Five agility myths in energy and heavy industries
Five agility myths in energy and heavy industries
The myths and the realities
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Each of the following five myths arises from familiar operational and commercial concerns. Each myth is answered by realities in the cases below, and each set of evidence from agile working tends to show a pragmatic and surprising impact in reality.
Myth 1: The value of agile working is limited to IT/tech, software, and digital products
We hear organizations say, “Agile working is great for IT delivery but not for operational improvements, especially in heavy industries.”
Enterprise agility cuts across the organization, digital and nondigital. We see impactful examples of agility in, for instance, procurement or continuous improvement, or analytics. Agile practices give autonomy to cross-functional teams (outside any digital initiatives) in any part of the organization; it can accelerate improvement programs of any sort that create business value. Heavy industries are highly technical, so they benefit even more from a model that focuses on effective cross-discipline working and bringing in a minimum-viable product (MVP) mindset.
Agile thinking can apply to core activities such as procurement. A large steel manufacturer in Asia with a $4 billion procurement spend across eight categories was facing challenges with long cycle times, rigid processes, and long approval cycles in the procurement function. Senior leaders identified improvement needs across five key themes. Through structural changes in organization, a digital-operations platform, and category-specific initiatives, the team implemented a 12-month phased plan to reduce cycle times. As a result, the plan reduced cycle times by 30 to 40 percent for a particular process within one of the eight categories.
In shorter-term continuous improvement, an agile approach was used at a mining company to solve the problem of a blocked transfer chute that had caused an average of 120 hours of downtime annually. Management understood the problem, but the $150,000 investment for an upgraded transfer chute was not prioritized. Adopting an agile approach, the organization engaged a team of machine operators, asking them to help reduce downtime. A cross-functional team lead by the machine operators designed a new blockage removal bar, quickly fabricated at a local engineering shop. In less than 48 hours, the team tested its first MVP prototype. The tool helped to eliminate 80 percent of the issue caused by larger ore material blocking the chute. The design was iteratively improved and achieved 80 percent of the benefit of the original proposed $150,000 upgrade, all for $10. The solution was then scaled across five other units. This indicated a willingness to collaborate and experiment quickly. This approach not only solved the mechanical problem but also raised employee engagement.
Agile ways of working and thinking can apply not only to changes in equipment design but also to measurement and analytics. For instance, in the steel-making shop of a large steel manufacturer in Asia, operators made fallible judgments that left significant value on the table. Leaders realized there was huge scope for optimization in alloy consumption. In a collaborative effort involving people inside and outside the organization, virtual “go and sees” were conducted with leading global mining companies and agile squads were institutionalized to drive change management. Advanced analytics were then used to deploy ten predictive models and two linear optimization models in an agile manner to achieve cost savings of approximately $1.5 million. New ways of working achieved a twofold reduction in project delivery time. Compliance to model usage increased from 20 to 90 percent in four weeks through a series of operator training and agile ceremonies.
Myth 2: Agile working is fine for change activities but unsuitable for regular activities, difficult to introduce, inflexible, and arduous to maintain
We hear organizations say, “We cannot work in an agile way, because we need to focus on run activities, such as an upcoming outage. An agile team will spend 30 percent of its time working ‘agile’ on driving change activities and 70 percent in run activities, such as outage management, that it will deliver in a traditional way. What’s more, agile working has language and processes that are confusing and that overcomplicate all that we are trying to accomplish.”
Any process run by people can be improved upon and can benefit from an agile approach of fast learning and high levels of ownership and accountability in teams. This applies across core run activities, such as production delivery or maintenance planning and execution. For example, in one plant maintenance cycle, a mining company faced long disruption (12 days) and outage, reducing production to 66 kilotons per day (ktpd), whereas it was usually 90 ktpd. An agile approach as part of its “mine to mill” initiative brought together the stakeholders to remove slack from maintenance schedules by putting key initiatives first. The agile teams created a series of war-room workplans, including daily zone scans of stockpiles and twice-daily reassessment of run times. The result was a rise in predicted production to 84 ktpd during the maintenance period and an increase of 10 percent above normal production to 110 ktpd during the month when the maintenance took place.
In essence, introducing and maintaining agile working is worth not only the initial push but also the longer-term effort. At first, the language of agile can indeed be a block, but each organization already has its own terms of art (one might say jargon), and the language of agile working can match to those terms: an agile team might be a “Tiger Team,” for example; a series of agile sprints could be “Our battle cadence,” and so on. Once embedded, as in the following case, agile working can identify processes that are constraining. It represents a way of getting things done that removes friction or obstacles to the core processes. And in this regard, agile not only marks a change in practice but also helps reach a mindset of continuous improvement.
