Business Agility Is the Only Way Forward
The transportation-and-logistics (T&L) sector has benefitted from many of the most important business trends of the past half century.
Globalization, the evolution of sophisticated just-in-time supply chains, and the rise of e-commerce have all helped the sector grow at a rate broadly similar to the overall economy.
But it hasn’t all been smooth sailing. Economic downturns tend to hit the sector particularly hard. Our analysis(Mckinsey) of the past five US recessions shows that T&L companies suffer more on average than the economy as a whole.
As in all industries, sector averages don’t tell the whole story. Some companies ride out downturns much more successfully than others. When McKinsey analyzed the performance of around 1000 large, publicly traded companies through the 2007-2008 global recession, we identified a subgroup of “resilient” organizations that outperformed their peers by a significant margin over the cycle.
The performance of these companies dipped less overall during the recession and improved faster during the ensuing economic recovery. By 2017, resilient companies had delivered a cumulative total return to shareholders (TRS) that was more than 150 percent higher than their non-resilient counterparts. Among the logistics and transportation players in the study, the gap was even starker, at 267 percent. (Exhibit 1)
Exhibit 1. Resilient T&L players outperformed competitors throughout the last economic cycle
What made the difference? Part of the formula is fast decision making, enabled by a well-prepared organization.
In the lead-up to the recession, these companies took steps to achieve extra financial flexibility. They reduced balance-sheet debt while competitors were piling it on. And when the downturn hit, resilient companies moved faster and further than others, selling off businesses and cutting costs through improvements to operational effectiveness.
Business cycles are inherently unpredictable.Transport and logistics companies don’t yet know if today’s political and economic uncertainties will be enough to stall the economy, or how deep and how long any resulting slowdown will be.
What is clear, however, is that responding effectively to the next downturn will require a different approach. Getting past the limitations of traditional performance-improvement methodologies oriented around head count and cost will require fresh thinking about boosting productivity.
That’s especially true in the area of operating-cost reduction. In the decade since the 2008 recession, digital technologies have transformed the pressures and opportunities that logistics companies face, driving a significant rise in customer expectations, for example. Used to the speed, flexibility, and transparency offered by the best e-commerce operations, customers increasingly expect similar service levels across the full spectrum of transportation activities.
On the other side of the coin, companies now have new levers to pull in addressing operational costs and efficiencies, thanks to the availability of the Internet of Things (IoT), digital workforce tools, advanced analytics, and machine learning. Today’s leading T&L companies are adopting these approaches to achieve dramatic performance improvements.
The new generation of digital tools can be applied across four broad areas of companies’ operations: their people, their processes, their supply bases, and their networks.
Exhibit 2. For T&L Companies, digital can improve cost and performance in four broad areas.
After a crisis one thing is unanimously said, “we should have acted faster”. Whether it be a natural disaster, financial crisis, or global pandemic, being able to react with agility/resilient saves lives.
For example;" I first used a computer in 1992. My son, who is 21, cannot remember a time where we did not have a computer in the house. In 1994, my boss got one of the first mobile phones in Montreal; it was the size of a briefcase, and it was a revolution. Today, smartphones rule our lives. In just a few short years, we went from watching movies in cinemas to VHS, then to DVDs, then to streaming; from LPs to 8 track, then to cassettes, then to CDs, and then to MP3. MSN (Windows Live Messenger) went from the most popular social network for young people to oblivion in just a few years. Shopping evolved from the small family-owned store to supermarkets, and then to online shopping in less than two generations."
Exhibit 3 and Exhibit 4 represents these tendencies.
But, in order to achieve this, a few elements must be in place.
If an organisation uses a traditional linear project management approach, benefits are lost because there are integration gaps between the different components of the organisation:
- Strategies are driven from top-down from the corporate level and bottom-up from the business unit level, creating piecemeal initiatives.
- Performance management is driven by pre-set KPIs (key performance indicators) that do not take into account context changes.
- Portfolio management focuses on resource allocation rather than strategic alignment and achievability.
- Program management is a multi-project coordination activity, or regards the management of mega projects.
- Project management consists of the management of discrete projects, focused on deliverables on time and on cost.
