Agile is Not Strategy

“Agile” Has Gone Mainstream

Somewhere in the fog of misapplied buzzwords and enterprise institutionalization, “Agile” has nevertheless gone mainstream. On the one hand, the core differentiating idea, “Respond faster,” is perhaps too easily applied to virtually anything. On the other hand, due to the widespread adoption of communication, productivity, and collaboration tools meant to enable agile product development, it is easy to feel like everyone can “be Agile” now. From modular home architecture to distributed automobile innovation, there has been a massive push to apply the tenets of the Agile Manifesto to virtually everything.

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However, although a utopian level of rapid innovation may seem exciting for some us, it is safe to say that the majority of people would struggle to cope with the chaos of truly ever-changing market signals. In fact, despite my own energetic love of brainstorming and disruptive new technology, a need to “respond quickly” to everything in life sounds exhausting… if not terrifying. Personally, that is the real appeal of owning an autonomous car someday – one less life-critical thing requiring my constant attention and responsiveness.

Luckily, the economics of novelty do not reward chaotic change for its own sake. It does not always seem this way from the outside due to the explosive growth tech startups seem to enjoy “out of nowhere” once they gain market traction. This is because innovation-based markets are driven by payoffs that are asymmetric and such new markets are often winner-take-all. It can appear, to an outsider, that all innovation is lucrative. “If you build it they will come” is a disastrous approach to establishing an expensive new product that the market cannot effectively evaluate. As the Lean Startup community has shown us repeatedly, building something no one will demand is the greatest risk in technological innovation.

Market-Based View of Agility

Instead of a “Respond faster to everything” definition of agility, I propose a Market-Based View of agility, steeped in the economics of competitive strategy and the maneuver imperative suggested by chaos theory: Responsiveness to signals in a market with imperfect information and imperfect competition.

Oddly enough, this economic definition of agility actually spans the entire spectrum of delivery practices from the much-maligned dystopia of multi-year, big-bang “Waterfall” (with a capital-marketing-“W”) to the utopian culture of innovation and spontaneous sing-alongs promised by “Agile” (with a capital-marketing-“A”).

As Little’s Law shows us, utilization is inversely related to responsiveness. This is nearly a truism in any other industry. Tech and “digital” just has more of a sense of mystery, magic, and malarkey to it. Imagine the parallel for an economist or accountant – liquidity is inversely related to opportunity cost, demand elasticity is inversely related to price volatility. It is imperfect information and ambiguous, non-linear relationships that make things “interesting” in digital product development.

The same is true of “agility” as responsiveness. Depending on who is responding and to what they must respond, the correct amount of responsiveness will vary. It is easy for an Agile Coach to die on the sword of “20% time” because 100% (or more) capacity utilization is the entrenched norm for most IT (Information Technology) and PMO (Project Management Office) organizations, whereas digital product innovation is obviously not static. In a company where 50% capacity utilization is the norm, that same coach would recommend a rapid backlog creation workshop – to get everyone “engaged” aka busy again. The tension between these two ideals – creating slack in the process versus keeping a well-groomed backlog – is rarely accounted for explicitly, causing the team to be judged by KPIs that the Product Owner should be accountable for.

When we leave the safe waters of “responsiveness to evolving technology” preserving responsiveness starts to represent far too much opportunity cost.

Agility for its own sake is impossible to justify because there are many industries that, for now, are safe from disruptive innovation (as properly defined). These industries are typically mature, stabilized by well-established contract law, and the market maintains low-volatility price equilibrium for relatively homogenous product offerings. Agility, as responsiveness to signals in a market with imperfect information and imperfect competition is only justifiable to the extent that we are unable to trust the consistency of signals, information, and competitive forces. A stable marketplace such as crude oil can “hover” near equilibrium despite economic rents, distorted signaling, imperfect information, and imperfect competition precisely because the expected certainty is relatively stable.

Disruptive innovation, in contrast, begs for high levels of agility. Responsiveness, as economic maneuver, is critical if an established competitor wants to survive in an industry or market that is either undergoing disruption or if it is unknown if disruption is about to occur. Of course, orienting is essential to agility, so responsiveness to signals is the only way to thrive while your industry is in the process of discovering whether a new product offering or business model is a sustaining innovation or a disruptive innovation.

Agility is Not a Strategy

Strategy is tradeoffs. It is the choices we make in pursuit of a clear goal. Strategy is who we serve, knowing we do it at the expense of someone or something else, because time, money, talent, and brilliance are all zero-sum. No matter where you give your time and inspiration, or gain them from others, they taken from somewhere else. Strategy means focusing the daily decisions across all activities toward a cohesive company focus. To this end, there are three generic competitive positions – cost leadership, broad differentiation, or focused differentiation. While agile can play a major role in the fit among a company’s activities for any of the three, agile itself is not a strategy any more than “marketing” could be considered a strategy.

 

The problem is that some companies treat Agile as a strategy and often believe it will lead to both differentiation and cost competitiveness simultaneously. Because some companies are already incredibly behind the competition in productivity and digital presence, the dysfunctions of middle managers who lack strategy pursue every proven value offering. The result is bloated products, over-sized teams, unclear value propositions, and cyclical reboots. Without a clear end to agility, a company will pursue agility for its own sake – until the money dries up. Strategy is the art of making choices, choices that preserve a company’s identity and strategic position. It ensures that the investments of time, talent, energy, and money are flowing in a cohesive direction without being spread too thinly across all options.

Responsiveness to market signals – valuation, demand, threats, and fleeting opportunities – can obviously improve strategic position, but only if our “response” has enough alignment to maintain a position with sustainable competitive advantage. Agility can bolster the success of a strategic vision, but a blanket imperative to “respond faster” in the absence of alignment on how to respond and in what way will only exacerbate the wasted energy, time, talent, and money of an organization.

