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Spring 2022 / Issue 106

Closing the agile achievement gap

Despite the wide adoption of the agile method across industries and functions, most companies are barely scratching the surface of its vast potential. Business leaders can change the game by paying careful attention to seven mission-critical factors.

A version of this article appeared in the Spring 2022 issue of strategy+business.

Here’s an agile cautionary tale: a certain US-based bank wanted to be faster on its feet, transform end-to-end customer experiences, and gain an edge over newer, nimbler fintech competitors. So, naturally, it turned to the agile playbook—the set of practices derived from software development to bring multidisciplinary teams together in order to make quick progress on short-term projects. It established daily stand-up meetings and retrospectives—the “ceremonies” of agile. It created agile teams to develop innovative new apps, build better business processes, and craft technology solutions that would support a bevy of new digital offerings. But company leaders soon realized they had a big problem on their hands.

Although the bank was using agile techniques to make some progress, it wasn’t becoming more agile as an organization. It was planting a lot of agile trees that weren’t growing into an agile forest. In technical terms, it wasn’t achieving what we call enterprise agility. When companies scale agile effectively across the enterprise, they gain the capability to adapt to everything the market throws at them. In doing so, they remain competitive and fiscally sound, no matter the scenario.

We have seen this situation play out time and time again. Earnest intent, significant investment, and yet no real agility is gained. Agile trees but no agile forests. Despite the embrace of agile methods to transform businesses, catalyze innovation, and accelerate profitable growth, we see companies barely realizing agile’s vast potential. In Six dimensions of the agile enterprise, a 2020 survey  of 850 senior executives conducted by Strategy&, PwC’s strategy consulting business, respondents from only a third of the organizations that adopted agile methods said they were successful at creating enterprise agility. Not surprisingly, many of these companies are established organizations built around static, siloed, and structural hierarchies.

Though these trend lines are concerning, we see a clear path for successful agile transformations. In our work analyzing and advising companies undertaking agile transformations, we’ve identified seven mission-critical factors for closing the agile achievement gap. In what follows, we look at how organizations have overcome hurdles to reimagine their enterprise around customer journeys, product excellence, and innovation, and have achieved true agility in the face of immense global challenges.

The difference between agile and agility

The agile methodology was created 20 years ago by a group of software developers on a retreat at a ski lodge in Utah. It is now used by organizations throughout the world as the preferred tool for product development, especially software-driven offerings.

Agile teams work to create innovative solutions to problems. The agile philosophy values (1) individuals and interactions over processes and tools, (2) working software over comprehensive documentation, (3) customer collaboration over contract negotiation, and (4) response to change over plan-following.

When implemented properly, agile methods can turn an organization into an agile enterprise—one that is truly adaptive across the board.

Agile has become a management buzzword of the digital era, a panacea for every possible challenge facing businesses today, whether it is digital disruption or modernizing the workforce. Often, when leaders speak of agility, they’re not talking about enterprise agility at all; they’re using the word in its standard meaning: fast and nimble. To wit: an organization can be agile in a strict definitional sense without ever adopting an agile approach, just as the same organization can have armies of agile teams and not ever achieve enterprise agility.

1. Listen to your customers—and the function that advocates for them

Your product management function guides every step of a product’s life cycle—from development to positioning to pricing—by putting the customer first and ensuring that finished products meet and exceed customer expectations (e.g., a new e-commerce app gets greater engagement than expected). Although most organizations understand the importance of being customer-centric, many companies struggle to grow their product management function within a broader agile transformation.

One reason for this is talent management. The high-performing companies we’ve studied as part of our research create clear roles and skills matrices for their product managers (PMs) and product owners (POs) and offer hands-on coaching and opportunities for advancement. The result is greater retention and acquisition of talent.

When a leading US-based insurance carrier focused on nurturing its product management function, it trained and deployed highly skilled PMs and POs as part of its agile program. The PMs and POs, leaning on their unique expertise, created multidisciplinary teams to launch a minimum viable product approach for providing insurance quotes and processing claims. (A minimum viable product is one that’s introduced to the market with the most basic features but is still usable by consumers.) In the end, the insurance carrier was able to launch six products in six months instead of the average 18 months it would have taken before.

2. Tie your teams—and their daily work—to broader business objectives

In agile, an initiative’s success hinges on the composition and ethos of high-performing teams and their ability to deliver in compressed time frames. Yet we’ve observed that organizations often overlook how the work of agile teams is tied to the overall objectives and strategy of the business.

