How to create the agile enterprise

OVUM VIEW

Summary

The concept of the agile enterprise – set out in Ovum’s latest report, Agile and Lean Business Transformation – arises from practices that embrace common principles and values, such as putting uppermost the delivery of value to the customer and high-quality products. Three areas are explored for creating the agile enterprise: innovation, organization management, and IT department agility. Large enterprises face three primary challenges: first, the most successful enterprise eventually hits the innovation wall and questions how to break through to continue to innovate and act as nimbly and creatively as a start-up. Second, the challenge of responding to changing market conditions and keeping an organization’s strategy in touch with these changes is hampered by the annual budgeting process. Third, software development has been transformed by agile methodologies and the next step is to transform the whole IT department. Addressing each of these areas through agile practices such as Lean Startup, Beyond Budgeting, and DevOps can help transform an organization and create an agile enterprise.

Innovation through iterative trials to first identify the customer

Companies must innovate because eventually customers dry up and the engine of growth stalls. The proper response to competition from start-ups is to incubate one’s own start-ups within the organization. This requires an adaptive organization, one that can adjust its processes and performance to meet the challenges arising from changing market conditions. Thinking of innovation in terms of a portfolio of ideas is required to nurture one’s own disruptive innovations. Start-up entrepreneurs like Steve Blank and Eric Ries have created new innovation models that exploit iterative feedback loops and learning based on the scientific method (hypothesis, experiment, learn) and that are set within a lean-style continuous learning framework. Most crucially, customer development before product development is central to their approach: identify who the customer is exactly before spending resources on the product or service. Lean Startup and related processes, such as Yammer’s data-driven development, act as innovation incubators suitable for start-ups and large enterprises.

Transforming organization management through Beyond Budgeting

Beyond Budgeting (BB) is a management movement supported by the BB Roundtable, an education network. BB starts by transforming the financing process within an enterprise: the annual budget cycle is a waterfall/big bang effort that has been described as like a bank that opens its doors for only one week in the year. Moreover, the amount of time wasted to satisfy performance metrics (linked to the budget promises) that become quickly out of step with reality act as a drag on the ability of the organization to adapt to new market conditions.

BB does away with the annual budget cycle and introduces a continuous financing model, supported by rolling forecasts, which helps ensure the business strategy is on track. Annual budget milestones are still met, for example to satisfy external compliance needs, but internally budgets are allocated whenever required. Management performance is assessed on team and peer-to-peer relative performance metrics. The incentive to create walls that traditional budgets create is removed and people within the organization discover a new degree of freedom to act in the interests of the organization.

For example, Statoil, a Norwegian oil and gas giant, has adopted BB with dynamic forecasts, where new forecasts are initiated whenever market events necessitate a revision. Statoil has also split the single metric of the annual budget cycle into three separate components: forecasts (measured as objectively as possible), targets (designed to stretch performance), and resource allocation. The management structure is also changed in BB to allow customer-manager relationships to drive business, rather than always deferring to the center, so any command-and-control culture is reduced.

Taking agile and lean to the whole IT department

The starting point for agility in the IT department is the adoption of agile and lean software development processes to replace waterfall where possible. Although waterfall is still widely practiced and has its uses, there is more to be gained from a hybrid or pure agile approach. Example agile processes are Scrum and lean development. As a result, the agile IT department is able to respond quickly to customer needs, put working software in front of end users in rapid iterations, and incrementally build out what the customer needs and will use. Furthermore, the business and IT people have regular contact with each other, are able to identify who the key stakeholders are, and are able to self-organize workshops and planning meetings that ensure requirements are accurate and prioritized before being captured.

The next step is to embrace agility in IT operations, with the adoption of DevOps thinking. Developers need to work with operations staff to create development and test environments that are compliant, and operations need to be able to move at the speed of agile processes to keep developers happy. However, often developers do not understand the constraints that exist in operations, for example provisioning images is fast but provisioning servers can be more complex. So collaboration between the old departmental silos and co-defining deployment pipelines can help improve the IT operations services offered.

An agile enterprise is one that reflects agile and lean values and principles

The ultimate goal is business agility, where the mainstream business processes have adopted agile ways of working and where IT use is optimized, from “run the business” to innovation, and from tactical requirements to long-term strategic requirements affecting the future of the business. Ovum believes that organizations that adopt agile and lean practices in the IT department, BB in the mainstream business, and Lean Startup (and related processes) as a driver for innovation can transform themselves into agile enterprises. Such an organization has reduced risk by relying on rapid evaluation of evidence to drive business strategy, and uses feedback loops in the IT department and the mainstream business to guide activities and deliver what the customer wants. The defining characteristics of an agile enterprise are reflected in its adherence to the principles and values of agile and lean thinking.

An agile enterprise can emerge from the combination of the three strands discussed here. Any degree of adoption of these concepts takes an organization on the path to greater agility and this path will be unique to every business as it charts its transformation. The benefits are that agile companies will be better able to respond to (the increasing) uncertainties in the world around us. The people working within the agile organization will enjoy their work more, reducing turnover and burnout. It is a win-win all round.

APPENDIX

Author

Michael Azoff, Principal Analyst, Software Solutions Group

michael.azoff@ovum.com

Further reading

Agile and Lean Business Transformation (February 2013)

Managing Large-Scale Agile Projects: Case Studies (October 2012)

Agile in the UK Public Sector (October 2012)

Agile Thinking Is the Key to ICT Project Success (January 2012)

DevOps: Advances in Release Management and Automation (September 2011)

DevOps: Agile Operations and Continuous Delivery (September 2011)

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