McKinsey & Company O11 Gas Practice Giants can dance: Agile organizations in asset-heavy industries The agile revolution is sweeping across industries, and asset-heavy companies are taking note, We explore how and where they can capture the benefits of agility while preserving safety and assurance. ‘by Christopher Handscomb, Christiaan Heyning, and.Jannik Woeholth May 2019Agility ie nolthars new concopt ror one excisive ‘to tech ndusbsfes. Lockheed Martin for example, ‘established its suroorks” teams back n 94910 ‘drive @ radically new approach to the development and manuiactoro of aicraft. Enginoers, tectaieians, and avistors were brought together ina shedin ‘he Catforis desert, united by claity of purcose _and empowered to get stulfdone. And they ck, desigring and bulting the XP-BO, the ist jet ‘ighteria the Linted States Army AirForces rom _astanding star! toa fying production model njust US days, Yetssset-heauy ircusties have largely let back ‘romtha going agile revolution sectors such as erergy.chemicals, wats. sre ening act alan early pio stage when mary ether indesring se abessyimplemsenting agho operating moses A scale. This lack of mavement snot forlacka ‘poten, becase mary of thes ssgges! ‘substantia bert, Tha reluctance to ecele age stems instead from the fea of eompromtsiegsalsty, technica quality. end the management of rs ‘Organizationsave right o be castious, Acading error at nsoftivare company may reise crsts or delay “development, but the thought ofan oil ptr mine colanse should ead ary sensibieleudertottnke ‘ice about profound petiag- model nna, Sis tre to take & resh oak, Agile is nolnger anurprover concept. Soneright teould rede tiskand improve decision making. Some asest- ‘avy commanies have taker the fist steps to ‘expan beyond agile pts and st organizing for _aglityacross antire mines, oll fields, refineries, and produetiontinen, Why agile? Agility roimagines haw and where viork gets done, telsabout working across functona, ith ess hierarchy, and focusing on real business pratieme, Aaitty in trea-tor-al agile ways of working are esa Fon aoa buillon structure gor nd ranenaroney, which enabie entity nd fastr decision making. Ally could bes gumne changer in productivity, quality, speed, end ins omplovee experience, “The benoit ofagity atenot theoretical Most asgot-heavy companiaasre nature age limes of fis Responae teams display aifive radamars of ‘amvagla orparization: avery clear, focused mission, ‘or*north star's an empowored team, with cleat accountability; pic derision cycles when every hour counts; supportive leadership, and an enabiing Initastructurwin the forms oise-menagement rooms with athe necessary tachnology But agily is use only during ars; many _gsset-heavy companies sleady get real vatve ‘rom ogie pilots in ther cote usinesses, Some. caganizations have implemented usta few plots, ‘while others lnve more than 150 under way. Alok atthe early evidence shows competing resultesuch asthwse: = BP eu! $60 milion fromits logistics costae Azerbaijan by estabishing across-ciseipfinary ‘team to work eut how to opbinze vessel surveys ‘uiektyA similar tesm cut the cepital costs ‘foam ar project in the pre-ialinvestment= decision (F1D} stage ky $1 bition. The company ‘has now trained more than 3,000 employees. ‘orm tachnlques.* = Another il and ges major turned its discipline ‘based frontine orgarization 2 one asset into ‘numberof cresa-turetianal ag toams, von hholped to cut maintenance costs by 40 percent. ~ Avemotal company, age teams usad advanced sreice en gil ecto to improve throughput, yield, costs, and quality. contributing: toan expected $106 mifion improverment in earnings betore interest, taxes, depreciation, and amortization EBITOA). Stet “rina hs Ste Srey wi ean ones oe a SEA cheetah Pipeetarin Pics se OMe ‘Gartecan dooce: ae anntentionai sert-eany das:Agility reimagines how and where work gets done. — Agile R&D teams at achemical company identified process improvements that could improve its EBITDA by mare than $300 milion. — Agile teams ata utility redesigned and auto- mated 70 to 90 percent of human-resource processes, reducing costsin the selected areas by 150.20 percent Beyond such performance benefits, agile ways ‘of working have tremendous potential to improve the employee experience. Asset-heavy industries are no longer top of mind for young talent. When ‘graduates from the best universities flock to tech ‘companies and start-ups, they areinspited by not ‘only saftware technology but alsonew ways of ‘working. By promoting flatter hierarchies, faster learning cycles, and full ownership of end products, agile may provide akey fo reignting a passion for ‘radtional industries among the younger generation. How and where to implement agility Does eal apply everywhere? Non the same form. ‘Agile teams and methodologies vary by the nature of the activity exhib, The source of vale from agile ways of working als varies, Companies may iit implementation o activities with the most value to be unlocked from