Although its origins lie in IT, Agile has swiftly become a much-discussed business topic. As a company operating at the intersection of business and technology, the Agile concept is obviously an important one for Accenture. So, what are the practical challenges facing companies when they transform into an Agile businesses? How can they become Agile in a productive and cost-effective way without compromising on quality?
Based on our experience, there are many different definitions of what it means to ‘be Agile’, even within the same company. So, let’s start by taking a step back in time to explore its origins.
An Agile history
The Agile concept can be traced back to 2001, when a group of IT enthusiasts drafted the Agile ‘Software Development’ Manifesto. This manifesto contained a list of principles to reveal better ways of developing software, while valuing individuals and interactions over processes and tools, working software over comprehensive documentation, customer collaboration over contract negotiation, and responding to change over following a plan. Its popularity grew and some of its practices such as Scrum, XP and Lean IT began being implemented by companies.
Fast forward to 2008, when DevOps – a software engineering culture and practice that aims at unifying software development (Dev) and software operation (Ops), with a strong focus on automation and monitoring – was introduced and Agile principles quickly spread into the IT operations area. At the same time, cloud technology was emerging and brought a suite of tools for automated IT development and monitoring.
A couple of years later, a framework to scale Agile IT development for large enterprises, called SAFe, was introduced. And in 2011, Spotify developed a first version of an operating model based on Agile and DevOps principles. In recent years, many large companies are not only organizing their IT landscape, but also their entire business organization inspired by the Agile model. In other words, Agile is no longer a methodology or a set of tools; it has become a way of running your entire company. Transforming into an Agile enterprise is hard but necessary to thrive in a digital world.
Agile is no longer a methodology or a set of tools; it has become a way of running your entire company
Agile is eating the world
We all know that any successful company today needs to be able to adapt quickly to market changes, respond rapidly and flexibly to its customers’ demands and continuously strive for competitive advantage. The digital impact on (doing) business has clearly materialized. While generally speaking, software, banking and insurance companies have been quicker to pick up the Agile model, its success in other industries, for example the growth of ’Digital Giants’, has not gone unnoticed. The four largest global technology companies outside of China – Google, Apple, Facebook and Amazon (GAFA) – have recorded an average annual growth rate of around 30% over the last ten years. By surfing the digital wave, the GAFA group moved from almost zero revenues a decade ago to belonging to the top seven companies in the world by market capitalization. During the same period, the average annual growth rate in the global car industry was around 4-5%.
By surfing the digital wave, the GAFA group moved from almost zero revenues a decade ago to belonging to the top seven companies in the world
Many well-established companies have suffered from digital disruption, with some even becoming extinct as a result. Finnish telecommunications multinational Nokia was dismantled and sold to the highest bidding competitor, Microsoft. As Nokia’s CEO put it: “we didn't do anything wrong, but somehow, we lost”. The fact that the American-based provider of home movie and video game rental services Blockbuster could not cater to digitally enabled on-demand entertainment played an important role in the company’s demise. Borders, an international book and music retailer, outsourced its online book-selling to Amazon.com for years. So whenever you visited borders.com, you were redirected. Relinquishing control to another company hurt Borders’ branding strategies and cut into its customer base; in a similar vein, Borders did not foresee the rise of e-books, and eventually had to file for bankruptcy.
Another notable evolution has been the threat posed to incumbents by startups. New digital technologies such as cloud computing (scaling fast and cheap), growing mobile interaction (easily connecting to customers) and Application Programming Interfaces (APIs; efficiently connecting to an ecosystem) have made it both cheaper and easier to start a new business. Furthermore, startups can raise capital in a shorter time span, thanks in part to digital technologies such as blockchain & Initial Coin Offering (ICO), but also due to a changing investor climate. The threat posed by these startups should not be underestimated. For example, Bancontact recently announced it would be merging with the rapidly growing electronic payment system Payconiq – founded in 2015 by a Luxembourg-based startup of the same name – in order to comply with their customers’ growing demand for mobile payments.
By becoming Agile, your business will be able to survive digital disruption, and grow
Accenture’s definition of Agile
Agile has broken out the boundaries of IT and as such, Accenture proposes a holistic business-driven definition: Agile transformation is changing your business and IT organization, governance, processes and technology. By becoming Agile, your business will be able to survive digital disruption, and grow. Rather than merely optimizing your company’s results for the next quarter, it is actually a survival and growth strategy for the next 3 to 5 years.