- Finally, operations consist of business-as-usual and maintenance of status. without consideration for innovation or improvement.
Any link between those areas consists of “over-the-fence” handover without accountability for business benefits beyond short-term financial return on investment (ROI).
In integrated organisations, corporate and business strategy are well integrated and driven by context and results. The strategy is continually adapted in regards to changes in the business environment as well as the assessment of operational performance and results.
Portfolio management is an ongoing process that takes into account changes in the business environment and uses both strategic alignment and achievability of objectives as prioritisation criteria and as measures of success.
Program management is a strategy delivery process that takes into account stakeholder needs, business analysis, results delivery, and operational benefits. Its purpose is to translate strategy into tangible measurable results and realise value by transitioning project results into operations.
Project management produces tangible results in alignment with the portfolio and/or the program objectives. These results should consist of “usable” capabilities for operations. It is the role of operations to integrate these capabilities to produce measurable performance results and to continually seek innovation and improvement responding to new demands or pressures like competition, technological developments, and others. Operational results and adaptation demands then feed back to the strategy.
As a portfolio, program, or project manager, or manager of a PMO, you have to seek responsiveness in your work.
What is Organizational Agility
Agility has existed for immemorial times, since humans have had to adapt to their environment in order to survive. It is in the essence of humankind to be agile. So why are we today talking about agility as if it were a new thing?
Well…the other side of the coin of humankind is order. Humans needed to be agile to adapt; they also have always sought order and stability, which could be seen as the opposite of adaptation. Based on extensive research, Quinn stated that over 90 percent of organisational change was incremental (1978). Organisations changed, but slowly…in a controlled way.
In fact, since the beginning of the 20th century, the teachings of business schools have been about stability, order, and hierarchy. This is the model that most organisations have followed for the last 100 years. And then…
A revolution: the Internet, the digital age, smartphones, start-ups, social media, Bitcoin, and all the turmoil that ensued. In 2005, Siggelkow and Rivkin, two U.S. scholars, wrote:
“Rapid technological change, deregulation, and globalization have intensified competition and increased the turbulence that managers face, forcing them to adopt new, more responsive organizational forms…The degree of interdependence among the decisions that a firm faces is a key driver of complexity.”
Project Agility Versus Organisational Agility
Whereas project agility is a technique, or a set of techniques, organisational agility is a culture. It requires agility from management, who encourage initiative in their employees by empowering and enabling them; it requires a capability to deal with ambiguity and uncertainty, to see change as an opportunity rather than a threat, and most of all, to create a networking culture to encourage dynamism and innovation.Why Do Organisations Need to Be Agile?
In management, over the last 20 years, we have seen the advent of international virtual teams, outsourcing, crowdsourcing, a spate of mergers and acquisitions that have consolidated whole areas of the economy and diversified others, the rise and fall and rebirth of the Internet start-up, and many other trends that now rule (or “unrule”) organisations.For example;" I first used a computer in 1992. My son, who is 21, cannot remember a time where we did not have a computer in the house. In 1994, my boss got one of the first mobile phones in Montreal; it was the size of a briefcase, and it was a revolution. Today, smartphones rule our lives. In just a few short years, we went from watching movies in cinemas to VHS, then to DVDs, then to streaming; from LPs to 8 track, then to cassettes, then to CDs, and then to MP3. MSN (Windows Live Messenger) went from the most popular social network for young people to oblivion in just a few years. Shopping evolved from the small family-owned store to supermarkets, and then to online shopping in less than two generations."
Exhibit 3 and Exhibit 4 represents these tendencies.
Exhibit 3: The context of today's organizations. (In theory)
Exhibit 4: The context of today's organizations. (In Real life)
Increase Organisational Agility Through PPPM
Until now, we have seen that change is an essential part of agility in organisations. Portfolios, programs, and projects are ideal methods to implement change in organisations. Good portfolio management enables organisations to select the most rewarding initiatives and to measure success on an ongoing basis. Program management is specifically designed to address complexity and uncertainty in a controlled way. Finally, project management enables organisations to clearly define and monitor short-term results to be achieved within a defined timeframe with predetermined resources, offering them the possibility to readjust quickly if required.But, in order to achieve this, a few elements must be in place.
