Leading operating model modernization: What do agile transformation leaders say?

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Over the past few months, McKinsey has convened a series of virtual conversations with executives and leaders from across Europe and Asia–Pacific to explore their organizations’ emerging agile-working practices. In previous conversations, we have spoken with chief financial officers (CFOs),1CFO perspectives on leading agile change, McKinsey, May 19, 2022. chief human resource officers (CHROs),2CHRO perspectives on leading agile change, McKinsey, August 30, 2021. and chief information officers (CIOs).3CIO perspectives on leading agile change, McKinsey, January 24, 2022. In this article, we report on a discussion with heads of agile centers of excellence (CoEs) representing companies from a wide range of sectors (including telecommunications, banking, and insurance) and at various stages of their agile transformations.

Participants were eager to discuss the multifaceted role of an agile CoE and how it has shifted over time. This evolution means it’s crucial to choose a CoE leader who can switch seamlessly between a focus on the small details and on the big picture.

Based on their experiences, the heads of agile CoEs identified five major success factors related to agile transformations: communicating the role and position of the CoE, catalyzing change, leveraging the potential of data and automation, thinking and planning for the long term, and using disruption to hone strategic thinking.

Despite the complex and sometimes difficult nature of the journey, all agile CoE leaders agreed that agility would be vital to their companies’ success in the emerging postpandemic world. They also noted, however, that simply “doing” agile—changing their structures, processes, and technology—was not enough; it took a deeper transformation, encompassing how people worked and interacted on a daily basis, to move their organizations toward their ultimate goal of truly “being” agile.

The role of an agile CoE

Going agile is a complex process that requires far-reaching changes in strategy, structure, people, processes, and technology.4The five trademarks of agile organizations, McKinsey, January 22, 2018. The agile CoE has evolved into an essential part of a company’s backbone, leading and sustaining the organization’s journey to agility. In our experience, agile CoEs are vital in the implementation of the new operating model and can significantly accelerate an organization’s agile journey. Crucially, they act as catalysts who bring together the “how” and the “what” and foster effective cross-organizational collaboration.

CoEs are generally already in place at the start of an agile transformation. They can evolve out of the initial transformation office (which generally forms in the months before the transformation goes live), sit under the HR function, or even develop in parallel to other structures. The key responsibilities of the agile CoE typically include building the organization’s agile capabilities; supporting other parts of the organization through the provision of expertise, including agile coaches; developing an agile community; and supporting the continued adoption and increased maturity of agile ways of working across the organization. To fulfill these responsibilities, agile CoEs require an extensive set of capabilities around both talent management (including hiring, professional development, and evaluation) and learning and development (including program development and day-to-day support).

Participants experienced different journeys as heads of CoEs, but all agreed that their day-to-day work had shifted significantly over time. One participant called the first year of operations the “initial foreigner stage” in which much of the CoE’s effort went into building the leadership team’s confidence in its decision to embark on an agile transformation. Only in the second year did the CoE enter the “scaling phase” and begin to focus on rolling out the transformation. Another participant saw a different sort of evolution. In the first year, he spent about 80 percent of his time on the “how” (for example, defining processes and deliverables) and 20 percent on the “what” (such as setting more strategic directions). By year three, however, he was spending significantly more time ensuring that organization-level strategy effectively cascaded down to all levels so that the divisions themselves primarily handled the more operative angle, or the “how.”

In general, agile CoEs are not intended to exist forever. At some point, the organization must itself sustain the agile momentum and have the structures and capabilities to continually monitor and deepen the implementation of truly agile practices. These structures might include embedding agile goals into employee evaluation and recognition systems, reporting on agile maturity as part of the annual report process, or developing new-business value streams directly related to agile. One Australasian telco company, for example, has built an externally facing agile coaching center that acts as both a revenue driver and a catalyst to continually examine and improve the organization’s own internal practices.

