CIO perspectives on leading agile change – McKinsey
Across industries and geographies, organizations are embracing agility. A recent McKinsey Global Survey found that 44 percent of respondents had started or completed an agile transformation in their organization, with another 19 percent reporting that they were preparing to launch an agile transformation in the near future. As a growing number of executives are drawn to the promise of enterprise agility, many executives are seeking out insights and practical advice from peers who are further along in their agile journeys. Our research shows, for example, that when the top team has a deep understanding of what agility is and how it creates value, the transformation’s chances of success increase by at least 30 percent.
Last year, we convened a virtual panel of chief information officers (CIOs) from Africa, Asia, and Europe to reflect on their multiyear agile transformations. Representing the telecom and banking sectors, these IT leaders are at the forefront of a growing number of organizations that are adopting agile IT working practices. Below is a summary of their discussion on the following topics: the process of IT re-architecture, the importance of cross-functional collaboration, and the tangible benefits of their ongoing agile transformations.
Our research shows that when the top team has a deep understanding of what agility is and how it creates value, the transformation’s chances of success increase by at least 30 percent.
From monolithic systems to microservices
One of the fundamental IT shifts of an agile transformation is the transition from monolithic core IT systems to a distributed set of granular applications and services, called microservices, managed by cross-functional teams rather than the IT department alone.
For companies with an entrenched dependence on legacy IT systems, the challenge can be even more daunting. Multiple CIOs said their “all-in-one” IT systems, some of which are more than 20 years old, are bogged down by complexity, heavy customization, and a tangle of integration tools. Sometimes the technical know-how to manage these systems lies outside the company with external vendors. The result is an obsolete and inflexible IT architecture that cannot keep pace with competition or support the fast-changing needs of customers.
Because most companies do not have the appetite (or the budget) to fully replace their legacy IT systems, the IT leaders opted for an incremental and iterative approach. As one telecom CIO explained, “We are building a complete, end-to-end, microservice-based environment for one of our independent and small brands. If it proves stable and performs well, then we will move forward with developing more of our CRM [customer-relationship-management] services to phase out [Siebel] in a few years. We’re moving step by step. It’s not going to be some big move that paralyzes the business.”
This phased approach forced trade-offs to determine which functionalities should be decoupled into a microservice layer and which should remain in the leaner core. The CIOs agreed that these decisions should closely align with strategic business priorities. One banking CIO emphasized internal development and control over the front-end solution that mediates the customer experience. Another telecom IT leader developed microservices with the singular goal of creating a completely unified user interface for both employees and customers. In both cases, decisions were made in close collaboration with the business units, and the resulting applications were co-owned by cross-functional agile teams.
New ways of working
A network of empowered teams is one of the trademarks of agile organizations. The CEOs said they had achieved this through a shift in the IT organization structure from a siloed IT department to autonomous, cross-functional teams including both business line and IT professionals. Our research has shown that rewiring the entire operating model (strategy, structure, process, people, and tech) to make sure it supports and connects—rather than holds back—agile teams can boost the likelihood of success by 15 percent.
The IT leaders found that the new agile model fostered co-ownership and collaboration, which in turn accelerated the decision-making speed of the organization. One CIO said, “Now that the business unit employees are much more involved, it is easier to achieve a compromise. It is easier to reprioritize now that they are closer to what’s happening on the IT side.”
However, like all aspects of an agile transformation, the initial transition comes with a steep learning curve. An IT leader recounted some of the growing pains from an IT perspective: “In the beginning, it felt like [we] were losing control over [our] IT stack. But it’s about giving trust, learning, talking about it. Now we’re seeing much more collaboration, cooperation, and communication.” Over time, the employees adopted the critical mindset shifts that empowered them to lead agile change—moving from certainty to discovery, from authority to partnership, and from scarcity to abundance.
Many participants emphasized the importance of coordination among teams or agile tribes. As one CIO said, “Part of the challenge is coordinating who is going to run what release and making sure that doesn’t conflict with another tribe.” During the transition to agile, the CIO quickly realized that the organization needed clear guidelines to ensure consistency across customer-facing services and applications: “We have built standards and frameworks to make sure that everything that comes out to the customer speaks to that same experience.”
Reaping the rewards
Each participant described their agile transformation as an ongoing process, but there was a consensus that agility had led to a number of near-term cost benefits for their organizations. According to McKinsey research, highly successful agile transformations typically deliver gains in efficiency, employee engagement, and operational performance of about 30 percent. While success was defined in different ways for different organizations, the CIOs described a meaningful step change across various dimensions of performance and health.
For one CIO, the most notable shift was the improved customer journey and call center optimization: “We now have 250,000 calls a month that come into our contact center. Three or four years ago, that number was over one million.” He attributed this reduction in traffic to the agile transformation of the front-end system, including the mobile application, websites, and self-service and virtual-assist technologies.
Another CIO focused on newfound cost efficiencies that enabled resources to be reallocated toward high-value services and new capabilities. Describing the impact of moving to an agile, in-house development model, he said, “The entire [capital expenditures and operational expenditures] improved, not to mention the speed. We’re targeting to have about 70 percent of our IT stack and 90 percent of our changes developed internally. That frees up the budget to put into cloud hosting, big data, and other capabilities that would be extremely difficult for us to do ourselves.” In this way, the agile operating model not only generated significant cost savings but also unlocked new sources of business value for the organization.
Similarly, an IT leader in the telecom sector was looking ahead to the next-generation capabilities that the agile organization could achieve in the next phase: “The next step for us is speech-to-text, which will enable quite a lot of automation and digitization [for customer service] and back-office activities. We are also moving to the private cloud and reducing the number of data centers, which will shrink the support costs of our databases and IT systems.”
Finally, successful agile transformations extend far beyond speed, innovation, and cost savings. One CIO noted the long-term cultural change and digital maturity that resulted from the agile transformation: “In the process, employees from the business units, who had never been involved in development, had to be more educated and flexible. We brought not only the technical platform but the knowledge of digital technology to the business. That completely changed [our] approach.”
Agile is making its way to the top of the corporate agenda. During an agile transformation, CIOs play a critical role in redefining the IT architecture, unleashing the power of agile teams, and developing agile capabilities to meet strategic priorities. By successfully leading agile change, IT leaders can build a sustainable competitive advantage and enable their organizations to better adapt and thrive in the next normal.
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