Playing to Asia's Strength in Building Agile Organisations

Playing to Asia's Strength in Building Agile Organisations

by
Arne Gast and Diaan-Yi Lin

Expert Partner at McKinsey & Company and leader of McKinsey's transformational change work in Asia; Lin is Senior Partner at McKinsey & Company and the Managing Partner of McKinsey's Singapore practice

Companies in Asia are slow in capturing the value of agile organisations. Understanding the two faces of agile – stability and speed – can help them play to their strengths.

Globally, agile operating models are creating substantial value, yet many Asian companies have been slow to adopt the approach and capture its benefits. The reluctance is linked, in part, to an overemphasis in agile discussions on speed and flexible decision making, which appear to undermine traditional leadership roles in Asia. But McKinsey research has shown that successful agile companies combine speed with stability, a common hallmark of Asian management.

For any organisation – wherever it’s located – adopting agile methods is a transformational and challenging endeavour. Some observers have suggested the challenge is especially difficult in Asia, saying the region’s tradition for top-down leadership works against empowered employees and favours following orders. Ignoring for a moment that Asia is not so monolithic, adapting agile in the region should not be any more difficult than, say, European and North American companies embracing lean manufacturing practices, which were pioneered in Japan.

Like companies everywhere, Asian businesses with a tradition of command-and-control leadership will have to make drastic adjustments. Mid-managers who are comfortable waiting for orders from above or lack authority to make quick decisions will impede the transformation, as will senior managers who insist on being included in too many decisions. These obstacles, while challenging, can be addressed with changes in corporate culture that give a greater voice at all levels of the organisation. And indeed, when modified for agile, they can evolve into strengths rather than weaknesses.

Two faces of agile

Creating an agile organisation can benefit companies in all industries. While agile is most commonly associated with technology companies, many others – from banks to property developers – can become more competitive, draw more value from their staff, and serve customers better by following agile principals. Asian companies in many sectors have begun successful implementation, often branching out from a focus on IT to including all functions –operations, marketing, human resources, finance, and others – in the new operating system.

Agile management requires stability and speed, which may seem a paradox to many. The most successful businesses combine a solid backbone that is resilient, reliable, and efficient, with an outer veneer that allows speed and flexibility in addressing market changes. A McKinsey analysis of more than 1,000 companies globally showed that only about 12 percent of those studied combined speed and stability. Of these, 70 percent scored in the top quartile of our Organizational Health Index, more than three times as many as those that were strong in either stability or speed, but not both. And our work has shown top scores in the index is the best predictor of performance, often indicating a return to shareholders three times higher than for companies with low scores.

Among the traits that added to the stability of the best companies were some that are familiar to many Asian companies with traditional top-down leadership. Clear roles within the organisation and operational discipline, for example, ranked highly among companies that are most agile and low among those who weren’t. In addition, top-down innovation also ranked highly, although leavened with other traits, such as knowledge sharing and capturing external ideas.

However, stability alone characterises what we see as bureaucratic companies. These made up about 8 percent of the sample in the study, and of these only 17 percent made it to the top quartile of the Organizational Health Index, while 58 percent were in the bottom quartile. These companies tend to have overly rigid structures and processes.

Asian companies with a solid, structured, and even hierarchal foundation can build from this to solve half the agile puzzle: stability. To create a truly agile company, they will also have to solve in parallel the other half: speed.

Balancing stability and speed

A smartphone offers a handy analogy to the twin aspects of an agile organisation. Stability can be seen as the phone’s backbone, the hardware and operating system that make it reliable and durable. Speed is the veneer of applications that can be rapidly added, updated, and deleted as needs change. The smartphone’s value is derived from a combination of the two.

In the same way, agile organisations must create a solid backbone as well as the flexibility needed to adjust quickly in response to changes in customer needs and the market environment. The transformation will impact three crucial aspects of an organisation: structure, processes and people.

Structure: An organisation’s structure defines how talent and other resources are distributed. Traditionally, organisational charts are fairly linear with a boss inhabiting a particular box overseeing a set group of subordinates. The boss has authority over assignments, evaluations, compensation, and all other work attributes of the subordinates.

