Stairway to digital excellence

McKinsey has been researching what drives excellence in digital delivery and related performance outcomes for more than five years, collecting self-reported data for over 1,700 teams from around 75 organizations¹The breakdown of the organizations in our research database is as follows: financials, 53 percent; consumer, 18 percent; information technology, 9 percent; industrials, 7 percent; healthcare, 5 percent; others, 6 percent. across the globe. Here, our research looks at 48 practices grouped into 19 capabilities²The 19 capabilities are the independent variables in the regression analysis. Strategy: vision, dynamic resource allocation, focus on the customer. Structure: reporting structure, governance, roles and responsibilities, workforce size, and location model. People: leadership, talent management, culture, informal networks, and communication. Process: performance management, linkage mechanisms, team processes, planning and decision processes. Technology: supporting systems and tools, architecture evolution, delivery pipeline, IT infrastructure, and operations. within strategy, structure, people practices and culture, process, and technology³“The five trademarks of agile organizations,” McKinsey, January 22, 2018. to help us understand what drives team-level performance beyond raw team talent across digital leaders.

When we support clients through their agile and digital delivery excellence transformations, we are often asked, “What separates top-performing teams from those that are just starting out?” With this question in mind, we segmented teams into quartiles based on their performance outcome scores⁴McKinsey’s Agile360, a comprehensive diagnostic measuring agile maturity and performance outcomes, defines performance outcomes as speed, quality, productivity, and effectiveness. For this reasearch, we segmented teams into performance quartiles based on their overall team outcome score. and examined how the maturity of their capabilities and behaviors compared. Their answers provided insight into which capabilities teams should mature over time to move up the stairway to digital excellence to improve performance.

What we have seen in the data is consistent with our client experience: you can’t do everything at once, and attempting to skip “steps” won’t get you to best-in-class performance. Some organizations will sequence their “stairs” a bit differently depending on their initial state and organizational priorities, but the sequencing in the exhibit represents a logical progression that has worked for leading organizations. Organizations that aspire to reach the top stair may see not only improved effectiveness, productivity, and quality but also major improvements in speed, indicating that the company has provided value faster to customers—the true focus of delivery excellence.

Grassroots agile

As teams embark on their agile journeys, they begin adopting behaviors conducive to an agile way of working, including:

• Enabling a culture of openness. Agility depends on individuals sharing honestly across teams. Building a culture that embraces experimentation and encourages teams to learn from failures is one of the first steps on the road to becoming agile. Amy Edmondson, a professor at Harvard Business School, maintains that a culture of openness begins with three leadership behaviors: first, framing every problem as a problem of learning, not execution; second, acknowledging your own fallibility (for example, being transparent when leadership doesn’t have the answers); and third, modeling curiosity (for example, asking open-ended questions).⁵Amy Edmondson, “Building a psychologically safe workplace,” TEDx Talks, May 4, 2014.
• Empowering teams. As decision making is pushed to the lowest levels possible in an organization, team members can continue making progress and feeling ownership of their goals as a unit; this is distinct from depending on leadership to make decisions along the way. Empowered teams are given problems to solve, not tasks to execute.
• Allocating proper resources. By allocating resources (for example, supporting teams, infrastructure) according to organizational priorities, leaders give teams capacity to act on and achieve their objectives. Enabling teams to choose their tools and infrastructure also sets the stage for an organizational mindset that is open to continuous improvement with the flexibility and willingness to try new things.
• Investing in tools that facilitate collaboration. Another building block is frequently taken for granted—having easy-to-use and widely adopted supporting systems and tools. Tools that help teams collaborate (for example, whiteboard software tools) and connect (for example, virtual breakout rooms) enable colleagues to simulate effective co-location strategies, including ideation, iterative review, and quick sidebar conversations.
• Fostering a readiness for change. Teams need help from leadership to understand and prepare for change. Clear communications regarding timing and what to expect set the stage. Seeing examples of how other organizations have transformed can demonstrate the benefits and proactively highlight potential challenges.

