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Abstract

We explore how project financing processes should be adapted to accommodate changes to organizational structures, operational processes, and cultural values in scaled agile transformations. We studied the transformation project of a large German automotive manufacturer to identify the issues that emanate from the incompatibility of incumbent project financing and the mitigation strategy that allowed the company to evolve rather than revolutionize the way they manage project finances. Our findings enrich the empirical knowledge on scaled agile transformations and draw attention to the much-overlooked aspect of financing large-scale change initiatives in incumbent firms.

Keywords

scaled agile transformation large-scale agile agility project financing case study automotive

Introduction

The success of agile approaches in small project environments (Fowler & Highsmith, 2001; Serrador & Pinto, 2015) has created an appetite in large firms to scale them to ever-larger projects and even to the level of the entire organization, an undertaking coined as scaled agile transformation (Conboy & Carroll, 2019). These transformations entail fundamental changes to established organizational structures, processes, policies, as well as cultural beliefs and values (Iivari & Iivari, 2011; Alqudah & Razali, 2016), which in turn create a tension between the old and new. This tension coins the growing inadequacy of existing structures, resources, cultural values, or capabilities compounded by the desire to acquire or develop desired new ones (e.g., Chanias et al., 2019; Kane et al., 2019).

Several studies report on the challenges of scaled agile transformations such as change resistance (Paasivaara et al., 2018), lack of test automation (Dingsøyr et al., 2018), or communication overload across organizational layers (Conboy & Carroll, 2019). Other studies identified success factors such as quality-focused cultural values (Saarikallio & Tyrväinen, 2023), management support (Dikert et al., 2016), and agile training (Edison et al., 2021). However, while these insights about what factors contribute to the success and failure of scaled agile transformations are valuable, more insights are still needed about how the transformation of structures, resources, processes, and cultural beliefs unfolds (Dikert et al., 2016; Putta et al., 2018; Edison et al., 2021).

In this article, we report on an inductive embedded case study of the transformation of the organizational structures, resources, beliefs, and processes at CarCo, a prominent German automotive manufacturer. In 2023, CarCo began implementing a popular large-scale agile framework, the Scaled Agile Framework (SAFe^®)¹, as the new de facto organizing standard for all company-wide IT- and business-based projects. We began our research with the broad ambition to understand the key reasons, expectations, benefits, and challenges related to the scaled agile transformation. We soon uncovered an unexpected finding not yet reported in the literature: At CarCo, a main barrier to the transformation stemmed from an incompatibility between CarCo’s existing project financing processes and the target principles for lean budgeting advocated by SAFe^®. We thus sought to develop an explanation for this unexpected finding. Our research question became: How do organizations adjust incumbent and target project financing processes within a scaled agile transformation?

Through our study, we discovered that the incompatibility between incumbent financing processes and required agile financing concepts creates time-, market-, money-, personnel-, content-, and process-related issues that, in turn, require a firm to make adaptations to the planning, organizational structure, budgeting, and governance of their project financing. Our key contribution is that we empirically develop and conceptualize a mitigation strategy that adjusts both the source state (the incumbent financing) and the target state (the planned agile financing) to reach a workable compromise in times of planning, structure, budgeting, and governance of financing in scaled agile transformations.

Background

Reported Challenges, Success Factors, and Tensions in Scaled Agile Transformations

Agile approaches are based on principles such as incremental development, close customer collaboration, and openness toward changing requirements (Fowler & Highsmith, 2001). Although these principles have been shown to be beneficial in small settings, such as development teams and project units (Vidgen & Wang, 2009; Dingsøyr et al., 2012; Dikert et al., 2016), translating them into large-scale units or to the level of the entire organization is not so straightforward (Goh et al., 2013; Carroll et al., 2023). Several frameworks, such as SAFe^®, Large-Scale Scrum (LeSS), Scrum@Scale, or Disciplined Agile Delivery (DAD), have been developed to provide guidelines to firms about how to jointly facilitate coordination, alignment, autonomy, and adaptability in large projects (Dingsøyr et al., 2019). Still, scaled agile transformations remain complex and nontrivial undertakings.

Four broad streams of literature exist in relation to scaled agile transformations. The first set of studies concerns implementation barriers (e.g., Dikert et al., 2016; Putta et al. 2018; Alqudah & Razali, 2016). Edison et al. (2021) categorize the empirical evidence from the studies of different large-scale agile framework implementations of firms in the software, telecommunications, finance, technology, public sector, and automotive manufacturing industries into nine broad challenges. These challenges are (1) interteam coordination challenges (the communication complexities across multiple agile layers and throughout various rituals); (2) organizational structure challenges (the dynamic nature of agile roles and the absence of a direct translation from traditional positions to new ones); (3) architectural challenges (the absence of continuous integration and test automation); (4) requirements engineering challenges (the formulation of small, measurable stories of requirements); (5) customer collaboration challenges (the need to maintain a constant delivery pace); (6) adoption challenges (the abundance of agile roles, procedures, and artifacts); (7) change management challenges (change resistance); (8) team-related challenges (the lack of team autonomy); and (9) project management challenges (finding meaningful metrics for performance or improvement).

A second set of studies has examined the ways in which the implementation of agile approaches (in small settings, not at scale) yields success to the organizations applying them. This literature is summarized in several reviews (e.g., Chan & Thong, 2009; Hummel et al., 2013). Most of these studies show that agile approach applications benefit project outcomes in terms of (1) project efficiency and responsiveness to change, (2) stakeholder satisfaction, and (3) perceptions of overall project performance (e.g., Maruping et al. 2009; Serrador & Pinto, 2015; Recker et al., 2017). A large share of these studies is set in the software industry.

A third set of studies has examined success factors for scaled agile transformations (e.g., Dikert et al., 2016; Edison et al., 2021; Saarikallio & Tyrväinen 2023). Collectively, this body of work identified strong leadership support and commitment to the agile rollout (management success factors), well-prepared planning events and the physical proximity of agile teams (process success factors), external agile coaches to support the transformation (people success factors), shared IT infrastructure (technology success factors), and a supportive set of shared values and beliefs (cultural success factors) as key success factors.

