Edge: Value-Driven Digital Transformation

Podcast Transcript

Mike Mason: Hello everyone. My name is Mike Mason and I'm here today with three authors of a forthcoming book. So I'm here with Jim Highsmith. Hi Jim.

Jim Highsmith: Hey.

Mike Mason: I'm here with David Robinson.

David Robinson: Hello.

Mike Mason: And I'm here with Linda Luu.

Linda Luu: Hi Mike.

Mike Mason: Can you give me the elevator pitch for the book?

Jim Highsmith: Well, the elevator pitch is, first of all, an agile operating model. So when we started out, in fact, the first version of the book that we were working on, it said value-driven portfolio management. And the more we worked on it, the more we realized that it was much broader than portfolio management. And we started calling it an operating model. So it really goes, it's really an operating model or an institution.

Everybody knows today that technology has really changed the business world. Several years ago an IBM study said that the CEOs, their number one concern was technology. McKinsey did a study a couple of years ago. Basically he said about 85% of CEOs know that they want to be more digital, but only 15 to 18% have actually gotten here. So there's a big gap there and that's the gap that Edge is going to try to fill.

Mike Mason: So there's a desire to be more digital.

Jim Highsmith: Right.

Mike Mason: Okay. So it's a technology book, but it's an offering model. Is it a technology book or a management book?

Jim Highsmith: It is a management book, but it concentrates on the technology part of it and that you've got to have really technology what we said, at the core of your organization, in order to be a real digital company.

Mike Mason: Okay, so technology at the core, what do we mean when we say that?

David Robinson: So that's about eliminating the separation of the silos between the technology organization and the rest of the business or the value stream that actually delivers whatever your product or services to your customer. And the recognition that in order to compete in this digital economy, you're going to have to eliminate that separation and that you're going to have to work together in a collaborative way, and that this book is about the operating model that allows you to do that and to kind of get as much of the governance and the kind of heavyweight friction that's in that current process out of the way so you can work more quickly and be more agile. And so that's why we call it an agile operating model because it's also about agile software delivery as part of that within the technical organization.

But bringing that kind of concept into the rest of the business and all the other parts of that value stream that have to work together to deliver that value to a customer.

Jim Highsmith: You know, all the jokes that kind of start out, there's an adult, who's trying to figure out how to use some technology and a 12 year old shows them how to do it. You can't afford to be that adult.

David Robinson: Right.

Mike Mason: And that's what's happening today with those CEOs who know they have a tech problem, but only 18% of them feel that they've sorted out. So that's the motivation. Because always when someone goes to the effort of writing a book, I've done a couple myself, I know it's quite a bit of effort, there's always the why, right? Like so why?

Linda Luu: So we spent a long time with our clients, a lot of our clients globally. And one of the things that they've asked us consistently is what are these tech giants? What are these tech companies in Silicon Valley? What are they doing that's different and how do I, I have this IT organization, why can't I get the value from my investments? Why am I unable to deliver to that? And that's one of the reasons, really one of the impetus for us thinking about what is different that these large organizations need to think about?

And so how we came about with originally thinking about portfolio management is we targeted first the parts of the organization that we believe haven't adapted and haven't changed. And it slowly, through feedback from the clients, expanded into other parts of the organization, like the culture of the organization and how to scare product teams to enable a new way of working the operating model.

Jim Highsmith: Another why we did this is we looked at a lot of the stuff in the marketplace that was talking about scaling Agile and all of the scaling agile things that we saw basically were about getting bigger and about expanding into the organization or running bigger projects and they sort of left Agile behind. Once they got the documentation and the structure in place for doing bigger, we didn't feel like they were very agile and we wanted to create a operating model, or the link between strategy and delivery. We wanted to do that in a very agile, innovative way and we think that Edge really does that.

Mike Mason: A lot of the time, people and organization, they get some success with Agile on a small scale and then they say, hey, this was good, I want to roll this out across my organization. And the answer that I often try to give people is that actually Agile is about learning to do things so you can't, it's not something where you can simply flip over thousands of people to some new process overnight. But that's not a great answer either. Right? Like people do want a way to say, I've got this thing, that they really feel the value from Agile software delivery and, and I can see them wanting to be able to crank that out across their organization.

David Robinson: I think that's one of the challenges that we run into with a lot of clients who recognize, hey, I have something good going on here in this team and they're actually able to produce more value for what we're giving them. And that's wonderful. Let's just copy that 85 times into my other teams and then we'll all be better. And unfortunately that doesn't deal with the recognition that each of those teams is dealing with a different kind of a customer with a different set of constraints in a different situation with different capabilities and existing tech estate that might require them to operate somewhat differently than some of those other teams to really optimize. And so certainly working in an agile way in a very cookie cutter process is better than working in a really traditional waterfall way that's quite slow and doesn't give you that opportunity to learn.

