If your business is going to flourish during dynamic times, you must be able to read and react to changes in your markets and continuously improve your competitive position. It was important in 1992 when John Cotter wrote that we are “in an era in which change seems to be the rule”, and thirty years later it’s more important than it’s ever been.
The Strengths, Weaknesses, Opportunities and Threats (SWOT) model is often employed to characterize a company’s competitive position. If a competitor creates a new offering that you can’t match, that’s a weakness and a potential threat. If you have one that they can’t match, it’s a strength and a potential opportunity.
That’s all obvious, but the model helps us to tease some things apart. Weaknesses often present themselves as “outside-in” problems: that is, the threat appears from outside the organization. However, you must respond to them inside-out: that is, you respond by exercising your business capabilities to get new products or services into the market. But if you lack required capabilities, then your ability to respond is weak. That’s where agility comes in: how flexible your business capabilities are, because now you need to apply them differently, and there is external time pressure.
Strengths are the converse. If you have superior business capabilities, including the ability to discern market opportunities, then when you identify an opportunity you can quickly develop new products or services and get them to market, hopefully before your competitors can. Competitive analysis must always reflect both outside-in and inside-out perspectives, and it must include an assessment of your ability to respond quickly and effectively—your actual agility.
The “OODA loop” is a widely cited model created by Colonel John Boyd, a pilot who flew during the Korean War. OODA stands for Observe, Orient, Decide and Act. The steps OODA describes are sequential; you must execute each step in the process before going on to the next. Because of this, to accelerate your response to a stimulus, you must shorten the execution of each step in the loop. You have to recognize something to alert you to begin to determine whether to respond. In business terms, you must be paying attention to your customers, the market, your competitors, and generally to everything that might matter. Once you recognize that something important has occurred, you need to understand what you’re seeing. Then, given your understanding, you need to determine what you should do about it and, finally, you can execute your selected action.
An important consideration is how certain you need to be in order to act. Agility often requires acting with incomplete information for the purpose of seeing what happens so that you can reflect on the result and then improve in a subsequent iteration. In other words, experiment early and often and continuously refine your actions so that you get it right as it starts to matter.
The SWOT and OODA models intertwine nicely. SWOT is a lens through which you can evaluate your competitive position and identify situations warranting attention and OODA characterizes your ability to evaluate and act on them.
How Agility Fits Into Strategy
What the Agile community means by “agility” tends to be only a part of what a business owner thinks of as agility. Agile was born of IT, and so its focus tends to view digital product development as the whole world, just like that famous “view from New York” drawing in which New York is the center of the world, and everything else is cartoon-like farther out.
What business leaders are concerned with is business agility. Business agility encompasses many things:
Market understanding and product design: Successful products demonstrate good problem-solution fit and product-market fit. That is, they solve real problems that people want solved and will pay for, and they can be marketed and sold where people will find them easily. You cannot do this unless you are aware of what’s going on in your markets and with your current and prospective customers. This awareness has a price and you must commit to paying it if you wish to remain competitive. This is reflected in the observe and orient steps of the OOAD model
Financial flexibility: To implement new product initiatives, your company must be capable of funding investments in them. You may be able to make such commitments from internal funds in the short term, but in the long run you will have to obtain external funding, regardless. If you are an established company, this might take the form of bank or lender financing. If you are an early-stage company, this could take the form of venture or equity funding. Your ability to obtain external funding depends, either directly or indirectly, on how your company is viewed by the capital markets. The terms on which you can obtain financing will be determined by the market’s perception of your company’s riskiness. Proxies for this include the line of business you’re in, your capital structure (your debt/equity ratio), your credit ratings (if you have them) and your history of repaying debt. If your company is viewed as a risky credit, you will have a difficult time obtaining funding from the capital markets at favorable terms when a need arises. You will probably pay higher interest rates for the money you borrow. Ultimately, a competitor with more favorable borrowing capabilities might be in a position to make investments that you cannot.
Product development and evolution capabilities: Once you have recognized the need to respond to an opportunity or threat, you must have the ability to create or evolve your products and services rapidly and be responsive to customer feedback about them. We refer to this as “digital agility” because most products and services today have a significant digital component or are developed using digital tools, and it is this that the “Agile community” tends to focus on.
Business Agility is fundamentally about how a company is positioned to recognize and react to opportunities and threats at speed and therefore encompasses the entire OODA loop. This includes the willingness to act before having perfect information—to try an approach and quickly reassess. Digital Agility is the ability to create and refine digital products and services rapidly, and is largely related to the last OODA step—action. This usually includes rapid trial and assessment—iterating many times with little delay. The OODA loop is relevant any time decisions are required, whether they involve product designs or their implementation. It may not be applied consciously, but it is applied, nonetheless.
Organizational culture is a critical foundational element of both business and digital agility. In the case of the former, culture strongly impacts people’s inclination to act without perfect information. In the case of the latter, it impacts their tendency to collaborate proactively and constructively while products are under development. This is particularly important when issues cross organizational boundaries, which is very often for complex products. Therefore, to build and enhance agility, you must recognize the kind of culture your organization needs to have and the capabilities you require to respond to opportunities and threats: Ironically, most “Agile” programs focus obsessively on the “A” in OODA—the acting, or constructing a product. Yet that is not where agility chiefly arises from.
