Agile, but not fragile: How business can strike the right balance

From manufacturing giants to banking conglomerates, business leaders are intrigued with the idea of building an “agile organisation”— meaning one that can change its strategy, operations and technologies quickly and effectively. By becoming agile, they believe they can find new opportunities for profit and protect themselves against the competition. That’s the idea, anyway. 

But it is also true that agility should be seen as part of the wider business strategy, not as a value in and of itself. In the current market slowdown, companies can go too far in the pursuit of agility, threatening profits and operations and ultimately making themselves more fragile than they need to be. 

The case for agility

One common argument made in favour of agility is that businesses are transitioning into an era of mass customisation: Personalisation is the new normal. In order to manage increasingly diverse product portfolios, agility is essential. Here is an example.

What is it like to buy a car? Not so long ago, that meant choosing from perhaps a dozen variants of a model, and then waiting a month to drive it home. Now, using augmented reality and other immersive technologies, buyers can basically create their vehicle from scratch in the showrooms, and expect to get it within weeks, if not days. For carmakers, creating and executing this system requires constant changes in production processes. They need to provide this kind of service just to stay in the game and remain relevant. 

Customers are willing to pay for personalisation — up to a point. For companies, the risk is that in the effort to meet consumer demands,they erode the efficiency of their supply chains and manufacturing operations, accumulating costs beyond the consumers’ willingness to pay. This makes the product itself uncompetitive, cutting into profits. Thus, the quest for agility ends up creating complications and inefficiency — in a word, fragility.

To avoid getting into this spiral of decline, businesses need to remember some guiding principles while charting an agile makeover for the organisation. These are simple three mantras that could help companies to always stay ahead of their game.

Even before customers enter an auto showroom, they have probably interacted online. (And their backend systems have already captured his profile online!) And once they are in the store, a virtual-reality station can help them visualise their dream car. All this data collated and analysed, across thousands of stores, can then be used to forecast consumer behaviour. 

For example, one manufacturer noticed that the sales of a particular model of luxury two-wheelers had a high correlation with the digital signals they were tracking — such as the number of unique hits on the web page of this model, or the volume of social media chatter. By capturing this information, the company was able to integrate it into its business processes and to plan its production better, by increasing the volume of that particular model during specific periods. By using data, they were ready and able to act, rather than having to react in the guise of having to be “agile”.  The principle at work is: “How can we best capture the signals, and capture them faster than others, that makes us know what the consumer really wants?”

Build a new way of working for the organisation:  At the heart of it, an agile transformation is a new way of working for people, who are now enabled with new tools like advanced analytics, digital manufacturing twins etc. With change of this magnitude, it means that people up and down the organisation — not just in one or two departments — need to change. We are not just talking of superficial changes like creating an end-to-end vision or communicating the plan. It's more of fundamental shifts in an employee's role — changes in performance incentives and KPIs. It almost always involves creating new departments like the “control tower” which is equipped with digital and analytics tools to make real-time business decisions across the value chain. 

Create room for new capabilities and partners: The no-brainer rule for succeeding in any transformation is to have the right skillsets in the room. New kinds of jobs may require new skills. For example, companies that use digital demand signals will need data scientists to interpret the patterns it reveals and to create demand-forecasting models. In addition, agility need not be a solo act; it requires the right set of partners. Often companies are not 100 per cent equipped with capabilities in house to run the full agile transformation. This form of support could range from creating the right eco-system to tap into (for example, to outsource analytics work) or creating a partnership model with Internet of Things (IoT) vendors. 

Agility in the pursuit of personalisation can be a good and necessary thing but companies need to ask themselves, early and often, whether they are adding value that consumers will pay for. In today’s market, the mantra must be: Be agile but not at the risk of being fragile.

Mundra is a partner of McKinsey & Company, based in Mumbai. Ganguly is an Associate Partner, based in Delhi. Authors are grateful for inputs from Ruchika Dasgupta, junior associate of McKinsey & Company