1) What is agility and what is the value of being agile? 2) Elements of agile organization 3) How to become agile?

1. Winning competition
through organizational
agility
May 2016
Copyright © 2016 McKinsey & Company. All rights reserved.

2. 2
What is agility and what is the value
of being agile?
1
Elements of agile organization2
How to become agile?3

3. 3
Today
Organizational structure and mission have passed through
several development eras
Last 10 yearsLast century1,000 years ago10,000 years ago
Metaphor:
WOLFPACK
Metaphor: ARMY
Metaphor:
MACHINE
Metaphor: FAMILY
Metaphor:
LIVING
ORGANISM
F. Laloux, Reinventing organizations

4. 4
Management approaches have evolved substantially toward a bigger role
for individuals in decision making and work organization
F. Laloux, Reinventing organizations
▪ Catholic church
▪ Army
▪ Feudal systems
▪ General Electric,
Procter & Gamble
▪ Southwest Airlines,
Ben & Jerrys
▪ Spotify
▪ Zappos
▪ Buurtzorg
▪ Tribal
organizations
Metaphor: WOLFPACK Metaphor: ARMY Metaphor: MACHINE Metaphor: FAMILY
Metaphor: LIVING
ORGANISM
▪ Authoritative
▪ Hierarchical
▪ Goal oriented
▪ Top-down decision
making
▪ Consensus based
▪ Employees involved
in decision making
▪ Distributed leadership
▪ Common goals as
main motivating factor
▪ Power driven
Management approach
▪ Official roles
▪ Process definition
▪ Push for Innovation
▪ Meritocracy
▪ Delegation
▪ Value-based corporate
culture
▪ Self-organization
▪ Goal orientation
▪ Evolutionary growth
targets
▪ Submission to head
▪ Segregation of duties
Key features

5. 5
The “living organism” organization is able to cope with today’s rapidly
changing world
SOURCE: McKinsey
The world has become
VUCA …
… with implications
for businesses
V Volatility Decisions and adjustments need to be
executed at a much faster pace
U Uncertainty Strategy and organization must change
faster than once every 2-3 years
C Complexity Management teams are less able to set
guidelines applicable in all situations
V
U
A Ambiguity Companies face unknown unknowns,
decisions must be made at the forefront

6. 6SOURCE: McKinsey
Agility is not a new concept: the “living organism” has shown how work
should be approached and the momentum keeps increasing
First examples
as far back as 1950
2000s accelerated
the trend
Tipping point
2015-2016
▪ Existed long before
the internet - even the great
internet examples are based
on old principles
▪ Millennials & demand for more
“purpose” at work
▪ Scalability via digital tools
▪ Reducing economies of scale,
outsourcing
▪ Customer sophistication,
multi-channel world
▪ Increasing adoption of Agile
across industries

7. 7
Agility is about being both dynamic and stable at the same time…
Stable, efficient and
lean organization
SOURCE: McKinsey Organization Design Service Line
Agility is traditionally perceived
as a choice..
…but in reality you need both
at the same time
Dynamic nimble and
quick organization
Dynamic, nimble, and
quick organization
Stable, efficient, and
lean organization

8. 8
… and is the target for both large traditional companies and smaller,
dynamic start-ups
Control
Fast
Fast
Slow
StrongWeak
Start-ups
SOURCE: McKinsey Organization Design Service Line

9. 9
Agile companies demonstrate superior organizational health
and financial performance …
X2,0
X2,2
EBITDA
Book value
growth
SOURCE: McKinsey Corporate Agility KIP; McKinsey Organization Practice
% of agile companies by quartiles
of org. health
% of companies with performance
above median
Bottom Mid Top
5 25 70
Bottom Mid Top
31 48 68
Bottom Mid Top
31 52 62

10. 10
… and operational performance
Traditional Agile
12
1
-90%
-40%100
60
70
-30%100
127+27%
100
Time to market Productivity
months Percent
“Change” cost “Change” headcount
Percent Percent
SOURCE: McKinsey Organization Design Service Line, interviews

11. 11
What do we mean by an Agile Organization?
McKinsey’s Definition of Agile
SOURCE: McKinsey Organization Design Service Line
An agile organization has a highly
productive operating model that
fluidly reconfigures
towards opportunities that create value,
while highly engaging and
empowering people