A fourth set of studies has examined the tensions (Smith & Lewis, 2011) faced by organizations that engage in scaled agile transformations. This body of work suggests that scaled agile transformations create multiple dilemmas for organizations in terms of productive capabilities they possess and new, agile capabilities they seek to learn. For example, in scaled agile transformations companies simultaneously need to coordinate ambitious market requirements and customer expectations while they transition toward empowerment and decision flexibility through new roles and new ways of collaborating (Kalenda et al., 2018). Other studies mention tensions between building learning capabilities and competences for the future while needing to ensure operational success in daily work (Strode et al., 2022). A third tension that emerges in scaled agile transformation relates to the fact that organizations need to increase coordination and control as the size and number of increasingly autonomous teams grow (Goh et al. 2013; Moe et al., 2021).

While knowing these challenges, success factors, and tensions is helpful, research has also shown that the multifaceted complexity of scaled agile transformations differs depending on the applied large-scale agile framework and the individual environment, including the sizes, structures, processes, and existing culture of the companies (e.g., Serrador & Pinto, 2015; Putta et al., 2018; Edison et al., 2021). Moreover, research on how the transformation of established organizational structures, resources, and processes unfolds during scaled agile transformations remains scarce and mostly overlooked at this point (Dikert et al., 2016, Carroll et al., 2023).

Project Finance Management

Financing in general refers to the processes related to providing funds or capital for individuals or organizations to undertake activities, investments, or projects. In management practice, financing is often used when referring to obtaining any form of monetary resources with the aim to support and sustain business-relevant activities such as continuous business core value operations or temporary project initiatives (Buljevich & Park, 1999; Wooldridge et al., 2001).

Financing project initiatives specifically encompasses three organizational processes—accounting, budgeting, and funding—to provide and manage the necessary financial resources to successfully launch, execute, and terminate temporary, capital-intensive projects (Buljevich & Park, 1999). In this context, accounting refers to the transparent and systematic tracking, monitoring, and maintaining of all financial information to provide management staff and external stakeholders with the key facts for decision-making (Meigs & Meigs, 1996; Roslender & Dillard, 2003). Budgeting refers to all operations that deal with the allocation of funds to departments, business units, teams, or projects, including the internal approval processes related to allocating or reallocating the funds within a company (Garner, 1991). Funding refers to the processes carried out to provide financial resources, typically in the form of money, to support a particular activity, project, business, or organization (Drehmann & Nikolaou, 2013).

All three processes must function as an integrated system for project financing to be effective. For example, accounting provides transparent financial information as a basis for controls, approval processes, and allocations of distinctive funds within budgeting. Funding that is budgeted and accounted for typically comes from investors, donors, grants, governmental subsidies, or is derived from resources such as revenue and income (John & John, 1991; Wooldridge et al., 2001).

The literature on project financing suggests that project financing prioritizes not the reliability and creditworthiness of funding sponsors, but instead the project’s ability to generate future cash flows (Yescombe, 2002; Magni, 2016). In turn, project financing aims to repay contracted debt and remunerate capital invested at a rate appropriate to the degree of inherent risk (Gatti, 2023). Because project initiatives are typically substantial nonroutine efforts of a temporary nature, they usually require the commitment of multifaceted resources with the aim to reach a future state through tangible objectives and goals (Winch, 2015). Valuing such effort investments thus typically involves the estimation of future benefits for the involved stakeholders or organizations (Yescombe, 2002; Zerjav, 2021). Thus, project valuation is often regarded as an economic rationale, constructed on the assessment of the ratio between the projected future benefits of the project and the current costs required to attain those benefits (Laursen & Svejvig, 2016). To that end, companies typically use project-evaluating metrics such as return on investment (ROI)—the net profit divided by the invested initial cost of an investment—to evaluate the profitability and efficiency of a project investment (Magni, 2016; Steffen, 2018).

This situation is different in scaled agile transformations. Due to the trailing nature of early-stage investments, it is typically recommended not to rely on economic metrics such as ROI. Instead, frameworks such as SAFe^® suggest using innovation accounting metrics. Moreover, in scaled agile transformations, ensuring continuous funding for launching and advancing project initiatives is critical. Without providing continuous monetary resources for projects, commencing, maintaining, and delivering any operations will become unfeasible with time (Ma, 2016), which is why most activities in financing project initiatives typically require high degrees of documentation, transparency, and control—mostly because of fiscal and legal requirements imposed onto the organizations (Aghajani et al., 2023). At the same time, the reliance on formal contract governance with in-detail cost accounting documentation can be a hindrance to innovation projects (Liu et al., 2023).

Traditional approaches to accounting, budgeting, and funding in project finance management, plus the requirement to disclose financial planning analytics for publicly traded companies, thus create a new tension for organizations: In scaled agile transformations, incumbent project management practices and requirements conflict with the idea of flexibility and decentral empowerment espoused by agile principles (Hüsselmann & Erbacher, 2023). For example, SAFe^® suggests that project financing should take the form of lean-agile budgeting, a dynamic financing approach that delivers budgets in small, frequent increments to ensure alignment with the entity's strategic plan and quick adaptation to evolving circumstances (Sahota et al., 2014; Vierlboeck et al., 2019; Leavins, 2022). Although such an approach to accounting, budgeting, and funding may ultimately align with the target goals of a scaled agile transformation and thus looms as a desired target state, the question remains: How should organizations move from their incumbent approaches and requirements to such scaled agile financing approaches?

Method

Setting

We studied a globally operating German automotive manufacturer, CarCo, that is known for producing a wide range of vehicles, from compact to luxury cars. CarCo employs hundreds of thousands of people and is globally recognized for its strong presence in the automotive industry, holding significant market shares in various geographic regions.

Because of increasing market competition and a rising strategic importance of digital transformation initiatives for the core business value of the company, in 2022 the IT management of CarCo decided to implement SAFe^® as part of a comprehensive modernization of their IT and business project management practices. In addition, CarCo sought to trigger a change of their organizational culture from that of a traditional, engineering-oriented mindset coined by hierarchically thinking, detail-oriented, and risk-averse values toward embracing values associated with agility, such as openness toward failure, innovative creativity, and tenacious resilience (Gibbons, 2015). At the start of 2023, CarCo began the SAFe^® implementation process through an iterative rollout that comprised multiple waves of projects beginning with three pilots according to SAFe^® guidelines, rituals, and roles.