One European oil producer’s North Sea assets had experienced production deferrals of 10,000 barrels of oil equivalent per day (BOED) due to issues with the produced water reinjection (PWRI) system. A new cross-functional production management squad identified constraints within the system as well as opportunities to increase PWRI capacity, add production, and shelter planned well tests. Working closely with the offshore team, the squad was able to make decisions promptly. The result was an increase of 3,000 BOED within two weeks.
And agile practices can be used in planning. The same European oil producer faced a 2022 production challenge to increase well delivery. In the past, this work would have been delivered across multiple parts of the organization with many teams, interdependencies, and handovers. In the new agile model, subsurface and wells units formed a joint squad around a single objective: to optimize reservoir management and business delivery. In just ten days, the team increased the well delivery for 2022 by 69 percent—to 33 mbd (thousand barrels of oil per day), from 19.7 mbd.
Myth 3: Agile and lean are different or exactly the same. Can they work together?
We hear organizations say, “We already run lean; agile working will only confuse things.”
Lean and agile ways of working complement each other, and the magic is in the combined recipe from both. We have explored this idea before. In reality, both systems have been successful across a range of environments, and both share a similar set of foundational objectives (exhibit): transparently connect strategy and goals to give teams meaningful purpose; discover better ways of working to continually learn and improve; deliver value efficiently for a customer; and enable people to contribute and lead to their fullest potential.
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Lean organizations identify and eliminate activity that is not valued by the customer or end user. This systematic analysis of processes and value streams can reduce waste, variability, and inflexibility; it boosts performance in cost control, product quality, customer satisfaction, and employee engagement—often simultaneously. Moreover, lean thinking represents a mindset of continuous improvement and flexible working in which all employees contribute new ideas; the organization becomes better over time. Freed from non-value-generating tasks, people can focus more on what matters to customers. This customer focus is a core tenet of the agile approach: rather than the traditional process of developing a new product or service—which used to be highly sequential and time consuming—agile approaches are much quicker and more flexible. Agile models call for iterative development that aims to get an early prototype of a new product or service into customers’ hands as quickly as possible.
When run together, lean processes bring the holistic view and basic principles, while agile processes bring the ﬂexibility of short-cycle implementations (sprints) for continuous improvement. The lean approach tends to be more applicable to continuous improvements, providing directions or outside-in solutions to the value stream as part of the daily operational routine. The agile approach can bring the alignment and transparency of objectives to combine the expertise from the shop ﬂoor with short-cycle improvements.
This combination approach can be useful in the maintenance and servicing of a large plant, where both lean and agile practices can work together in ongoing maintenance. For example, a steel manufacturer identified an opportunity to enable a proactive maintenance strategy and unlock significant value in its plant. They applied lean-and agile-approach thinking to develop a smart asset-management system to manage critical assets, using digital technology. This led to a reduction in unplanned downtime and an optimization of approximately $1 million in maintenance cost savings.
When run together, lean processes bring the holistic view and basic principles, while agile processes bring the flexibility of short-cycle implementations for continuous improvement.
At a metal tube manufacturer in Latin America, sales and operations planning faced the challenges of inaccurate demand forecasting and excessive inventory along with an unreliable production schedule. All of these led to low delivery date reliability and poor service levels. Both agile and lean practices were applied to imagine a new vision; and the value stream was mapped to both agile and lean teams that generated creative solutions to derive a new forecasting model. The company decoupled demand planning from sales forecasting and incorporated additional inputs (for example, statistical forecasting based on historical data and market trends). In operational planning, the organization revised its plant capacity parameters and implemented simpler and more accurate tools. The manufacturer set up new teams that were empowered with decision-making rights, helping to stimulate collaboration between commercial, production, planning, finance, and purchasing. This operating model was then incrementally improved after testing within the production process. These changes resulted in cost savings of $15 million (more than 7 percent) and an increase in operational performance improvement of more than 20 percent.
Myth 4: Agile working is too short term to add value to operations that require long, capital-intensive delivery cycles that might last for years
We hear organizations say, “Agile approaches might work for an app on your phone, but not for building a turbine.”
Heavy industries have to manage multiple time horizons; that is, everything from problems solved over decades to problems solved in minutes. So while they have long capital planning, building, and maintenance cycles, they also have imminent demands. As agility combines dynamism with stability, a backbone of the right processes in governance, coordination, and transparency can exist alongside agile practices in planning, executing, and interacting with customers and suppliers.