David Robinson: But if you really want to win in this kind of digital economy, you're going to have to go further than that. And that means you're going to have to optimize for each of those teams. And so the challenge is how do I have enough consistency to manage and steer this whole thing with 85 teams, but enough freedom and flexibility so each of those teams can optimize how to produce the maximum amount of value for their customer. And that's part of what we try to do is to not lay down so much in terms of rigid process that says we limit them in that way, but have enough consistency so that you can steer it.

Jim Highsmith: Right, right.

Mike Mason: So you talked a little bit as well about strategy. I was going to say strategy to execution, but I don't think you actually called it that. So I wanted to be careful, but you talked about making strategy real. Can you tell me a bit more about that?

Jim Highsmith: I don't know that it's so much about making strategy real as it is making strategy connect to delivery. And so for example, we think there are three critical questions that have to be answered in doing that. One is how do you invest or where do you invest? So that is a kind of a portfolio management thing. How do you figure out from the tremendous opportunities we have today, which ones of those opportunities that you're going to focus in on and take advantage of? And part of that is where you put your investments and you don't want to invest all your money, for example, in legacy systems or new systems.

Secondly, at a management and executive level, how do you work together? You know, we have agile teams that are, we used to call it cross functional, we call them self sufficient, teams that work together with multiple different skillsets in those teams.

Do we do that on an executive level and how do we do it? How do they work together in this process? And then not only how fast are you, but are you fast enough given your competitive situation? So those are the three critical questions we're trying to answer through the book.

Jim Highsmith: Strategy is sometimes considered a hypothesis that you have an idea out in the market and it really is a hypothesis that you haven't tested. So the old way of doing things is assuming that you have all the assumptions correct and you march towards building what you think is the right thing only to realize that the environment has changed. And actually that idea doesn't work, so a lot of Edge addresses the idea that everything is a hypothesis of value and when we talk about strategy and connecting it to deliberate work, it's chunking it down into what is perceived to be value and then enabling the whole organization to work incrementally with feedback from customers so that you're not marching towards the wrong thing and wasting valuable investment dollars, building the wrong thing.

Mike Mason: You talked about value and you talked about customers, so I immediately think about stuff like product orientation, is that a component of this operating model, is it in there?

Linda Luu: Yeah, absolutely. One of the chapters is building a product mindset, so design thinking, lean startup, all these different types of shifts in thinking about how to build product. We think about that in terms of how do you scale that for the organization? What are the things that need to shift in order to enable these kind of incremental, adaptive, experimental way of building product?

A lot of our clients, often we're approached with kind of this dilemma that while we're building incrementally and we'd love to release more often, our annual budgeting and planning cycles prevent us from really doing that in a way that really gets towards us moving quickly and really learning about our customers. So how do you unlock or remove friction from the rest of the party or organization to enable this product? Thinking fast irritative way of building product and being able to adapt and continuously deliver the value to clients.

David Robinson: Just kind of coming back to that tech at core idea, having a really high performance software delivery team that's working in an agile way and has modern practices and is able to do a really good job of processing experiments, only works if you feed them a steady diet of a backlog of experiments to actually test, right? To find out what actually works. So there's two parts, right? There's build things right, in terms of the way you engineer software and then there's build the right things. And so part of what we're trying to deal with those three questions that Jim mentioned was this idea of what should we invest in, right? How do we know is it working or not? Should we continue or stop or start and move things around? And how do we get the right work to those teams to actually be able to produce maximum value for our customers?

So this idea of making the strategy of the organization consumable and useful for all those different decisions to get made. So those are funding, some of those are prioritization. Some of those are design choices by my dev on a story and I'm trying to produce something. I have lots of ideas about how I might do it, but if you give me information about what you're trying to achieve in terms of an outcome or value for a customer, and I can use that to make a better choice. And so it's not just about get them the right work, it's also about give them some information to do an even better job than they might otherwise. That's why we think this whole kind of integrated operating model that kind of extends beyond the team and all the rest of the value stream, kind of all the way to the C suite and the decision about or what do we invest in makes a difference. You can't just do this from a technology point of view.

Mike Mason: Can we apologize to the listeners, there's a sound in the background here which is actually a reggae band who are entertaining us outside the window burner. Hopefully that's not coming out too badly. Can we get a little bit more concrete on some of this? So could you contrast a more traditional way of doing things with what you're talking about in the book?

Jim Highsmith: Well for example, we have companies that were clients that we've worked with that have pretty well functioning Agile teams that are delivering stuff every week or two and they're up against a budgeting process that takes, that's once a year and you have to start working on those budgets 18 months ahead of time. And by the time that budget actually gets put in place for the following year, it's locked in place and you don't change things. And so you've got teams that are running at a very fast iteration pace and organizations that are running at a very slow cycle for things like funding and other things. Since we're trying to match those two things together a little bit better. As David talked about a minute ago.