As we look at performance outcomes, we typically see teams improve effectiveness (delivery predictability, value realization, and team engagement) early on. Team members recognize that changes are taking place and are excited about improvements to their operating model, which drives a stronger eNPS (employee net promoter score). As teams and the broader organization adopt an open culture and feel empowered at the individual and team level, teams feel a core element of engagement: purpose. More tactically, enabling decisions to be made at lower levels also helps teams start to deliver additional value to the business.

Basic agile fundamentals established

Once teams (and organizations) commit to an operating model focused on delivery excellence, they typically build on baseline behaviors by checking off their “agile checklist”—for example, operating in sprints, establishing daily stand-up meetings, running retrospectives, and ensuring key roles are filled. These common baseline agile characteristics include:

• Business sets strategic priorities. Product owners (POs) translate strategic priorities into their backlogs and cascade items to the team. In scaled agile, this can look different from a traditional “product backlog” in that POs can look to the squads to be responsible for:
  • Services: postsales service in a B2B business
  • Customer value propositions: attracting new customers to the organization
  • Operational improvements: optimizing supply chain operations
• POs/PMs are singularly responsible for defining a product road map that aligns to the organizational vision. It is important to emphasize the distinction between merely creating/filling a PO/PM role and empowering the individual to prioritize activities and ensure the team fulfills the vision.
• Teams are organized around user journeys. Teams operate best when they have end-to-end responsibility for their objectives and can deliver autonomously (versus depending on others outside the team for key inputs). A focus on user journeys also helps build the foundation for customer centricity.
• Teams hold agile ceremonies and retrospectives on a regular basis. Often seen as the most tangible signs a team has moved to agile, ceremonies must be meaningful and open while helping team members inspect and adapt how they work to generate real impact. Holding retrospectives will not produce results if there is no commitment to making progress against the identified action items.
• Feedback culture oriented toward continuous improvement. An effective, empowered team has members who are comfortable seeking qualitative and quantitative feedback from one another, leadership, and customers on how well they are doing against the organization’s product vision and product strategy. To that end, engineers should build telemetry in their products to get fast feedback from development environments, tests, integration pipelines, and code deployments.
• Career paths reflect the new operating model. Individuals can focus on priorities and manage their work when their roles and responsibilities are clear and consistently defined across the organization. Individuals also become more productive as targeted skill-building programs become the norm.

With agile fundamentals in place, teams typically start to see major improvements in productivity (productive time and flow efficiency) and quality (mean time to recover, change failure rate). Here, teams start to put basic principles of delivery excellence into practice and begin to reap the benefits.

Technology investments

After initial experimentation with delivery excellence, many teams realize they need effective technology and tooling to push to the next level or they risk plateauing (strategy and process alone are insufficient to drive fundamental change). Investments in technology and tooling are typically made on an enterprise-wide basis, which results in some teams having to wait for their organization to “catch up” so they can benefit from a modern technology infrastructure. These teams can still be successful and benefit from an agile way of working; they simply will not perform at their optimal level without the “unlock” of modern technology, infrastructure, and tooling. Unsurprisingly, this is generally the most expensive stair to climb—and the commitment required to fund these investments often helps to ensure that leadership is committed to the agile transformation, which will be critical for the final step. Investments teams can make include the following:

• Leverage continuous integration and continuous delivery (CI/CD) and automated testing. While automated testing reduces the time required to get code ready for production, CI ensures software is continuously in a working state in case any build failures occur. Teams also see further benefits from a modern delivery pipeline including CD, incremental releases, and A/B customer testing.
• Move to modular architecture and leverage microservices. Modern, modular architecture facilitates easier deployments, enhances scalability, and enables teams to easily reuse features created by other teams. Usually, one of the first and toughest steps is to decouple the underlying system architecture along business domain boundaries. Organizations use different techniques for this, with domain-driven design and domain storytelling being the most common. This serves as a foundation for small-batch software engineering, software testing, and software monitoring.
• Automate IT operations activities. Digital leaders typically automate more than 90 percent of IT operations activities (for example, access management, database maintenance, generation of audit reports, capacity planning, monitoring). They also have environments provisioned via self-service in an automated way within a few minutes. At this juncture, investments in money and patience are required to automate.
• Jointly define processes to interact and coordinate within and across teams. Dependencies between teams should require very limited/no escalation to leadership. This expansion of the team autonomy that we saw in the second step enables teams to work more seamlessly together and to achieve aspirational goals.
• Place customers first and interact with them regularly. As customer centricity becomes widespread throughout the organization, teams can avoid unnecessary missteps and dismantle organizational bureaucracy. This singular focus acts as an early North Star, as there is a clear framework for prioritization of work for teams with customer needs informing product vision and strategy.

