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  • Writer's pictureHaydn Shaughnessy

Ecosystems and the fallacy of agile transformation

The idea of doing an agile transformation is now so well embedded in managerial thinking it is hard to escape. If you are not talking up an agile something, you look like a dinosaur. But why would you transform?

The short answer is - because we are now in an ecosystem economy. Vertical sector structures have been replaced by horizontal platforms. That means transformation needs to be directed at these important changes. Like many aspects of management theory, though, the concept of agile arrives crippled by poor thinking and bad execution.

What problems do you really face?

If you want to improve your company’s performance, the answer is to solve the problems that are holding you back rather than engage people in the concept of transformation. Most companies face a barrage of complex problems that require simple answers. And that’s possible because they are caused by a surprisingly small set of disruptions.

One key disruptor is the switch to a globally connected and mobile world. Global connectivity and the expansion of the Asian economies have created markets of billions, markets that are so large that companies must now measure success in how many hundreds of millions of customers or indeed billions of customers they attract.

The other side of that coin is micro-everything. Today's giants win out by aggregating micro-transactions (starting with the 0.99 cent album track from iTunes in 2001). In global mobile, micro rules. And micro is at the root of new business ecosystems.

A few visionaries, such as Amazon and Alibaba, have mastered this idea and now derive sustainable advantage from it, especially because they are aware of the scope of services that successful companies deliver.

And I pointed out in this 2016 article on ecosystems that they typically break down vertical sector boundaries and produce horizontal competition.

So it is important to think in terms of scale and scope both of which go hand in hand with speed because when you innovate for scope (a broader array of products and services) you have to accelerate innovation. Disruption number one is therefore all about scale, scope, and speed. Disruption number 2 is that all this scale, scope, and speed involves micro everything an idea I have been working on with Fin.

Today's disruptions mean that there are new economic models to support scale, scope, and speed, dominated currently by a few platforms - and then there’s the rest. It means there are a few companies setting new standards for how to deliver customer success and then there is the posse. That's what your agile efforts should address.

The agile fallacy

Agile frameworks are not an answer. They present many of their own problems. Stemming notably from the sheer volume of demand for agile over the past decade.

In the U.K. the Agile Business Consortium reported a 33% increase in the uptake of agile project management qualifications between 2015 and 2016. The Dice quarterly tech job alert reported a14% year-on-year increase in demand for agile software developers, also in 2016. In the U.S., by 2012 agile jobs’ demand was already outstripping candidate supply by 4.6:1.

These figures should be alarming, especially if you are late into agile. They mean that the core skills of agile coaching or agile-related execution jobs are very thinly stretched. And have been since about 2012.

If these data related to jobs that had an established high-grade training environment, the shortages would already be a concern. But many people qualify as ”agile” after two-day Scrum Master training courses. So that “skills base” is inevitably populated by people who, rightly, go into agile and scrum in order to improve their careers but in a training environment that does everyone a disservice for as long as companies are seeking a quick fix.

Now add in a few other challenges, the problems that need to be solved.

The broken enterprise

The arrival of the platform and ecosystem businesses, like Amazon and Alibaba, has caught most executives off-guard. Even though at this stage, there is a decade’s worth of experience in how the platform and ecosystem model works, many executives can’t conceive of the scale of business that they need to grow.

They are trained to believe in the core competency of the firm and therefore can’t even comprehend the nature of platforms that have the capacity to innovate across many areas of the market simultaneously. In other words, they stick to the core at the expense of working towards scope.

At the same time as facing disruption, their companies have a long backlog of sub-par performance because of legacy strategy.

Today’s business environment needs people who are multi-skilled, at least to the degree that they understand the significance of work going on around them. Yet the majority of software developers have little to no business education. And most business people have a woeful grasp of how IT has to be used to create an advantage.

Why this becomes a problem is that decision-making is already delegated without executives ever really knowing it.

Developers and their business colleagues are making decisions about the use of tools, the launch of features, and the deployment of system upgrades all day long because we have moved from periodic releases of the software to daily and intra-day releases. This is agility but who is talking about the need to educate people to get those decisions right, multiple times a day?

Many functions are split between onshore and offshore teams with neither of these having end-to-end responsibility for adding value and therefore neither being truly accountable for performance.

Offshoring is one of the worst productivity models around but a secondary effect is that it has turned many executive roles into little more than contract managers supervising SLAs. Upside? It keeps headcount down (at the enormous expense!).

Cloud transformation is another source of unrecorded performance lag. Cloud projects rarely reach their potential because many companies make no change in the rules and governance for how value is created. Cloud is used as a cost-saving mechanism instead of a resource for building new business (at scale, scope, and speed).

Serious project costs and time overruns plague every company I have ever dealt with. Old planning mechanisms are incapable of anticipating market changes that will inevitably make grand plans irrelevant.