At a top US consumer products company, teams were conducting agile ceremonies such as daily stand-up meetings, retrospectives, demos, and team-level planning. However, after a couple of work sprints, several questions remained unanswered: what was the overall solution road map? And how was the teams’ work making an impact at the program and portfolio level of the company?

To connect the dots, the company’s digital transformation office incorporated a design thinking approach with the goal of producing interactive program-level training for both business and IT team members. The organization also applied a ten-week, incremental program-level planning process. This approach enabled the company to break down silos between the business and IT units, improve transparency into how tasks were executed, and increase the frequency of feedback loops with an eye toward continuous improvement of processes. The result: the teams came away with a clearer understanding of how their work was driving broader business strategy objectives.

3. Connect strategy to execution through lean portfolio management

The primary role of the lean portfolio management (LPM) function in agile-minded organizations is to align agile development with business strategy. In most cases, this function is made up of staff from the organization’s finance, IT, and business units, and also draws on expertise and input from human resources and IT teams. Most important, the LPM function aligns the annual planning and funding processes with the agile methodology. It also establishes objectives and key results and key performance indicators (KPIs) to measure the effectiveness of the work being done and to keep deliverables on track. These tasks are often time-consuming and involve large change management efforts, which is why the LPM function must be implemented early in the process.

A wholesale retail company set out to define and implement an LPM function at the start of its agile transformation. The company needed to modernize its workforce and IT operating model and employ a product-centric mindset on projects. But the work-intake process it had been using suffered from long lead times and delayed approvals, and in some cases pet projects were being prioritized over more strategically aligned initiatives. The company’s portfolio management office created a new intake and demand process that was both agile and product-centric, and defined the roles, responsibilities, and governance forums for the LPM function. The new process was vetted in one division, and the lessons learned were rolled out across other divisions. One result was more transparency into the company’s processes, which allowed management to make better informed decisions about projects. Another result was improved reporting metrics.

4. Prioritize talent development in your agile transformation

It’s easy to focus on business and IT and overlook the vital role that human resources (HR) plays in an agile transformation. Agile hinges on people being empowered and autonomous, and that requires HR to build the systems necessary to ensure the program’s success. We’ve observed that in many agile transformations, HR tends to get involved only as a formality to approve role definitions. But because your people will determine the success of any initiative, HR should have a permanent seat within the agile transformation office (ATO), helping drive the organization’s change agenda from the beginning. HR should work closely with the business and IT leaders to publish clear career paths for agile roles and provide continual learning, coaching, and certification so employees can be as productive and engaged as possible.

Agile hinges on people being empowered and autonomous, and that requires human resources to build the systems necessary to ensure the program’s success.

In one example from our research, a top-ten global industrial IOT software manufacturer worked collaboratively with HR from the beginning of its enterprise transition to agile. HR helped the company define and expand product management roles and bring personnel together into newly created communities of practice for key agile roles, which enabled better partnerships between leaders in business and IT units. The company’s HR learning and development team coordinated with its agile center of excellence to develop training on a common language and a common understanding of agile for all 250,000 employees. HR also provided input from exit surveys to influence the design of agile ways of working, which included focusing on in-person social activities. One outcome was increased employee satisfaction and an 11% year-over-year improvement in employee retention.

5. Give your agile transformation office some teeth

Empowering the agile transformation office with actionable mandates and support from the C-suite sends a clear message to the organization that senior leaders are invested in agile as a value differentiator and not a mere management fad.

In our experience, the ATOs that are given the lowest investment and lightest touch from the C-suite tend to establish generic training and focus merely on educating the enterprise about agile. Conversely, the ATOs that get the most investment and buy-in from senior leadership tend to be cross-functional and dynamic. They’re likely to be made up of business and IT personnel, along with representatives from HR, finance, corporate communications, and change management. They create standards and playbooks, provide hands-on coaching, partner with the business teams for change management programs, and take an active role in collecting data and key metrics on the agile transformation.

One international insurer decided to keep its ATO focused on establishing a common way of working, customizing training programs, and maintaining a collaborative working space for agile teams. Agile remains largely optional at this company, with some lines of business employing agile concepts more intentionally than others.

A second company, a US-based insurer, chose to invest more deliberately in its ATO, empowering the office to design and implement the agile operating model across all lines of business; develop role-specific and company-specific training; provide hands-on coaching to the teams; deploy delivery metrics and dashboards across the enterprise; and roll out tools to support agile execution, finance management, and business portfolio governance. As a result, the company achieved enterprise agility. Even though the company is only about 60 to 70% through its agile transformation, it’s already seeing shorter delivery times and faster speed-to-market.