Mike Mason: The funding things always confused me slightly because it's not like you don't ever change the funding on a project, right? We've all seen projects failing and running long and like more money coming in. So that's the thing that confuses me about this long budget cycle stuff is there's all of this ceremony around making the budget and then a project team or a department can come back and find more. I don't know where they find it from, but there is an ability to move it around, but it's kind of a high ceremony, slow thing.

Jim Highsmith: I think one of the things that companies are dealing with is, and this is one of the reasons Agile has worked so well, is that you're trying to deal with uncertainty and the growing level of uncertainty in the marketplace. Uncertainty about products, about who's going to come at you as a competition? I mean did taxi companies ever feel like there's going to be something like Uber and Lyft? And so those kinds of things happen and we're not set up to handle uncertainty very well. And honestly you can't plan away uncertainty. You have to experiment in a way.

David Robinson: And I think that's one of the keys is that those budget processes that are annual in nature, assume some level of stability in the marketplace or in the environment, right? That would allow you to create a plan and then the money is allocated to execution of a plan. And what we're proposing as an alternative is allocating the money to an outcome. What is the result that I want? So you can have a plan. And planning is certainly important, but it's just a hypothesis of how we think we're going to produce that outcome and we don't get too attached to that plan. We get attached to the outcome and we have to give the team that's actually working on that. Everybody involved all up and down that value stream, the information they need to know is what I'm doing helping or hurting, am I making progress towards the outcome or not?

And not punish them for deviating from the original hypothetical plan because we don't care about the plan, we care about the outcome. And that's the difference. I think that those existing kind of annual processes are very attached to the plan and they evaluate success or failure about following the plan. But of course if you learn it in a couple of months that your plan is sending you off into oblivion, you should probably stop and rethink your course and think about kind of adjusting to something new. And we try to facilitate that by making it possible to reallocate the money by making it possible to have the feedback about am I actually making that progress so they need a way to test and that means they need a way to measure and they need information and often that information hasn't historically been shared with the people who are doing the work.

It's been some kind of an after the fact analysis. If anything, often organizations pursue these plans for years and spend millions and millions of dollars and never actually do the analysis to find out did I realize the benefit that I got because nobody really wants to know the answer.

Mike Mason: So on what scale does this work? So one of the, the reason I ask is because funding is a hot topic in a lot of organizations and if you can get the funding you're great, maybe you need to know the person who can influence the other person to get the funding for you to your project. Is it possible to do the incremental funding within a department? Could you take an annual budget and then have a department behave in this kind of a way even though maybe the rest of the organization wasn't ready to do that yet?

Linda Luu: Yeah, that's a great question because a lot of the times when we talk about Edge with our clients, it almost feels overwhelming. What do I have to change or do I have to change everything? Where do I start? And I was working with a telecommunications client in Canada when we were first looking at the operating model and how to help them with some of the challenges they had. And they had an annual budgeting process. But what we did was we took what was approved for that year, but we chunked it up smaller. So we didn't actually change essentially the way the big governance process was for how they allocate funding. But we did change the way we allocated funding towards teams throughout the year. So it meant that one of the things that we had to do was actually look across their portfolio and really understand what did they want to achieve for the year, what were their goals and how did that translate into value for customers?

Linda Luu: And through that exercise we broke down the work, the portfolio even smaller, much in the same way as we do with slicing up an Agile backlog, for those people who are familiar with Agile creating Agile backlogs. And it meant that we could take a look across the portfolio and actually allocate the funding more incrementally throughout the year. So it means that you don't actually have to fundamentally change the way your dominance process for requesting investment dollars works is a way to get started. And then we slowly, we chipped away at, well, okay, now that we've gotten a lot much better in the last few months and we have more visibility of our portfolio, what have we learned from these that will help us understand what can we change in the organization to enable a better, more dynamic funding allocation process?

Mike Mason: And I mean it's something you said, I was curious about, you said you looked at their portfolio almost to see whether you could understand the strategic intent behind it. Like it wasn't obvious. I mean, sorry I'm guessing of the answer, right? So there was a portfolio of work and you've sort of had to reverse engineer the strategy behind it.

Linda Luu: Yeah, sometimes it is. I've worked with a few clients now and one of the first questions we have is where is the portfolio and does everyone understand it? Everyone from the executive team to the people doing the work. And actually a lot of the times we find because the annual budgeting planning cycle takes so long that by the time the money is allocated, there is very little visibility into what's being done with that money. Because it becomes a very functional allocation and it's very much protected because that becomes the performance measure for a lot of these executives. You are given X amount of dollars and what have you done with it? And that's a fundamental shift, I think, even when we talk about incremental funding is that rather than being allocated something and magic happens at the end of the year, you're kind of forced to really think about and justify what are you getting throughout that year.