Data Collection

We traced CarCo’s scaled agile transformation journey since the initial implementation decision was made. We started data collection approximately six months after CarCo began implementing and working according to SAFe^® in 2023. One of us (the first author) is presently employed by CarCo in a role unrelated to the study, which enabled data access. We obtained ethical clearance for our study both from the authors’ research institution and the respective approval committees of CarCo.

Our data collection strategy was exploratory and iterative, beginning with broad semistructured open-ended interviews, and later adding subsequent rounds of interviews with key informants (plus other data sources) based on theoretical sampling considerations (Glaser & Strauss, 1967) when findings and concepts began to emerge from the data analysis process, which was conducted in tandem. In total, we conducted three cycles of data collection and analysis. In each round of interviews, we used different protocols adjusted to the particularities of the roles of informants we interviewed and reflecting the emergent conceptual focus of our analysis at that stage. Table 1 summarizes our case and data sources:

Table 1.

Case Overview and Data Sources

Category	First Research Cycle	Second Research Cycle	Third Research Cycle
Case Organization	CarCo:The case organization is a globally operating German automotive manufacturer recognized for its extensive portfolio, spanning various vehicle segments.		Cross-industry focus
Timeframe of Scaled Agile Transformation and Research Cycles	CarCo’s Scaled Agile Transformation (all in 2023) Research Cycles
Primary Data Sources	Nine interviews with strategic stakeholders: Three project leaders One education specialist Three transformation specialists One execution specialist Sixteen interviews with operative stakeholders from six SAFe^® projects as embedded case units: Eight agile consultants One product manager Three product owners One release train engineer One system and solution architect Two development team members	Five Interviews with Experts of incumbent financing processes: Portfolio managers Five interviews with experts of agile financing concepts: Agile finance specialists	Three interviews with scaled agile experts: SAFe^® industry consultants
Secondary Data Sources	Practice experience reports from the SAFe^® website Press releases from the case organization and similar organizations
Informal Data Sources	Memoing notes from 38 interviews Participation of the first author in three on-site product increment (PI) plannings events Participation of the first author in one on-site SAFe^® workshop Participation of the first author in certification courses “SAFe^® for Architects,” “SAFe^® Program Consultant,” and “SAFe^® Practitioner”

Our first round of data collection was from June to July 2023. Our objective was to immerse ourselves in the case and construct a comprehensive understanding of the historical context and distinctive features of CarCo’s scaled agile transformation. We used two criteria for selecting key informants: (1) the expert was actively involved in strategic planning and designing decisions and processes related to the scaled agile transformation (strategic informants), or (2) the expert was actively involved on a daily, operative basis in one of CarCo’s six SAFe^® projects between January and July 2023 (operative informants). We conducted 25 semistructured interviews with nine strategic and 16 operative stakeholders. We complemented these data with experience reports from the official SAFe^® website and media coverage related to the scaled agile transformation at CarCo and other large organizations.

Following our initial open coding of these interview data, we then conducted a second round of data collection in October 2023. At this stage, financing had emerged as a focal theme in our analysis. We used two new criteria to select informants: (1) the expert must be actively involved in the incumbent financing processes at our case organization, or (2) the expert must be actively involved in designing, planning, or implementing new, agile financing concepts at our case organization. In total, we interviewed 10 (five and five) experts, which allowed us to develop an in-depth understanding of both the challenges of incumbent financing and possible mitigation strategies.

We completed a third research cycle in November 2023. At this stage, our theoretical model had emerged from the analysis process. Our aim was then to enrich our data and insights with company-external views on scaled agile transformations and to obtain an expert-based verification of our findings and emergent theoretical model. We used one single criterion: the experts possessed more than three years of practical experience with scaled agile transformations, including teaching and implementing SAFe^®’s Lean Portfolio Management (LPM) approach in firms from different industries. We completed three interviews with SAFe^® industry specialists.

Data Analysis

We followed established guidelines for inductive data analysis (Urquhart, 2012; Gioia et al., 2013). We used thematic coding strategies known from the grounded theory literature to create an analytical ladder from our raw data to first-order concepts, second-order themes, and aggregate dimensions.² Figure 1 visualizes the resulting data structure of our theoretical model. Table 2 summarizes the key inputs and outputs of our data analysis.

Figure 1.

Data structure—Theoretical model for the financing challenge in scaled agile transformations.

Table 2.

Summary of Data Analysis Demographics

Category	First Research Cycle	Second Research Cycle	Third Research Cycle
Number of Interviews	25	10	3
Single-Spaced Transcript Pages	203	77	40
Duration in Minutes	724	279	148
Analyzed First-Order Concepts	342	235	58
Analyzed Second-Order Themes	198	23	11
Analyzed Aggregate Dimensions	60	14	6

Our data analysis process was completed as follows: In the first phase, we immersed ourselves into the data using inductive open-coding procedures (Strauss & Corbin, 1998; Urquhart, 2012). We coded how the specific experts portrayed the main characteristics of the incumbent financing processes at CarCo. To illustrate, the quote “at a very high level, I would describe it as follows: We have an IT framework budget that we set in the previous year for the coming year” from one of the agile finance specialists we interviewed was coded as “IT budget pot is determined for coming year.” Because challenges are the most interesting investigation element of practical digital transformations for researchers and practitioners alike (Alvesson & Sandberg, 2011), we then focused on issues that the informants reported to us. We soon realized that the experts illustrated distinctive emerging issues that linked with both the (1) incumbent financing processes and the resulting (3) mitigation strategy (e.g. “The bottom line is that you have to know now or the other way around, now what I actually want to do in 2025. Yes, that's a very long period of time and things are therefore very vague” (Portfolio Manager, 2023). After engaging with the literature on scaled agile transformations, we realized this finding had not yet been covered and was unexpected. Thus, financing became our sensitizing concept (Bowen, 2006), which helped us in iteratively constructing the foundation for the analysis of our research data and identifying the theoretical focus of our study. In response, we engaged in theoretical sampling to identify key informants that could speak to this focal concept. We adjusted our interview guideline structure, integrating the further investigation of emerging issues as part of our subsequent interviews.