Agility Is About Taking Risks!
Risk management is a key element of success in today's turbulent environment, but risk management need not be stifling; otherwise, organizations will lose to nimbler competitors. Traditional risk management still generally consists of minimising threats rather than seeking opportunities.Risk management should be more about balance between added value and acceptable uncertainty.Exhibit 5 compares risk management and value management, and explains how risk and value management can be integrated to bolster organisational agility.
Exhibit 5: Value and risk for agile organisations.
As seen in the exhibit, risk is an uncertainty reduction process, the intent of which is to identify known-unknowns that are manageable, in order to alleviate their adverse effect and increase their positive impact: the “how.” On the other hand, value management is an ambiguity-reduction process, the intent of which is to help decision-makers achieve the best balance between alignment with objectives and achievability of the solution: the “what.” Risk management is a rational decision process; value management is a creative decision process. Both are required to be agile.
Agility Is About Embracing Change!
Change management is another element of the agility equation and, sadly, many organisations don't understand change. Change is inevitable, but managers should lead change, not be led by it. External and internal context should inform the change , not drive it. And organisations need to have a clear vision of their future state when embarking on a change process. So, react to a crisis or be a leader of change? Both strategies are likely to work, but the best results are achieved by leading change, and in order to lead change, agility is a required foundation. Reaction can only ensure short-term success, whereas agility is a long-term choice.
Exhibit 6: Reacting to change versus embracing change
Agility Requires Harmonised Management of PPPM!
Applying project, program, and portfolio practice independently of one another and independently from the rest of the organisational functions does not work. In fact, organisations that have managed to integrate those practices are the ones who succeed.If an organisation uses a traditional linear project management approach, benefits are lost because there are integration gaps between the different components of the organisation:
- Strategies are driven from top-down from the corporate level and bottom-up from the business unit level, creating piecemeal initiatives.
- Performance management is driven by pre-set KPIs (key performance indicators) that do not take into account context changes.
- Portfolio management focuses on resource allocation rather than strategic alignment and achievability.
- Program management is a multi-project coordination activity, or regards the management of mega projects.
- Project management consists of the management of discrete projects, focused on deliverables on time and on cost.
- Finally, operations consist of business-as-usual and maintenance of status. without consideration for innovation or improvement.
Any link between those areas consists of “over-the-fence” handover without accountability for business benefits beyond short-term financial return on investment (ROI).
In integrated organisations, corporate and business strategy are well integrated and driven by context and results. The strategy is continually adapted in regards to changes in the business environment as well as the assessment of operational performance and results.
Portfolio management is an ongoing process that takes into account changes in the business environment and uses both strategic alignment and achievability of objectives as prioritisation criteria and as measures of success.
Program management is a strategy delivery process that takes into account stakeholder needs, business analysis, results delivery, and operational benefits. Its purpose is to translate strategy into tangible measurable results and realise value by transitioning project results into operations.
Project management produces tangible results in alignment with the portfolio and/or the program objectives. These results should consist of “usable” capabilities for operations. It is the role of operations to integrate these capabilities to produce measurable performance results and to continually seek innovation and improvement responding to new demands or pressures like competition, technological developments, and others. Operational results and adaptation demands then feed back to the strategy.
Exhibit 7: Simplified view of an integrated agile organisation.
What Should We Do About It?
Whereas, in a traditional organisation, the objective of PPPM is consistency and reliability; in an agile organisation, this has to be combined with responsiveness in order for the organisation to be able to adapt quickly to changing circumstancesAs a portfolio, program, or project manager, or manager of a PMO, you have to seek responsiveness in your work.
- PMO leaders should aim to set up simple and meaningful systems, processes, and procedures and set program and project management measures adapted to the organisation's environment.
- Portfolio managers need to continually update their portfolio on the basis of changing context, continuous alignment with strategic objectives and, mostly, capability to achieve results.
- Program managers have to take a change approach, starting with stakeholders’ expected benefits and transitioning results into the business to create tangible benefits for the business.
- Project managers should deliver the agreed scope and quality on time and at cost, but should be aware of the benefits that their deliverables need to produce when transitioned into operations.
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