Business Agility - The Intersection of Outcomes and Efficiency

by Jeff Sutherland  | September 22, 2021 | Blog

There is a debate In the global Agile coaching and training community about whether we should focus on the outcomes or efficiency of teams. At the same time, there is the question about the difference between business agility and team agility. 

Both business and team agility refers to the rapid, continuous, and systematic evolutionary adaptation and entrepreneurial innovation directed at gaining and maintaining competitive advantage. The main difference is scale. 

Today, leadership is only interested in an Agile team if it can make the business as a whole more Agile and help achieve the enterprise’s business goals. Therefore business agility requires a focus on both outcomes and efficiency. 

 

How to Measure Business Agility?

The average team member is skeptical of management’s interest in business agility and maybe even more skeptical of investors at the board level. However, senior management and investors have a clear understanding of Business Agility but understandably from their perspective. This often plays out in these or similar questions:

• Does the organization have a vision and a mission to target a product or service in one of the areas of great transformation that is going on in the market today? Will the target market be large which is essential to a significant return on investment?
• Can the organization create a product or service that is 10 times better than current offerings?
• Can the organization deliver that product or service 10 times faster than the competition with higher quality?
• Can the organization deliver that product at 10% of the cost of the competitors to achieve a large market share?
• Can the organization achieve a sustainable competitive advantage by continuously improving faster than the competition?

So the five components of Business Agility are:

1. Pivoting into the right market segment
2. Conceptualizing a great product or service
3. Delivering offerings quickly
4. Keeping the cost low to achieve a large market share
5. Innovating fast enough to stay ahead of the competition that will always rush into a market space where they see emerging success.

Measuring Business Agility is done at a macro level. 

For example, OpenView Ventures Partners are part of a group seeking to invest $525 million in Agile companies in 2021. They have hard data on the actual value of every company they invest in and that number is updated every month. They get daily updates on the publicly traded companies in their portfolios. 

They know that these valuations are driven by Business Agility.

 

How Business Agility Depends on Both Efficiency and Outcomes

In 2018, Takao Sakai published his book on “The Secret Behind the Success of Toyota” and sent me a note saying Scrum trainers were teaching Scrum wrong. We had already heard this in 2016 from KDDI senior management in Toyota who approached us to create a joint venture called ScrumInc Japan to teach the “true” Scrum, the Scrum of the Grandfathers Takeuchi and Nonaka.

We had already figured out with the Japanese that the Scrum Guide was not sufficient for training Scrum Masters at Toyota. At the time, KDDI was 20% owned by Toyota and had Scrum training contracts in Toyota city for Toyota R&D and Toyota IT. We worked out with them that (1) the basics of Lean were essential to Scrum performance, (2) the hyperproductive patterns were mandatory for high-performing teams, and (3) scaling without losing team level performance was essential.

Takao Sakai brought an additional perspective to radically improving Scrum training by pointing out that only 5% of Toyota success was based on lean production (everyone has to have lean production today), and 95% of success was based on the Chief Engineers at Toyota on the other side of the highway at Toyota City away from the assembly plants. Sakai said the Chief Engineers were the equivalent of the Product Owners in Scrum and they delivered most of the profits of Toyota by designing products with both high value and low cost. High value was important, but a large market share was only achievable with lower-cost products.

Sakai’s major critique of Scrum training is that we were not focusing 95% of our training on the Product Owner delivering superior value and creating a backlog that delivered the value at low cost. So a better way of saying “deliver twice the work in half the time” would be “deliver twice the value at half the cost.”

 

How Outcomes are Tied to Efficiency

Since 2006 at OpenView Venture Partners we implemented Scrum everywhere in the venture group and, as much as possible, in all of the companies we invested in. Venture capitalists are very aggressive and have a low tolerance for impediments. We quickly learned that impediments are like mosquitos. You swat one and 25 come back unless you do root cause analysis and drain the swap A published paper is available on this in the IEEE Digital Library – Take No Prisoners.

From a business perspective, we found that team efficiency (delivering quickly at low cost) was both essential and easily achievable but delivering higher value to the right market segment required 80% of our efforts focused primarily on the Product Owner function. Our investors had already figured out what Sakai was saying in 2006.

It is not efficiency vs. outcomes, it is both. Our training needs more focus on the Product Owner function. Successful Product Owners need to create a backlog that both generates higher value and delivers that value at a lower cost. The lower cost comes from two factors (1) product design and (2) the Product Owner’s impact on team performance.

Research data shows that Product Owners can easily double team performance with a better backlog and deliver the product at half the cost. We have also discovered that great Product Owners own the revenue stream from their products and are measured by delivering a high market share. The teams have to enable this by high efficiency and outstanding quality both of which are directly impacted by the Product Owner’s backlog, acceptance tests, and collaborative input on the Definition of Done. Proper implementation will generate high Process Efficiency, the fundamental lean metric which drives Toyota.

For this reason, in the Scrum@Scale Guide, we make it clear that the mission is to deliver twice the value at half the cost. Both efficiency and outcomes are essential to successful companies.