In the second phase, we gradually grouped the identified first-order concepts (Gioia et al., 2013). After iterating back and forth, we identified 23 distinctive second-order themes distributed over three key aggregate dimensions: (1) CarCo’s incumbent financing approach, (2) issues emerging in CarCo’s scaled agile transformation, and (3) CarCo’s mitigation strategy. This process resulted in eight aggregated themes of concepts that described (1) CarCo’s incumbent financing processes (e.g., top-down, one-year-in-advance planning), 11 themes with concepts describing the (2) emerging issues (e.g., inaccurate requirement planning), and four themes of concepts describing (3) CarCo’s mitigation strategy (e.g., preservation of top-down, one-year-in-advance planning solely on highest strategic enterprise level) for the financing challenge.

In the third phase, we then probed and conceptualized the logical connections among our 23 identified second-order themes using theoretical coding strategies (Glaser & Strauss, 1967; Urquhart, 2012). As part of this process, we again used theoretical sampling to identify industry experts to inform our search for logical connections between the uncovered themes to understand, for example, in which incumbent financing processes noted issues were rooted and how, in the eyes of the industry experts, agile financing concepts eradicated these issues. In this manner we uncovered logical linkages that connected the second-order themes between (1) CarCo’s incumbent financing processes and (3) CarCo’s mitigation through the (2) emerging issues. For example, we identified that both inaccurate requirement planning and inflexibility towards requirement changes were market-related issues that flowed from top-down and in-advance-planning processes and thus required the implementation of a more flexible and incremental planning process in response.

To ensure quality of our theorizing, we followed established principles governing inductive data analysis and grounded theory development (e.g. Sarker et al., 2018). We validated the insights derived from our primary data sources (interviews) by triangulating them with data from secondary sources. In particular we used experience reports from other large organizations within their scaled agile transformation journey and press releases from our case organization. Further, we corroborated the insights with information from our informal data sources (mainly memos and notes from the interviews, observations from on-site agile rituals, and the official SAFe^® courses we completed). We also constantly compared data and emerging concepts to the available literature on scaled agile transformations (Urquhart, 2012).

One of us (the lead author) coded all data. To mitigate interpretation bias, we shared coded passages, coding labels, and drafts of theoretical model development at each stage of our data analysis. We assumed different roles in the analytical process. One of us (the lead author) drafted analysis outcomes (codes, data structures, and theoretical model). The other author's role was that of a critical reviewer, drawing on principles of dialogical reasoning, suspicion (Urquhart, 2012), and multiple interpretations (Klein & Myers, 1999), through which the coauthor’s interpretations and conceptualizations were challenged, and disagreements (e.g., how data were coded, how concepts were labeled, and how the theoretical model was constructed) identified and resolved. This collaborative process persisted until consensus was reached on the main elements of our analytical process, namely the coding structure, the data interpretations, and the conceptualizations of our findings in a theoretical model.

Finally, we used an informant validation strategy to challenge our interpretation and conceptualization. Specifically, we presented our findings and theoretical model of CarCo’s scaled agile transformation to scaled agile industry experts to have them evaluate the model’s (1) plausibility, (2) corroboration with existing experiences, (3) completeness, and (4) ability to transfer insights to other companies and industries. Concerning plausibility, all interviewed scaled agile experts asserted that the model and its concepts and relations was comprehensible and followed a structured, systemized, and logical analysis and conceptualization of a practical problem relevant to many other large organizations. For example, all interviewed experts stated that all the issues emerging from CarCo’s incumbent financing approach that we identified in our data analysis were also personally experienced by them in scaled agile transformations they had otherwise been involved in, corroborating them with their existing experiences. We noted that the issues faced by CarCo typically did not manifest in their totality in other initiatives the experts were engaged in, which suggests that CarCo’s scaled agile transformation was rare or extreme with its massive size and global reach. Related to completeness, the experts confirmed they would not add any specific concept into the underlying theoretical model. Concerning the ability to transfer insights to other companies and industries, all scaled agile experts confirmed the transferability and generalizability of our model. One SAFe^® industry consultant stated:

“The bigger the company or the transformation project, the more it [the model] fits, I think. If you have a small company that only wants to transform a few hundred people, then you don't have many of these problems because the decision-making processes are easier. But if you have large companies, it's really a great analysis, even for other industries.”

Analysis and Interpretation of the Case

How CarCo Embarked on Its Scaled Agile Transformation Journey

As an overview, Table 3 summarizes the (1) expectations, (2) perceived benefits, and (3) challenges that were reported to us by operative and strategic stakeholders involved in CarCo’s transformation initiative.³ Table 3 shows that in response to the stated reasons for the transformation (e.g., competition, inefficiencies, and adaptation to change), CarCo stakeholders expected productivity gains through process efficiency realizations and improved alignments among multiple parts of the organization.

Table 3.

Key Reasons, Expectations, Benefits, and Challenges in the Scaled Agile Transformation Identified at CarCo

Aggregate Dimension	Empirical Illustration: Selected Second-Order Themes
(1) Expectations of Scaled Agile Transformation
Increase in productivity (15)	Delivery speed as top priority Faster accomplishments due to small development cycles and packages
Increase in customer orientation (12)	User-centeredness as top priority Flexible adaption to any form of customer changes
Change in organizational mindset (11)	Implementation of a failure-tolerant culture Increased stakeholder responsibility over developed products
(2) Perceived Benefits of Scaled Agile Transformation
Improved alignment and decision-making (8)	Time-efficient planning due to PI planning Quicker decision-making derived from full stakeholder participation
(3) Perceived Challenges of Scaled Agile Transformation
Adaption of existing financing processes to agile financing concepts* (14)	Strong progress obduction due to rigid financing processes fulfillment Collision of two different worlds Unrealized potential of SAFe^®’s LPM
Complex adaption of existing IT project role structures to agile roles (12)	Transformation of established IT project roles and related structures Complex incentive creation for new agile roles
Modernization of process and committee structures* (10)	Reevaluation of historically grown committee structures Strong slowdown due to rigid committee cascades fulfillment
Lack of resources for staffing and training agile roles (7)	Obstruction due to fragmented capacities in agile roles Lack of available staffing capacities in agile roles

