Over the past few months, McKinsey has convened a series of conversations with executives from across Europe and Asia–Pacific to explore their organizations’ emerging agile working practices in the context of the COVID-19 pandemic. In previous conversations, we spoke with chief human resource officers (CHROs) and chief information officers (CIOs). In this article, we discuss our findings from a discussion with CFOs who, like their HR and information counterparts, represent companies from a wide range of sectors—including telecommunications, banking, retail, and insurance—and are at various stages of their agile transformations. Strikingly, however, all of these companies shared similar financial challenges over the course of the pandemic.
Our wide-ranging conversations revealed a high degree of consensus about both the benefits and challenges of an agile transformation. Benefits include increased transparency, better teamwork among leaders, and an evolved role for the CFO. The important issues to solve include prioritization, performance management, and reporting.
Based on their experiences—and in line with what we have witnessed over many years of work on agile across industries and geographies—participating CFOs recommended that companies that are serious about their agile transformations invest time in carefully developing long-term priorities, building a bulletproof process, and thinking about company culture.
The benefits of agile
When asked about the advantages of moving to agile, CFOs repeatedly came back to three topics:
Participants agreed that agile work practices are based on developing a clear strategy and priorities and then enabling and empowering everyone within the organization to deliver. This approach requires and reinforces a high degree of clarity and transparency about what the organization is working on, which also increases alignment, efficiency, accountability, and employee satisfaction.
CFOs noted that achieving this transparency requires a clear reviewing process, such as a quarterly business review (QBR), as well as the right tools and a culture conducive to reviews. The specific role played by QBRs and the CFO varies across companies and evolves over time. In many companies, the QBR evolved as a process in which each “tribe” lead handled conflicting needs for resources, with the role of the CFO limited to breaking deadlocks. Some CFOs told us, however, that they had chosen to take control of low-performing KPIs when they felt that a more active steering role was required.
Putting these transparency enablers in place will require an up-front investment of effort and resources, but the outcome is a clearer view of where the business is going and who is working on its key strategic priorities.
Better teamwork among leaders
Several participants mentioned that the shift to clear, commonly understood, and agreed-upon organization-level priorities has led to closer working relationships within the leadership team. In some cases, this was propelled by a shift from separate reporting procedures for each member of the executive team to a single performance pack. The latter approach brings everyone together to present to the board, which increases group work on processes such as budgeting and workforce planning. Breaking down the silo of “CFO duties” enables more informed—and therefore more accurate—completion of key leadership functions.
The evolved role of the CFO
Participants were eager to reflect on the changes that an agile transformation had brought to their own role. One CFO characterized the change as a shift “from policeman to business navigator.” In the past, the CFO’s role was to allocate budget and then to ensure that the allocated funds were being used according to the plan. As agile working practices broaden this responsibility, the CFO’s role evolves into helping colleagues to jointly optimize budget allocation. As one CFO said, the point of view in an agile workplace is “This is our budget, and this is why we are allocating it together.”
Key process challenges
To realize the benefits listed in the previous section, CFOs agreed, companies will need to overcome challenges related to several key business processes:
In an agile organization, leadership-level priorities cascade down to inform every part of the business. For this reason, CFOs talked extensively about the importance of setting up a prioritization framework that is as objective as possible.
Many participants mentioned that it can be challenging to work out priorities through the QBR process, because different teams lack an institutional mechanism through which to weigh different work segments against one another and prioritize between them. Most CFOs agreed that some degree of direction from the top is required in this area. One CFO said he thinks of his organization as a “prioritization jar”: leadership puts big stones in the jar first and then fills in the spaces with sand. These prioritization “stones” might be six key projects identified by management, or they might be 20 key initiatives chosen through a mixture of leadership direction and feedback from tribes.
A second challenge emerged regarding shifting resources among teams or clusters responsible for individual initiatives. When asked what they would do if they had a magic wand, several CFOs said they need better ways to reallocate resources at short notice. Noting that priorities can change quickly because of market events or competitor activities, CFOs talked at length about the challenge of finding the balance between allocating all their resources for optimal efficiency and leaving some resources in reserve so they can adjust to unforeseen circumstances.
Participants then laid out two potential methods to ease the reallocation of resources midcycle. First, it could be helpful to have tribe leads sit together and agree on priority and resourcing. One participant said, “It’s amazing, having them in the same room, looking each other in the eye and saying, ‘Yes. I can commit to that’ or ‘No. I don’t have the resources for that.’ We’ve found that since we’ve been running [tribe lead meetings], the number of escalations that we’ve had come up has been far less.” A second method is to set up goals and reward systems at the group level, rather than at the team or tribe level, to help align overall incentives.
Performance management and reporting
CFOs were clear that getting performance management right is vital in orienting an organization around agile principles and methodology. Without performance management, it becomes difficult to shift established ways of working, align individuals between organizational priorities, or foster the business owner mindset that is necessary to create a culture of high performance.
Based on their responses, our participants agreed that getting performance management right requires a number of different elements:
- A limited amount of regularly reviewed organizational priorities, outcomes, and metrics should cascade down into clear progress indicators at the individual, team, and tribe levels. The progress indicators should be transparent, and performance reviews should be regular and detailed. Overall progress in organizational objectives should then be reported back to leadership on a quarterly basis as well as presented to—and discussed with—the whole organization.
- Performance management should happen at multiple levels. In addition to individual assessments, some CFOs said they ran performance reviews in what they referred to as “clusters”; a retail company might have a joint conversation with, for example, the teams that cover consumer products, consumer marketing, and channel management.
- To develop the right company mindset and to build their skill sets, employees should not stay in the same position for a long time. This is not about reshuffling the whole company but about helping people to use agile practices as an opportunity to learn new skills and mindsets, thereby creating a flexible and effective workforce.
Three tips for the agile transformation journey
When asked what advice they would give to companies seeking to set themselves up for a successful agile transformation, CFOs returned repeatedly to three themes:
- Invest time in building long-term priorities. A small number of concrete, agreed-upon priorities are crucial for any successful agile transformation. Priorities do not have to be set in stone, but they also should not be taken lightly. The process of arriving at these priorities should be as objective as possible, and companies should communicate their priorities transparently.
- Build a bulletproof process. Priorities need to cascade down the organization so that everyone is working effectively in the same direction. This requires strong processes, particularly around performance management and reporting.
- Think about culture. In the end, it is your people who will deliver on your priorities. They will need the right set of skills to be able to do so, but they will also need a sense of ownership over the company and strategy, along with a performance mindset. Companies therefore need to pay close attention to company culture, regularly solicit feedback, and course correct wherever necessary.
The CFOs we spoke to agreed that successful agile transformations require a holistic approach, thorough planning, and careful implementation. But they also agreed that the pandemic has brought ongoing opportunities as well as challenges, and that truly agile companies are well positioned to thrive in the postpandemic world.