These processes resemble venture capitalist models that use clear metrics to allocate resources to initiatives for specified periods and are subject to regular review.Senior leaders of agile organizations play an integrating role across these distributed systems, bringing coherence and providing clear, actionable, strategic guidance around priorities and the outcomes expected at the system and team levels. They also ensure everyone is focused on delivering tangible value to customers and all other stakeholders by providing frequent feedback and coaching that enables people to work autonomously toward team outcomes.

2. Network of empowered teams

Mind-set shiftFrom:“People need to be directed and managed, otherwise they won’t know what to do—and they’ll just look out for themselves. There will be chaos.”To:“When given clear responsibility and authority, people will be highly engaged, will take care of each other, will figure out ingenious solutions, and will deliver exceptional results.” Agile organizations maintain a stable top-level structure, but replace much of the remaining traditional hierarchy with a flexible, scalable network of teams. Networks are a natural way to organize efforts because they balance individual freedom with collective coordination. To build agile organizations, leaders need to understand human networks (business and social), how to design and build them, how to collaborate across them, and how to nurture and sustain them.An agile organization comprises a dense network of empowered teams that operate with high standards of alignment, accountability, expertise, transparency, and collaboration. The company must also have a stable ecosystem in place to ensure that these teams are able to operate effectively. Agile organizations like Gore, ING, and Spotify focus on several elements:

  • Implement clear, flat structures that reflect and support the way in which the organization creates value. For example, teams can be clustered into focused performance groups (for example, “tribes,” or a “lattice”) that share a common mission. These groups vary in size, typically with a maximum of 150 people. This number reflects both practical experience and Dunbar’s research on the number of people with whom one can maintain personal relationships and effectively collaborate.7 7.Drake Bennett, “The Dunbar Number, From the Guru of Social Networks,” Bloomberg, January 2013, bloomberg.com. The number of teams within each group can be adapted or scaled to meet changing needs.
  • Ensure clear, accountable roles so that people can interact across the organization and focus on getting work done, rather than lose time and energy because of unclear or duplicated roles, or the need to wait for manager approvals. Here, people proactively and immediately address any lack of clarity about roles with one another, and treat roles and people as separate entities; in other words, roles can be shared and people can have multiple roles.
  • Foster hands-on governance where cross-team performance management and decision rights are pushed to the edge of boundaries.8 8.David S. Alberts and Richard E. Hayes, “Power to the Edge: Command and Control in the Information Age,” Command and Control Research Program Publication Series, April 2005 reprint, dodccrp.org. It is at this interaction point that decisions are made as close to relevant teams as possible, in highly-productive, limited-membership coordinating forums. This frees senior leaders to focus on overall system design and provide guidance and support to responsible, empowered teams that focus on day-to-day activities.
  • Evolve functions to become robust communities of knowledge and practice as professional “homes” for people, with responsibilities for attracting and developing talent, sharing knowledge and experience, and providing stability and continuity over time as people rotate between different operating teams.
  • Create active partnerships and an ecosystem that extends internal networks and creates meaningful relationships with an extensive external network so the organization can access the best talent and ideas, generate insights, and co-develop new products, services, and/or solutions. In agile organizations, people work hands-on and day-to-day with customers, vendors, academics, government entities, and other partners in existing and complementary industries to co-develop new products, services, and/or solutions and bring them to market.
  • Design and create open physical and virtual environments that empower people to do their jobs most effectively in the environment that is most conducive to them. These environments offer opportunities to foster transparency, communication, collaboration, and serendipitous encounters between teams and units across the organization.

Like the cells in an organism, the basic building blocks of agile organizations are small fit-for-purpose performance cells. Compared with machine models, these performance cells typically have greater autonomy and accountability, are more multidisciplinary, are more quickly assembled (and dissolved), and are more clearly focused on specific value-creating activities and performance outcomes. They can be comprised of groups of individuals working on a shared task (i.e., teams) or networks of individuals working separately, but in a coordinated way. Identifying what type of performance cells to create is like building with Lego blocks. The various types (Exhibit 3) can be combined to create multiple tailored approaches. Exhibit 3

The three most commonly observed agile types of performance cell today include:

  • Cross-functional teams deliver ‘products’ or projects, which ensure that the knowledge and skills to deliver desired outcomes reside within the team.These teams typically include a product or project owner to define the vision and prioritize work.
  • Self-managing teams deliver baseload activity and are relatively stable over time. The teams define the best way to reach goals, prioritize activities, and focus their effort. Different team members will lead the group based on their competence rather than on their position.
  • Flow-to-the-work pools of individuals are staffed to different tasks full-time based on the priority of the need. This work method can enhance efficiencies, enable people to build broader skillsets, and ensure that business priorities are adequately resourced.

However, other models are continuously emerging through experimentation and adaptation.

3. Rapid decision and learning cycles

Mind-set shiftFrom: “To deliver the right outcome, the most senior and experienced individuals must define where we’re going, the detailed plans needed to get there, and how to minimize risk along the way.”To: “We live in a constantly evolving environment and cannot know exactly what the future holds. The best way to minimize risk and succeed is to embrace uncertainty and be the quickest and most productive in trying new things.”Agile organizations work in rapid cycles of thinking and doing that are closely aligned to their process of creativity and accomplishment. Whether it deploys these as design thinking, lean operations, agile development, or other forms, this integration and continual rapid iteration of thinking, doing, and learning forms the organization’s ability to innovate and operate in an agile way. This rapid-cycle way of working can affect every level. At the team level, agile organizations radically rethink the working model, moving away from “waterfall” and “stage gate” project-management approaches. At the enterprise level, they use the rapid-cycle model to accelerate strategic thinking and execution. For example, rather than traditional annual planning, budgeting, and review, some organizations are moving to quarterly cycles, dynamic management systems like Objectives and Key Results (OKRs), and rolling 12-month budgets.The impact of this operational model can be significant. For example, a global bank closed its project-management office and shifted its product-management organization from a traditional waterfall approach to a minimal viable product-based process. It moved from four major release cycles a year to several thousand-product changes monthly; it simultaneously increased product development, deployment, and maintenance productivity by more than 30 percent.There are several characteristics of the rapid cycle model:

  • Agile organizations focus on rapid iteration and experimentation. Teams produce a single primary deliverable (that is, a minimal viable product or deliverable) very quickly, often in one- or two-week “sprints.” During these short activity bursts, the team holds frequent, often daily, check-ins to share progress, solve problems, and ensure alignment. Between sprints, team members meet to review and plan, to discuss progress to date, and to set the goal for the next sprint. To accomplish this, team members must be accountable for the end-to-end outcome of their work. They are empowered to seek direct stakeholder input to ensure the product serves all the needs of a group of customers and to manage all the steps in an operational process. Following this structured approach to innovation saves time, reduces rework, creates opportunities for creative “leapfrog” solutions, and increases the sense of ownership, accountability, and accomplishment within the team.
  • Agile organizations leverage standardized ways of working to facilitate interaction and communication between teams, including the use of common language, processes, meeting formats, social-networking or digital technologies, and dedicated, in-person time, where teams work together for all or part of each week in the sprint. For example, under General Stanley McChrystal, the US military deployed a series of standardized ways of working between teams including joint leadership calls, daily all-hands briefings, collective online databases, and short-term deployments and co-location of people from different units. This approach enables rapid iteration, input, and creativity in a way that fragmented and segmented working does not.
  • Agile organizations are performance-oriented by nature. They explore new performance- and consequence-management approaches based on shared goals across the end-to-end work of a specific process or service, and measure business impact rather than activity. These processes are informed by performance dialogues comprised of very frequent formal and informal feedback and open discussions of performance against the target.
  • Working in rapid cycles requires that agile organizations insist on full transparency of information, so that every team can quickly and easily access the information they need and share information with others. For example, people across the unit can access unfiltered data on its products, customers, and finances. People can easily find and collaborate with others in the organization that have relevant knowledge or similar interests, openly sharing ideas and the results of their work. This also requires team members to be open and transparent with one another; only then can the organization create an environment of psychological safety where all issues can be raised and discussed and where everyone has a voice.
  • Agile organizations seek to make continuous learning an ongoing, constant part of their DNA. Everyone can freely learn from their own and others’ successes and failures, and build on the new knowledge and capabilities they develop in their roles. This environment fosters ongoing learning and adjustments, which help deliverables evolve rapidly. People also spend dedicated time looking for ways to improve business processes and ways of working, which continuously improves business performance.
  • Agile organizations emphasize quick, efficient, and continuous decision making, preferring 70 percent probability now versus 100 percent certainty later. They have insight into the types of decisions they are making and who should be involved in those decisions.9 9.Aaron De Smet, Gerald Lackey, and Leigh Weiss, “Untangling your organization’s decision making,” McKinsey Quarterly, July 2017. Rather than big bets that are few and far between, they continuously make small decisions as part of rapid cycles, quickly test these in practice, and adjust them as needed for the next iteration. This also means agile organizations do not seek consensus decisions; all team members provide input (in advance if they will be absent), the perspectives of team members with the deepest topical expertise are given greater weight, and other team members, including leaders, learn to “disagree and commit” to enable the team to move forward.