How the Scaled Agile Transformation Was Obstructed Through Financing

At CarCo, the main hindering factor for progressing the scaled agile transformation was attributed to an incompatibility of the incumbent project financing approach with the desired lean–agile budgeting concept espoused by SAFe^® as a success-critical part of a scaled agile transformation. This concept suggests fast and small iteration cycles in SAFe^® that require decentral decision-making by all stakeholders in the agile release trains (ARTs) and agile teams, in line with the ambition to implement a flexible, dynamic approach for responding to requirement changes. However, the resulting ambiguity of trying to act, decide, and progress in line with the presented agile approach—while simultaneously needing to satisfy established, inflexible, and waterfall-like financing processes to provide consistent project funding—critically hindered the progression of the pilot projects. One operative stakeholder explained the challenge as follows:

“That means that the conventional financing processes [in the organization] and all the other frameworks and constraints that I have to consider in a waterfall-like project apply to us [SAFe^® pilot]. […] I'll now take the topic of financing committees, committee processes, these are explicitly processes that are lived completely differently in the SAFe^® framework according to the doctrine. […] And all these processes have little to do with agility and agile working. And that is a very, very big obstacle, which also makes our lives more difficult.”

Other stakeholders asserted that the incompatibility of the established financing process structure for IT projects significantly slowed down the pilot progress because it tied up critical resource capacities. Without immediate and flexible funding, planned development activities for prioritized business product features cannot be executed on time for the customers and market. Thus, the impediment of financing consequently causes undermining of agile principles in the elementary comparison to waterfall-like project structures, critically hindering the success of the transformation. Consequently, we embarked on closer understanding the distinctive characteristics of this barrier.

CarCo’s Incumbent Project Financing Approach

We identified four aspects to describe the established financing approach for IT projects at CarCo: (1) planning, (2) organizational structure, (3) budgeting, and (4) governance.

Within the (1) planning aspect, we found that the financing processes at CarCo followed a one-year-in-advance planning structure, requiring in-detail cost estimations for distinctive project elements at a minimum of one year in advance. Besides, the processes follow a fixed rolling process sequence with obligatory milestones within a year.

Within the (2) organizational structure aspect, we found that, typically, the financed projects are organized in temporary teams and classified into four main strategic project categories: First, optimization of the incumbent IT landscape; second, innovative digital transformation initiatives; third, “keeping the lights on” of the incumbent IT landscape, and fourth, protection of the incumbent IT landscape.

Within the (3) budgeting aspect, we identified centralized decision-making processes behind every budgeting decision. At CarCo, every budget decision usually followed a series of fixed, protracted, and cascading committee deliberations on different management levels, depending on the criticality and financial volume of project decisions. Further, an intra-year reshifting of already given budgets from one project to another turned out to be highly complex for two reasons: First, each project possessed an individual distribution key depending on the company-internal business units that collaborate within the project. This distribution key is individually fixed for the specific project and can only be changed through additional administrative and alignment effort among all involved stakeholders. Second, each business unit had to fulfill certain fiscal requirements related to the transparent tracking of all estimated costs and profits, which further hindered the shifting of budgets from one project to another.

Within the (4) governance aspect, we detected centralized milestone monitoring and a lack of integrated feedback cycles within the underlying incumbent financing processes at CarCo. In particular, project members needed to constantly monitor and report their progress in accordance to determined milestones stipulated by the finance department.

Issues in CarCo’s Scaled Agile Transformation That Stemmed From the Incumbent Financing Approach

Six distinctive clusters of issues emerged from the incumbent financing approach initially used by CarCo: (1) time-related issues, (2) market-related issues, (3) money-related issues, (4) personnel-related issues, (5) content-related issues, and (6) process-related issues.

Concerning (1) time-related issues, we noted, in particular, the one-year-in-advance planning and centralized budget decision-making with its underlying committee cascades caused delays in the progress of the projects. Concerning market-related issues (2), we identified two distinctive issues derived from the one-year-in-advance planning: First, any form of dynamic requirement changes from the markets or customers can be hardly integrated into rigid project plans, leading to inflexibility; and second, the high degree of up-front planning resulted in vague, inaccurate, and incomplete estimations of costs and working packages. Concerning (3) money-related issues, interviewees highlighted an inefficient resource utilization that followed the complex intra-year budget reallocation process at CarCo. When unpredictable changes throughout a business year happened, and thus, certain product features or services could not be delivered, the freed-up budgets could not be reallocated to other projects. Further, the one-year-in-advance planning and the centralized and lengthy budget decision-making process steps resulted in rising costs, as the projects were delayed. Concerning (4) personnel-related issues, the high administrative and bureaucratic efforts were highlighted by all involved stakeholders. This effort was mainly caused through project documentation requirements derived from undergoing the committee cascades within the centralized budget decision-making processes and the administrative effort involved in intra-year budget reallocation. A second personnel-related issue referred to project member frustration when passing through the committee cascades and dealing with the centralized budget decisions related to the project. Concerning (5) content-related issues, we identified a decision distance from the centralized budget decision-making, meaning that management with no in-depth technical know-how of the project-related content and its importance to the company regularly decided whether a project received budgets. Moreover, the one-year-in-advance planning and rigid rolling sequence resulted in innovation latency because it obstructed follow-up processes for technological innovations spotted on the market. Finally, concerning (6) process-related issues, we noted a comprehension difficulty that stemmed from the rigid rolling process sequence, the objective-based project classification, the required resources as part of passing through the centralized budget decision-making processes, the steps concerning the intra-year reallocation of budgets, and the existence of centralized milestone monitoring. Further, the inhibition of process improvement sprung from the lack of integrated feedback cycles within the comprehensive incumbent financing approach.

CarCo’s Mitigation Strategy: The Scaled Agile Financing Approach

To deal with the issues that emerged from the incompatibility in project finance management during the scaled agile transformation, CarCo developed a mitigation strategy, which we label The Scaled Agile Financing Approach. CarCo began developing this strategy about nine months into the scaled agile transformation (prior to our second research cycle) and iteratively refined it thereafter. Effectively, CarCo decided to make alterations both to the source state (their existing approach to project financing) and to the goal state (the desired new approach to project financing that was espoused by SAFe^®). Effectively, they sought a compromise between what was and what ought to be by moving both present and future states toward each other. In what follows, we describe their strategy using the same four aspects that also characterized the traditional approach to project financing, viz., (1) planning, (2) organizational structure, (3) budgeting, and (4) governance.