12. 12
What is agility and what is the value
of being agile?
1
Elements of agile organization2
How to become agile?3

13. 13
Agile is a completely new way of working
SOURCE: Agile Manifesto
Agile working was originally developed in 2001 as the12 principles of agility
for Software production and was successfully adapted to all organizational aspect states…
“We are uncovering better ways of developing software by doing it and helping others
do it. Through this work we have come to value:
People and interaction over Processes and tools
Working software over Comprehensive documentation
Customer collaboration over Contract negotiation
Responding to change over Following a plan
That is, while there is value in the items on the right, we value the items on the left more”

14. 14
Agility rethinks organization across 5 key dimensions
Operating model
Methods Core Technical Foundations
Support functions
Change Management
1 2Organization Program definition 3 Teams 4 Co-location
5 Engineering methods
6 Technological Architecture
7 Continuous delivery
8 Release Management
9 Change and release process
10 Environments and APIs
11 12Finance HR 13 Vendor
Management 14 KPIs & Metrics
15 16
Centers
of excellence
Training 17
Mindset &
behavior 18 Communication
Detailed later

15. 15
Chapter Squad
TribeGuilds
Visualization/
transparency
Daily Stand-ups
SOURCE: McKinsey analysis
1. Organizing for agility – “tribes”, “squads”, “chapters”
Structure Process
▪ Chapters are functional
competence groups
(e.g. product manager,
programmer)
▪ They meet each other
regularly to exchange
▪ Ensure high quality
resources available
for staffing in squads
▪ Guilds are informal
communities across
tribes
▪ Guilds gather
people with
the same interest,
who want to share
practices and
knowledge
▪ Cross-functional, self-organizing, self-learning teams, co-location
▪ High accountability and E2E responsibility
▪ Group of squads,
e.g., around music
player
▪ Less than
100 people
to foster effective
collaboration
▪ Conducts regular
gatherings to inform
of current status,
and share learnings
▪ Group of business and development
resources, e.g., for payment solution
▪ Located physically together
▪ Have skills and tools to design, develop,
test, and release their SW
▪ Self-organizing and decide about their own
way of working
▪ Product owner prioritizes the work,
but is not involved in how it is undertaken
▪ No upfront overall planning
▪ End-product focus through,
e.g., continuous integration
and test-driven development
▪ Many flexible processes boxed
in short “sprints”, making work
transparent
to all
▪ No long-term project plan, but clear
interaction rhythm
– Daily: 5-15 min stand-up
to coordinate
– Bi-weekly: progress review
and gaps/ deprioritization
– Quarterly/6-monthly: strategic
product council to prioritize
products and allocate IT teams

16. 16
2. Program definition – optimal compromise between top-down directions
and horizontal autonomy
SOURCE: McKinsey
Board
Management layer
Strategy
Squads
Tribe/Clusters
Strategy
Themes
Epics
Product
features
History
3 years 1 year 12 weeks 2 weeks2-12 weeksPlanning/upward
feedback timing
A way of achieving
business results
with concrete business
case and KPI
A way of achieving
business results
in defined micro-segment
or functional subarea
with concrete KPI
Description of client
experience
for the products
or service for each tribe
E2E client journey/
experience related
to the product/service
assigned to each squad
what
how
what
how
what
how
what
how
Board level

17. 17
3. Work in Agile teams
▪ One cross-functional team consisting
of all necessary stakeholders
▪ End-to-end responsible
▪ Team has mandate to make
or influence decisions
▪ Team is accountable for critical
business metrics
▪ Transparent KPI dashboard on metrics
vs performance
▪ 9-12 persons to ensure efficiency
and joint accountability (no free riders)
▪ Trust via weekly team meetings
and daily check-ins
▪ Connectivity via online instant
messaging in team, co-location etc.
▪ Growth of individuals and teams via
open 360 feedback
▪ Autonomy via giving the team the team
as much power as possible (level 2 or 3)
▪ Setting up the team and defining mission
▪ Training in integrative team problem
solving and Agile – “How to make
effective decisions as a team”
▪ Coaching and facilitation support
in case team is not meeting the bar
▪ Functional expertise, best practices
and tools from the other teams
▪ Efficient infrastructure, e.g., Common
tools, digital systems and platforms
SOURCE: McKinsey
Starting point: Well-defined team with
a clear mission
1 Applies best practices
of Agile
2 Supported by the
stable backbone in charge of…
3