4. Dynamic people model that ignites passionMind-set shiftFrom:“To achieve desired outcomes, leaders need to control and direct work by constantly specifying tasks and steering the work of employees.”To:“Effective leaders empower employees to take full ownership, confident they will drive the organization toward fulfilling its purpose and vision.” An agile organizational culture puts people at the center, which engages and empowers everyone in the organization. They can then create value quickly, collaboratively, and effectively.Organizations that have done this well have invested in leadership which empowers and develops its people, a strong community which supports and grows the culture, and the underlying people processes which foster the entrepreneurship and skill building needed for agility to occur.Leadership in agile organizations serves the people in the organization, empowering and developing them. Rather than planners, directors, and controllers, they become visionaries, architects, and coaches that empower the people with the most relevant competencies so these can lead, collaborate, and deliver exceptional results. Such leaders are catalysts that motivate people to act in team-oriented ways, and to become involved in making the strategic and organizational decisions that will affect them and their work. We call this shared and servant leadership. Agile organizations create a cohesive community with a common culture. Cultural norms are reinforced through positive peer behavior and influence in a high-trust environment, rather than through rules, processes, or hierarchy. This extends to recruitment. Zappos, the online shoe retailer acquired by Amazon changed its recruiting to support the selection of people that fit its culture—even paying employees $4,000 to leave during their onboarding if they did not fit.10 10.David Burkus, “Why Amazon bought into Zappos’s ‘pay to quit’ policy,” Inc., June 2016, inc.com. People processes help sustain the culture, including clear accountability paired with the autonomy and freedom to pursue opportunities, and the ongoing chance to have new experiences. Employees in agile organizations exhibit entrepreneurial drive, taking ownership of team goals, decisions, and performance. For example, people proactively identify and pursue opportunities to develop new initiatives, knowledge, and skills in their daily work. Agile organizations attract people who are motivated by intrinsic passion for their work and who aim for excellence. In addition, talent development in an agile model is about building new capabilities through varied experiences. Agile organizations allow and expect role mobility, where employees move regularly (both horizontally and vertically) between roles and teams, based on their personal-development goals. An open talent marketplace supports this by providing information on available roles, tasks, and/or projects as well as people’s interests, capabilities, and development goals.

5. Next-generation enabling technology

Mind-set shiftFrom:“Technology is a supporting capability that delivers specific services, platforms, or tools to the rest of the organization as defined by priorities, resourcing, and budget.”To:“Technology is seamlessly integrated and core to every aspect of the organization as a means to unlock value and enable quick reactions to business and stakeholder needs.” For many organizations, such a radical rethinking of the organizational model requires a rethinking of the technologies underlying and enabling their products and processes, as well as the technology practices needed to support speed and flexibility.Agile organizations will need to provide products and services that can meet changing customer and competitive conditions. Traditional products and services will likely need to be digitized or digitally-enabled. Operating processes will also have to continually and rapidly evolve, which will require evolving technology architecture, systems, and tools. Organizations will need to begin by leveraging new, real-time communication and work-management tools. Implementing modular-based software architecture enables teams to effectively use technologies that other units have developed. This minimizes handovers and interdependencies that can slow down production cycles. Technology should progressively incorporate new technical innovations like containers, micro-service architectures, and cloud-based storage and services.In order to design, build, implement, and support these new technologies, agile organizations integrate a range of next-generation technology development and delivery practices into the business. Business and technology employees form cross-functional teams, accountable for developing, testing, deploying, and maintaining new products and processes. They use hackathons, crowd sourcing, and virtual collaboration spaces to understand customer needs and develop possible solutions quickly. Extensive use of automated testing and deployment enables lean, seamless, and continuous software releases to the market (for example, every two weeks vs. every six months). Within IT, different disciplines work closely together (for example, IT development and operations teams collaborate on streamlined, handover-free DevOps practices).


About the author(s)

Wouter Aghina is a partner in McKinsey’s Amsterdam office; Aaron De Smet is a partner in the Houston office; Gerald Lackey is a senior expert in the Washington DC office; Michael Lurie is a senior expert in the Los Angeles office, and Monica Murarka is a senior knowledge manager in the San Francisco office. The authors would like to thank the following contributors: Karin Ahlbäck, Clemens Fahrbach, Christopher Handscomb, Olli Salo, Elizabeth Seem, and Jannik Woxholth.MeasureMeasure

The Agile Manager

The Agile Manager

Image result for leading change pics

The agile workplace is becoming increasingly common.

In a McKinsey survey of more than 2,500 people across company sizes, functional specialties, industries, regions, and tenures, 37 percent of respondents said their organizations are carrying out company-wide agile transformations, and another 4 percent said their companies have fully implemented such transformations.

The shift is driven by proof that small, multidisciplinary teams of agile organizations can respond swiftly and promptly to rapidly changing market opportunities and customer demands. Indeed, more than 80 percent of respondents in agile units report that overall performance increased moderately or significantly since their transformations began.

These small teams, often called “squads,” have a great deal of autonomy. Typically composed of eight to ten individuals, they have end-to-end accountability for specific outcomes and make their own decisions about how to achieve their goals. This raises an obvious and seemingly mystifying question for people who have worked in more traditional, hierarchical companies: Who manages in an agile organization? And what exactly does an agile manager do?

Lay of the land

The answers become clear once you understand that the typical agile company employs a dynamic matrix structure with two types of reporting lines: a capability line and a value-creation line.

Nearly all employees have both a functional reporting line, which is their long-term home in the company, and a value-creation reporting line, which sets the objectives and business needs they take on in squads.In agile parlance, the capability reporting lines are often called “chapters” and are similar in some ways to functions in traditional organizations (you might have a “web developers” chapter, say, or a “research” chapter).

Each chapter is responsible for building a capability: hiring, firing, and developing talent; shepherding people along their career paths; evaluating and promoting people; and building standard tools, methods, and ways of working. The chapters also must deploy their talented people to the appropriate squads, based on their expertise and demonstrated competence. In essence, chapters are responsible for the “how” of a company’s work.

However, once talent is deployed to an agile team, the chapters do not tell people what to work on, nor do they set priorities, assign work or tasks, or supervise the day-to-day.The value-creation reporting lines are often called “tribes.” They focus on making money and delivering value to customers (you might have a “mortgage services” tribe or a “mobile products” tribe).

Tribes are similar to business units or product lines in traditional organizations. Tribes essentially “rent” most of their resources from the chapters. If chapters are responsible for the “how,” tribes are responsible for the “what.” They set priorities and objectives and provide marching orders to the functional resources deployed to them.

Management roles

In this world, the work of a traditional midlevel manager is reallocated to three different roles: the chapter leader, the tribe leader, and the squad leader. Let’s examine the responsibilities of each and the challenges they pose for traditional managers looking to become agile managers.

The chapter leader

Every functional reporting line has a leader. This chapter leader must build up the right capabilities and people, equip them with the skills, tools, and standard approaches to deliver functional excellence, and ensure that they are deployed to value-creation opportunities—sometimes in long-term roles supporting the business, but more often to the small, independent squads.