Participants were in broad agreement that the evolving role of the CoE means that they, in their role as head, must have a broad and unusual combination of skills. For example, they need to be able to simultaneously see the big strategic picture, focus on details, and be decisive and rigorous in execution.

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Five major success factors for an agile CoE

While all heads of CoEs were unambiguous about the benefits that the transition to agile brought to their organizations,5Enterprise agility: Buzz or business impact?,” McKinsey, March 20, 2020. all were also eager to talk about the challenges they faced. A number of the issues they identified—such as prioritization, managing resources, and reporting—were the same as those discussed in our conversations with CFOs, CIOs, and CHROs. But they also highlighted five success factors that are more specific to their own role.

1. Ensuring consistency in the role and position of the CoE—and then communicating it

CoEs come into being at a time of considerable change—and possibly also of uncertainty—for a company. It can be difficult to build trust, especially when both the leadership and the rest of the company do not yet understand the purpose of the agile CoE or where it sits within the organization.

The location of the agile CoE in the organizational structure varies by company. In some cases, the CoE has been designated as a separate function under the CEO in order to emphasize the relevance of the center for the entire organization. In other cases, it sits under HR or IT or is an extension of the original transformation office. In all cases, however, participants agreed that it is vital for the agile CoE to develop a clear and consistent model. This consistency is particularly important during the first, decisive six to 12 months of the transformation.

Irrespective of the agile CoE’s precise position in the organization, CoE heads generally agreed that their ability to gain the trust of the organization as a whole was a more important determinant of success than any prior decision about where they sat within the organization.

One participant said he had a mantra during his first few months in the job: that he was always working with—and on the side of—his company’s employees. It was vital that he obtained and kept the full support of the board, but his daily efficacy depended on gaining the trust of those who would actually implement the transition. He worked hard to build trust, which involved being clear that the CoE was an independent unit with a high degree of decision-making autonomy. This initial investment of time paid off, with employees becoming more accepting of changes in strategy. They were ready to execute, even when there was an element of risk involved.

2. Catalyzing change

An agile transformation may initially seem daunting, and it can be difficult to know where to start. Several agile CoE leaders said they found success by combining a realistic assessment of the challenge ahead with a willingness to take a step-by-step approach to reach their ultimate destination. The right first step depended on the company—some focused on culture, while others looked at the organizational structure or the necessary evolution in capabilities.

In all cases, however, agile coaches proved essential. Coaches championed the required changes to both teams and leaders. Participants agreed that investing in an efficient, extensive coaching network early in the transformation paid significant dividends. These coaches—and indeed the CoE itself—were vital in shifting the organization’s culture through daily, on-the-ground work with individuals and teams.

Irrespective of the precise details of the road map of each agile transformation, every CoE head spoke about the critical importance of ensuring they had the right employees with the right mindsets in the right jobs. Managing talent is generally a key focus in the early stages of a transformation, but it should also be an ongoing process because the skills and capabilities required may shift over time.

One participant oversaw an innovative approach in which the organization asked existing employees to interview for new roles within the reorganized company. The goal was to ensure that each employee had the right skills, mindset, and motivation for their new role. The process was relatively labor intensive and created some upheaval, but the participant said many employees now agree it was the single biggest factor in creating the successful, forward-looking company they have today.

This particular process might not work for all companies undergoing an agile transformation. The optimal way to catalyze real change—and then to ensure that the company maintains a fluid and dynamic workforce over time—will vary according to the culture and makeup of each organization. Crucially, however, CoE leaders should play a key role in this ongoing effort.

3. Leveraging the potential of data and automation

Large-scale agile transformations require many teams to work together, which means that managing and leveraging information can be a challenge. But the volume of data created through such transformations—including, for example, performance metrics such as customer satisfaction scores, conversion rates, shares of digital transactions, the number of complaints, and the number of new accounts opened—also creates opportunities for those who are able to harness data to create practical insights and leverage those insights to increase customer satisfaction.