Regarding long-term planning, any multiyear large-scale project that entails many internal and external variables will be complex. Applying agile philosophy can improve outcomes across the capital value process and within its stage-gate development cycles.
For example, a major European oil company redefined its entire new well-delivery process using agile principles. It reduced the number of stage-gate decisions from five to three and replaced a waterfall approach with agile thinking. It cut key decisions from 18 to nine. All this applied to how the concept, design, and delivery was envisaged. The impact was palpable: the company minimized the effects of change, made decisions that were more timely and apt, and the organization remained flexible to change in each region and team while the well-delivery planning process continued. This process resulted in products rather than documents, and brought clarity and alignment of expectations and clear relations with other key interfaces (finance, operations, safety, and procurement).
Within each stage gate, agile thinking can accelerate and clarify a process; so within a design or planning cycle, an agile approach can shorten decision times and—by being inherently flexible—address and overcome delays. For example, a major oil and gas company operating in the Gulf of Mexico used an agile approach for its concept stage in a contract award. Facing a late change in the requirement, the project team reduced the typical time frame to make a critical decision from four to six months to less than eight weeks using a dedicated, colocated scrum team. Despite the late-stage changes and the expedited timeline to sanction, the project remains one of the industry’s best benchmarked projects. It typifies the agile approach within stage gates: flexible, decision driven rather than activity driven, all supported by agile tools, and improved communications between teams.
Myth 5: Safety-oriented cultures aren’t right for the ‘test and learn’ approach of agile
We hear organizations say, “Start-ups can get away with ﬂexible scope, but we are dealing with life-and-death decisions that require proper regulation.”
Safety is critical. Agile’s emphasis on transparency, ownership, and reduced handovers is especially important and relevant. Successful efforts here engage employees and build a strong safety culture, which has always been—and should continue to be—at the heart of asset-heavy companies. Combined with greater empowerment, that culture could forge real safety ownership in the front line, led by strong role modeling from top management down.
At the team level, where safety practice and culture is played out, an agile mindset means a continuous cycle of team learning and adaptation (learn fast) while managing risks effectively. While fail fast—where failure might be catastrophic—is clearly ill-suited, agile thinking will help a team drive toward making the right decisions. Any set of decisions can be made more transparent and more linear by an agile approach: decisions can be attached to a given point in time so that a series of small decisions becomes clear; these can be implemented in short learning cycles, reducing risks, correcting mistakes, and increasing the chance of success.
At a mining company, the safety challenge was to reduce the time between blasting and safe resumption of work. In this instance, an average interval to survey and clear the mine postblast was 108 minutes; this compared with a weekend figure of 60 minutes (comparable with other mine sites). Working with a team of employees, the company tested the use of drones for postblast clearing and designed practical clearing tools and harness attachments in less than 48 hours. Using both the drones and the newly designed clearing equipment meant that mining could be safely resumed sooner—in fact, 10 percent faster—after blasting. This, in turn, represented 0.9 kt of additional raw material per day that could be put through the miner’s primary crusher.
Agility is the greatest change in approach for a generation. We find similar concerns in all organizations that are contemplating this new way of doing things. We hear organizations say, “Agile is just a new way of talking about the stuff we already do” or “Agile just slaps a new name on the same old meetings; nothing will really change about how we work.” The myths here do have a basis in real concerns. The examples we provided might alleviate those concerns, but we also urge you to look at detailed examples of agile thinking and working practices at bp and at Freeport.
We advocate the value of being agile as distinct from doing agile, to a set of core values and principles that involve a shift of mindset from certainty to discovery, control to collaboration, and scarcity to plenty. Applied across an organization, enterprise agility can empower multidisciplinary teams toward a common goal by removing silos, fostering collaboration, and unlocking value. At the same time, it will reshape the culture to a more outcome-driven one.
This underlying cultural change is key in helping to transform deeply rooted mindsets and behaviors that shape how we think, behave, and lead. And it has the added benefit of making the workplace more attractive. A commitment to agile practices can draw and retain top talent with fulfilling work—increasingly important as an organization competes for top talent with a wider set of organizations.
Agility in heavy-industry organizations can be used to make operational improvements, to enhance run activities, to work alongside lean approaches, to contribute to long-term planning, and to augment all-important safety standards. When done right, agility can become an enduring source of competitive advantage.
Source: Five agility myths in energy and heavy industries | McKinsey