The chapter leader must evaluate, promote, coach, and develop his or her people, but without traditional direct oversight. Chapter leaders are not involved in the day-to-day work of squads; they don’t check on or approve the work of their chapter members, and they certainly don’t micromanage or provide daily oversight. Instead, regular feedback from tribe leaders, team members, and other colleagues inform their evaluations and the kind of coaching they provide. Since they’re not providing direct oversight, their span of control can expand greatly, a fact that can eliminate several layers of management. In fact, chapter leaders often free up enough time to tackle “real work” on business opportunities as well.The most difficult challenges facing new chapter leaders are letting go of the day-to-day focus, and shifting attention to building the right capabilities and helping match talent to the right roles and value-creation opportunities.

Traditional managers are accustomed to closer oversight of their people. But if they can let go, they will find themselves in jobs that call on more of their leadership and creative talents. Not only can they join squads occasionally, but they can optimize their chapter-leader role in interesting ways. For example, if a company reconfigures squads frequently, reallocating talent to different roles or teams, the chapter leader might create and manage a backlog of “nice to have” functional work that his talent can help with in between their deployments.

The tribe leader

Since these value-creation leaders borrow or rent most of their resources from the chapters, they no longer bear the burden of building up their own functional capabilities. Instead, tribe leaders act as true general managers, mini-CEOs focused on value creation, growth, and serving customers.

They must develop the right strategies and tactics to deliver desired business outcomes and to determine what work needs to get done, how much to invest in which efforts, and how to prioritize opportunities. They work with chapter leaders to match the right people to the right squads.

Like chapter leaders, tribe leaders manage less and lead more. Since they have profit-and-loss accountability, they must develop a strategic perspective on their business and their customers, a cross-functional view of the core capabilities of the broader organization (so they can efficiently secure the resources they need from chapters), and an integrated perspective of the company as a whole and how their part of the business fits in with the larger enterprise.

Those who succeed will develop more of a general-manager skill set and an enterprise mind-set that can break down silos, enable collaboration across organizational boundaries, and empower product owners to provide day-to-day guidance on objectives, priorities, and tasks.

The most difficult challenges for traditional managers tackling the tribe-leader role are letting go of the need to fully “own” all the people working for them, as well as shifting attention from micromanaging the day-to-day work to developing the right business strategies, setting the right objectives and priorities, and making the right business decisions.

Tribe leaders must also wrestle with their reliance on getting their talent from chapters. They must resist the urge to build their own set of resources and create shadow functions so they never lack what they need when they need it. That end-around scuttles the agile matrix, which relies on healthy tensions and constructive conflict to get the right capabilities to the right opportunities at the right time.


The squad leader

Team leaders, or “squad” leaders, serve a crucial purpose in the agile matrix. They aren’t the “boss” of the people on their team. They help plan and orchestrate execution of the work, and they strive to build a cohesive team.

They also provide inspiration, coaching, and feedback to team members, report back on progress to tribe leaders, and give input on people development and performance to relevant chapter leaders.

Think of squad leaders as individual contributors who have developed leadership skills or at least developed an interest in learning these skills. The squad-leader role can be more or less formal and can even change over time depending on what the team is working on.

Once again, the challenge for someone from a more traditional company is to lead without exerting onerous control. But the rewards can be great. Some squad leaders will grow into tribe leaders, while others will continue as individual contributors with the additional skill of agile leadership.

Something old, something new

The idea of autonomous teams is not new; it’s been around for decades. For instance, in the quality movement that took hold in manufacturing and continuous improvement 50 years ago, quality circles and high-performance work systems often relied on an autonomous self-managed team with an informal team leader who was not technically a boss. More recently, companies such as WL Gore (in materials science) and Haier (the Chinese appliance manufacturer) have emphasized the empowerment of small teams, even if they don’t use the language we associate with agility—or focus those teams on software development, where agile has made some of its most prominent marks.

The agile revolution

Conceiving of the organization as an organism rather than a machine lies at the heart of the gathering trend toward more agile companies. But what does this look like? In a collaborative effort comprising a series of agile “sprints,” 50 McKinsey experts from the firm’s digital, operations, marketing, and organization practices recently spelled out the nature of these changes—both the overall paradigm shift, as well as five critical shifts that “traditional” organizations must encourage in the mind-sets of their people.

The squad leader is now a part of an agile matrix, where the value-creation, or tribe, leaders provide constant direction and prioritization around where the value is, and the capability, or chapter, leaders focus on ensuring deep functional expertise, common tools and competencies, and economies of scale and skill.

If these leaders can become effective, non-intrusive managers, the agile company will enjoy the best of both worlds: the benefits of size and scale typically realized in large organizations, as well as the benefits of speed and nimbleness often associated with small entrepreneurial start-ups.

About the author(s)Aaron De Smet is a senior partner in McKinsey’s Houston office.

Agility: The New Response to Dynamic Change

Agility: The New Response to Dynamic Change

Change is an inner matter.

Having the right organizational capabilities leads to investor confidence.

Having the right organizational capabilities leads to improved customer commitment and revenue per customer and we have worked to define the right internal culture and leadership behavior.

Having the right organization capabilities also leads to employees having greater personal well-being and work productivity and we have worked to define how to increase personal meaning at work.

The critical organizational capabilities to win have pivoted over time, as shown in the following Figure:

Agility has become the “capability du jour.” Agility is the ability to anticipate and/or quickly respond to emerging market opportunities. Agility combines being able to change, learn continually, and act quickly and with flexibility for both organizations and individuals.

In a world of unrelenting change, agility matters at four levels.

Strategic agility

Strategic agility differentiates winning business strategies as they pivot from:

  • Industry expert to industry leader.
  • Market share to market opportunity.
  • Who we are to how customers respond to us.
  • Penetrating existing markets to creating new and uncontested markets.
  • Beating competition to redefining competition.
  • Blueprints for action to dynamic processes for agile choices.

Strategic agility is less about what an organization does to win now and more about how to build a capacity for continual strategic change. It means continually and rapidly updating choices about where to play and how to win. Strategic agility also requires understanding the business context and environment, and targeting anticipating future stakeholder wants and needs. For example, strategically seeking out customer-focused insights leads to co-created products and services.

Organization agility

Organizational agility enables the organization to anticipate and rapidly respond to dynamic market conditions. More agile organizations win in the customer and investor marketplaces.
Organizations that cannot change as fast as their external demands quickly fall behind, never catching up. Rapid response to future customer opportunities and fast innovation of products, services, and business models differentiate organizations that win. Organizational agility is enhanced when organizations: create autonomous market-focused teams that can move rapidly to create and define new opportunities; allow values to evolve to match the desired culture and firm identity; and discipline themselves to make change happen fast. These organizations continually experiment, improve, remove boundaries inside between silos and outside with customers, and create networks or ecosytems for improvement.

Individual agility

Individual agility is the ability of people and leaders to learn and grow. More agile individuals find personal well-being and deliver better business results.
Individual agility is the competence of an employee to learn and grow (learning agility) as a leader or an employee. Learning agility has been found to be one of the key indicators of effective leadership, and individuals who cannot change as fast as their work demands have limited impact. Individual agility is a mindset (e.g., growth mindset, curiosity) and a set of skills (e.g., asking questions, taking appropriate risks). Therefore, individual agility comes in part from predisposition (nature)—which implies hiring individuals who are naturally agile (learn, change, and act quickly)—but can also be enhanced through training on asking questions, taking risks, experimenting with new ideas and actions, continuously improving by auditing what worked and what did not, observing others, embarking on stretch assignments, and so forth.