Concerning the (1) planning aspect, CarCo adjusted both the incumbent and the targeted structures: they implemented a hierarchical layering of their scaled agile financing approach. They persisted with their incumbent one-year-in-advance planning processes but only on the highest strategic enterprise level. They did so because of fiscal governmental requirements for transparent finance planning and reporting. Overall, their dual adjustment achieved two goals: First, the organization complied with all fiscal requirements, whereas second, the interim execution of the predetermined budget could now be flexibly allocated, reshifted, and utilized. One expert described the strategy as follows:

“We are simply too big and too complex for that and there is far too much money behind it. This means that the planning phases will remain part of the company. In other words, we will continue to plan one year in advance. […] On the one hand, we have the planning phase, which is determined by the company, but on the other hand, we have flexibility in terms of budget execution throughout the year.”

Concerning the (2) organizational structure aspect of CarCo’s scaled agile financing approach, we found that CarCo persisted with their incumbent structure but adjusted certain structural levels (specifically, temporary silo project teams) to form consistent value-based and product-oriented structures that corresponded to the SAFe^® guidelines for how the collaboration, alignment, and dependency of certain agile layers could be scaled and worked out in practice. Thus, CarCo shaped the highest enterprise layer—where the overarching corset in the (1) planning aspect is defined—into certain business domains, such as sales and production. Next, each business domain was subdivided into distinctive product-oriented “joint teams of agile teams”—in SAFe^® terminology: ARTs—which aggregated all agile teams operating within a particular product domain such as after-sales. Below a joint team of agile teams, on the lowest scaled agile layer, distinctive agile teams (e.g., the development team of a certain application for after-sales customers) then formed the foundational layer of the scaled agile structure. In deciding which element belonged to which structure, CarCo used monetary thresholds as implementation criteria (i.e., which strategic decisions for the company brought the highest customer value at a certain point of time). One agile finance specialist explained:

“We have so-called thresholds, where we say that if this threshold is breached, then we will make a strategic decision about it, then it will move to an overarching portfolio, a cross-portfolio, where we then decide across all business domains and say how much money we want, which topics or products we want to implement accordingly. And then we give the flexibility, full flexibility for the funds they have, for the ARTs that have been designed, for the cuts that have been made. […] And so, the colleagues are also the rulers and can do whatever they want with these funds.”

Concerning the (3) budgeting aspect, we found that CarCo adjusted their incumbent contractual agreements to legally enable flexible, intra-year budget reallocation. In so doing, they shifted their incumbent approach toward the lean–agile budgeting guidelines of SAFe^® (Scaled Agile Inc., 2024) because this budgeting aspect was highlighted as a success-critical core competency of scaled agile transformation endeavors. Changing this aspect meant they had to change the underlying legal and contractual agreements that had been in place for decades over the entire organization and were difficult to adapt seamlessly. In particular, reallocating budgets within a business year was often contractually complex with a high degree of administrative effort. One agile finance specialist stated:

“We often have joint projects in IT […] and we have the challenge that there is of course a contract, a contractual basis for this. And this contractual basis does not currently allow us to distribute funds freely in full. So, the contractual basis is definitely a point that needs to be changed […] Today, that is only possible with a monster administrative effort and aligning all business units on a micro level.”

Finally, concerning the (4) governance aspect, we identified as a key action taken by CarCo the integration of cadence-oriented customer value evaluation and feedback cycles. CarCo’s incumbent approach to governance rested on in-depth milestone monitoring paired with cost accounting the requirements for documentation, which led to the formation of silo-oriented, nonintegrative organizational structures and collaborations. Because the resulting inflexibility toward process improvements substantially hindered the adoption of agile ways of working, CarCo decided to implement decisively agile principles for financial governance. Specifically, they committed to constantly review and self-control the appropriate direction in product development and acquire and use constant customer feedback. One agile finance specialist stated:

“From our point of view, this also means that controlling [cost accounting] activities will move away from controlling [the organizational unit], which previously always controlled these topics, and that more controlling [cost accounting] activities will be transferred to the various ARTs and teams directly, because they now have a type of self-control. And they have the people and the customers and they review it constantly, if they are still on the right track.”

Theory Development

Figure 2 visualizes the theoretical model that we developed to summarize and abstract the insights we gained in our case study. Our model originated from our initial motivation, namely, to delve into a profound understanding of the incompatibility of the incumbent financing processes and with the targeted agile financing concepts as one of the main barriers to CarCo’s scaled agile transformation.

Figure 2.

Theoretical model.

At the outset, our model shows the financing challenge in scaled agile transformations to be notably complex. The challenge stretches across multiple aspects (e.g., planning, budgeting, governance) leading to multiple interconnected issues (e.g., process, content, and money-related). Because of this complexity, we used Tywoniak et al.’s (2021) pragmatic approach to complexity theorizing in project management research. We started by engaging with a first-order theorizing lens to describe the observed system of elements on a macrolevel. We then iteratively investigated the situated activities and mediating signs within the financing challenge in CarCo’s scaled agile transformation into a narrative meaning making effort. Figure 2 presents the visualized outcome of this process:

In Figure 2, the left model block shows how the planning, the organizational structure, the budgeting, and the governance concept together form the key traditional elements involved in the financing of IT projects. The middle block in Figure 2 highlights how these elements contribute to six clusters of issues to emerge within scaled agile transformations, namely time-related, market-related, money-related, personnel-related, content-related, and process-related issues. The right model block in Figure 2 conceptualizes the mitigation strategy CarCo implemented, which effectively adjusted elements of both the incumbent financing approach and the targeted agile financing approach espoused by SAFe^® to reach a middle ground we call the scaled agile financing approach. This approach is composed of the same building blocks as the incumbent financing approach but implements and organizes them differently.

With these building blocks of our theoretical model established, we then engaged in what Tywoniak et al. (2021) call second-order theorizing: We explain the relationship between the systemic concepts on our model by developing five propositions that illustrate the relationships in the system of concepts and yield practical consequences about the financing challenge in scaled agile transformations, spotlighting which emerging issues can be alleviated and why.