6. Take an end-to-end approach to performance measurement

How does a company know if an agile transformation is working? That’s a complicated question. It takes time for an agile transformation to drive cost reduction or revenue growth. And even when a company sees new cost efficiencies or an uptick in sales, it can be devilishly difficult to attribute any success directly to agile.

That’s why agile transformation offices tend to create metrics such as “business units touched” or “number of employees trained.” In doing so, they sometimes struggle to measure and articulate the real business impact. In our experience, the most successful ATOs incorporate three types of metrics from an early stage and take an end-to-end approach to tracking performance. In the beginning, transformation progress metrics (such as agile penetration into the organization; the number of businesses, teams, and personnel covered; the number of employees trained; and the number of people certified in agile) provide indicators of how well the agile transformation is progressing. As teams start to operate in agile rhythms, execution metrics (such as velocity, cycle time, volatility, and defect rate) become more important. Once products go live, business-value metrics (such as revenue, core earnings, cost, and Net Promoter Score) tell a story of the overall business impact.

With these measurements, the key for leaders is to recognize any early indicators of a problem that needs to be fixed.

At one US-based regional consumer bank, ATO leaders were struggling to grasp how agile transformation activities were contributing to business outcomes. So the office decided to define a new set of KPIs. These KPIs included the number of agile teams that were operational, the number of production releases per month for core platforms, and the number of defects per month. The company baselined the KPIs and set a 12-month target, tracking the metrics month over month to identify areas that needed improvement. There were a few metrics that the team couldn’t assign targets to in the beginning, but they tracked those metrics anyway and, after they were better understood, identified targets. This helped the ATO make a case for continued investment by showing the progress it had made in several areas, such as application availability, the number of releases per month for core platforms, and the number of teams using a new continuous-integration and continuous-delivery pipeline.

7. Find your agile stars and let them lead the journey

Many organizations undertake agile transformations with set timelines and predetermined expectations of ROI. Yet they fail to account for the massive change that agile requires of the organization. Employees must make huge shifts in how they work, prioritizing collaboration over individual outcomes and activities, thinking in increments, and becoming more comfortable with rapid experimentation and failing fast. To effectuate this kind of change, top management needs to be active and involved in elevating its agile stars and bridging divides between business functions and units.

At a UK-based global media holding company, the new CIO used an agile transformation to change the ethos of IT from “order-taker” and “break-fixer” to that of a partner with a permanent seat at the decision-making table. The company’s executives and senior management embraced the need for transformation, and identified a group of 25 “game changers” to carry out critical work over an eight-week period. That team went through rigorous applied learning, coaching, and community-based activities. The group was then expanded to 75, with the original 25 taking on deeper coaching and teaching roles. The outreach was scaled and eventually touched the whole target population, and employees reported a 15% increase in employee engagement and readiness for transformation, a 22% increase in employee satisfaction, and a 42% increase in the commitment to new ways of working.

Adopting agile, gaining agility

What started 20 years ago as a tool for software development has become a leading management method for transforming business models to fit changing requirements. When companies master agile methods and scale them across the enterprise, they can accelerate innovation in order to remain market-relevant and fiscally sound. But as we’ve seen in helping companies manage their agile transformations, pitfalls abound. Often, organizations spend so much time and energy setting up their agile transformation program that they lose sight of organizational challenges such as breaking down silos between the business and IT functions or devising the right KPIs. By the time they reach the execution stage, it can be too late—and that’s where the problems emerge. But the pressure on businesses to transform themselves to drive greater productivity, speed, customer engagement, and employee retention has never been greater.

Although we strongly believe that there is no one-size-fits-all approach to agile, having a starting point informed by the success factors of many who have been there before can give you a decisive edge.

Author Profiles:

  • Gagan Prakash is an advisor with Strategy&, PwC’s strategy consulting business, specializing in strategic and operational topics, including operational efficiency and effectiveness and enterprise agility. Based in Chicago, he is a director with PwC US.
  • Matthew Siegel is a leading practitioner in people and organization strategies for Strategy&. Based in New York, he is a principal with PwC US. He advises clients on organization effectiveness, efficiency, and culture to improve execution against strategic priorities.
  • Also contributing to this article from PwC US were Mike Pino, Eric Seti, Mike Streno, and Shirin Toor.
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