- 16th April 2018
- Posted by: Manolis
As I suggested here and here, the subject of Strategic Agility is important because it’s central to the key business issue: how to make money from Agile? If the Agile movement is only about creating great workplaces for software developers (also important!) but doesn’t generate better business outcomes, its life expectancy won’t be long. Since I continue to get questions about the meaning of the term, “Strategic Agility,” a few more words about it are in order.
To begin with, it’s useful to recognize that “strategy” in management is contested territory. The term is used in different senses by different practitioners and writers. I am not suggesting that one sense of “strategy” is right and all the others are necessarily wrong. So long as we make clear how we are using the term, we can go on having a useful discussion
Strategic Agility vs Operational Agility
What I am embracing is a distinction between on the one hand operational Agility— i.e. making the existing products better, faster, cheaper and so on for existing customers—and on the other hand Strategic Agility— i.e. creating new markets with new products that reach new customers, i.e. market-creating innovation. I didn’t invent the distinction. On this subject, I am indebted to Clayton Christensen, and to Professors Kim and Mauborgne in their books on Blue Ocean Strategy.
To illustrate the distinction:
- Operational Agility was about making a better candle; Thomas Edison pursued Strategic Agility by making an electric light bulb.
- Operational Agility was about making faster horses; Henry Ford pursued Strategic Agility by making the model-T automobile.
- While firms like Nokia, and Blackberry were pursuing Operational Agility in the mid-2000s by developing better mobile phones, Apple exhibited Strategic Agility by developing multi-functional device—the iPhone—that appealed to a much larger array of customers.
- While some firms were improving DVDs (Operational Agility), Netflix pioneered web-based streaming of movies (Strategic Agility).
- While Google has been steadily improving keyboard-based search (Operational Agility), Amazon’s Echo pioneered voice-activated search (Strategic Agility).
Agile Software Development
Much of what I see in the world of Agile software development is, by my definition, operational Agility. i.e. making the existing products better, faster, cheaper and so on for existing customers. There’s nothing wrong with operational Agility. In fact, it’s usually a requirement of staying in business, i.e. surviving. It’s also the foundation for Strategic Agility, i.e. for thriving. In general, a firm won’t be able to generate new products for new customers unless it has mastered operational Agility.
The three “laws” of Agile that I wrote about here represent an effort to synthesize the essence of operational Agility.
- The Law of the Customer: The primary purpose of the organization is to add value to customers or end users; benefits to shareholders are the result, not the goal of the organization.
- The Law of the Small Team: Big problems need to be disaggregated into small batches of work. That work is then performed by small cross-functional teams that work iteratively in short cycles, with fast feedback from customers.
- The Law of the Network: Steep vertical hierarchies impede communication. Innovations come from multi-directional sharing of information and ideas–top down, bottom up, and sideways.
The three laws are of varying importance:
- Of the three Laws, it’s the Law of the Customer—the idea that the very purpose of a firm is to deliver value to the customer—that is the most important, because this is the principle that makes sense of the other two and that permits the greatest insight into why an Agile organization operates the way it does.
- The second Law—the notion that work in principle should be done in small teams working in short cycles—is the best known in the Agile world because that’s what received most of the attention of the early Agile implementations in software development.
- Yet, the lynch-pin of Agile management is really the third Law: the impact of high-performance teams and the customer focus is sub-optimal unless and until the whole organization operates as an interactive network.
It is when the three laws combine together and focus on a common external goal that we get the explosive increment in value that comes from truly embracing Agile management.
Operational Agility can include a capacity to continuously assess opportunities, make hard choices, to opt not to compete in some areas, to set and act on iterative targets, and to learn from the results. (Some writers would call this “Strategic Agility”. That’s not necessarily wrong: it’s just using the term in a different, wider sense.)
Operational Agility is a good thing, and even essential, but it has a drawback. It usually doesn’t make much money. That’s because in the 21st Century marketplace where competitors are often quick to match improvements to existing products and services, and where power in the marketplace has decisively shifted to customers, it can be difficult for firms to monetize those improvements. Amid intense competition, customers with choices and with access to reliable information about those choices are frequently able to demand that quality improvements be forthcoming at no cost, or even lower cost.