increased speed, innovation, and customer focus. We will now explore what team-tevel agility could look ite in different parts of atypical asset-heavy industrial organization. Clantscandance Age organizations inoset-nenyindusties Digital organization Mary leaders in asset-heavy companies fst hear about agily through their internal cigital teansformations, Digital and aglity go hand in hand, and digital efforts that don’t emirace agile delivery ‘models will struggle to sustain themselves and scale up later. Companies often establish special units—digital factories, garages, accelerators, incubators, studios, labs—to execute at speed. In ‘some companies, these are part ofthe mainland: inothers they ae islands. Invariably, they include cross-functional business andiT teams often called squads), using some variant ofthe scrum methadology todeliver their work. Inalmost all ‘examples, the speed of delivery and ussbilty of solutions improve dramatically. ‘Aker-BP, a midsize European olland ges compary, for example, has fully embraced an agile way of working to ceive its digital transformation. Following ‘highly successful ten-person pilot in mid-2018, the company scaled this effort intoalarge-scale program called Eureka, which spans five business themes and can call upon 180 full-time staffers located together inan agile “factory The taskof these employeesis to develop digitally enabled solutions and new ways of working, The immediate ‘effects on the rate of innovation are clearly visible: the agile factory churning out dashboards, ‘optimization algorithms, changes to procedures, and operational set-points at apace the chef digital officer called ‘massively faster than before." The program may wellnow realize several hundred rillion dollars in bottom-line effects and, whileExhibit Different agile teams can handle different activities. ‘Agile team models, Example activites HR services eo, ‘and development) (© Daia management (Remote engineering and ‘design support «Production operation and © Suppot-uneton tasks reporting buyers) «© Pertormance management «© Resource accounting ‘compared Nature of ‘demand Predctatle Nature of setivty sili its early days, can already celebrate several ‘examples of real bottom-line gains. Project and improvement activities End to end, cross-functional squads ae the most widespread agile archetype, applicable wherever teams solve problems together todeliver products, projects, or other activities requiring creathty. ‘These teams should have the knowledge and skills todeliver desired outcomes and, as far as possible, ‘a mission representing the end-to-end delivery ofthe associated value stream. We have seen this, ‘model applied successfully to activities as diverse as front-end capital projects,*the improvement of ‘operational performance (such as throughput, sand management, and energy efficiency}, asset planning, and MBA, Example activities Enineerng support Selmi interpretation asurance Developing as Feasbity stiies Proect-concep stasis Wel cesign Integrated planing Imgrovement themes (eg, energy management) Digital taciny aa > creative, customer facing Examples across industries indicate that cross functional agile squads working in sprints with rapid learning cycles can increase productivity by more than 40 percent. By bringing completions, dling and petroleum engineers together with ‘supply-chain and commercial specialists in one full-time scrum team ata single location, an oll and ‘Gas company managed to halve the time needed to design new wells, ‘Working in cross-functional squads can also reduce ‘the time needed to develop and implement new ideas. One chemical company established agile innovation teams thal achieved in weeks what was intially expected to take several months. Now the same approach has been deployed to develop and engineer the identified solutions. This methodolonymassively imorovos the not prasent valve from Indviduetinnovations. Evertyally. it may vel determine the winners aad fosersin assel-heayy Industries as they ombrace digitalzation and develop cimate-reutta technologies. Much as agile teams have fuoled imavation i Seen Veey, thay ray fate on simar rage in other industries Business and techalcsl supporting activities ot every activity supports fulltime teams, norcan a company necessarily dedicate scarce expertise ‘exclusively ip only ane of them. Flows ponlsoperated asa “ticket” system that allocates resoukces teincoming tasks) rnd specialist pools ako possible to assign amployses toaitterent toss full-time, depanding onthe priarity ofthe noes. These kines of agile tosms can anhance cfficiency, enable penple te bulls broader ski sets, cand ensure that business prioios are adequately resourced, Furetional leas such as HR or saree ‘rasoureas such as enginearing subjectnatter experts are often saan as poolresourcos. One varantof the poatarchetypa isthe patton node algoritans allocate tasks to employees, much as the Uber ana oes for drivers. Auility company appied this apraach tothe inspection