18. 18
30
70
10
10
0
0
10
30
30
10
0
0
100%
Value-add work
Self-development
Syndication with
other functions
Agile
organization
Idea generation
Meetings
Administrative
tasks
Traditional
organization
Meetings
Value-add work
09:00-09:15 Team check-in at board
09:15-11:30 Work on to do’s
11:30-12:00 Team based problem solving
(Kaizen) on specific topics
12:00-13:00 Lunch
13:00-14:00 Individual working time
on a subject matter
14:30-17:50 Working on to do’s
17:50-18:00 Individual check-out
14:00-14:30 Quickly gather input in team
and take key design decision
08:30-09:00 Come to area of cross-functional
team, check open to do’s on board
3. Agility profoundly affects the daily work of individuals in squads
Typical squad daily routine in Agile
SOURCE: McKinsey Organization Design Service Line

19. 19
3. Team includes a leadership triangle and a working team
with strong specialization
▪ Represents the business community
▪ Ensures value delivery
▪ Acts as voice of the customer
Product owner
▪ Oversees the Scrum process and coaches the team
▪ Removes impediments to facilitate progress
▪ Enables cooperation across all roles and functions
Scrum master
▪ Drives the technical direction of the project by coaching the team
▪ Facilitates the creation of technical architecture
▪ Helps the team implement software engineering practices for higher code
quality
Architect
▪ Delivers potentially shippable software at every sprint
▪ Staffed with cross functional team members
▪ Is self-organizing and empowered
Team
SOURCE: McKinsey Organization Design Service Line

20. 20
4. Co-Location: the team room should serve as a source of inspiration
and energy for the team
A
A
B
C
C
D G
F
A
B CD
Small team room to host all members of each Feature Team
with adjustable desks and easy access to each other’s screens
A
Lounge area with whiteboards outside the room to perform daily
stand-ups and sprint planning, retrospectives
B
Huddle room for one-on-one discussions and coffee breaksC
Screens demonstrating KPIs in real timeD
Boards for process mapping and trackingA
Plenty of wall spaceB
Enough workstations for the entire teamC
Preferably daylight to increase energy levelD
Easy access to restrooms, cafeteria to minimize time lossE
Printers and office suppliesF
Meeting room facilitiesG
WiFi-access for all team membersH
The ideal room setup should perfectly accommodate the
needs of feature teams (Spotify example)
If this is not possible, at least a minimum set of features
needs to be in place
Critical features Critical features
E
SOURCE: McKinsey

21. 21
5. Lean, Agile and DevOps need to be combined to ensure continuous
delivery in combination with agile frameworks
Client Agile teams IT operations
Lean Product Development
Agile
DevOps
Lean Product Development
emphasizes small batches,
rapid feedback and limiting
work in progress in order
to achieve continuous flow
Agile improves collaboration
within and across teams
by enabling development
of working solutions
frequently to iteratively align
requirements with client/
customer
DevOps improves
collaboration between agile
teams and IT Ops in order
to deliver through faster
release cycles, using
continuous delivery
SOURCE: McKinsey

22. 22
Working
software
Sprint
requirements
Product
requirements
Sprint:
2 weeks
5. The combination of Lean product development, Agile and DevOps shifts
delivery from the traditional waterfall to a flexible, iterative model
SOURCE: Client interviews
… to a flexible, iterative model (e.g. Scrum)From fixed duration waterfall …
Scoping
Requirements
Design
Build
IT Testing
User
Acceptance
Testing Deployment
Post
production
support
8 weeks
8 weeks
8 weeks
8 weeks
8 weeks
4 weeks
1 week
4 weeks

23. 23
5. The sprint process
Sprint Backlog Time-boxed
Test/Develop
(No changes)
Working features
ready to deploy
Product Backlog
(prioritized features)
Sprint 0
(Release
planning)
Time-boxed “Sprint” Cycles (2 weeks)
Sprint Planning
▪ Review product
backlog
▪ Estimate sprint
backlog
Daily Stand up
▪ What did I do
yesterday?
▪ What do I plan
to do today?
▪ What are my issues?
Sprint Review
▪ Demo features
to all
▪ Share key project
metrics
Sprint
Retrospective
▪ Done after each
sprint
▪ Aims to improve
the process
for next sprint
SOURCE: McKinsey

