Strengthening Enterprise Agility for a Crisis: Lessons Learned

Article Summary

The COVID-19 pandemic presented challenges—and necessary changes—for all organizations. To support quick adoption of these changes, many entities adopted agile business practices. In a backward analysis, “An operating model for the next normal: Lessons from agile organizations in the crisis,” authors Christopher Handscomb, Deepak Mahadevan, Lars Schor, and Marcus Sieberer of McKinsey and Euvin Naidoo and Suraj Srinivasan of the Harvard Business School analyzed the experiences of agile—or partially agile—companies during the crisis and provide insights around which elements of their operating models proved most useful in practice.

To support success in the “new normal,” the article also presents a three-step guide to considering and fully embracing a more comprehensive operating-model shift to agile practices. The article represents views from across McKinsey’s Agile Tribe, a group of global colleagues bringing expertise from the digital, operations, marketing, and organization disciplines.

Defining Agile Organizations

McKinsey defines agile organizations in contrast to “traditional” organizations. The latter are characterized as static and siloed with a structure that supports top-down governance and strong, but slow, linear planning.

By contrast, agile organizations are designed for both stability and dynamism. The organization 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.”

According to McKinsey, there are five trademarks of agile organizations:

1. Strategy: North Star embodied across the organization
2. Structure: Network of empowered teams
3. Process: Rapid decision and learning cycles
4. People: Dynamic people model that ignites passion
5. Technology: Next-generation enabling technology

Evaluating the Organizational Crisis Response

McKinsey analyzed 25 companies across seven sectors that have undergone or are currently undergoing an agile transformation. The companies conducted a self-assessment of their response to the COVID-19 crisis along measures of customer satisfaction, employee engagement, or operational performance.

Key Insights

1. Mature agile organizations responded better when the crisis hit.

The most significant characteristic among companies that outperformed their peers on managing the COVID-19 crisis was the embeddedness of agile practices pre-pandemic.

2. The ability to reprioritize people and work comes naturally to agile companies.

An analysis of European telecommunications companies indicated those that had adopted an agile operating model before the pandemic were nearly twice as fast to launch services in response to the crisis (see Exhibit 2). The embeddedness of technology, data systems and remote collaboration tools in agile organizations were significant factors supporting change.

3. The adoption of agile practices at the business unit and/or team level was also impactful.

Even among companies that had not comprehensively adopted agile practices, agile business units and teams were able to seamlessly continue their work amid the shocks of the COVID-19 pandemic, while their counterparts were forced to slow down to focus on changing business operations.

Elements of a Successful Response

Which agile elements and practices helped their companies weather the COVID-19 storm? Leaders of the 25 participating analyzed companies provided responses that fell into two categories:

1. Team-level elements
2. Enterprise-level elements

Among the most successful responses existed a combination of different team- and enterprise-level elements.

Team-level agile elements could be found in both agile and nonagile organizations—and helped teams focus and effectively assign tasks to ensure an uninterrupted workflow.

• Element #1: Ceremonies: Teams created structured events, or “ceremonies,” to act as platforms for fast decision-making in an ever-changing environment. One type of ceremony may be a status-check session. Many business units doubled down on ceremonies during the pandemic to better manage change and far-flung virtual teams.

• Element #2: Remote Collaboration Tools: Leaders reported that their agile teams transitioned seamlessly to the remote working environment, as they were already using digital tracking and remote collaboration tools. According to the article, “the critical success factors (of remote agile teams) have been a stringent adherence to the agile cadence, efficient use of remote collaboration tools, and the creation of a virtual co-location.”
   
• Element #3: Backlog Refinement: The ability to restructure an ever-changing list of priorities, or backlog, allowed teams to focus on dynamic customer and business needs.

More mature enterprise-level agile elements were only found in companies that had already undergone an agile business operations transformation.

• Element #1: Empowered, Cross-functional Teams: Empowering cross-functional teams to make key decisions during the crisis was particularly impactful in agile enterprises; in many cases, enabling business units to react to the COVID-19 shock without creating additional crisis response teams.

• Element #2: Structured Governance Process: This agile process to regularly review and reprioritize business needs comprehensively across the organization enabled companies to effectively respond to shocks from the COVID-19 crisis. An example of the structured governance process is the ad hoc quarterly business review (QBR), which supports the alignment of business unit priorities and allocation of resources with the organizational strategy. Structured governance processes were significant to the success of companies making quick operational shifts, such as moving all offline channels online.
   
• Element #3: Outcome-based, Digital, Automated Tracking System: Enterprise-wide performance-tracking systems provided companies with daily transparency to not only view operational performance but also identify key issues on the horizon. Leaders of companies who lacked this technology described it as a “missed opportunity.”

Three Steps to an Agile Operating Model

How can companies capitalize on the lessons learned among agile companies and teams to ready themselves for the promise of continued change in our “next normal?”

McKinsey offers a three step process for embracing an operating model shift:

1. Reflect.
   • Determine what your organization learned from the COVID-19 crisis.
   • Identify which practices worked, and which you want to continue.
   • Identify which practices did not work, and which gaps you need to close.
   • Look to other agile organizations for inspiration.
2. Decide and commit.
   • Decide where to start, how to start, and which elements of your operational model need to shift.
   • Take a “test and learn” approach by experimenting with new practices before scaling across the enterprise.
   • Thoroughly measure your test efforts to learn what works and what doesn’t.
3. Embed and scale.
   • Transition from experimentation to scale the identified practice(s) across the enterprise.
   • Identify how you can embed the practice(s) into each lever of operating-model transformation: structural capability building, people-modeling changes and enterprise-process changes.
   • Ensure your full enterprise is optimizing for the same strategic objectives.

Original Article Source: “An Operating Model for the Next Normal: Lessons from Agile Organizations in the Crisis”, McKinsey & Company, June 25, 2020