Human Resources agility

HR practices around people, performance, information, and work can be crafted to foster strategic, organization, and individual agility. People can be hired, promoted, and trained to signal and encourage organizational and personal agility. For example, agility can become a behavioral factor in talent choices. An executive told me once: “If I put the right person in the right place at the right time, I don’t have to worry about strategy because it will happen.” Putting learning agile employees and leaders into key roles fosters strategic, organization, and individual agility.
Rewards can be aligned to agility or the ability to change and adapt. Financial incentives can be predicated on agility skills like learning and change. Non-financial rewards can signal the importance of agility also. In one company, when they held their “top 100” leaders meeting, they invited ten employees into this leadership pool not by title but by recent contribution. As they introduced these employees to this important non-financial reward, they added that “five of these agile (or innovative or change or learning) employees are here because they succeeded in their initiatives; the other five failed but focused on the right priorities, and their lessons learned will also be valuable going ahead.”
Information can be shared about successful change efforts to illustrate both successful and unsuccessful change. The “after action review” (AAR) logic has become standard in so many companies to ensure that lessons learned from one setting can be generalized across boundaries of time and space to other settings.

Finally, work can be organized to foster agility. Agile firms are increasingly creating high-performing teams who focus on market opportunities, as previously stated; they also allow those autonomous teams to act independently to accomplish their goals quickly. But agile organizations go further to make sure that the independent teams are connected to other teams.

The connection of independent teams into interdependent ecosystems institutionalizes agility.
When HR both advocates for and models agility, they ensure that strategies, organizations, and individuals anticipate and adapt to dynamic change as fast as the change occurs.

So what are you personally doing and what is your organization doing to facilitate agility?

Why Your Talent Strategy Is the Key to Agile at Scale?

Why Your Talent Strategy Is the Key to Agile at Scale?

If you want to go fast, go alone. If you want to go far, go together. ~ African Proverb

The authors of the recent HBR article Agile at Scale make compelling arguments for why executives at leading enterprises should push their companies to become more agile.

In our experience working with leaders at 30% of the Fortune 1000, we’ve seen the importance of leaders reflecting agile principles in their own work, resourcing critical business initiatives with silo-busting teams, and thoughtfully sequencing agile rollouts as critical ingredients for success.

1. This isn’t just about innovationit’s about how your company works.

The article focuses on agility to drive innovation, and innovation teams are indeed promising places to pilot. We believe that this transformation to a more agile workforce need not center on innovation. It’s about getting work done faster, better, and more efficiently. Companies we see deploying an agile workforce effectively take the most important initiatives at the organization and use agile workforce concepts to deploy the best resources against them, regardless of where those resources are. This is consistent with the authors’ notions of removing bureaucracy and breaking through silos, and not just for innovation — indeed, for the most important work at the company. One leader at a Fortune 50 company framed it this way to us: agile lets his business operate more like a nimble flotilla of ships than like a large and lumbering tanker, which is especially important in rapidly-changing business conditions. It’s about prioritizing speed.

2. The days of Talent Acquisition are over. It’s time to think about Talent Access.

The article touches on the importance of changes in talent acquisition and motivation needed to support agile at scale. Reconsidering incentives, the role of managers, and performance management are all key. And we believe that this is just the tip of the metaphorical iceberg. Companies where we see successful agile workforce roll-outs stop building their talent strategy and infrastructure around talent acquisition (synonyms: purchase, possession, procurement) and instead build a competency in talent access (synonyms: connection, approach, introduction). This fits well with the idea of agile—which rests on the notion of engaging the right quantity of the right talent for a specific, well-defined mission. That does not always require a full-time employee—it just requires the right person with the right skills at the right time. Yes, talent will always include some portion of people with a company badge, and an agile workforce enables companies to engage employees in a more effective way. But it also includes the broader world of talent available to a company—freelancers, alumni, consultants. An organization should consider those options alongside employees and engage the best skills for the job to be done.

3. Ignore labor demographic trends at your own peril. 

Shifting from talent acquisition to talent access is consistent with the way the world is already working. People beyond the borders of your company are working in a more agile way, and leveraging technology tools that make it possible. You’ve probably noticed many of your colleagues are choosing to work more in a more agile fashion outside your organization. This isn’t just about commoditized work; in fact, many of the very best people — think those with the most niche skill sets — are choosing a different way of working. For enterprises with skills gaps across their organization, losing these talented people is untenable. To maintain access to them (which may include keeping them full-time, or may not), you need to change how you do work inside the company to provide a similar experience to what exists outside.

4. Invest in the proper infrastructure, or agile won’t work at scale.

As the article highlights, modularizing workstreams is important. That is difficult to do without technology. How are you modularizing work? How are you accessing and matching the right skills at the right time? How are you tracking outcomes? How will you do that across your entire organization? Without the right enabling technology, you may miss the mark. When you bring those tools into your company and allow people to engage projects they otherwise didn’t have access to, value results.

Imagine an internal version of the gig economy that enables you to discover and engage the skills and interests of your employees across the far-flung reaches of the company… What would it mean to your high-performers—and to your company—for them to be able to raise their hand and apply their talents on projects across your business? What would it mean for your organization to better understand the competencies that exist within the company, and to have visibility into the skills your colleagues go outside the company to engage?

5. Start small, think big, move fast.

As the article mentions, starting with a full-scale transformation to become radically agile is unlikely to lead to success. Starting small is critical. We also believe that small pilots must be designed with the end in mind. As you roll out tests in your organization, consider what you need to learn about what it would take at scale. We’ve seen companies start with pilots and think they’ve learned what it takes to scale, without realizing that there are fundamentally different implications for a scaled solution that can’t be tested in a smaller, controlled environment. If you’re still reading this and have ideas we haven’t considered, we’d love to hear your thoughts! And if you want to discuss further, we’re always happy to talk.Read more aboutCatalant’s take on workforce agility or download our recent research,Reimagining Work 2020.

Imagine an internal version of the gig economy that enables you to discover and engage the skills and interests of your employees across the far-flung reaches of the company

What would it mean to your high-performers—and to your company—for them to be able to raise their hand and apply their talents on projects across your business? What would it mean for your organization to better understand the competencies that exist within the company, and to have visibility into the skills your colleagues go outside the company to engage?

5. Start small, think big, move fast.

As the article mentions, starting with a full-scale transformation to become radically agile is unlikely to lead to success. Starting small is critical. We also believe that small pilots must be designed with the end in mind. As you roll out tests in your organization, consider what you need to learn about what it would take at scale. We’ve seen companies start with pilots and think they’ve learned what it takes to scale, without realizing that there are fundamentally different implications for a scaled solution that can’t be tested in a smaller, controlled environment. 

A winning operating model for digital strategy

A winning operating model for digital strategy

Digital is driving major changes in how companies set and execute strategy. New survey results point to four elements that top performers include in their digital-strategy operating model.

For many companies, the process of building and executing strategy in the digital age seems to generate more questions than answers.

Despite digital’s dramatic effects on global business—the disruptions that have upended industries and the radically increasing speed at which business is done—the latest McKinsey Global Survey on the topic suggests that companies are making little progress in their efforts to digitalize the business model.

1.The online survey was in the field from May 15 to May 25, 2018, and garnered responses from 1,542 C-level executives and senior managers representing the full range of regions, industries, company sizes, and functional specialties. Respondents who participated in this year’s and last year’s surveys report a roughly equal degree of digitalization as they did one year ago.

2. As measured by the shares of the organization’s sales from products, services, or both sold through digital channels; of core products, services, or both that are digital in nature (for instance, virtualized or digitally enhanced); and of core operations that are automated, digitized, or both, as well as the volume in the organization’s supply chain that is digitized or moves through digital interactions with suppliers.

The previous survey was in the field from June 20 to July 10, 2017, and garnered responses from 1,619 C-level executives and senior managers representing the full range of regions, industries, company sizes, and functional specialties. Of those who completed the survey in 2017, 345 also completed the 2018 survey.  suggesting that companies are getting stuck in their efforts to digitally transform their business.

The need for an agile digital strategy is clear, yet it eludes many—and there are plenty of pitfalls that we know result in failure. We have looked at how some companies are reinventing themselves in response to digital, not only to avoid failure but also to thrive. In this survey, we explored which specific practices organizations must have in place to shape a winning strategy for digital—in essence, what the operating model looks like for a successful digital strategy of reinvention. Based on the responses, there are four areas of marked difference in how companies with the best economic performance approach digital strategy.