Teams and leaders sometimes place too much importance on data relative to the insights that can be generated, which means it is critical to invest in the ability to both analyze data and present the findings appropriately. Leaders should also be coached to understand and react to these findings.

Many agile CoE leaders talked about the systems they put in place to manage complexity and leverage the full potential of their data. In all cases, the right approach was a mixture of hiring new people (generally both data analysts and data engineers), acquiring or building the capabilities and infrastructure to manage data effectively, and investing in automation.

Our participants were particularly eager to talk about new and innovative uses of automation—for example, to allocate tasks between and among teams and to track time usage. These are some of the backbone processes required to make an agile system work, so they must be performed accurately and efficiently. One participant, for example, enabled the elimination of labor-intensive timesheets by approximating team cost breakdowns for each work strand.

For most use cases, however, the leaders stressed that automation could not fully replace face-to-face interaction. The output of process automation had to be checked and often tweaked; they generally saw automation as a time saver and a process facilitator, rather than as an end-to-end solution.

4. Thinking and planning for the long term

Several agile CoE leaders noted that when agile transformations were in full swing, it could be difficult to get leaders to focus on their overall agile ambition. One commented that they now saw that the key purpose of their role was to “safeguard the path toward where we want to be in 2025 and beyond.” But participants agreed that there is a tricky—and important—balance to be struck: CoEs need to think about the long term but stay in a perpetual state of action to support the immediate needs of the organization.

There was a broad consensus that the way to balance long-term thinking with the shorter-term exigencies of the transformation was to constantly recenter the company—and its individual divisions—on its fundamental objectives.

There was a broad consensus that the way to balance long-term thinking with the shorter-term exigencies of the transformation was to constantly recenter the company—and its individual divisions—on its fundamental objectives. These objectives, which should be relatively few in number, should be the building blocks of each strategic decision. Teams should have autonomy to decide how to achieve their objectives, but they should also be able to draw a straight line between each decision they make and their top-level objective.

One CoE head, for example, represented a European financial institution that had had always prided itself on customer loyalty and wished to maintain its market-leading position on customer satisfaction. After a round of customer engagement, however, the CoE identified a well-defined segment of customers who felt negatively affected by a rapid program of service automation. A quick round of feedback led to the hypothesis that bringing back physical advisers for that particular subgroup could help bolster customer satisfaction. The CoE supported the effort by moving quickly to test this theory on a subset of clients. An early round of data collection revealed that the customer satisfaction scores of those clients doubled, which led the bank to make the physical-adviser service more widely available. By emphasizing the company’s overall objectives to counteract the short-term pressure to automate—and by using an iterative, agile mindset to address a developing issue—the CoE head was able to protect the DNA of the company and steer it toward a more sustainable, long-term strategy.

5. Using disruption to hone strategic agility

Unsurprisingly, heads of agile CoEs were keen to reflect on how recent disruptions—including COVID-19, the war in Ukraine, and inflationary pressures—had affected both their roles and the overall direction of their companies. All agreed that the past few years have been unprecedentedly challenging.

But participants noted that they were able to bring the concepts of agility to business planning and strategy in a way that enabled them to be more dynamic and more flexible. This was particularly relevant, for example, during the shift to hybrid-work practices. The tools, ways of working, trust, and mindsets they cultivated as part of the transformation had direct, practical relevance for what the organization required for adaptation. In a world that has become more volatile, heads of agile CoEs felt they could add real value by helping to bring agility to their strategy.

Participants also said that they used this “unfortunate opportunity” to reflect on the longer-term direction of both their industries and their own strategy. They agreed that it was challenging to distinguish between disruptions that were temporary and those that had fundamentally reshaped their industries. The reflection process was ongoing but had already enabled them to start to zoom in and align on their top-level priorities, both for the short term and for the longer term.

Overall, the agile CoE leaders who spoke with us were conscious of the challenges their companies faced in becoming agile. But the difficult experiences of the past two years have only made them more confident that their agile transformations will be worthwhile.

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