24. 24
Technical readiness
High
Businessreadiness
3
2
1
LowMedium
HighLow Medium
6. However, there are optimal agile archetypes for each level of business
and technical readiness
Examples
(30+ parameters):
▪ Value add potential
▪ Readiness to adopt
agility, and agility
cultural fit
▪ Strong push
for innovation required
▪ Fast changing business
requirements
and needs
Examples (30+ parameters)
▪ Complexity of enabling technology
▪ Opportunity to auto-test software, parallel
programming, …
▪ Level of insourcing of product/software development
Pure Agile
Fast Waterfall
3
Fast Iterative2
1
SOURCE: McKinsey

25. 25
“Flying”“Starting to walk”“Learning to crawl” “Running”
7. Continuous Delivery builds on 8 practices and can be implemented
at 4 different levels
Version
control
Unit and integration testing
Unit tests
Functional tests
Perf. tests
Security tests
Development
QA
Staging
Test driven development
Production
Auto-scaling
of infrastructure
Cloud
1 Suite of automated tests4 One-click continuous
deploy to any environment
5 Self-service access
to prod-like environments
6
2
Streamlined code review
3 Continuously integrate w.
“single source of truth”
7
8 Automated
performance management
Build status Code metrics Site monitoring Integrated logging
SOURCE: McKinsey

26. 26
8. Release management needs tailoring to the agile archetype adopted
by different teams
Legacy team
Agile team
▪ Legacy teams work Agile
as well, or are fully integrated
in a multidisciplinary team
and deliver functionality
in periodic sprints
▪ Agile team awaits release
of required back-end systems
and works Agile to deliver
functionality built on top
of backend changes
▪ Required services are
extensively documented
up-front
▪ Agile and back-end team
deliver E2E functionality
by working closely together
and directly discussing
required services
▪ Legacy functionalities
delivered via micro-releases,
though leveraging traditional
approach
Fast waterfall1 Fast Iterative2 Pure agile3
Legacy
team
Agile team
Legacy team
Agile team
SOURCE: McKinsey

27. 27
8. Multiple tools are available to support agile ways of working
Source code management Build tools Continuous integration
Automated testing Code quality measure Infrastructure automation
Infrastructure as a service Monitoring Log Management
SOURCE: McKinsey

28. 28
11. Finance and budgeting in agile organizations
Investment
philosophy
▪ Instead of approving total budget for a multi-year core
banking transformation, select the most critical MVPs
and make the decision to proceed based on their success
▪ Experiment with uncertainty on business value
and make incremental investments based on value
creation, which are closely monitored and revised
Financial
authority
▪ Delegate financial decisions as much as feasible
within approved limits
▪ Allow CPOs to reallocate the budget within the programs
based on programme backlog while tracking the total
programme budget
▪ Allow POs to reallocate the budget within the team based
on feature backlog
Planning
process
▪ Ensure maximum involvement of delivery
organization in planning process
▪ Budget for each program is planned jointly by CPO
from the business and Program manager from IT
Flexibility ▪ Reconsider priorities inside the program when
required without complicated administrative
process
▪ Enable CPOs to decide on the spend based on the program
backlog and redefine priority features for different teams
when needed
Reporting ▪ Add benefit tracking in addition to cost tracking ▪ Review the success of each program and delivered benefits
at quarterly program board meetings and regular retrospectives
with the business
Main features Examples
CLIENT EXAMPLE
SOURCE: McKinsey