As teams make these investments, we typically see consistent incremental performance improvement across the board. Our previous article⁶Santiago Comella-Dorda, Dan Gardner, Lauren McCoy, and Vik Sohoni, “Beyond the anecdote: True drivers of digital-delivery performance,” McKinsey, March 15, 2023. details the interrelationships between technology and speed (among other relationships), and we typically see that mindset shifts (the final step) are necessary for the technology-driven improvements in speed to fully manifest. The best technology in the world cannot be a panacea if key mindset shifts have not yet taken place.

Key mindset and structural shifts

As companies continue to invest in technology, training, and people, they should see improvements in speed, productivity, quality, and effectiveness. To realize the full potential of these investments, leaders should ensure that they continue to communicate the vision effectively to the organization and provide teams with full trust, autonomy, and freedom.

A word of caution: the second and third steps on the stairway can take time. If, over this span, leadership loses commitment to or belief in agile, there can be regressions despite investments. It is critical to maintain and radiate the initial vision and ensure leadership is collectively embracing agile practices and principles. Implementing the right structure will ensure agile is not temporary and that leaders maintain buy-in. With the following mindsets and structure in place, organizations can reach the top of the stairway to digital excellence and maximize performance outcomes:

• Small synchronous teams, dedicated to reaching one common purpose. When teams are rightsized (five to eight people) and located in the same or close time zones, team members can properly collaborate and communicate. Having clear, shared goals ensures that skill sets are available when needed and that efforts do not end up fragmented across multiple initiatives.
• Teams have the full trust of leadership, autonomy, and freedom to drive end-to-end performance and results. Leaders define the North Star vision and measurable objectives and then help drive team performance as a leader and catalyst.
• Seamless communication and collaboration across teams. Leaders encourage access and collaboration across teams to eliminate silos; people feel personally connected to the rest of the business, which feeds into individual and team purpose.
• Clear operational goals and regular performance discussions. Teams use physical and online dashboards to monitor a stable set of metrics, which creates transparency on their performance and productivity. Metrics are used in a spirit of self-improvement and there is no fear of retribution or “weaponization” of data. A mix of financial and nonfinancial metrics assess progress across the customer journey.
• Setting a clear vision. Establishing a North Star is one of the key tenets of becoming agile: What are you trying to achieve, why, and for whom? This is a capstone built on the planning and decision processes established earlier. The North Star guides day-to-day decisions as they are pushed down to lower levels of the organization and ensures decision making is consistent and aligned across the organization.
• Transition to an agile funding model. Budgets are allocated to business objectives (for example, improving customer satisfaction) versus projects. Allocations are refined and revisited on a quarterly basis in a venture-capital-style assessment of impact delivered to ensure that funding is prioritized to areas achieving their objectives.

Reaching the top stair has been shown to drive significant improvements in speed (release frequency, lead time to develop, lead time to deploy). The full benefits of agile are finally realized when companies can capture value more quickly and are able to respond more nimbly to the changing needs of their customers. It is important to recognize, however, that some organizations will continue to index on other dimensions—such as prioritizing quality at the expense of speed—which may prevent them from seeing consistent absolute gains across organizational outcome metrics. Organizations should therefore define, and progress against, their own unique performance aspirations.

Organizations that have successfully climbed the stairway to digital excellence—beginning with grassroots initiatives, then establishing agile fundamentals, investing in the right technology, and consistently bringing the right mindsets—are well-positioned to achieve the optimal performance outcomes. Organizations and their teams can first expect to see initial improvements in effectiveness, then experience enhanced productivity and quality, and finally, see a jump in speed, although all four outcomes could steadily improve along every step of the journey. The first step to action is to understand where you are today, decide where you want to be, and define the tactical steps to get there.