Jim Highsmith: We're also talking not just about a single portfolio, but there may be multiple portfolios that we're really looking at driven by what's the outcome measure that you're looking for? And so for example, the outcome measure you're looking for kind of with the same maintenance of a legacy system and an outcome measurement that you're looking at for in the futuristic kind of system, maybe entirely different. So you've got to measure things and if you're going against apples, you got to measure apples. And if you're doing something else, you've got to measure something else. And that's a really important piece that David has brought in.

David Robinson: Kind of back to the point that Linda made, I was working with an airline last year around this whole issue of trying to understand what's the strategic intent behind what you're doing. And often we do that analysis of their existing work and process portfolio and try to understand, okay, where does this connect? And sometimes what you find out is it doesn't and nobody even understands why. Like at some point it obviously made sense. Somebody decided to spend X millions of dollars on something and it all was perfectly clear to everybody at the time. But then things drift and time goes on and because these cycles are so long and the work is so big that people forget what the intent behind it was. Or maybe they're clear about it, but the situation is actually changed, the opportunity is gone. Or a newer, more attractive opportunity has surfaced.

And if you had this more iterative optionality, this ability to make choices faster, you might pivot off of that thing onto something better even if it was still valid. But often what happens is it's not even valid anymore. But because the funding was for a program of work and success was finished, the program of work, then we exhaust the money and we exhaust the time and we do the work and then we find out were we right or wrong and what we're trying to change is to say, no, you should be looking at, am I getting feedback and signals and validation in terms of measurements of success that tells me I am on the right track, I should continue on this line or should I adjust it? And that's different. One other thing from, I think what we said before that I'd think is important too, is that when you think about changing from the way that people work today into a new way of working beyond that annual budgeting cycle, another serious constraint is functional silos.

The idea that organizations are carved up into groups of people that do similar activity and that in order to do something for a customer work has to transition from one to the next, to the next, to the next, and everybody has to do their part in order to make it happen. And it's kind of back to this Taylorism view of highly optimizing people's work, but it doesn't work when the situation isn't stable. And this dynamic nature of this economy that we're in now makes it so that you can't get enough stability to really capitalize on that efficiency. You just have to be able to make choices and learn faster and it doesn't work in that functional way. So sometimes you have to start dealing with organizational structure and of course obviously that's a huge change management issue inside of organizations. And it's one of those barriers to try to adopt this way of thinking that a lot of people have a stake in that.

Mike Mason: Well this gets me to something I was going to ask about, which is, we've been talking sort of a little bit in the abstract about how organizations behave, but really actually, it's people here and leadership. I mean some of this stuff, we know that people pride themselves on the size of their department and the number of people that they manage or their budget and it's people, it's leaders in organizations who will say I delivered that thing on time and on budget. So this almost strikes me as a leadership style change of the people involved so that they can create an organization where it's okay to say that thing that we were planning to do is no longer the most useful thing that we could be, or maybe most valuable. Maybe value's the right word to use. Is that...?

Jim Highsmith: Yeah, I think when I talked earlier about the fact that 85% of CEOs want to be more digital and very few of them, and actually there, why is that? It's because it's hard. It's because it's hard and we talk about that a lot in the book. This isn't easy, and Edge isn't for everybody, because it isn't easy to do all this stuff, but if you want to be digital, you've got to look at product, you've got to look at lean value, you've got to look at outcomes, you've got to look at leadership, you've got to look at autonomous teams.

They're just a lot of things you've got to look at and change around to some extent. And it takes time and it takes effort. One of the things that we talk about in there when we talk about who's our target audience, you might think it was CIOs, CEOs, CMOs, those kinds of people. And to some extent it is. But we kind of like the Thoughtworks idea that we're really targeting courageous executives, courageous leaders at any level. People who are willing to step out and take some chances and get beyond the status quo. And if you don't have those kinds of people, you ain't going to make it.

Mike Mason: Okay. So I'd like to thank Jim, David and Linda very much for joining me to talk about the new book and what actually is the book called? Is it simply called Edge or is there a...?

Jim Highsmith: Edge, and the subtitle is value driven, digital transformation. And it actually, it doesn't sound right, but it should be value driven, digital transforming, because we're really talking about transforming and you never actually ever get there. You never have a transformation. And we kind of express that throughout the book. You're trying to do all these things, but you can't do them at once. You're kind of continuously transforming one in one area or the other.

Mike Mason: Awesome. Thanks very much everybody.