3.We define a top economic performer as one that has, according to respondents, a top-decile rate of organic revenue growth (that is, of 25 percent or more in the past three years), relative to other respondents.

We also looked at respondents in the top decile for growth in earnings before interest and taxes (EBIT) and have made note of any practices for which the top-decile revenue and top-decile EBIT results correspond or differ. compared with all others:

Findings

  • The best performers have increased the agility of their digital-strategy practices, which enables first-mover opportunities.
  • They have taken advantage of digital platforms to access broader ecosystems and to innovate new digital products and business models.
  • They have used M&A to build new digital capabilities and digital businesses.
  • They have invested ahead of their peers in digital talent.

Increase the agility of creating, executing, and adjusting strategy

One of the biggest factors that differentiate the top economic performers from others is how quick and adaptable they are in setting, executing, and adjusting their digital strategies—in other words, the velocity and adaptability of their operating models for digital strategy. Both are necessary for companies to achieve first-mover (or very-fast-follower) status, which we know to be a source of significant economic advantage.

So how do they do it? We looked at the frequency with which companies follow 11 operational practices of digital strategy. With the exception of M&A—which typically requires a much longer time frame than the other ten, often due to regulatory reasons—respondents in the top revenue decile say their companies carry out each one more frequently than their peers (Exhibit 1). The link between frequency and performance also holds up when looking at earnings before interest and taxes (EBIT).

5.In our analysis, we looked at the relationship between frequency and economic performance in multiple ways. The results indicate that when these digital strategy practices are carried out more frequently, revenue and earnings before interest and taxes (EBIT) are greater. The inverse also is true: when companies carry out these practices more slowly, their revenue and EBIT performance is worse. 5.In our analysis, we looked at the relationship between frequency and economic performance in multiple ways. The results indicate that when these digital strategy practices are carried out more frequently, revenue and earnings before interest and taxes (EBIT) are greater. The inverse also is true: when companies carry out these practices more slowly, their revenue and EBIT performance is worse.Exhibit 1

That speed in strategy links with financial outperformance is not surprising and is consistent with our other work on strategy planning.

As the pace of digital-related changes continues to accelerate, companies are required to make larger bets and to reallocate capital and people more quickly. These tactical changes to the creation, execution, and continuous modification of digital strategy enables companies to apply a “fail fast” mentality and become better at both spotting emerging opportunities and cutting their losses in obsolescent ones, which enables greater profitability and higher revenue growth.

Invest in ecosystems, digital products, and operating models

The companies that outperform on revenue and EBIT also differ from the rest in their embrace of the economic changes that digital technologies have wrought. Based on the results, they have done so in three specific ways: taking advantage of new digital ecosystems, focusing product-development efforts on brand-new digital offerings, and innovating the business model.

We know that digital platforms have enabled the creation of new marketplaces, the sharing of data, and the benefits of network effects at a scale that was impossible just a few years ago. As these factors have converged, the digital ecosystems created by these platforms are blurring industry boundaries and changing the ways that companies evaluate the economics of their business models, their customers’ needs, and who their competitors—and partners—are.

The top EBIT performers are taking better advantage of these ecosystem-based dynamics than other companies—namely, by using digital platforms much more often to access new partners and customers. Respondents at these companies are 39 percent more likely than others are to say they do so. And while the share of global sales that move through these ecosystems is still less than 10 percent, other McKinsey research predicts that this share will grow to nearly 30 percent by 2025, making platforms an ever more critical element of digital strategy.

The needs of customers become broader and more integrated in an ecosystem-based world, and the companies that are already active in their respective ecosystems are better positioned to understand these needs and meet them (either on their own or with partners) before their peers do. It makes sense, then, that the top performers seem to be developing much more innovative offerings than their peers.

On average, companies’ digital innovations most often involve adjustments to existing products. Yet respondents at the top-performing companies say they focus on creating brand-new digital offerings (Exhibit 2). What’s more, these respondents are about 60 percent more likely than others are to agree that they are more advanced than peers in adopting digital technologies to help them do so.

This result is consistent with our previous findings that first movers and early adopters of digital technologies and innovations also outperform their peers.

Last, innovation of the business model is more common at the top-performing companies. In our past survey, only 8 percent of respondents said their companies’ current business models would remain economically viable without making any further digital-based changes. In the newest survey, we see that the companies that have embraced digital are well ahead of their peers in their preparation for digital’s new economic realities.

At the top performers, respondents say they have invested more of their digital capital in new digital businesses, compared with all other respondents.

Our research also shows that companies overall invested a greater share in new digital businesses as the overall digital maturity of their sectors increased. The more successful companies appear to be the ones that made these moves earlier than their peers, rather than being forced into making such investments late in the game.

At the top performers, respondents say they have invested more of their digital capital in new digital businesses, compared with all other respondents (Exhibit 3). Our research also shows that companies overall invested a greater share in new digital businesses as the overall digital maturity of their sectors increased.

The more successful companies appear to be the ones that made these moves earlier than their peers, rather than being forced into making such investments late in the game.

Use M&A to build digital capabilities and businesses

According to the results, M&A is another differentiator between the top-performing companies and everyone else. Not only are they spending more than others on M&A, but they are also investing in different types of M&A activities.

At the winners, respondents report spending more than twice as much on M&A, as a share of annual revenue, as their counterparts elsewhere.7 7.Includes only respondents working at privately owned companies, n = 767. Respondents working at publicly owned companies (n = 318) were asked how much their organizations invested in M&A as a percentage of market capitalization over the past three years. The same is true of respondents reporting top-decile EBIT growth, relative to respondents at other organizations.

Given the pace of digital-related changes and the challenges companies face to match that speed through organic growth alone, this isn’t so surprising. What is surprising, however, is that top economic performers take a different approach to their M&A activities.

While top performers and their peers have used some part of their overall digital investments to acquire new digital businesses in recent years, the top performers are investing more in acquiring both new digital businesses and new capabilities.

By contrast, other respondents say their companies focus most of their M&A spending on nondigital ventures—an area where lower-performing companies seem to be doubling down.Exhibit 5

By contrast, other respondents say their companies focus most of their M&A spending on nondigital ventures—an area where lower-performing companies seem to be doubling down.Exhibit 5

Invest ahead of peers in digital talent

From earlier work, we know that getting the right digital talent is a key enabler for digital success—a point that our latest findings only reinforce. Talent is also a major pain point: qualified digital talent is a scarce commodity, as the pace of digital still outstrips the supply of people who can deliver it.

But the top economic performers are making a greater effort to solve this problem. Compared with others, these respondents say their companies are dedicating much more of their workforce to digital initiatives. It’s not just the degree of investment that distinguishes top performers, though.

They are also much nimbler in their use of digital talent, reallocating these employees across the organization nearly twice as frequently as their peers do. This agility enables more rapid movement of resources to the highest-value digital efforts—or to clearing out a backlog of digital work—and a better alignment between resources and strategies.

