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The keys to organizational agility

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Established companies often struggle to become more dynamic—but it’s not impossible. In these interviews, the leaders of organization design at McKinsey, principals Wouter Aghina and Aaron De Smet, explain what agility means and how organizations can evolve to thrive in an environment that demands constant change.

Agility needs two things. One is a dynamic capability, the ability to move fast—speed, nimbleness, responsiveness. And agility requires stability, a stable foundation—a platform, if you will—of things that don’t change. It’s this stable backbone that becomes a springboard for the company, an anchor point that doesn’t change while a whole bunch of other things are changing constantly.

The opposite of fragile is something that gets stronger when I exert force or stress on it. In today’s environment—with enormous changes coming from both inside and outside of the organization—that’s what we think the aspiration should be. That’s what I call agility: when you thrive on change and get stronger and it becomes a source of real competitive advantage.

But for big, successful companies—now or in the past—it’s very difficult to get agile. Those companies have a legacy. They have grown, and most of them have been successful by actually using what we call a managerial hierarchy—a classical way of managing from the top down, with jobs, with boxes and lines and structures and process descriptions, running and controlling the company from the top. And now, when they try and put some experiments in place to be more agile, to give more space to people, to allow them to be more flexible, what happens? Well, when you are a leader and for 20 years you have been in a managerial hierarchy, what do you do when you really get fearful and uncertain? You go back to what’s worked in the past. You exert control, add things, add rules, add processes, add structure.

What you should do is actually a real act of leadership: you have to take things away. You have to reduce the structure, the processes. But that’s really difficult. It’s much easier and more comfortable to add things because that gives you a, maybe false, sense of control.

Principles to be agile

The first is, set the company up in a way that acknowledges both stability and dynamic capability, including some things that we may not yet know that we need. And do that across three dimensions of how you set up the organization: be both stable and dynamic on structure, process, and people.

A lot of people, when they think of how they design the organization, immediately gravitate toward the management hierarchy—the lines and boxes. But that’s just one small element of how you set up the organization. Structure also includes governance and how you set up which committees can approve things and make which decisions and which authorities get delegated and what is contained in a role and what people get to decide. This is all part of the structure.

It’s important to identify the activities that, when you string them together in a particular way, add value. It’s also important to know: And what are the decisions that are made along that chain of activities? Who makes them? How do they get measured? This is one of the most important things.

When we develop metrics for an organization and set targets and objectives, we find that most organizations—if they think they do it well—the way they do it is they cascade it down the management hierarchy. That’s OK, but if that’s all you do, you will reinforce whatever silos you’ve set up in the structure. The structural silos will get worse because at lower levels everybody’s working on different objectives.

Agile companies focus in three aspects of strategy

Sensing. Mobilize the entire organization

  • Practice nimble information gathering.
  • Exploit new digital possibilities, drawing on insights from diverse areas of the organization.

 

Seizing. Reallocate resources dynamically

  • Scale up initiatives rapidly with a ‘’fail fast, fail small’’ mind set.
  • Employ flexible financing.

 

Busting company boundaries. Exploit complementary skills across the value chain.

  • Engage in open-source collaborations.
  • Create networks for sharing complimentary skills with customers, suppliers and industry partners.

Source: McKinsey&Company

 

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