29. 29
12. Flexible staffing and roll-off decisions
Portfolio
▪ Portfolio board members decide on roll-off
of the Program managers and Chief product
owners based on performance and closure
of the program
▪ Board approves overall budget and staffing
plan for each epic proposed by tribe leads
Tribe ▪ Program manager develops plans
for the program
▪ Tribe Lead approves staffing plan
for the program
▪ Program manager conducts final interview
to ensure fit in the program
▪ Program manager approves team member
roll-off decisions and initiates the process of moving
the resources to a separate HR talent pool
Squads ▪ Product owner approves the staffing plan
per team, jointly with chapter leads
▪ Scrum master submits plan based on what
is in the backlog per team
▪ Iteration manager conducts first interview
to ensure fit in the team
▪ Scrum master initiates roll-off decisions based
on team member performance and required
capacity of the team
HR ▪ HR facilitates hiring process and ensures
compliance with bank policies
▪ HR manages separate HR talent pool
and reallocates resources that do not fit
in new structure
Staffing decisions Roll-off decisions
CLIENT EXAMPLE
SOURCE: McKinsey

30. 30
13. Relationships with key vendors need to be revised
to enable more dynamic sizing of squads
SOURCE : McKinsey
▪ Insource scarce and strategic capabilities
▪ Shift work more to time and material
▪ Define clear responsibility for deliverables
▪ More flexible approach to forecasting
of demand (e.g. require vendors to provide/
roll-off up 20% more resources within
2 week if needed)
▪ Build Agile capabilities for outsourced
resources and coordination layer
▪ Contracts based on trust with common
incentives (e.g. vendor fees depend
on the project delivering the benefits
in the business case)
▪ Ambitious push for innovation – frequent
communication and shared understanding
of market context becomes necessary
▪ Close and intensive interaction
between team members on-site
▪ Cross-functional and cross-domain teams
▪ Highly flexible scope and requirements
▪ Smaller work packages that are delivered
in sprints, with strong need for coordination
New requirements for vendors Agile vendor management approach

31. 31
14. Different KPIs can be used to measure the effectiveness
and efficiency of the teams across key domains
Financials ▪ % of working hours (productive) dedicated
to development of committed epics, including
▪ Helps teams maximize share
of time dedicated to delivery
Quality ▪ Helps teams to take on reasonable
deadline commitments
▪ New Agile development issues logged within
sprint (per team)
Productivity ▪ Monitors number of features
committed compared to capacity,
ensuring balance between both
▪ Committed story points per gross team hour
worked (hours per day x days x team
members - deductions)
Timeliness ▪ Analyses difference between
committed development
and delivered points
▪ Story points delivered divided by story
points committed per sprint
Organization
health
▪ Ensures sustainable health
and involvement of employees
▪ Surveys of engagement and excitement
of employees (surveys)
Why it is important Examples
SOURCE: McKinsey

32. 32
15. Agile transformation requires a dedicated Center of Excellence
COE executive
committee
COE lead
Metrics
and communication
Change leads per business/
IT area
Coaching hubPractice hub Guilds
15-25
1
3-5 20-40
2-3
SOURCE: McKinsey

33. 33
16. All employees and management in agile development
go through a 5-day training program in addition to daily training on-the job
13:00 LUNCH
Time
Mindset & behavior
Waste
Monday Tuesday
18:00 Drinks
Wednesday
17:00
Reflection on your
Why & What of Agile
Reflection on your
Why & What of Agile
Reflection on your
Why & What of Agile
Reflection on your
Why & What of Agile
16:00 Continuous improvement
towards perfection
Agile: Practical experiences Agile safari
Thursday
09:00 Introduction Review previous day Review previous day Review previous day Review previous day
Friday
Why and what of Agile
10:00 Continuous Delivery Flow
Seeing the whole (system
thinking)
Starting Agile and scaling up
Commitment11:00 Kanban
12:00 Lean and agile principles Operational management &
KPIs
Continuous improvement
exercise
Agile – practical experiences
15:00 EvaluationOM of self directed teams
KPIs cont.
Portfolio management and
planning
Leading the change
Being a change role model
Performance management
14:00 Basics of scrum Commitment contd.
First line and middle management are in the driver’s seat
1 9 9 9 9
2 11
10
16
15
21
20
243 12
4
5
6
7
6
12
13
14
8
17
18
8
8
25
22
23
8
4
25
CLIENT EXAMPLE
SOURCE: McKinsey