Looking ahead

  • Make your strategy process more dynamic. By definition, a digital strategy must adapt to the digital-driven changes happening outside the company, as well as within it. Given the breakneck pace of these changes, such a strategy must keep up with the pace of digital and enable first-mover opportunities by being revisited, iterated upon, and adjusted much more frequently than strategies have been in the past. Companies need their digital strategies to act as a road map for ongoing transformation—a living organism that evolves along with the business landscape. In other work, we laid out the four main fights that companies must win to build truly dynamic digital strategies.
  • Organizations must educate their business leaders on digital and foster an attacker’s perspective, so people are more likely to look at their business, industry, and the role of digital through the eyes of new competitors. They must galvanize senior executives to action by building top-team-effectiveness programs. Organizations also must leverage data-driven insights to test and learn—and correct course—quickly. And they must fight the diffusion of their efforts and resources—a constant challenge, given the simultaneous need to digitalize their core business and innovate with new business models. These steps will put companies in a better position to move first in delivering new products and meeting customers’ and partners’ evolving needs in the new ecosystems that platforms are creating.
  • Invest in talent and capabilities early and aggressively. Talent is already known as one of the hardest issues to solve as companies transform themselves in their pursuit of digitalization. The results confirm that companies need to embrace this reality and then look at how they can solve it best, whether through smarter, more dynamic allocation of these resources or the use of M&A to accelerate the building of new digital capabilities.
  • Digital is driving an ever-faster pace of innovation, and companies can take advantage of the potential benefits only if they have the capabilities to harness it. For the survey’s top performers, one way forward is leveraging M&A to help build their digital capabilities, rather than trying to build them through a slower, organic approach. These companies are also getting the most from their digital capabilities and investments by deploying them in much more agile ways and creating a more flexible, responsive operating model.
  • Redefine how you measure success. The digital era requires that companies move nimbly in order to succeed. Yet many are still measuring performance with the same metrics they used previously—which were designed for a slower pace of business and a rigid strategy-setting process. Companies must move away from old metrics (market share, for example) that are no longer meaningful indicators of economic success.
  • With markets becoming ill-defined due to shifts in industry boundaries and shrinking economic pies within a given sector, market share is no longer a gold-standard metric or even relevant. Companies need to hold themselves to new standards that will indicate whether or not they are truly leading the pack on innovation, productivity, and the adoption of digital technologies. In our experience, outcomes such as being first to market with innovations, leading on productivity, and working with other businesses in the ecosystem (that is, moving from an “us versus them” mind-set on digital to one of partnership) are better indicators of future digital success.

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About the author(s)

The survey content and analysis were developed by Jacques Bughin, a director of the McKinsey Global Institute and senior partner in McKinsey’s Brussels office; Tanguy Catlin, a senior partner in the Boston office; and Laura LaBerge, a senior expert in the Stamford office.They wish to thank Soyoko Um

Leading Agile Transformation

Leading Agile Transformation

Don't be resistant to change. Change is healthy. If we get out of our own way, the possibilities are endless. #Agile #AgileTransformation #Scrum
Agile is an inner transformation.

The new capabilities leaders need to build 21st-century organizations

To build and lead an agile organization, it’s crucial that senior leaders develop new mind-sets and capabilities to transform themselves, their teams, and the organization.

For many organizations, surviving and thriving in today’s environment depends on making a fundamental transformation to become more agile. Those making the transition successfully are achieving substantive performance and health improvements: enhanced growth, profitability, customer satisfaction, and employee engagement.

The agile story

Before we dive deep, it’s useful to take a broader view of agile, and particularly what sets agile organizations apart from traditional ones.

Characteristics of traditional and agile organizations

Simply put, the dominant traditional organization model evolved primarily for stability in a well-known environment. It is based on the idea of an organization as a machine, with a static, siloed, structural hierarchy that operates through linear planning and control to execute one or very few business models.

The term “agile” as applied to a way of working that originated in 2001 with a new approach to software development. As organizations increasingly sought to become more agile—that is, faster and more flexible—they recognized that principles of agile software development could be applied much more broadly to organizations as a whole. organizations, viewed as living systems, have evolved to thrive in an unpredictable, rapidly changing environment. These organizations are both stable and dynamic. They focus on customers, fluidly adapt to environmental changes, and are open, inclusive, and non-hierarchical; they evolve continually and embrace uncertainty and ambiguity. Such organizations, we believe, are far better equipped than traditional ones for the future. While there are many different forms of enterprise agility, they share some common trademarks.

Leadership in agile organizations

This new kind of agile organization requires a fundamentally different kind of leadership. Recent research confirms that leadership and how leadership shapes culture are the biggest barriers to—and the biggest enablers of—successful agile transformations.

Organizations must therefore begin by both extending and transcending the competencies that made their leaders successful in the past.

Leaders need three new sets of capabilities for agile transformations. First, they must transform themselves to evolve new personal mind-sets and behaviors. Second, they need to transform their teams to work in new ways. Third, it’s essential to build the capabilities to transform the organization by building agility into the design and culture of the whole enterprise.

Transforming yourself

To fully transform yourself, several shifts will be necessary—and leaders will need to make these changes in a disciplined way.

Shifting from reactive to creative mind-sets

Changing our mind-set—or adjusting it to the new context—is no easy task, but developing this “inner agility” is essential in releasing our potential to lead an agile transformation.

Reactive, or socialized, mind-sets are an outside-in way of experiencing the world based on reacting to circumstances and other people. Creative, or self-authoring, mind-sets are an inside-out way of experiencing the world based on creating our reality through tapping into our authentic selves, our core passion and purpose.Research shows that most adults spend most time “in the reactive,” particularly when challenged, and as a result, traditional organizations are designed to run on the reactive.

To build and lead agile organizations, however, leaders must make a personal shift to run primarily “in the creative.”There are three fundamental reactive-to-creative mind-set shifts we have found critical to foster the culture of innovation, collaboration, and value creation at the heart of agile organizations:

  • From certainty to discovery: fostering innovation. A reactive mind-set of certainty is about playing not to lose, being in control, and replicating the past. Today, leaders need to shift to a creative mind-set of discovery, which is about playing to win, seeking diversity of thought, fostering creative collision, embracing risk, and experimenting.
  • From authority to partnership: fostering collaboration. Traditional organization design tends towards siloed hierarchies based on a reactive mind-set of authority. The relationship between leaders and teams is one of superior to subordinate. Designed for collaboration, agile organizations employ networks of autonomous teams. This requires an underlying creative mind-set of partnership, of managing by agreement based on freedom, trust, and accountability.
  • From scarcity to abundance: fostering value creation. In stable markets, companies maximize their shares at the expense of others. This win–lose approach reflects a reactive mind-set of scarcity, based on an assumption of limited opportunities and resources. Today’s markets, however, evolve continually and rapidly. To deliver results, leaders must view markets with a creative mind-set of abundance, which recognizes the unlimited resources and potential available to their organizations and enables customer-centricity, entrepreneurship, inclusion, and co-creation.

A disciplined approach

While these mind-set shifts might be new and require a significant “letting go” of old beliefs and paradigms, collectively, they form a very disciplined approach to leadership. And because of inherent autonomy and freedom, leadership in agile organizations comes from a self-disciplined approach—leading not in fear of punishment or sanction but in service of purpose and passion.

Transforming your teams

Next, it’s important to learn how to help teams work in new and more effective ways.

Help teams work in agile ways

How might leaders help teams work in new and more agile ways? And what does this new way of working require of leaders? There are three essential leadership requirements that follow from all agile ways of working.

First, leaders must learn to build teams that are small, diverse, empowered, and connected. Second, leaders must allow and encourage agile teams to work in rapid cycles to enable them to deliver greater value more efficiently and more quickly. Third, leaders must keep agile teams focused on the external or internal customer and on creating value for customers, by understanding and addressing their unmet, and potentially even unrecognized, needs.

Embrace design thinking and business-model innovation

We have found that in addition to being able to lead in this new agile way of working, it is important for leaders to understand the key elements of two other relatively new disciplines: design thinking and business-model innovation.

Originating in industrial and other forms of design, design thinking is a powerful approach to developing innovative customer solutions, business models, and other types of systems. This begins with understanding the entire customer experience at each stage of the customer journey.

In organizations that are agile, each team is viewed as a value-creating unit, or as a “business.” These teams pursue business-model innovation at every opportunity, seeking new ways to meet the needs of their internal or external customers and deliver more value to employees, investors, partners, and other stakeholders.

Transforming your organization

Here, leaders must learn how to cocreate an agile organization purpose, design, and culture.

Purpose: Find the north star

The first distinctive organization-level skill leaders need to develop is the ability to distill a clear, shared, and compelling purpose—a north star—for their organization. Rather than the traditional executive-team exercise, in agile organizations, leaders must learn to sense and draw out the organization’s purpose in conversation with people across the enterprise.

Design: Apply the principles and practices of agile organization design

The second organization-level skill leaders need to develop is the ability to design the strategy and operating model of the organization based on agile-organization principles and practices. Most senior leaders of traditional companies have a well-honed skill set in this area that reflects traditional organization design as a relatively concentrated, static system: one or a very limited number of major businesses, each with a long-established business model, typically coexisting somewhat uneasily with a set of corporate functions.