of asertsecustomersrepiort power outages online, 2nd an algeria automaticaly routes the closest tecinicinn to the right place, wth the rightinatructions and contact deta forthe ight customer How did tho tity develoe this solution? With » cross-functional, age taam consisting of technicians, software dewslopers, and customer journey designers, Thetrontline ‘The benelits of agilly arenat confined tothe office, We se agli delivering productivity guine ofypto30 percent, noth whie- andl bhue-collr environments, through clear key performance indteators (KPIs) uty transparent resuts, and the-limination of rework tough ‘ania feedback cychos. Atte frontlive, age complements the lean tans san cane ponganations nanan ti ‘methodologies that many asset-heavy companies have already adopted. can improve existing een Initatives and extend them intone arwesmnoteby rsative teamevarle which occupies aang ad ‘rowing shave ofthe warldorce asepettive tasks are increasingly eslometed, (Oe mining company integrated olements of theese _andagie tool kiteat th fant fine to make Yeveryone _animeprover: Drawing inspiration fom agile sprints, the start of each iaur-weekrtalion,thecomeeny ‘nleoduced sprint-plenning sessions: teams aged ‘on thrve to four focus themes orimprovemert reas fer that rotation, Exating leon ore were reenphasized in day-to-day work, eboing daily hudlas uskig KPIe and visual performance ‘esiagement, as wel as rook-cause problem soling Using vaiue-stream mapping, Kaizen everts, and five ‘Why in which terative questioning hela ta hgeity anisque’s cause) Agile retrospective intreducedt atthe ond of each rotation cobected feadack, lined tarriors, and kientied better ways te wath. Thisittegrated approach geaeratud procars improvements a in para, x igatficant increasain frontline engagensent, Sxmonths in, ‘ate than 90 percent of frastiine emplsyees aelively oumedimorovement iitives, ‘Soma companies go further and eavient their frontine operating model around self-managed ‘wares. Operations, a number of enginesting disciplines, and meitenance al warklo maxis Uptime ar throughput, whether for of platforme, ‘erushersin ssning, or equipment in chemical plants. Yet the members of these tears fend to point fingors whon something goes wrore-—theit allegiance ies mors with their specialty than with ‘operations as a whale, They also have dftarant KPts maintenance plarning hawincentives to plan we, ‘maintenance teshricians to execute those plans, ‘and soon. Why not put all of thase ensplayees an ‘one team or one lace atequipment are give thom, Incentives tolnerease production reduce costs, end eliminate safety incidents?Putting it all together Isagiea fad? No, but even the most succasstal agile experiments wil not endure unless the age ‘operating model ie scab as isin other industries. Itis fine to nun pote, whieh de create eubstartial valve. But making change stickrequites.a res, Iranstormation, What could a fully agile operating model iook Tee Inasset-heavyindustriex’? Ale teams ke those described above, defined by outcomes or missions rather than input actions or capabilities, wl form the bats, These teams ara then greuped together by thelr contribution oe common value-stream activa. Snoiland gas company, for exarnpl, has crested ‘an end-to-end production-detivery grouping eth tess that have missions such as optimizing the production output especie asset. But agity is pot just sbout these dynamic cells. Astabla backbone ts essential fo provi yovernance and coordination. Typicaty, thes backbone alements intude core pracesses tor {nctanes alent mansgement, budgeting, Banting, erformance management, assurance, an ris, pecpie alemants ike cove values and expected Teacarship bahavion, and tecknatoay components {suchaserchitactore avetution te microservions/APt and I infrastrocture. People got tele day-to-day ptirtis and direction ‘rom their tearssan groupings, but thele longer: ‘term development isthe espansility ofa separate “onpebilty Ie.’ For example, agie organizations ‘often decile totintroduce the idea ot achapteror adiicipine to maintain functions health overtime and toovarsen the development and deployment of peoplewith agiven capability. This ide is expecially ‘importantin asset-heavy indusivis as away 10 maintain technical quality td manage risk, ‘One mets! refinery is now eonstfering changing over ‘roma eesitiona, functional organization intean gle one. Insta of putting production, mochaical smentenance, electrical mainanance, maintenance ‘planning nc ferent nds of engineers in unctiona sos, hey are setting up cross-metioned foams fr each part of te refinesymiing, leaching, ‘reduction, ends or~in sion to enabling tears sushascarita-expendiare engineering ard shutdown planning, The tea also called a squid} becomes ths prmcry homeo most employees. Ata Dal operates rusher at amining asset, far example, might ‘consis of employees from plant production, iting rovoction, mainteaice, tanning, and supply hai, jointly accountable for veurme an cost targets, These