The first main proposition of our model is that companies should find a balance between flexibility and control in their approach to project planning. While agile principles recommend planning to be rooted in flexibility within development activities, large organizations also are subject to legislative regulation that reinforces the upkeep of annual finance planning processes to comply with fiscal business requirements (Aghajani et al., 2023). Our model implies that companies can find a balance between compliance and flexibility by preserving a top-down, annual planning solely on the highest strategic enterprise level (this enables the organization to comply with the requirements of size and legislation) and simultaneously offering more flexibility at lower organizational levels to implement and use more adaptable planning processes. This way, the issues delay of progress (time-related issue), inflexibility toward requirement changes, and inaccurate planning requirements (market-related issues) can be alleviated.

The second main proposition of our model is that companies should shift the locus of decision-making. Our model emphasizes that budget decisions should be conducted de-centrally within the value-based structures on the distinctive levels (business domains, joint team of agile teams, and agile teams). In essence, business experts with a profound technical know-how of the digital product are empowered to decide on whether to prioritize, delay, or stop the financing of certain customer-relevant working packages. This way, issues of delay of progress (time-related issue), rising costs (money-related issue), administrative effort (personnel-related issue) and, above all, the decision distance (content-related issue) can be mitigated.

The third main proposition of our model is that companies should implement adjusted contractual agreements as a legal foundation for flexible budget reallocations within a business year. Traditional financing approaches can lead to a delay in project progress, because many distinctive committees and stakeholders need to approve and be aligned with any form of intra-year reallocation. Consequently, any form of changed requirements on the market throughout the course of a year as well as novel technological innovations are difficult and slow to pursue. Moreover, remaining budgets cannot easily be reallocated to fund other IT-based projects. Because it provides more elasticity, speed, and reactivity, flexible budget allocation can effectively mitigate delay of progress (time-related issue), inefficient resource utilization (money-related issue), inflexibility toward requirements change (market-related issue), and innovation latency (content-related issue).

The fourth main proposition of our model is that companies should integrate shorter budget decision cycles, which becomes feasible through changes to (1) planning, (2) organizational structure, and (3) budgeting aspects of project financing. In particular, the nature of the agile principle related to frequently reviewing and cross-checking the working packages with customer value and expectation is affected by this element. For example, CarCo adhered to guidelines from SAFe^® and followed a three-month-cadence rhythm of bringing all stakeholders together. Shorter budget decision cycles allow verifying the current state of technical development and deciding on adjustments to financial mapping based on what has and hasn’t been funded thus far. This way, shorter budget decision cycles can mitigate the issues of inaccurate requirement planning (market-related issue) and inefficient resource utilization (money-related issue).

The fifth main proposition of our model is that companies should implement feedback cycles and process optimization mechanisms. By integrating final customers of the created products into the development and budget decision-making process, a realistic requirement planning can be conducted, drawing attention to iteratively approximating toward the final product while optimizing the holistic approach. This way, issues of inaccurate requirement planning (market-related issue) and inhibition of process improvement (process-related issue) can be addressed.

Discussion

Contributions

We identify two main contributions of our research to the body of knowledge on scaled agile transformation. First, we provide an empirical analysis of the incompatibility between incumbent financing processes and required agile financing concepts and the modernization of process and committee structures as a novel finding regarding the challenges that large companies face in scaled agile transformations. Second, we investigated and conceptualized how CarCo, as our underlying case organization with its unique organizational setting, strategically mitigated the identified transformation barrier of the financing challenge by adjusting both point of origin (their incumbent approach to project financing) and future state (the lean-budgeting concept of SAFe^®). We synthesized these insights in a theoretical model based on a rich empirical data picture that illustrates an integrative perspective on the incumbent financing processes, emerging issues, and the mitigation strategy and how they relate to one another in between them.

Limitations

We note two main limitations. First, we collected data from a single case, which limits the generalizability of our findings. We tried to mitigate this limitation during the informant validation of our theoretical model, which indicated at least some level of transferability of our insights to other large organizations and industries. Additionally, previous studies found expectations, challenges, and success factors similar to those we identified in our case in industries such as software, telecommunications, finance, technology and the public sector (Dikert et al., 2016, Putta et al., 2018; Edison et al., 2021). Second, our findings draw from the investigation of one specific large-scale agile framework—SAFe^®. Findings might differ in cases of organizations working with other frameworks such as LeSS or DAD (State of Agile Report, 2022).

Implications for Research

The first implication of our study for research is to integrate the role of financing of scaled agile transformation more intensively in the discourse around scaled agile transformation. Most existing studies only touch lightly on elements referencing to the holistic adaptations of company-specific organizational structures, operational processes, and cultural beliefs and values as required by implementing large-scale agile frameworks (e.g., Dikert et al., 2016; Putta et al., 2018; Edison et al., 2021). To the best of our knowledge, our study is the first to examine the roles of project financing, budgeting, accounting, and funding as enabling success factors in scaled agile transformations. A logical next step is now to synthesize and compare these success factors with others already identified (such as cultural orientation, top management support, or training). For example, it would be interesting to examine how the organizational and structural elements of CarCo’s scaled financing approach interact with their desire to shift their dominant cultural values from a hierarchical engineering mindset to an agile mindset that embraces failure and flexibility.

A second implication for research is to pay closer attention to the dynamics of critical success factors in scaled agile transformations (Dikert et al., 2016; Putta et al., 2018); Edison et al. (2021) already point to the dynamics involved in maintaining alignment of existing processes and stakeholders with the new large-scale agile framework as a project management challenge. An inherent assumption appears to be that alignment with agile principles is to be maintained by moving the point of origin closer to the desired target state. Our analysis of CarCo’s efforts shows that alignment can also be achieved by moving both the existing approach and the target state. The approach taken by CarCo is clearly dynamic, also because some of the aspects (e.g., contractual or legal arrangements) are more difficult to transform than others (e.g., defining new roles).

