Maximizing agile productivity to meet shareholder commitments

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Organizations of all sizes use agile transformations to facilitate faster decision making and business impact. However, agile methodologies do not always translate perfectly to large organizations, especially those that are engaged in complex transformations with preset productivity goals. Leaders of large organizations who want to use existing agile capabilities to increase organization-wide productivity often bump up against the complexities of running large programs that require tight coordination and frequent reporting.

For instance, regaining prepandemic levels of efficiency and building shareholder buy-in are top of mind for large institutions iterating on their pandemic-recovery strategies. In a McKinsey survey of midsize and large institutions, 70 percent of respondents cited immediate cost pressures and changing customer preferences linked to the COVID-19 crisis as the top challenges they are using agile to combat. However, cost and growth transformations often involve firm targets that are announced to shareholders, with significant implications for the company if they are not met.

Reconciling agile ways of working with the demands of enterprise-wide transformations is an evergreen challenge. McKinsey analysis has identified four shared characteristics of companies that successfully met their initial goals—focused on costs and growth—through agile practices. They had tightly coordinated ideation processes, allowing teams to perform due diligence independently and explore multiple opportunities at once. They had transformation leadership that conducted upfront planning, so they could create timelines that allowed agile teams to work toward preset financial outcomes while retaining a flexible execution process. These companies also introduced transformation offices to track financial performance and delivery, going beyond simply managing agile rollout and capability building. Finally, these companies assembled agile teams of the right size for their goals and organizations to increase the pace of work and reduce associated costs. Company leaders in every industry can use these solutions to align the iterative agile work cycle with ambitious—and often public—commitments to financial performance.

Challenges of small-team agility in large organizations

For large organizations, the norms of agile work can get in the way of capturing value on a coordinated timeline. Traditional agile teams independently conduct research, engage customers and end users, and use their findings to determine the potential value of changing business processes. This approach can be highly productive for smaller organizations that have relatively few legacy processes. However, product owners of large organizations with many established processes may have a harder time fitting new ideas into their organizations’ legacy structures, even with agile methodologies. Value leakage—in other words, missed opportunities—tends to result.

Typical agile-transformation offices focus on rolling out agile methodologies, helping the organization build new capabilities, and generally producing impact. But organizations that have committed to achieving specific results need to track and test agile teams’ work—frequently—through the lens of financial performance.

Some elements of classic agile capabilities can also make transformations unexpectedly costly for large organizations. For example, while quarterly business reviews give individual teams the space to explore and work independently, they tend to delay the discovery of missed opportunities and hurdles in creating value. The quarterly review cadence can also delay important information from reaching high-level decision makers, especially in the critical early days of transformations when fundamental adjustments are made. Low-value meetings, manual testing, and layers of management can all detract from productivity in organizations that are not yet mature in agile methodologies.

Doing what successful companies do

Meeting predetermined financial and operational goals with agile methodologies requires reconciling agile ways of working with the demands of enterprise-level transformations. A tightly coordinated ideation process, planning that builds in time for flexibility, transformation offices that track and report on financial performance, and agile teams of the right sizes are all crucial elements of success.

Tight coordination crossed with independent due diligence

The traditional design and deployment of agile teams—understanding customers’ and end users’ needs, defining the opportunity at stake, and coming up with a minimum viable product—can take time that a transformation built around ambitious goals does not have. As agile teams develop their objectives, cadences, and agile backlogs, independent analysis of each team’s customer or user journey and the designation of an initiative owner can accelerate the work.

Coordinating this exchange through stage gates provides the discipline and rigorous pressure testing needed to move an organization’s agile teams in a coordinated way—even with incomplete or ambiguous information. This process also helps teams explore as many ideas as possible to reach the company’s profit-and-loss goals and commit to targets by a certain deadline so senior management can review the total commitment and announce it to the market for the first time (for an example of how one company applied this idea, see sidebar “Case study: Shrinking a timeline from 12 months to 16 weeks”).