teamismay rat hevee uhm lease, ‘bulone member recelves certain management rosponsibtities. There are ako parttime roles for discipine leaders who, besides theirole on the team, are responsi for people development, ‘or shenng best practioes acrass teams, ant for assuring compSance with their functional “iscipfine's standavtis, Decisions are pushed down {othe fronting, feeing the need or talbtins menagersand hierarchy. ‘How dines this work? You need smeli teams, ‘ypicallynatarger than ve tote peep for sellnagement. Thess teans mast haves clear isin, wth eogsto-end rospansy forabusinosseutcare. The refinery described _sove has designed teams of on pcre ou during night and weekend shifts) around each _purt of the process flow, Every team has and- to-end responsibility for delivering equakty intermediate raduct tothe intemal customers ‘one sop down the greucton process at trget ‘oumo, aaah, and eitcast. Tsarrangement ‘requires senior leadership to set the direction and built a strong metitocratic culture. Rakso requires: lego menagerent andere emplayees to ‘ee gronterounershina ele were fact, he refinery reimagined operstional leadership as.a set ea hn han bu a ata aan he Romy Ween Gury earn HE ena, iv Deon The a rage ernst oy ON Mayo. ‘iantsadane: a srpanentonsicnsteanynatenaf regponetities and skis held by many people rather than as.arote forthe few. ‘Tomake sourd business decisions, teams alsoneed Infermation, ideally acquived through reabtine digSaldeteaccess. Just aslgitatranstormations oguite apie delivery, 30 agile transformations require next-yeneration digital coltions to enable ‘ranspavency and collaboration. Inthe refivery, programis underway to standardize data collection and adoptrealtime dashboards os partof the agile erating moxie, group of teams forms tebe, evabling coordination aorose an asset or example. Companies don't want tribes to become bbureeucratic, 20 they typically consftof no ware ‘than 180 or 6 people. n the words af Geng Lalener, (CED of Hilcorp O18 Gas, We have s timete that anasset can get se bigar so compiloated xs to oquite more layers of management does, thes we split the asset" The system sal dynamic: ag priorities change, the number ard missionsor teame Inatribe can scale up and down accordingly. This promotes fulttransparancy of isis an the rapid resleploymest of paople ttm the typiealthree yoats: Ina positon down fomantis, weeks, ar aven days. When activins ave automatec oc priorities chang, indeiduals orentics teams can be redeployed. The tibe structure provides fer reporting athe way ‘up tothe CEO, so the fop layers the organization ‘dont nesasssniy havete change. The big change ‘is where t matters empowering the people wha do the wort, This is what makes an agile traelormation, \whichunlocks the potentiatof teams te Focus on creatiog valu, closer toalzen programthan to aroorganiretion Fully sje operatog wots emerge whan ‘companies combine different types of agile teams snd methedctogies, Noona size Us al tut various parts of the organeation, ance by a.connon sel of backbone processes, behavior aed technekegies, must work togetharat the same pace nce! “racing a 2 on erat ase Gloccon dance Ags orgenaeonsinetetnenrintnas rea enaeio=*tweyCociny er 8, My agie pots won't create tasting chenge: companice must otimatey transform entice operating models tosusiain he benits of agle. Thats ‘ew happening a scale it othar industria, and ‘wealkeadly see the fist bold moves in oll ars gas, chemicals, metals, and mining, What about risk? Agile technology companies calebrateatak fast” _spproach, butin asset-heavy bvdustrias falda et an option in any deciefons and activities, Snir, the Age Maritestotemphasiaes "dividuals and injarastions over processes are! ols” and “esponding le charge over fetowing aplan” But robasses ard planning are undoubtedly essont ‘flives and major capital investments ace al staks, How then tosqusre these circles? Infact, conearns ubeut agitty ften derive fem basic tisundorstandings, — Agility colebrates learning, net fature. The agile minxtset inesives «constant desire ta earn and become mare effective. n software lovelopment this often summarized as fal fast but in asset-heavy indusiras 2s more accurately postioned as learn fast How cen ‘these organizations design ways of wasking toraise prodtctvity in every rotation, to lower evstopment costs on every project, andto Jmprovo tho team exporience in aprints? ~ Agittyisnot troe-for-at Agile ways ot working-foc instance, seruos-—ave highly structured, promating gates spevet through ‘leasy defined transparent day-to-day work practices, Oe side effec! isagreatincressein ‘hervistlity othe performance of both teams anedindviusls, = Agility doesnot mesn ‘nothaving apn’ Agile ‘eave of working promote the leur identifcction and prioittation of work to be done, often called ‘the backlog, and are dhiven bya clasrtiythm-fotexample, sprints. nition, age organizations acknowledge that conditions and neads often ‘evalvearal therefore dsign plans acaptable