A third implication for research is the need to further research tensions and their resolution in scaled agile transformations. Existing research in this area has already unearthed some of the tensions between the old and new (e.g., Chanias et al., 2019; Kane et al., 2019) such as the tension between maintaining present operational success while focusing and shifting toward new competences and principles rooted in agility (Strode et al., 2022). The financing challenges and its underlying adaption complexity of organizational structures, inherent processes, and cultural beliefs identified in this article present a similar tension between productivity and learning (Smith & Lewis, 2011) that manifests for organizations as a dilemma they need to resolve. We also showed that the successful management of this tension involves adjusting both end points of the tension, that is, the old as well as the new.

A second example of tension flows from finding a company-specific balance between the agile flexibility and process control within the planning aspect of project financing. Seemingly, the guidelines, principles, and recommendations given by large-scale agile frameworks and the underlying consequences for structures, processes, and beliefs are complex to implement holistically within large, incumbent organizations. We found, for example, that CarCo decided to balance both counterparts by (1) preserving the incumbent one-year-in-advance-planning structure on the highest strategic enterprise level and, thereby, complying with company-external and -internal requirements; and (2) enabling flexible budget reallocation on the levels below. Future research should now study if such a tension only applies within the mitigation strategy for the financing challenge or also in other decision elements in scaled agile transformations.

A fourth implication for research relates to future research avenues that could be pursued to further expand our knowledge of project finance management in scaled agile transformations and increase the ability to generalize the insights we presented here across different settings and industries. We studied a particularly large and globally acting car manufacturer. Both the size and cultural orientation of this organization may not be representative of other organizations. The car manufacturing industry, with its focus on modular products and supply chains, is also different from other settings in which scaled agile transformations have been studied (e.g., telecommunications or finance). Our theoretical model should thus further test and extend to different organizational or industry contexts. In addition, comparative case studies with other popular large-scale agile frameworks, such as LeSS or DAD, could broaden and enrich the generalized comprehension of research on the role of financing in scaled agile transformation.

Implications for Practice

The key practical insight of our study is that the real crux of the financing challenge in scaled agile transformations is not whether but instead how to bring into reality the theoretically generic recommendations (such as the lean–agile budget concept) provided by frameworks such as SAFe^®. In large incumbent organizations, organizational structures, processes, and cultural beliefs emerge through a cumulative evolutionary process over decades; adapting them is a complex endeavor for many different reasons (e.g., resistance, inertia, legal requirements). We found that CarCo’s mitigation strategy brought the company’s transformation closer to the theoretically ideal concept of lean–agile budgeting but without actually implementing it literally. Thus, the question remains if large organizations can ever fully implement large-scale agile frameworks, such as SAFe^®, or rather need to shift their focus toward finding organizationally, culturally, and ultimately economically feasible hybrid solutions.

This key insight spans three concrete action recommendations to large organizations: First, maintain a strategic alignment of different business units within scaled agile transformations. In particular, the aspect related to the contractual adjustment including the determination of standardized distribution keys within incumbent IT project framework agreements to flexibly enable intra-year budget reallocations displays the collaborative result of the legal, finance, IT, and involved business departments. However, this aspect could be a symptom rather than the root cause of the challenge. A possible solution could rely on (1) stressing the practical adaptation urgency across the holistic organization and (2) distributing the involved financial risks across different business units within the organization. In particular, rigid financial processes and related documentation (Aghajani et al., 2023; Liu et al., 2023) need to be adjusted. Reorienting the corporate mindset toward the network philosophy embraced by SAFe^® requires breaking up the functional silos in organizations and constructing cross-functional value-based structures. Another key element of SAFe^® is de-centralizing product responsibility across the value-based structures and distributing financial risks in the budgeting proportionally across all involved stakeholders. Still, the available scaled agile frameworks do not give concise, practical guidelines for how to apply agile financing approaches on higher agile structure layers. Thus, for the agile layers above the joint team of agile teams, new guidelines will have to be designed and implemented.

Second, ensure sufficient directive, company-internal power to drive a scaled agile transformation. In large, incumbent organizations, processes and structures are usually adjusted only through management directive. Unsurprisingly, if management decision makers of all business departments are not in constant alignment with the conceptual strategic experts on how to conduct integrative scaled agile transformations, all efforts to mitigate transformation barriers will be in vain. Thus, a fundamental shift in cross-functional management collaboration is required to effectively move forward within a transformation.

Third, use hypothesis-driven optimization to adapt contractual agreements. Frequently adapting and iteratively approaching optimized legal drafts based on feedback from involved stakeholders is critical. In addition, we suggest ensuring constant interaction with the legal department already from an early stage during scaled agile transformations.

Conclusion

We explored the challenges involved in implementing large-scale agile frameworks in large firms, using the case of CarCo to illuminate a previously overlooked transformation barrier, namely the incompatibility of incumbent financing processes to agile concepts targeted in the transformation initiative. Our study provides empirical insights into the issues that flow from this incompatibility and describes a mitigation strategy that provides a workable balance between the present and targeted states of financing in scaled agile transformations. We hope that the actionable recommendations we derive from our research will help other organizations to successfully traverse similar challenges.

Footnotes

Acknowledgments

This study received no third-party funding. We thank CarCo for supporting our study and granting access to resources and material. We are grateful to the editor and anonymous reviewers for their constructive feedback. All faults remain ours.

Declaration of Conflicting Interests

The authors declared the following potential conflicts of interest with respect to the research,authorship,and/or publication of this article: Jan Recker has a conflict of interest with Anna Wiewiora of PMJ’s editorial review board,being former colleagues.

Funding

The authors received no financial support for the research,authorship,and/or publication of this article.

ORCID iD

Thomas Mayer

Author Biographies

Thomas Mayer is enrolled as a PhD student at the Faculty of Business Administration at the University of Hamburg. In his research,Thomas investigates digital transformation initiatives within large organizations,such as scaled agile transformations and artificial intelligence projects. He can be contacted at thomas.mayer@uni-hamburg.de

Jan Recker is AIS Fellow,Alexander-von-Humboldt Fellow,Nucleus Professor for Information Systems and Digital Innovation at the University of Hamburg,and Adjunct Professor at the Queensland University of Technology Business School. His research focuses on digital innovation and entrepreneurship,systems analysis and design,and digital solutions for sustainable development. He can be contacted at jan.christof.recker@uni-hamburg.de

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