Not that the acting plays no role in agility—it does. If you feel you know what product is needed and have the resources arranged to produce it, then you are positioned to act.
Crucially, neither Business Agility nor Digital Agility alone will enhance your competitiveness. You need both of them. For example, it will do you little good to have superior market insights and excellent tactical skills if you cannot act on them quickly. Similarly, it won’t buy you much to be able to produce digital products and services rapidly if they are not the right ones. Effective Business Agility, from perception and ideation to the ability to influence competitive position, is the ultimate goal of companies that adopt Agile and DevOps frameworks or undergo Digital Transformation. However, while Agile and DevOps may provide Digital Agility, they don’t guarantee Business Agility.
The Root Cause
So, where is the disconnect in why so many organizations obsessively focus on Digital Agility when they actually desire Business Agility? Two factors contribute to it.
The first is management that clings to the legacy notion of a project, with fixed deliverables, budgets and schedules, which actually impairs or precludes agility. Projects are approved and funded with a triple constraint attached: scope, cost, and time. The effort and political capital required to create and sell a business case create inertia and induce resistance to change, which is anti-agile in the extreme. The critical killer is the up-front commitment to a precisely defined deliverable (an output) as a prerequisite to business decision-makers even considering funding a project.
In other forums I’ve written about the value of just-in-time design and planning informed by continuously updated information. The legacy project-based approach eschews all of that, resulting in initiatives designed and planned on information that becomes out-of-date almost immediately. New information is invariably generated during solution development, and ignoring that new information in order to remain consistent with a project’s approved definition amounts to throwing potentially important knowledge away.
The second factor is that “Agile” as sold and implemented by a great many Agile consulting companies is not very agile. Companies adopt commercial Agile frameworks hoping to increase flexibility, accelerate solution delivery and decrease development expenses. Consulting companies are all too happy to encourage them to do that, because it is something that is repeatable, cookbook, and generates a lot of revenue. Alas, few actually realize agility. Why is this?
Commercial Agile frameworks prescribe processes and ceremonies and don’t address what really drives agility: how people work and solve problems collaboratively. Solution development is inherently an event-driven process. Problems arising and new information emerging are frequent events to which teams and teams of teams must respond immediately. Agile frameworks herd teams into responding within the structured project ceremonies that they prescribe. Something that a team should jump on mid-sprint or in the middle of a Product Increment is instead tabled until the next one; time is wasted while an initiative travels down a path that will ultimately have to be retraced and unwound. If an issue impacts multiple teams, a scaling framework, such as SAFe, only increases the delay. Worse, people spend a great deal of energy performing the various ceremonies instead of collaborating on resolving development issues that continuously arise.
The tendency to adopt an Agile framework results from a risk-averse preference for managing output instead of outcomes. Why do companies operate this way? It results from their discomfort with change. It’s much less cognitively taxing to monitor a list of activities and deliverables whose status can be articulated in a sentence or two than to spend time continuously shaping and refining product concepts or improving execution capabilities.
Many managers, whether consciously or not, engineer their operations to minimize the amount of change they must accommodate, often in the name of efficiency. Line of business managers are comfortable segregating much of the responsibility for their Agile adoption or Digital Transformation within their technology teams because it doesn’t affect the business stakeholders directly that way. They can remain customers, aloof from direct responsibility for the success of the transformation or product. They persist in project thinking when product thinking (outcomes over outputs) is what they really need to do. It is largely a failure of imagination and nerve. Many managers are simply unwilling or unable to commit to continuous product refinement.
Why do line of business managers act this way? It’s because this is the way that the senior executives to whom they report manage. Executives, as we all do, adopt mental shortcuts to counter the cognitive load of juggling too much detail. It’s inherently easier to form and apply a mental model of outputs than it is to maintain focus on managing the evolution of capabilities. It’s less taxing to know that you have to get from point A to point B than it is to work out how to increase your ability to travel at an accelerating rate.
Clearly, Business Agility, in the form of new and evolved products, is crucial; but so is Digital Agility, and a business that manages projects instead of products impairs Digital Agility and ultimately, therefore, business agility. Unfortunately, it’s easy to think that by adopting an Agile framework you’re becoming agile, but there’s more to it than that and if you are unwilling to make the kinds of changes required to succeed, you won’t.
In short Business Agility depends on Digital Agility and Digital Agility depends on how your teams collaborate and problem solve as much as how agility is integrated into the context of how you run your business. You don’t swing a nail gun at a nail as you would a hammer and you shouldn’t apply legacy project management approaches or out-of-the-box commercial Agile frameworks to create and evolve your products.
It's time for real change.
Howard M. Wiener is a Partner of Agile 2 Academy. He is a big-picture Enterprise, Business and Technical Architect with experience in operations, delivery, architecture, sales, transformation, and consulting. He has helped to define and implement transformation programs integrating diverse technologies, redesigned business processes, and organization restructuring. He is a transformation leader with experience encompassing technical and data architecture, who applies risk-based thinking and risk-based decision-making to business process and organization redesign. He has diverse industry experience, including Investment and Commercial Banking, Mutual Fund Management, Entertainment, Advertising, Internet Commerce and Software Publishing. Howard has a MS in Business Management from Carnegie-Mellon University and a BA in Economics from Ohio Wesleyan University, and is the author of Agile Enterprise Risk Management: Risk-Based Thinking, Multi-Disciplinary Management, and Digital Transformation.