If you are not implementing an Agile transformation already, you will be very soon
Agile transformations have been steadily increasing in recent years. While some companies have been working on this for several years, others are just getting started. One thing is clear: if you are not implementing an Agile transformation already, you will be very soon. The impact and size of the transformation will vary depending on the industry. For example, providers of telecommunications services, financial services, transportation and logistics are digitally disrupted in many areas of their value chain. Other industries such as mining, oil & gas and chemical processing are only impacted in a few specific pockets of their value chain.
The sad reality is that we humans are incredibly unsuccessful at Agile transformation! In a recent Forrester study (2017), more than 60% of companies indicated that their transformation is failing or lagging behind. In fact, only a small fraction of Agile transformations achieve their objectives; most only achieve a small part, and many are cancelled or replaced by a new transformation effort.
A successful Agile transformation can be compared to an engine firing on all cylinders
How can we improve?
The key to a successful Agile transformation is to combine multiple initiatives at once. If implemented in conjunction, these initiatives will reinforce each other, and eventually lead to a sustainable Agile transformation. This can be compared to an engine firing on all cylinders. The cylinders of an engine make a car move. For maximum efficiency, you need to fire each cylinder in sync with the others. A complete Agile transformation encompasses at least the following initiatives (or cylinders):
- Agile Culture & People Skills
- Digital Platforms & Tools
- Agile Operating & Sourcing Models
(A 4th cylinder, which will not be focused on further here, relates to digital transformation, i.e. a set of business-focused initiatives combining new digital products or services with digitalization of existing products or services.)
All the above domains need to be engaged and in sync with each other during the transformation, in order to move forward as a company, and achieve the envisaged results . Moreover, investments should be balanced in each of those domains in order to be successful. Let’s take a look at the three ‘cylinders’ in more detail.
An Agile operating model can only be fully effective if you empower your teams to think and make decisions for themselves
- Agile Culture & People Skills: One of the hardest parts in getting Agile transformation right is empowering teams. An Agile operating model can only be fully effective if you adopt a ‘servant leadership style’, i.e. empowering your teams to think and make decisions for themselves. Many executives and managers struggle to let go of the control they have over how their team decides to organize and deliver. However, it can be done, without a loss of quality, even for very critical missions. A second observation is that it takes teams quite a while to adapt to this new way of working. Typically, there will be a drop in performance during the first 6 to 18 months of the transformation process. After that, performance starts to rise, and usually surpasses historical team performance significantly.
True Agile transformation requires a significant renewal of your legacy IT landscape
- Digital Platforms & Tools: Some financial services companies have focused their digital investments only on what is directly visible to their customers. For example, one large European bank set up a separately branded online banking system. Behind the shiny brand-new exterior, they remained connected to their old legacy systems, processing customer requests in large batches overnight. The lesson here is don’t just put ‘lipstick on the bulldog’. Making superficial cosmetic changes rather than looking at the real underlying problems is not true Agile transformation, which requires a significant renewal of your legacy IT landscape. In a large enterprise, the work and skills of teams are organized around IT assets (e.g. Mainframe team, Java team, front-end UX/CX team…). To truly take end-to-end ownership of a customer journey, teams need to be able to improve the customer journey in small, fast increments, regardless of the technologies involved This means eliminating, replacing or encapsulating via APIs applications that do not support this agility.
Next to renewing your technology, you also need to invest in new IT tools. After all, the shoemaker’s children should not go barefoot. You cannot release small pieces of new functionality to customers fast and often, without having the technology in place to make it work. The renewal of your technology landscape and IT tools does not come cheap. To obtain a truly Agile technology landscape, roughly 24% of the IT change budget should be dedicated to architectural renewal throughout a strategic business cycle. This might vary by +/- 8%, depending on how strong digital disruption is in your industry.
An integrated IT sourcing planning will balance skills requirements during Agile transformation
- Agile Operating & Sourcing Models: A key element of Agility is that the organization is able to accommodate changing customer needs. This means employees will potentially switch teams (typically called squads) or that squads will switch departments (typically called tribes). At the same time, the technology landscape is being significantly renewed to enable Agility. For most large enterprises, this will create an imbalance between the required skills and the available skills pool. An integrated IT sourcing planning should minimize this mismatch, by balancing the re-skilling of internal employees with an external supply of required skills.
Agile transformation: A journey to a goal
Agile transformation is a multiyear undertaking with as its ambition, equipping your company with the ability to withstand disruption and grow. It has many pitfalls, such as not balancing investments over multiple domains. In other words: you should not shoot for the stars straightaway – becoming Agile is a journey with a destination that will change over time. By progressively moving forward, and dealing with successes and failures along the way, responding to change rather than following a strict and pre-defined plan, you can reach an optimal outcome for your business.
Want to know more about Agile transformation? Don’t hesitate to contact us for a chat!