From the market-based view, higher levels of agility benefits economic maneuverability. If there is a lack of clear strategic intent, shared values, established repertoire, or cadence of synchronization, pressure to respond quickly will be disastrous. If Agile (or DevOps, or LeanUX) was your only strategy, your “golden ticket” to innovation, it may actually make your nightmare far worse. You may find you respond to the market more rapidly, but you do it at higher risk due to volatility. A hair trigger is only as good as the ability to rapidly when to pull the trigger – and when not to pull it.

Agility is Operational Effectiveness

Clearly, agility itself is not strategy. Instead, agility is operational effectiveness. As “Agile” continues spread into domains further from rapidly changing technology products, this becomes increasingly clear. Michael Porter’s “productivity frontier” has stood the test time in this regard. The productivity frontier represents all possible best practices available to a company given their cost or differentiation position. Because the frontier of better practices, better technology, and better management processes is ever-expanding, it is unsustainable for a company to chase every possibility simultaneously. It is especially noticeable in digital products, where large enterprises that far more capital to invest in the productivity frontier cannot make sense of how fit all their activities, processes, and tools. They increase quality and decrease risk, but their improved responsiveness is purely internal. The more money they spend on better tools, the more difficult it becomes to make sense of how to adopt them or keep the value stream flowing uninterrupted.

Although gains in operational effectiveness through adoption of better processes and tools is necessary to maintain profitability, it is insufficient. Through aggressive efforts to protect against disruptive innovation, established rivals in every industry have already raised the bar for everyone. How did we get here? As the clear winners for a given best practice emerge, the companies that sell the product gain market traction. As the best way to use a set of tools becomes proven, the consultants that train companies on better processes gain traction. This has the effect of raising the bar for everyone so that the consumers capture all of the increased value-add. We saw this clearly with websites then mobile apps – millions of dollars were spent to bundle an information product with every existing product, rarely with any strategic consideration of who would capture the value.

Strategy is not operational effectiveness.

Operational effectiveness goes viral. Strategy does not. Strategy is the art of being different through consistent decisions. Strategy is measured in the ability of every constituent to trust the core ideology of a socioeconomic superorganism. Like a professional athlete, agility for its own sake is meaningless. It is the coach’s responsibility to create fit in the time and energy invested in generalized strength, speed, and agility of an athlete with sufficient specificity to out-perform a competitor. No amount of expert coaching will help the athlete to win if they refuse to pick a sport. In the same way, increased operational effectiveness can increase the strength, speed, and quality of our response to market signals, but we must fit these capabilities together with a level of specificity as a competitor in a zero-sum game.

This fit between general responsiveness and specificity of repertoire is the realm of strategy. If companies did not exist in a context of exchange and finite resources, we could all pursue operational utopia for its own sake. Instead, we see that competitive strategy is the imperative to not only be responsive but also exploit responsiveness in order to out-maneuver competition and market forces. We do not need to be infinitely faster or stronger, we need to use strength and speed to make ourselves unique as a competitor.

Agility Increases Economic Maneuverability

As the rate of technology adoption continues to grow this has the effect of causing distrust, uncertainty. As disruptive innovation continues to cause havoc in various industries, companies are less able to trust that the best practices and value proposition of yesterday are still valid. In fact, while information asymmetry between established rivals was once the greatest risk in competitive strategy, this is now matched by the risk that disruptive technology can enable new entrants that no barrier to entry can stop. Today’s competitive strategy must contend with the possibility that established rivals may not even see the new entrant coming.

Competitiveness is defined by our ability to respond quickly, which requires both speed and focus. The greatest risk in any value-add process today is rapid shifts in information asymmetry between demand and supply. By the time you notice the disruptive innovation, it may be too late to effectively respond. By the time you respond, you cannot be certain will anyone still buy it. Worse yet, the assumptions made at the time of capital investment may be completely incorrect by the time you go to market. Disruptive innovation has the effect of compounding the inelasticity of supply for established rivals, then ignoring it entirely to induce new demand that the established rivals cannot contend with.

Thus, we not only have imperfect competition in the market due to economic rents and significant learning curve disadvantages, we have increasingly imperfect information in the market as well – between established rivals, across the five forces, and between supply and demand. Risk, reward, and volatility during our current pace of technological innovation and adoption have made it necessary to not only respond better and faster, but also prepare for the risk that all our information is wrong.

This is why there are clear limits to the marginal return on the marginal investments that increase responsiveness to signals in a market with imperfect information and imperfect competition. The point of diminishing returns is shaped by the market, its competitive forces, and the necessity of economic maneuverability. We cannot afford to refuse adoption or our margins will erode faster than those of our rivals in the rest of our industry. We cannot afford to adopt everything because the pace of change makes information too difficult to trust. A company must have clear strategy, strong self-identity, and narrow focus in order to compete.

Agile is an Ideology, Not Your Core Ideology

How can we tell, pragmatically, how far to take our efforts to “transform” a company’s responsiveness and maneuverability? Once we recognize the distinction between strategy – the market we will compete in, the customers we pursue, the tradeoffs we make – and operational effectiveness, it becomes apparent that the ideological frameworks of the various stages of agility must fit with the core ideology of the company. Most of the legacy of your company is not the code you failed to maintain, it’s the history of how you have self-identified as system that is somehow distinct from other systems.

The principles of operational ideologies may certainly be appropriated by company core ideology, but it can never provide sufficient identity for sustainable competitive advantage.

Despite the exciting novelty of digital product innovation, the old categorical imperative “Know Thyself” remains critically important. Choose who you are, what you “live” for, and stay focused on your goal, no matter how responsive you become.

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