34. 34
17. Agile culture builds around several building blocks
CLIENT EXAMPLE
AGILE TEAM PHILOSOPHY ATTRIBUTES:
Self-organizing organizational units, based on Size-limited, End-to-end responsible team working in time boxed,
well defined sprints delivering new products to the market (potentially) in a continuous fashion
Commitment
Scrum teams commit to goals and are accountable
for results; each sprint creates value
Focus
Limited non value activities, End-to-end way
of looking at problems; fully dedicated
resources
Respect
Fostering ownership and mutual trust instead
of ‘command and control’; positive work environment,
Roles not hierarchy
Openness
Information freely accessible
Open and public peer-to-peer feedback
Customers first
Putting the customer’s voice into everything delivered
to unlock the true value
Courage for change
Fast failure, fast iterations operational mode
Openness to change, try and fail/succeed
SOURCE: McKinsey

35. 35
18. A holistic communication plan has to followed to foster the change
across the board
Town-halls
▪ Town-halls are full-day or half-day events with participants from the entire organization
▪ Ideally suited to announce big initiatives (e.g., capability model kick-off) and celebrate success
E-mail newsletter or blog
▪ Frequent, short updates to show continuous progress on the transformation to keep momentum going
▪ Ideally suited to announce upcoming events, gather feedback on ideas, and announce important
changes
Video
▪ Short videos, preferably by well-known personalities in the organization (e.g., CXO,
head of transformation)
▪ Ideally suited to reach a wide audience while retaining the personal touch of a townhall
Communities
▪ Communities are self-organizing informal gatherings of people interested in a specific topic
(e.g., certain capabilities or tools)
▪ Ideally suited to foster knowledge exchange within the organization to supplement structured
coaching approaches
Public presentation
(e.g., at conferences)
▪ Active participation in public presentations (e.g. Automation conference) by letting selected staff
present their achievements and share approaches with a wider audience and foster knowledge
exchange
Description
Round-tables ▪ Exchange of experiences and best-practices in round tables in the same industry or across industries
Community ▪ Share achievements in the transformation and development efforts (e.g., by making key concepts
or software tools available as open source)
InternalcommunicationExternalcommunication
Channel
SOURCE: McKinsey

36. 36
What is agility and what is the value
of being agile?
1
Elements of agile organization2
How to become agile?3

37. 37
The agile transformation can be structured in several ways
… ……
Agile only in selected, strategic
customer journeys
Bi-modal organization aligned
with technical/business readiness Full-fledge agile organization
▪ Only selected, highly critical
products and customer journeys
▪ No significant organizational
changes required
▪ Virtual and temporary agile teams
embedded in existing organization
▪ Agile methodology implemented
in areas with high business
and technological readiness
▪ Local Organizational changes
required (bi-modal organization)
in agile areas
▪ Agile methodology implemented
across whole organization
▪ Areas with lower business
and technological readiness adopt
“fast waterfall” archetype
▪ Massive Organizational change
SOURCE: McKinsey

38. 38
Agile transformation needs to be structured along waves
Design
Pilot phase
Transformation
Timing ▪ 3 months ▪ Depending on scale▪ 2-3 months
Activities
▪ Piloting and “trial & error”
in selected areas
▪ Preparation of agile
“cookbook”
▪ Transformation planning
▪ Communication plan
▪ Target agile model
selection
▪ High-level design of target
organizational model
and processes
▪ Identification of pilot areas
and training of key roles
▪ Planning of pilot phase,
and communication
▪ Execution of organizational
changes
▪ Full implementation
of agile processes and tools
▪ Full co-location of teams
and training on-the-job
SOURCE: McKinsey

39. 39
Our core beliefs for a successful Agility Journey
Agility requires the executive team to give up top-down, directive control,
and empower the organization to take decisions
Readiness to give up
individual control
Agility requires a holistic change in the operating model, ways of working
and management paradigm – not just “implementing levers”
Fundamental change,
not individual levers
Success depends on being able to simultaneously top-down design a stable
operating model and allow learning & local adaptation in growing the dynamic
elements
Combine the bottom-up
with the top-down
Managers need to let go of the need for predictability and control and allow
for flexibility in how both the journey and end state will look
Dare to leap into the
unknown, let go & learn
First prototypes and implementation actions should start in business critical areas
of the organization and be tied to overall business objectives
Launch in the most critical
areas first to secure
momentum
Many organizations have Agile parts (e.g. innovation units, War Rooms) –
the challenge is to scale this beyond the 10% to the whole organization
Scale beyond the tipping
point
SOURCE: McKinsey