If a firm wants to make a lot of money today, it will usually need to be pursuing market-creating innovations, i.e. Strategic Agility. To accomplish that, it will generally need to be making decisions at a level higher than that of the team, and in a different way from current approaches in Agile software development. That’s because there are many pressures for a team to focus on existing products and existing customers. It’s very difficult for a team to be removing features from an existing product (often a key to market-creating innovation) or cannibalizing existing products (killing a product that the team itself has created or seemingly destroying existing profits) or reaching out to understand seemingly-low-value non-customers (why bother?). I suggested four key steps towards achieving Strategic Agility here.
Some Examples Of Operational and Strategic Agility
It’s not impossible to accomplish Strategic Agility at the level of the team. In an earlier article, I cited a spectacular example of a team that generated an enormously successful market-creating innovation, i.e. Spotify’s Discover Weekly. Amazon’s Cloud Computing business might be another: the business is said to have originated with a two-page paper from a team. But such examples are rare. I’ve been looking for them for years and they are hard to find. (If others know of more good examples, I would love to hear about them.)
Today, a highly innovative company like Google illustrates Operational Agility, by mainly making its existing business better. Thus it has successfully lowered the cost of advertising while improving its effectiveness. Meanwhile, its founders, Larry Page and Sergey Brin in Google’s parent company, Alphabet, are also exploring new-business options, e.g. self-driving cars. But nothing significant has yet materialized. Because Google has a quasi-monopoly (or duopoly with Facebook) on search ads it still makes a lot of money from that. But it hasn’t created new businesses–yet. As Scott Galloway has suggested, Google is still largely “an ad agency with a bunch of hobbies.”
Likewise, Walmart, despite much talk about strategy, hasn’t created any significant new businesses. Thus, it doesn’t not exhibit Strategic Agility. Even in terms of operational Agility, it has in recent years been crushed by Amazon. Now finallu, it is fighting back with the purchase of Jet.com.
Apple from 2001 to 2010 was spectacularly successful in creating new businesses. But it’s an open question whether it will go on doing so or merely exploit its existing business by making its existing products better, i.e. operational Agility.
Amazon by contrast goes on creating new business after new business and currently epitomizes of what I am calling Strategic Agility.
Strategy As The Exclusive Province Of The C-Suite?
As I mentioned at the outset, the meaning of the term, “strategy” is contested territory.
In large organizations, “strategy” is often used by the C-suite in a very different sense from what I am using here. Thus it is sometimes used to mean that whatever the C-suite says and does is “strategic” (and hence, cerebral and important,) while what others in the organization say or do is menial, non-strategic, and merely operational, perhaps suitable to be handled less intelligent folk. That’s not very helpful, but it is quite common. For instance, at the World Bank, where I worked for some time, the whole purpose of the Strategy Department seemed to be to prevent anyone other than the C-suite from saying anything about World Bank strategy. The organizational arrangement was all about making clear who was in charge.
In such a context, strategy can become a corporate ritual. It can be “to CEOs what ancient religions were to tribal chieftains,” writes the former strategy consultant, Matthew Stewart, in The Management Myth. “The ceremonies are ultimately about the divine right of the rulers to rule—a kind of covert form of political theory.” It is “like a ritual rain dance. It has no effect on the weather that follows, but those who engage in it think that it does.”
All too often strategy in this sense is about preserving the status quo. Lengthy and costly strategic planning exercises often end with a decision to keep doing what the organization has always done, perhaps tweaking things a bit. As the French say, Plus ça change, plus c’est la même chose. Some consultants even celebrate such stasis as success.
Strategy As “Making Hard Choices”
Other writers define strategy in terms of making “hard choices” or “deciding where to compete or not to compete.”
This is a broader sense of “strategy” than what I am talking about. That sense of strategy is included within what I call operational Agility, which can incorporates a capacity to continuously assess opportunities, to make hard choices, to opt not to compete in some areas or for some customers, to set and act on iterative targets, and learn from the results. Calling this “strategic” isn’t necessarily wrong: it’s just using the term in a different sense. Writers who use strategic in this broader sense will however need another term to distinguish the more difficult and important task of market-creating innovation.
Market-creating innovation deserves special attention not only because of its revenue-creating potential but also because of the greater challenge that it presents to management. If a firm is limiting its strategic thinking to what is happening in the C-Suite it is unlikely to succeed. To be successful, it will need to draw on the all the talent it can find—both inside and outside the organization. Great new ideas can come from anywhere. The organization has to be ready to receive, explore, test and implement them.