An agile organisation, however, gives employees a primary home within the organisation, where they get, for example, the training and support, like human resources and IT, needed to do their jobs. Day-to-day activities, as well as performance reviews and compensation decisions, centre on work with teams that cut across formal structures. The primary home is an anchor that gives the worker a stable place and career path within the company, while the team assignments can change rapidly based of the company’s immediate needs and strategy.

The organisational home gives employees base from which they can deployed as needed. Those working on less successful projects can be more easily reassigned to where their skills add more value without losing the security of their primary home. In general, team assignments are not rigid, fixed-term projects, but rather open-ended deployments that can last weeks or years depending on how long the employees are needed, whether another team needs them more, or myriad other factors. The key is that being reassigned to a new team doesn’t create the same uncertainties and disruptions as it would within a traditional structure.

Even in agile organisations, there are positions that will retain the traditional model, for instance engineers responsible for daily operations at a power plant. In general, companies should identify end-to-end processes within the organisation that are best suited for agile methods, and begin there when implementing the model.

Processes: Processes determine how companies get things done, including how they manage performance. As part of the stable backbone needed in an agile organisation, key processes should be standardised as much as possible, while leaving sufficient room for local variations, if needed. Standardised processes include a common nomenclature and standards. Some organisations have opted for an open source standard, like the one developed by the American Productivity & Quality Center (APQC), to forestall endless internal debates on the best process flow. Among the benefits, standardised processes increase speed, help avoid duplicated efforts, provide employees with a common understanding of how things are done, and ease reassignments to various teams.

Against a stable set of core processes, some companies have added dynamism by creating two roles within the organisation: business-process owner and integrator. A business-process owner champions and improves individual signature processes, while the integrator is responsible for managing performance, execution, and collaboration in cross-functional teams.

Enhanced performance management is also crucial to creating an agile organisation. Traditionally, broad targets are set by top management, and then cascaded downward and refined until they hit the frontline. Along the way, as they branch off to various functions, they can become isolated from one another or even contradictory. For example, sales and logistics could have different priorities in estimating inventory needs. These variations and contradictions can weigh heavily on an organisation trying to become agile.

One solution is to develop performance metrics that can be shared across the corporate value chain. For example, giving sales, logistics, and manufacturing managers some common metrics – such as the accuracy of sales forecasts and customer satisfaction – or a shared bonus pool can create the harmony needed for more agile operations. Such processes elicit performance appraisals from a variety of sources – peers, subordinates, and supervisors – to ensure that all perspectives are considered and not just a single boss’ view. Such a team perspective can build on what some see a propensity in Asia to work better within a group rather than as an individual standout.

People: Putting together the right talent pool – whether recruited externally or trained internally – is the final piece needed to bring together an agile organisation. A better structure and improved processes can be wasted if employees do not understand how agile operations work or are not ready to embrace its principles.

Once key positions have been identified that can deliver early value in a transition, companies have often recruited agile veterans for these posts to bring in the experience needed to jump-start the process. The transition can be accelerated by bringing these early adopters of agile operations into an organisation. Indeed, some companies have created ad hoc task forces to look more broadly, for instance outside their own industry, to find the right talent.

Companies have also turned to data analytics to uncover hidden leadership potential within the organisation and bring them into an agile operating model. For example, analytics can help match workers to opportunities in new projects, assess latent talent and any gaps that should be filled, and ease real-time human resources planning. The insights from these analytics can inform rotations among agile teams to help assure that workers are deployed where their talents can provide the greatest value.

Many global companies have also used digital training modules and internal social media platforms to create a corporate culture in which agile principals are second nature throughout the organisation. Such efforts can be especially powerful in Asia, where many countries have very high penetrations of social media, like Facebook, LINE and WeChat. These new training and communications channels will also impact how corporate leaders in Asia guide their companies, especially those who are accustomed to traditional, one-way channels.

***

Soon, building an agile organisation will not be an option, but rather a necessity in a competitive marketplace. Customers want fast responses to their needs and are quite willing to patronise whoever looks after their needs best. Young, talented workers want a less rigid job environment with greater flexibility. And shareholders want increased productivity and higher returns. All these demands are easier to meet in an agile organisation.

Asian companies should not imagine cultural differences as an excuse not to adopt agile operations. Instead, they should identify their strengths and build organisations that are both stable and fast and that can capture the value of agile.

Back to top