To design and build an agile organization, leaders need a different set of skills based on a different understanding of organizations. They must learn to design their organization as a distributed, continually evolving system.

Such an organization comprises a network of smaller empowered units, with fewer layers, greater transparency, and leaner governance than a traditional model. More specifically, leaders must learn how to disaggregate existing large businesses into a more granular portfolio; transform corporate functions into a lean, enabling backbone; and attract a wide range of partners into a powerful ecosystem.

Culture: Shape an agile organizational culture

The third organization-level skill leaders need to develop is the ability to shape a new culture across the organization, based on the creative mind-sets of discovery, partnership, and abundance and their associated behaviors.

Given the openness and freedom people experience in an agile organization, culture arguably plays an even more important role here than in traditional organizations. To shape this culture, leaders must learn how to undertake a multifaceted culture-transformation effort that centers on their own capabilities and behaviors. This includes the following steps:

  • role modeling new mind-sets and behaviors authentically
  • fostering understanding and conviction in a highly interactive way, through sharing stories and being inspired by the energy and ideas of frontline teams
  • building new mind-sets and capabilities across the organization, including among those who do not formally manage people, and weaving learning into the fabric of daily activity to become true learning organizations
  • implementing reinforcement mechanisms in the agile organization design

An agile approach to developing leaders

Many organizations start their agile pilots in discrete pockets. Initially, at least, they can build agile-leadership capabilities there. But to scale agility through an organization successfully, top leaders must embrace its precepts and be willing to enhance their own capabilities significantly.

Eventually, a full agile transformation will need to encompass building the mind-sets and capabilities of the entire senior leadership across the enterprise. To do this in an agile way, five elements are essential:

  1. Build a cadre of enterprise agility coaches, a new kind of deeply experienced expert able to help leaders navigate the journey, supported by a leadership-transformation team.
  2. Get the top team engaged in developing its own capabilities early on, as all senior leaders will take their cue from the executive team.
  3. Create an immersive leadership experience (anything from a concentrated effort over three or four days to a learning journey over several months) to introduce the new mind-sets and capabilities, and roll it out to all senior leaders.
  4. Invite leaders to apply their learnings in practice, both in agile-transformation initiatives already under way and through launching new organizational experiments.
  5. Roll out the leadership capability building at an agile tempo, with quarterly pauses to review the leadership experiences, experiments, and culture shifts over the past 90 days, and then finalize plans and priorities for the next 90 days.

Agile transformation is a high priority for an increasing number of organizations. More than any other factor, the key enabler to a successful agile transformation is to help leaders, particularly senior leaders, develop new mind-sets and capabilities.

Doing so in an agile way will enable the organization to move faster, drive innovation, and both adapt to and shape its changing environment. 

About the author(s)

Aaron De Smet is a senior partner in McKinsey’s Houston office, Michael Lurie is a senior expert in the Southern California office, and Andrew St George is an adviser to the firm and associate fellow of Said Business School, Oxford University.

Put the Enterprise Collaboration Focus Where it Belongs: The People

Put the Enterprise Collaboration Focus Where it Belongs: The People


#collaboration #crowdsourcing #wisdomofthemany

Companies like Jive, Yammer, Telligent and more promised to take social into the enterprise to drive a long list of business benefits, from improving productivity to fostering company culture, to boosting the bottom line.

Ten years later, Facebook and LinkedIn remain the 400-pound gorillas of the consumer social market, with tremendous growth, engagement and market value.

On the other hand, most enterprise social networks have been acquired and faded into the background as new digital workplace tools proliferated. New collaboration apps, notably Slack, took their place and their cache, although it’s beginning to look as if the newcomers may suffer a similar fate.

Why Did Consumer Social Networks Thrive While Workplace Counterparts Stalled?

One view is that consumer social networks like Facebook and LinkedIn thrived because they focused on people, while enterprise social networks put their focus more on the content being shared. Community forums. Document collaboration. Group messaging. All of these are good things.

In fact, the teamwork they enable is the heart of enterprise social. But these elements alone can’t make a community thrive without an understanding of the people driving it. The stickiness of Facebook and LinkedIn stems from the “network” part of social network: the relationships between people, with their content as a supporting function of those relationships.

To further complicate matters, wrangling all that content has become increasingly difficult. The communication and collaboration enterprise social networks enable provides real value. One company, for instance, found its enterprise community helped reduce the cost of sales by $2 million, while another increased employee satisfaction by 10 percent.

But eventually, like Facebook and LinkedIn, every organization ends up suffering from digital crowding. There is simply too much stuff in too many places for a human brain to comprehend. Searching for information requires an out-of-pattern activity that delays output and pulls our attention in a million different directions. Instead of fostering productivity and harnessing corporate memory, it hinders it. Eventually, this whittles away at any collaboration app’s adoption until the next shiny tool is brought in — only to suffer the same fate as the cycle continues.

Is Collaboration in the Digital Workplace a Lost Cause?

Not at all. To succeed, interactive intranets and enterprise communities must learn from their consumer counterparts and shift their focus from content to emphasize their organization’s greatest asset: its people. While this may sound more philosophical than tactical, it’s anything but. Creating a network based on relationships requires technology that both understands the connections between members of the network and dynamically personalizes their experience based on those connections. As more people and content enter the community, and relationship signals dial up or dial down with each interaction, the network should become even more powerful.

Bringing Graph Technology into the Collaboration Mix

One of the most powerful ways to achieve this is through graph database technology. Amazon Neptune is one example, and describes the concept well: it works “with highly connected data sets … optimized for storing billions of relationships and querying the graph.” When applied to an enterprise community, a graph database enables the platform to go far beyond the relatively simple constructs of “are you a friend/connection? (yes or no)” to understand much deeper levels of relationships, such as:Organization chart relationships.Explicit personal and professional relationships that aren’t hierarchical, with differences between friends, team members, colleagues, mentors/mentees, doctors/patients, etc.Implicit relationships, where commonalities exist between people based on their skills, location or activities, but without formal connections.By putting people at the core of the collaboration experience, graph databases can help enhance and even transform traditional content and collaboration capabilities into a richer set of people-to-people, people-to-content or content-to-content experiences. Take search: When your platform can understand what you work on and who you work on it with, its ability to deliver meaningful results will be dramatically improved. It can parse huge data sets about individuals as well, so it will “know” you too, not just your relationships. Combined with emerging technologies like text analytics and deep learning, that knowledge will enable semantic search that understands your context and finds what you need, when you need it, rather than just processing keywords.Search, of course, is only one example. A people-powered engine can help improve all of the standard enterprise collaboration use cases and makes new ones possible. By intelligently leveraging the connections between people and their work activities, platforms should prevent the creation of duplicate work and enhance commenting, versioning and more. Graph databases can also potentially streamline the chat experience, both within your primary digital workplace and externally, by curating conversations to serve up what’s most important and weed out the rest. 

Finding Knowledge in the Crowd

If I sound excited about these possibilities, it’s because I am. After years of watching enterprise social “innovation” translate to new features that barely move the needle, the technology has finally caught up to the vision. Big data has brought us big opportunity. With the intelligence of a people graph, enterprise communities and interactive intranets can now facilitate true collaboration and connection, and in turn, deliver results around engagement, alignment and retention. The modern enterprise social network will no longer contribute to digital crowding — it will help you find the most valuable people and knowledge in the crowd.