Plan for both set outcomes and flexible execution

Companies’ public commitments to ambitious—and sometimes expansive—goals tend to have multiyear timelines, while agile teams are trained to focus on the next three to six months. In organizations with siloed processes, product owners often feel that they don’t have enough visibility into their organizations’ processes to forecast the timeline for their initiatives, let alone to predict the long-term impact of their work.

To balance the demands of the near future with longer-term goals, the companies that meet their transformation goals support agile teams with information and expertise. Successful companies provide product owners with relevant financial and operational data for the company, benchmarked to best-in-class organizations, to help them assess the potential value of their work for the next 18–24 months. They also assign initiative owners and relevant subject-matter experts from business functions early in the research and discovery process to help quantify possible improvements to the existing journey.

To balance the demands of the near future with longer-term goals, the companies that meet their transformation goals support agile teams with information and expertise.

Throughout the effort, business and IT architects with broad knowledge of the organization—based in the transformation office—provide centralized support in assessing the feasibility of complex efforts. Finally, successful companies conduct long-term enterprise-wide resource planning to ensure that agile teams are adequately supported for the following two years—instead of simply the following year—and to minimize the number of dependencies.

These types of central coordination, while not traditional in agile practices, help give product owners the confidence to commit to high-level long-term targets while still having the freedom to reprioritize the delivery pipeline for the next three months. Forums such as big-room planning—usually a two-day gathering of agile teams that takes place every eight to 12 weeks—are crucial to aligning agile teams with one another and giving and getting support for unexpected changes (for more on creating flexibility while working toward set outcomes, see sidebar “Case study: Tapping into the agile hive mind”).

Use a value-focused transformation office

In traditional agile transformations, targets are often determined using both bottom-up and top-down methods, with the results fed into the quarterly business review cycle to guide the direction and support for agile teams. A straightforward process when only a few teams or tribes are involved becomes complex in a large productivity transformation program with immature financial practices.

A transformation office focused on creating value can provide necessary expertise, assistance, and monitoring. In particular, these transformation offices can take three critical approaches:

  • Tie every milestone to spending on full-time-equivalent (FTE) labor and non-FTE spending by using the organization’s financial baseline to track the impact on all kinds of spending. This exercise can inform prioritization and help decision makers track value creation in detail.
  • Constructively challenge and track the objectives and key results (OKRs) for each tribe or portfolio using a financial lens. In the early days of the transformation, these assessments should occur more frequently than quarterly, and members from the CFO organization can participate in problem solving, especially when teams fall short of—or behind on—their financial goals. These frequent assessments allow teams to course-correct early, avoid confirmation bias, and deal promptly and frankly with missteps.
  • Provide real-time value tracking by linking agile backlogs or team dashboards to financial ledgers instead of using meetings to assess progress. This approach helps transformation offices establish near real-time transparency across the program and requires minimal inputs from agile teams. This approach also avoids disrupting the work, a common challenge in large transformations.

Efficiently allocate capacity to agile teams

Agile transformations present the simultaneous—and paradoxical—need to launch an often-costly agile engine to achieve performance targets, especially in organizations with immature agile practices (often the result of lifting and shifting the organization to agile overnight). One way to boost the productivity of agile teams throughout the transformation is to assess the agile maturity of teams early on and adopt lean principles and automation to redistribute freed-up team members to launch additional agile teams and accelerate delivery.

This exercise necessarily involves reevaluating the size of agile teams (no more than ten people on a team), the ratio of engineers to nonengineers (useful for reducing dependency on manual roles such as business analysts), flattening agile management, and increasing developers’ productivity with fewer meetings and more coding time. Used early and often, these tactics can help organizations achieve their targets 25–30 percent more cheaply or quickly in the second year of the transformation. Indeed, a large North American insurance carrier achieved 30 percent cost savings by reducing the number of manual roles and project management roles aligned to agile teams. These savings not only helped the organization achieve its targets on time; they also freed up capacity to support additional automation initiatives.

Classic agile methodology does not always translate perfectly to large, complex transformations with preset goals. A value-focused, centralized approach is key to harvesting the benefits of agile ways of working without compromising on organizations’ financial goals.

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