By Yves Doz and Maria Guadalupe
Created in the 2000s by software developers, the Agile way of working is fast becoming the defining approach across industries and functions amid a fast-changing business landscape. Last year, 44 percent of some 2,200 companies surveyed by McKinsey had become fully or partially Agile. In Agile organisations, activities are planned around cross-functional, self-managed teams, each with a clear purpose and focused on specific customer needs. The reward is often improved performance and customer-centric innovation.
But not every company, or every department in the same company, is cut out for such a decentralised, iterative way of working. Those who force it on themselves risk upending organisational culture with little payoff. GE provides a sober example. The company’s years-long, unsuccessful attempt to implement Agile under then-CEO Jeff Immelt ended in 2017, when 30 percent of its market capitalisation had evaporated.
We analysed the characteristics of organisations and tasks best suited to Agile. Here’s what we found, as outlined in a working paper: First, Agile works best for modular and sequential tasks or the making of products composed of parts that lend themselves to bottom-up innovations built on practical experience with customers.
For example Dutch homecare organisation Buurtzorg assigns teams of 10 to 12 nurses with few interdependencies to specific neighbourhoods (“Buurtzorg” literally means “neighbourhood care”). Each patient is cared for by one or two nurses and team members decide how best to do the work, determine schedules and assign roles in the area they are responsible for. The Buurtzorg model rates highly on quality and user satisfaction and has been widely held up as the way forward for homecare everywhere.
Second, Agile is a better fit for developmental initiatives that tap multiple functional departments to better serve customers, rather than upgrades that happen only once every five years. The product should be easily adapted and improved.
Saab Aeronautics developed its Gripen E fighter jet by implementing Agile manufacturing practices at every level and in every discipline from software and hardware to fuselage design. More than 1,000 engineers were grouped in 100 teams, each of which was given the autonomy to develop the best implementation for its particular contribution. Teams were self-organised and had technical ownership. Their product, the Gripen E, has been touted as being good enough to beat Russia’s Sukhoi jets without the expensive stealth technology competitors like the United States rely on.
An interesting case study of Agile adoption outside tech-related activities comes from OCP, the Moroccan phosphate mining and fertiliser manufacturing giant. In 2016, the 100-year-old company introduced an Agile approach called the “Movement”. It spawned new entrepreneurial ventures and achieved breakthrough process improvements in specific operations in mining and fertiliser production. However initiatives that were too broad, such as an effort to rejig HR, failed to take off.
The fundamentals of transforming to Agile
Compared to the grid-like matrix organisation, where each employee answers to at least two managers, Agile appears to be a much better fit for the current zeitgeist. Employees form small multifunctional teams that are tailored to customers’ needs and empowered to make decisions – this is the core of Agile. The teams are designed to be as autonomous as possible in the delivery of products. Agile teams tend to operate in rapid action-learning “sprints” and fast decision cycles; they adapt to changing conditions quickly and resolve inter-team conflicts without having to report upwards.
Any decision about going Agile should be based on an assessment of your organisation’s innovation goals, the nature of your business activities and whether the firm is ready to embrace the logic of Agile (in particular the devolution of power to teams). If your company fits the bill, the next step is to be aware that a successful transition from matrix to Agile requires no less than fundamental changes in strategy, structure, processes, people and culture, and technology.
Strategy: From multiple goals to a shared purpose
Internal conflict over resources is common in matrix organisations of multiple bosses and planning committees. In Agile organisations, a shared sense of purpose and direction guides decisions and allocates resources to the most pressing strategic issues.
Structure: From rigid hierarchy to empowered teams
Agile organisations keep a very small top-level executive team but replace much of the traditional middle management with flat and flexible networks of autonomous, multifunctional small teams. In 2015, Dutch bank ING swapped the hierarchical structure at its headquarters for 350 squads of 8-10 employees clustered in 13 “tribes”. Each tribe has a clear purpose or domain like payment systems, and each of its squads bears end-to-end responsibility for a project in that domain. These networks facilitate fast responses to emerging needs and opportunities by balancing individual freedom with collective coordination.
Processes: From linear management to rapid decision and learning cycles
Matrix organisations are typically slow in decision-making and bringing products to market, no thanks to bureaucratic processes and waterfall or linear management. In Agile organisations, multifunctional teams work on rapid iterations that tap the collective intelligence of all members. Each team produces an initial primary deliverable (minimal viable product to experiment with lead customers) and continues to work towards the final version. This process is often supported by project management tools such as Scrum or Lean innovation.