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Agile: beyond IT

#agile #pivot #digitaltransformation #humancentered #mindsetshift

Building The Agile Business

We should know by now the importance of organizational culture in supporting digital transformation and change (it’s the people, stupid!) but what exactly do we mean by digital culture? Drawing on a global survey of senior executives, this article amply demonstrates how powerful cultural and behavioral challenges can be in blocking digital progress.
Culture and behavior are seen as greater potential barriers than knowledge and understanding, talent, structures,funding and even technology infrastructure.
Selecting adjectives to describe the key characteristics of digital culture is arguably the easy part but since culture and behavior so fundamentally inform, shape, and influence working practices, strategies, orientation, actions, values, it’s worth touching on some of these attributes to better explain what I mean. So for what it’s worth here’s my list for what digital culture really means:
Agile and Responsive:- in the book we describe how organisational agility is about more than just speed, it’s about maneuvrability and responsiveness. This means an orientation towards greater experimentation, test and learn, a boldness and a less risk averse culture, the ability to move quickly when necessary.
Customer-centric:- customer-centricity is as wide as it is deep, and should be reflected in strategies, processes, and structures but more than anything it should be embedded in the culture. It shapes outlook and informs every decision. We talk about fast-feedback loops and data-driven decision-making but it’s better IMHO to be data-informed than it is to be data-driven – the latter may be good for incremental and continuous improvement but may also lack vision, empathy and intuition.  The former allows space to create the new, and describes a more useful balance between vision/creativity and feedback/optimization. Data is critical but we should not be slaves to it.
Commercially focused:- digital culture is results oriented, quick to explore, determine and assess opportunity, ready to disengage from existing advantage.
Visionary:- characterized by a compelling common purpose that is well understood
Technology-literate:- a culture that is founded on comprehensive technology-literacy whilst supporting an optimal balance of generalist and specialist expertise, technology as enabler, greater trust and flexibility in technology (less lock-down)
Flexible and adaptive:- a willingness to change and flex, the kind of adaptability that builds resilience and momentum (antifragile), the environment to support greater fluidity, getting the balance right between vision and iteration (as Jeff Bezos says we should be ‘stubborn on vision, flexible on details’). Avoiding managing by proxies (as Jeff Bezos also says , e.g. process as proxy, instead of genuinely looking at customer-focused outcomes just making sure that a process is followed), greater autonomy and ownership, less rigid hierarchy.
Networked:- flow of fresh perspectives into the organisation, flow of data through APIs, openness to utilise external resources and build off external capabilities, willingness and ability to capitalise on platform business economics, (Amazon, for example, systematically platformising individual component parts of its business in order to gain greater efficiences and leverage)
Exploring and curious:- digital culture is externally-facing, inquisitive, lateral-thinking, quick to explore technology and customer behavior trends.
Entrepreneurial and innovative:- bias to action, restless, continuous and systematic rather than episodic innovation.
Open and transparent:- a working environment characterised by high levels of trust, growth mindset, productive informality, psychological safety and openness.
Collaboration and learning:-  a culture that supports knowledge flow, continuous learning and ease of multidisciplinary collaboration (digital and customer experience are horizontal, cutting right across departmental siloes), embedded reflection and retrospective, learning from successes and failure
Cultural factors such as risk aversion, siloed mindsets and behaviors correlate clearly to economic performance:
A key place to start is to understand and map the current culture and then to and then to actively challenge, promote, reward, demonstrate and recognize the attributes that can support.
This needs to happen at the most fundamental level – culture is more than posters with slogans, words on walls, and colored beanbags (visible artifacts and behaviors), and it’s more than written values statements, strategy documents and codes of conduct (espoused values). What truly shapes culture are the basic assumptions – the underlying, often invisible assumptions and practices that really influence how stuff gets done.
Who Is in Charge of Driving Organizational Change?

Who Is in Charge of Driving Organizational Change?

Jul 3, 2017: Weekly Curated Thought-Sharing on Digital Disruption, Applied Neuroscience and Other Interesting Related Matters.

By Chuck Leddy

Curated by Helena M. Herrero Lamuedra

Change is about the complex interactions between people, processes and systems — and the people component of that “change triangle” is often the most challenging and the most important.

A great Harvard Business Review article, HR Can’t Change Company Culture by Itself, makes the point in its title, explaining: “True culture change means altering the way the organization lives and breathes. It shapes the way people make decisions, get their work done, what they prioritize, and how they interact with colleagues, clients and customers.”

The way your people think about change is a big part of your culture, but everyone from the top down must be in the business of managing change. The capacity to change in order to meet ever-evolving market and technological needs is where competitive advantage lives today, both for organizations and for talent. So the obvious question suggests itself: Who “owns” organizational change?

All Departments Must Collaboratively Drive Change

Organizational change is a business imperative that can be led from the top, but effective change cannot be imposed from the top. It only happens when everyone (all employees in each department/functional area) understands the reasons for the change, believes in its necessity and modifies their behaviors to sustain the new way of doing things. This process needs to happen both in the minds of people and across the entire organization.

As organizations analyze and meet their talent needs, for instance, adopting a more blended approach, HR will increasingly become a strategic partner with financial, IT, legal and procurement leaders. An Ernst & Young report makes this strategic partnership clear: HR, finance, IT and procurement leaders will each, “Bring insight and analysis…in a way that helps the business to strike the right balance between building, buying and deploying talent to support the business strategy.”

HR must be involved but so must other business areas such as finance, procurement, IT/technology, operations, legal and sales. When it comes to change, culture matters, but so do financial incentives, leadership communication, investments in talent and systems, skills development/training and more.

The Example of HP: IT, HR & Procurement Collaborate to Transform Global Sales

Deloitte’s Global Human Capital Trends 2016 report offers a fine example of interdepartmental collaboration to drive business change. HP, the California-based technology company, drove change by reinventing its sales culture and fostering a workplace ecosystem that supports high-performing sales behaviors for its 6,500 global sales employees.

HP took a multidisciplinary and systematic approach, which involved several areas of the business beyond just sales, including technology, HR, procurement, legal, and finance and using its own data to assess sales behaviors for the entire organization. What HP actions led to sales? What actions had the most impact on what customers, and why? Could these actions be scaled across the global sales team? By analyzing the complex intersection of sales behaviors, activities, competencies, compensation and outcomes, HP gained actionable insights that led to a more effective sales team.

As Deloitte’s Global Human Capital Trends 2016 report explains, “The findings from this multifaceted analysis has enabled HP’s top sales leaders to make ‘culture commitments’ at their global sales meeting in an effort to begin to transform the company’s sales culture.” HP is doing more of what works and less of what isn’t.

Workforce Management and the Blended Future: How HR Works with Procurement

The future of work will be a blending of full-time employees with on-demand external talent that companies can access on an as-needed basis using digital platforms. Easy access to on-demand talent allows organizations to remain agile as they meet their fast-evolving talent and business needs.

As author and keynote speaker Jacob Morgan explains, “The gig economy has transformed into highly adopted technology-based human capital solutions that connect nimble and innovative enterprises to a network of independent business professionals. Leveraging the gig economy gives businesses a chance to access a broader talent pool than with a traditional workforce model.” What’s more is that they can do it in a cost-effective and timely way.

Clearly, HR needs to play a big role in talent acquisition, but they can’t do it alone. Procurement, for instance, will also be a crucial component in any strategic partnership to acquire talent. While HR and the business identify specific talent needs they wish to bring in, procurement adds business value by understanding how to buy solutions (whether it’s talent platforms or accessing the talent itself) that contain costs and optimize efficiency.

Sourcing talent and creating the capacity to do so takes an interdepartmental, cross-functional approach. As individual business areas identify their on-demand talent needs, HR should be working with IT, procurement, finance, legal and other business functions to meet those ongoing talent needs.

The Need to Experiment and Learn

Agility is largely about the ability to learn and apply lessons moving forward. The goal of organizations should be to learn fast and in a way that doesn’t break the bank. An obvious course might be to set up pilot projects that involve a blended workforce. How will you find the on-demand talent you need? How will you manage and blend this talent? How will you integrate it into your overall culture and project needs? Learning starts with good questions like these, and then implementation of the experiments that begin to offer feedback and answers. This feedback supports continuous learning.

Agility is a mindset that must be supported, as change must be supported, by people, processes and systems acting together. Silos are anathema to building agility, not just departmental silos. The better the business areas coordinate their functions as they pursue change, the more agile the organization becomes.

In today’s business landscape of uncertainty, volatility and constant competitive pressures, readiness for organizational change is essential. If you’re slow and flat-footed, you’re already facing huge disadvantages against nimbler, more adaptable rivals. Successful organizations are ones that can learn, work in agile ways and access and leverage talent to meet ever-evolving market needs.