to change so they can defiver better outcomes. ‘There sno herent contict between agile ways af working and stable, sal, und rekable operations. ‘Quite ie contrery,agie models, when corecty lnoplomented, can reduce risks imorove safely. Arai company for exemple, found that mniseommunication during handovers betwwoer Functions was the moat ease of many quolty sues ‘nd near misses. Bringing together penple Fron allthe funstions required ta dever an and-to-and ‘wari low eftninaled thaseinterfaces andthe ciated isk. Anothar company suffered fmm assive compiancoanda high degree of retiance on procedural sise-maregemont controls, Part “the company’s age mind-set program fr leaders focuted on sirarterrick masagemont through (greater situallanal awareness eel action orerttion, ss wellasbelteranunperionmance. Agility eames when too loaders emporar tears, tout over thie may soem risky-—jat as many people feel saercriving car than siting in the possengar seat, mansgecs may aioe hat safety wl sur ffthey are eltnclyncohed. Suceassfu agi tears therefore reauireastable tsekbone clear processes, clture, end cules. Tsdtiona hierarchies ‘lten provi tw usin of canto wherans sole waysot working should enearagrecter trans Darancy lor whstis realy ging ot, day-to-d tho rating ur work acrassincustiies points toward five crtca! elements for combining agla witb bes practice isk management ‘.Distinguish among itferent partsofthe ‘organization when you implement agile, THs ‘right mean strting the age journey niowersk cemvigonments sueh 9s RBD feommon encugh on) eary-phase engineering, end ieprovement propre. By experimenting in these areas, lantzcontane: fe ergarcetionsinaset nage nsastes companies can davelop thei on playbooks ta halo agile trams work nithapprepriate structure ard rigor Naturally, 28 you seate agile nto your care ‘operations, avariety of isk-mandgemont measures must fli, 2. Equip agile teamsto make sound decisions, With ibarty comes responsibikly en with responibity comes angad forthe rant took and capabilites, Firs ale tears must have access te the information they nos to make decisions: Forexamplo, he US army in tra greatly increased cea tocleesitied information tor froniine ‘teams. Second, peoptoin apis Lams, ike those in ‘radktional organizations, need te understand thir olagations of authority and their accountabties oar, Ted teams most have easy and rid eves to subject-matter expeets artechnicst euthorities, ther as temporary membersoren call ‘through aglobaitechnology-enabled platform. 8, Strengthen your disciptines (often cated chapters when agileis implemented in othor industries} to playa core rofain ongoing risk ‘management. {iscinlinos, defined by common ‘echnical or nontechnical sits, form partof a ‘ile organisation's stable backbone. responsible both for people and standards~inparticuly, for managing competence end tor developing ans docloying lalent, Part-tine loral uisiptine leeds, responsible for tento 18 cacifine mera consistency, share best practices, and.are the Ieatlers"eves and ears’ on the ground. Regional and group dleciaine leaders own standards and ‘ootkis and hold appropriate authority for iste Discintines ay also formrisk and assurance teams, which should workn-agile ways to mateh the front tne's new snead. One oi and gascompany, for example, replaced its mandatory borticking assurance process with an empowered assurance ‘tam mandated to condvct proactive and it-tar purpose reviews, 4. Maintain many of your existing risk and governance procesves. Agile doesnt changeproven fundamentals, sien as managing riskes and barriers. operating discipline, and fongrtormasset slewardship. These seocessful hasies may also \worewelin an ago context, with some adeptations, Stage gates, or example, are essential for large capt invastments, but the active involvement of docison makers through regular sprint reviows. would mae faster, incremental decison making {thatieads upto the formal decision gates. Another example: annual financigk-pianring cycles may ti ‘set bourdaty condition, wile quarterly business raslews pro for in-ear rapsortication 5. Engage your employees ans bulda strong safety ultore, whieh hae always boen=and ‘should continue tobe~at the hear of pet heavy companies. Combinod with greater cempewverrent, thal cultere could forge teal safety onrership in the frontline, ed by strong rote ‘modting {rom top management down. For every compari; the road to agit is Fall of twists and turns. There's no one-size-4Rs-allsohston, so set- heavy companies must experiment and adast nti they find solutions thot fit their needs. St, they have much to learn from othr sectors further along the agile adostion curve. Als s now a proven coneent, and there are ways to develop your ow company‘sversion of agi while preserving and strangthening safo, reliable operations, Civitopher Handscombisn oe" tner n Mekinscy/'s\ordn foe, Christiaan Hayningisa paver inthe Pertti. Jenni Washoth 2 an ansscine parma nite Ono, ‘lane cman eargunasons seep vets