Ways of working, in terms of language, processes and meeting formats are standardised to facilitate interaction and communication among teams. Every team is able to easily access the information they need and share it with others, thus maximising learning.
People and Culture: From top-down management to self-management
Employees in matrix organisations often feel disempowered and micromanaged as they answer to multiple managers who tend to have competing priorities. Agile firms empower employees to take responsibility and accountability. ING’s reorganisation required 3,500 employees to reapply for 2,500 jobs redesigned for Agile processes. Those who were adaptable and open to change were valued over others more skilled but less flexible. In fact, employees at all levels of seniority adopted a new mindset: supporting empowering teams is key to unleashing the power of Agile.
In 2013, Tony Hsieh, then the CEO of Zappos, announced that the shoe and clothing retailer’s employees would “act more like entrepreneurs and self-direct their work instead of reporting to a manager who tells them what to do”. At least 18 percent of staff opted to leave with a severance package. The approximately 1,500 staff who remained are organised in a flat system of 300 circles directed by “lead-links” who provided goals and priorities. This required that managers transfer their power to staff.
Technology: From systems built for control to solutions that empower
Matrix organisations are known for enterprise resource planning systems designed for control rather than empowerment. In Agile organisations, technology is channelled into real-time communication and work-management tools to help employees make quick decisions and develop fast solutions. The emphasis is on transparency, communication and real-time data.
Agile by proxy?
Even organisations unsuited to the Agile way can reap some of the approach’s benefits. A company’s core technologies and application development skills can get a renewed lease of life via its Agile partner’s new markets, access or manufacturing capacity. Technology alliances and targeted acquisitions can feed its innovation pipeline.
Semiconductor device manufacturer STMicroelectro-nics, for instance, developed a core competence in mixed-signal (digital and analogue) processing chips that it applied to many fields by partnering with other firms. It developed a solution for printer cartridges with Hewlett Packard; miniature disk drives with Seagate; mobile phones with Nokia; and fuel injection systems with Bosch, among many other applications.
Similarly, Corning lent its core speciality of glass competence to a range of applications, from Pyrex tableware and ovenware glass with Vitro to “Gorilla” glass for mobile phones with Apple and Samsung. In all application areas Corning entered quickly and early with partners, and disengaged when the business matured and its technology became less distinctive.
Agile beyond the horizon
To be effective in the longer-term, the Agile organisation will need to balance the range and flow of new opportunities with the availability of competent people and teams over time. Effective lean innovation requires that resources be fully utilised but not spread too thin.
Nokia’s ill-fated innovation drive in the mid-2000s was in part hobbled by a shortage of software engineers. The inevitable result was poorer product quality and delayed launches which eroded customer loyalty and severely damaged the brand.
On the flip side, too many talented Agile teams chasing few real opportunities could also be an exercise in futility. To avoid this scenario, W.L. Gore – the company behind GORE-TEX – re-established a corporate strategy group and recentralised strategy development in 2015 as the markets for its membranes matured and new opportunities became increasingly scarce. Rather than innovate, it was more important for the company to strengthen strategy-making in its existing businesses and applications and develop a more integrated corporate approach to strategy.
Like the matrix before it, Agile has spread across industries and functions, from manufacturing and banking, to healthcare and social services. The Agile logic of decentralisation has improved success rates in software development, quality and speed to market, as well as worker satisfaction and productivity. But it bears repeating that Agile is merely a tool that should never become an end in itself.
This article is adapted from The Funda-mentals of Transforming from Matrix to Agile and Not Everyone Can Be Agile from INSEAD Knowledge.
About the Authors
Yves Doz is an Emeritus Professor of Strategic Management and the Solvay Chaired Professor of Technological Innovation, Emeritus at INSEAD. Professor Doz is the author of several books, most recently: Ringtone: Exploring the Rise and Fall of Nokia in Mobile Phones, which won the much coveted George S. Terry Award from the Academy of Management “for best book on management” in 2018.
Maria Guadalupe is a Professor of Economics and holder of the Goltz Fellowship in Business and Society at INSEAD. Professor Guadalupe’s work has been published in top economics, finance, and management journals and she has been awarded a number of prizes for her contributions to research including the Brattle Distinguished Paper prize awarded by the American Finance Association and the Jaime Fernandez de Araoz prize in Corporate Finance.