Agile Business Transformation: Breaking Down the Vestiges of Outdated Business Practices
Once upon a time, strategic plans were made for five (or even ten) years, large companies and family businesses were protected from competitors, and financial returns were more predictable. Flash forward, and that’s no longer the case. Technology-enabled companies can scale quickly with minimal cost, leading to new competitors and a constantly changing business environment.
Today, agile companies and leadership survive. According to the management consulting firm McKinsey, implementing an agile transformation can improve operational performance metrics by 30% to 50%, which means there is tremendous incentive to take it seriously.
Here, we identify the critical elements of an agile business as well as some of the vestiges of past business practices that create barriers when attempting to adopt agile practices.
History of the Agile Framework
In 2001, 17 thought leaders got together at a ski resort in Snowbird, Utah, to create the principles that guide agile programming, which were encapsulated in a document called the Agile Manifesto. The manifesto has been updated several times, facilitated by the Agile Alliance, a nonprofit organization dedicated to promoting the concepts of agile software development as outlined in the Agile Manifesto.
According to the Agile Alliance, “Agile is the ability to create and respond to change. It is a way of dealing with, and ultimately succeeding in, an uncertain and turbulent environment. The authors of the Agile Manifesto chose “Agile” as the label for this whole idea because that word represented the adaptiveness and response to change which was so important to their approach.”
Today’s leaders are attempting to apply agile principles to project management and business operations.
Characteristics of an Agile Business
The idea of creating an agile business that can adapt to a constant barrage of external changes has become extremely popular. If you search the words “agile business,” you get approximately 148 million searches.
The idea of creating business agility is intuitively smart. More importantly, however, there is concrete evidence from research of the benefits of adopting agile methods. McKinsey's study of 22 organizations in six sectors determined there were concrete benefits of business agility:
20 to 30 point improvement in employee engagement
10 to 30 point improvement in customer satisfaction
30 to 50% improvement in operational performance
20% to 30% improvement in financial performance
McKinsey also established five operational dimensions that, if adopted by businesses, could lead to the benefits identified:
Strategy – A shared purpose and vision embodied across the organization
Structure – A network of empowered teams
Process – Rapid decision and learning cycles
People – Dynamic people model that ignites passion
Technology – Next generation enabling technology
Characteristics of an Agile Business Leader
In May and June of 2020, three partners from Bain & Company published a report about Agile Leadership in the Harvard Business Review after studying 100s of companies. Their main findings were as follows:
“After studying hundreds of companies for our new book, we believe that if a company wants to be fast on its feet, transform customer experiences, and continuously outpace competitors, it needs more than lots of agile teams. To create a truly agile enterprise, the top officers—most, if not all, of the C-suite—must embrace agile principles too.”
In addition, Bain determined that a company should not throw out its traditional management practices that allow it to produce predictable results. Instead, it needs to identify the balance of traditional and agile leadership practices to optimize its business operating system.
This is consistent with the change work we identified at Kotter International, founded by Harvard Business School professor John Kotter. We found, and published in the book XLR8 (HBR, April 8, 2014), that the optimal structure of a company balances traditional operations with a cross-functional networked approach.
Bain identified these agile practices to assess the correct balance between traditional management and agile practices:
Purpose and values
Culture of learning and engagement
Dynamic feedback loops
Balanced, harmonized activities
Agile Business Transformation Requires Agile Leadership + Agile Business Operating System
We believe that both agile leadership skills and the implementation of agile operating practices are required to truly reap the benefits of an agile business.
Identifying and Busting Outdated Business Practices That Are Barriers to Agility
Having worked with lots of fast-growing, tech-enabled businesses, it is clear to see how they are adapting to the rapid pace of change by adopting agile business practices. Still, they face business agility barriers, just like more established and traditional companies.
To achieve the benefits of business agility, leaders must identify and transform the practices that present barriers to agility. Here are some telltale signs of outdated business practices to look for:
They take a lot of time away from the business of the business
They are quickly outdated once completed
They require a lot of manual labor to complete
They look backward more than forward
They use limited data or too much data
They don’t cycle quickly enough
Technology enablement is limited
They don’t maximize learning
They create unproductive internal friction
People dread them
The Top 5 Business Agility Barriers and Busters
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Getting Started With Your Business Agility Transformation
Having outlined the benefits of business agility and barriers to achieving those benefits, a common question is how to get started. It is our belief that the best place to start is with an agile goal-setting methodology such as OKRs. Now, it is understandable if you say to yourself at this point that we are biased and self-serving in this recommendation. But hear me out.
First, OKRs is a goal-setting methodology that translates strategy into actionable results. It literally sits between strategy and operations, forcing changes upstream in the approach to strategic planning and downstream into agile operations.
Upstream, OKRs require the clear definition of strategic goals supported by outcome metrics and measures. OKRs translate those strategic thrusts into goals with different time horizons. They regularly look out three years (strategic cycle), then support tactical actions with an annual plan that defines what needs to be accomplished in 12 months (annual operating cycle) to achieve the three-year vision. Rather than setting the strategic and operating plans on the shelf, however, they are evaluated quarterly for changes.
Finally, OKRs support the concept of quarterly or monthly sprints (sprint cycle) that re-align actions each quarter to optimize operational performance.
From an operational execution standpoint, OKRs yield the following agility benefits as well:
Prioritization: Focus and finish the top priorities through monthly or quarterly sprints
Alignment: Break down organizational silos with cross-functional teams and transparent interdependencies
Leadership: Create more opportunity for leadership at all levels
Accountability: Ensure accountability to the most important priorities of the company
Research shows that business agility leads to tangible operational, organizational, and financial results. To realize those results requires new leadership skills and an agile business operating system.
We believe that a good place to start the agile business transformation process is with OKRs because it demands changes in upstream and downstream business practices.
About The Author
Joe Ottinger is a co-founder of OKR Advisors, a training and management consulting firm helping companies achieve the promise of business agility now. Prior to OKR Advisors, Joe was a co-founder of Kotter International along with Harvard Business School Professor John Kotter. Joe has published books and articles about innovation, change, and leadership, which have appeared in Forbes, Chief Executive Magazine, The Financial Times, Worth Magazine, and Stanford's Center for Social Innovation.