The keys to organizational agility

Here is a brief excerpt from an article based on an extended conversation about organizational agility that appeared in the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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The leaders behind McKinsey’s work on organization design explain the importance of agility and how established companies can become more dynamic.

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. Aghina was interviewed by Monica Murarka, a senior expert in organization design at McKinsey, while De Smet was interviewed by Luke Collins, an editor with McKinsey Publishing. An extended and edited transcript of Aghina’s and De Smet’s comments follows.

Defining organizational agility

Aaron De Smet: Agility is the ability of an organization to renew itself, adapt, change quickly, and succeed in a rapidly changing, ambiguous, turbulent environment. Agility is not incompatible with stability—quite the contrary. Agility requires stability for most companies. 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. (For more on the importance of being both agile and stable, see “Agility: It rhymes with stability.”)

In really small start-ups, stability is typically embodied in the founder, and you have a few people around a founder. The start-up out of someone’s garage can be just fast and agile without a lot of stability. But as soon as you get any sense of size or scale, you cannot be agile without some sense of stability.

Wouter Aghina: What do we mean by agility? Let me answer that question indirectly. Consider things that are fragile. What’s fragile? Fragile is a crystal glass. When we put stress on it, when we exert force on it, it gets weaker or even breaks. So what’s the opposite of fragile? We immediately think of words like resilient, strong, robust, maybe even flexible, so that it bends and it gets back to the original condition. But is that really the opposite? Something that stays the same?

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.

Wouter Aghina: Agility has always been important for companies. Take the high-tech sector, where I’ve done most of my work. In that sector, you’re often only as good as your last product. That means you have to be agile. Now, having said that, you could think, “I’m not in the high-tech sector, so that’s less relevant for me.” But with today’s levels of uncertainty, ambiguity, volatility in the markets, and globalization, this is starting to be true for any company. It’s critical to be agile and quickly respond to change and actually benefit from change. And if you think that you’re still in a corner where this doesn’t hold true, wait for the disruption to come. Tomorrow it will be relevant for you.

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.

Aaron De Smet: Imagine a spectrum: on one end, fast, nimble, agile; on the other end, stable, slow, efficient, more centralized. Many large companies try to find where they want to be on the spectrum. And that’s the wrong way to think about it. You need to be both. You need stability and this dynamic capability.

If you just move fast and you go away from stability—losing any sense of centralization or quality control or risk management or the ability to capture economics of scale—what you find are these $10 billion or $20 billion companies that are trying to act like a start-up. And it doesn’t work. They get into all kinds of problems. They don’t take advantage of their scale. They take unnecessary risks. Way too many decisions are decentralized. People are reinventing the wheel. Now, it could work if you’ve got 20 people in a garage, but, without that stability, it will not work on a global scale.

On the other hand, you have people who swing the pendulum the other way and they become very slow, very rigid, very bureaucratic. And they quickly get stuck because they can’t move fast enough to keep up with changes in their external environment.

The critical thing is to have an organization and, importantly, leaders who can think about that backbone of the organization—the few critical things that won’t change, at least not very much, not very quickly—that the company can use as stable foundation and springboard. A hardware and operating system, if you will.

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Here is a direct link to the complete article.

Wouter Aghina is a principal in McKinsey’s Amsterdam office, and Aaron De Smet is a principal in the Houston office. They colead the Organization Design service line within McKinsey’s Organization Practice. Monica Murarka is a senior expert in the Chicago office; Luke Collins is an editor with McKinsey Publishing and is based in the Stamford office.

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