Firms also suffer a lack of engagement and collaboration from staff who are tired of working on irrelevant projects.

And although most want to be more customer-centric, they lack tools for customer-centric policies other than the CRM systems and call-centers that alienated customers in the first place.

In short, you can point to technological innovations like AI or IoT as the source of disruption but the real disruptors are now global connectivity, with the capacity to work at a new level of scale, scope, and speed, and a performance gap between reality and potential caused by dysfunctional social networks in the workplace. The idea of an agile transformation will not address these challenges.

What is the context for those problems?

What if the real answer to the challenges facing companies, were that the majority of executives are just not good enough to manage in today’s economic conditions, because they have been schooled for yesterday’s economy?

How could this possibility manifest itself? One way is in pricing policies. Four of the most successful companies today got there with radical pricing policies in the early phase of the World Wide Web - the 0.99 cent album track; ads as low as cents from Google (analytical software given away), Amazon and the 0.99 cent book; Facebook and free online social networking.

Low pricing is a cause and consequence of scale. Each of these companies developed huge transaction engines in order to process hundreds of millions of small transactions. It gave them a lead, though not an unassailable one when mobile began replacing the web as the primary communications network.

Most Chinese companies come ready configured for global mobile connectivity and scale. That’s why Alipay managed to create a global network of partner banks in the space of only two years and why it is aiming for 2 billion customers by 2025. Look at the scale, and therefore the pricing, advantage it will have!

It’s not just scale, it is also scope. Alipay sits in the middle of an Alibaba ecosystem that includes, among others: travel booking sites, ride-hailing, ticket sales, meal delivery, retail, insurance, and of course e-commerce. Companies that plan for billions of customers over dozens of business categories are taking advantage of scale and scope. They also tend to be fast and enjoy the benefits of speed.

And the difference with Asia is not just a digital one. Western companies are held back by two more weaknesses.

The first is centralized corporate memory. There is really only one major version of how companies should and can function in the west. Our scientific thinking reinforces the idea that there is a canon of knowledge or expertise, which is due to a lot of respect because it is built by consensus. Chinese companies have ripped up the western canon of business logic. The platform and ecosystem model paved the way.

The second is the belief that the answer to a seismic, once in a century change can be addressed with a formula such as agile transformation. It actually needs executive re-education on a mass scale.

What to do instead

Fin Goulding and I have posed a radical way forward in our books on Flow (Flow: A Handbook for Change-Makers and 12 Steps to Flow: The New Framework for Business Agility). In our upcoming book Value-Based Agility, we document how to respond to ecosystem competition and the growth of micro everything.

Understand value creation in the ecosystem. Co-created value is the only way to respond to growth in the era of micro everything: microtransactions, microservices, micro consumption, microcopy, micromarketing, micro apps, infinite endpoints, and so on.

Visualization for Collective Intelligence: Firms cannot keep up with the amount of information available now that we have microcopy. The only way to build a continuous strategy is to visualize the corporate “body of work” on the walls of the building. By visualizing the challenges you face, you can draw on the untapped know-how of people who may have parts of the answer. In other words, let everybody see the challenges, the flow of work, and the blockers and make accountability a common property.

Improve executive accountability: Rather than allowing executives to hide their lack of experience, tempt them out of their offices into the corridors to engage with a more visual and public way to work, so their leadership is public and accountable.

Find the tools for true value-based agility and customer-centricity: Companies like Amazon have already shown how to treat customers but the missing link is how to incorporate customers into strategic innovation processes so that you can deliver a broader scope of value. Businesses are hoping AI and big data will do it but we find again that visualizing the customer landscape is more effective because it creates conversations. We use customer segmentation and The Flow Value Wheel to help focus innovation on emerging segments.

Not being tempted by lean iteration. Many companies are overloading their innovation pipelines in the belief that everything can be sorted through MVPs and iteration. Tools for customer centricity can help identify value at the front of the funnel and stop you from designing waste into the flow. What you then need are opportunities for staff to learn, not necessarily in a lean way about what customers want, but in a way that gives them space to learn new tools, new points of connectivity, new go-to-market models, and to show what new opportunities these open up.

Frame this in the context of value management. We don’t mean value mapping. We mean appointing people to ensure all work is being optimized for real value creation, which is far different from the waste reduction role that usually goes with value management.

Thinking about small steps to scale, scope and speed. We have set out a few more principles inflow but none are more important than this idea. You need scale, scope, and speed but there is not grand pan. You need to learn how to make multiple small steps and build new strategies from new experiences.

Agile at its best is a liberator but right now it is also a fallacy that companies can buy into to look good. You have to think differently and “different” looks like a broad river of work that flows from shared accountability to go into work and create value together at scale, with the scope, and at speed.


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