Why The World’s Most Valuable Firms Are So Agile

Surprise! The World’s Most Valuable Firms Are Agile

by Steve Denning

Despite The Apparent Setbacks Of Some Agile Methodologies, Agile Mindsets And Principles Are Helping Generate Trillions Of Dollars In Customer Value

NY August 19, 2004: Google Chairman/CEO Eric E. Schmidt and the Google executive team: Google becomes a public company (Photo by NASDAQ via Getty Images)

In the 1990s, the software department was often the worst performing department in any big firm. Its output were often late, over budget, and frequently didn’t work at all. In response, alternatives were explored, culminating in the Agile Manifesto for Software Development of 2001, which proposed a combination of mindsets and methodologies for developing software. It was radically different from traditional management.

The Manifesto made no claim to be the forerunner of a new paradigm in management generally. Nor did its authors give any sign of recognizing that the ideas in the Manifesto might eventually help to generate the most valuable and fastest growing firms in the world (as shown below in Figure 3).

The Early Years Of Agile Software Development

In the early 2000s, Agile software development flourished as a kind of underground movement that enabled software developers to get on with writing great software. The movement generated huge enthusiasm and excitement among followers. As Manifesto-signatory Jim Highsmith says, “It was ‘The Rogue Team Era’. Agile teams were permitted in big firms as pilots, even as mainframe legacy groups continued as before.“

The most widely used Agile methodology, Scrum,, was a collaboration framework, which focused on methods and practices at the team level. It made almost no reference to the customer, the goals of the organization, mindsets or culture, or the wider implications for the firm’s business. Scrum was a set of practices for crafting software (see Figure 2 below).

Neither software nor the Agile Manifesto received much attention from general management. In 2008, when management guru Gary Hamel assembled 35 scholars and business leaders in the heart of Silicon Valley California, to discuss the future of management, the group received a detailed briefing from Google CEO Eric Schmidt (available here). Schmidt explained to the startled audience that Google’s success was driven by its innovative culture, not its methods and processes. The group’s eventual report listed 25 major management challenges. It concluded that since management is a set of structures, tools, techniques and systems, change would necessarily come from new tools and systems. The report made no reference to the briefing from Google.

Agile Methodologies Become A Management Fad

In the 2010s, Agile software development turned into a broader management fad.

In 2010, the Department of Defense began making Agile mandatory for its subcontractors.
In 2011, Marc Andreessen explained in the Wall Street Journal “Why software is eating the world:”
In 2012, Apple became the most valuable firm in the world.
In 2015, Bloomberg Business devoted an entire issue to the still strange world software development.
In 2016, London Business School professor Julian Birkinshaw declared at the Drucker Forum the emergence of “the age of agile.”
In 2016 and 2018, Harvard Business Review published a pair of lead articles on Embracing Agile (2016) and Agile At Scale (2018).
The dominant methodology was Scrum (See figure 2)
As the decade unfolded, many successes of the Agile approach at the team level were cited.
Certifications of Agile proficiency became a flourishing business.
Corporate IT departments often found refuge in the Scaled Agile Framework, cleverly marketed as “SAFe.”

In effect, Agile had become the Next Big New Thing in management, with hundreds of thousands of Agile practitioners all around the world.

The Apparent Setbacks Of Agile Methodologies

Then abruptly, the bubble burst. The Agile mania dissipated. Many Agile initiatives were closed down or declared to be “failures” or “fake Agile.” or “Agile in name only.”

A multiplicity of confusing Agile labels crowded the marketplace, each claiming to the “real” Agile (Figure 1).

Figure 1: Graphic by Lynne Cazaly reproduced with permission from a talk by Craig Smith: Slides and video are available here: https://craigsmith.id.au/2015/12/03/yow-2015-40-agile-methods-in-40-minutes/

Some firms declared that they had “tried Agile and it didn’t work.” In some cases, Agile certifications lacked rigor, which led to the appointment of team leaders without needed technical expertise.

Some Agile “frameworks” were discovered to be no more than standard business methods and practices, under the Agile label.

Tentative steps towards “business agility” generally made little progress.

In 2018, the DoD issued a guide, “Detecting Agile BS”, that recognizes that while DoD software development projects are, almost by default, now declared to be ‘agile,’ in reality, they are often not. The DoD guide offered “flags” for detecting ‘”Agile BS.”

How Agile Mindsets Drive The World’s Most Valuable Firms

Meanwhile, by 2024, although Agile methodologies can be perceived as problematic, the world’s most valuable and fastest growing firms are demonstrating on a daily basis that Agile mindsets and principles are enjoying astonishing success. The management patterns of these firms as a whole embody the principles and mindsets outlined in the Agile Manifesto for Software Development, albeit with different names. To almost everyone’s surprise, the Agile principles and mindsets have triumphed, generating trillions of dollars in customer value.

Let’s examine the Manifesto’s principles and mindsets one by one.

a. ‘Individuals And Interactions’ Are Valued Ahead Of “Processes And Tools”

In the 20th century, management was seen as a set of processes, methods, tools and systems. By declaring that individuals and interactions would in software have precedence over processes and tools, the Manifesto issued a de facto declaration of independence. Even more radically, the Manifesto declared that software teams would value “responding to change’, over ‘following a plan’,” thereby challenging a core 20th century management belief.

To traditional management, such anarchist thinking guaranteed chaos. Yet world’s most valuable and fastest growing firms are enjoying extraordinary financial success by deploying Agile mindsets of goals, values and culture, exactly as Google CEO Eric Schmidt had explained to the startled audience at the 2008 Moonshots For Management gathering. This is precisely what is making them so successful, as explained here: The Management Paradigm Driving The World’s Most Valuable Firms and How Mindsets Drive Processes In The World’s Valuable Firms

b. ‘Our Highest Priority Is To Satisfy The Customer’

The Agile Manifesto of 2001 declared that “the highest priority is to satisfy the customer.” By contrast, the Business RoundTable had declared in 1997 that the only purpose of a firm is to maximize shareholder value. The Manifesto here signaled another rebellion.

Yet by 2024, the rebellion had become a success. All of the world’s most valuable and fastest growing firms (Alphabet, Amazon, Apple, Nvidia, Microsoft, and Tesla) are sharply focused on creating value for customers. Former heresy has become management orthodoxy.

c. ‘Build Projects Around Motivated Individuals….Trust Them To Get The Job Done.’

Similarly, the Manifesto’s declarations that firms should “Build projects around motivated individuals” and “Give them the environment and support they need, and trust them to get the job done,” were heresy to traditional management, who assumed that workers must report to bosses who would to verify that the work is being done properly.

Yet the Manifesto’s heretical idea is precisely what characterizes the management of knowledge work in the world’s most valuable and fastest growing firms and many other fast-growing firms. For instance, at Amazon, teams work backwards from the customers’ needs and are given mandates to figure out how to meet those needs.

d. ‘Business People And Developers Must Work Together Daily Throughout The Project.’

Traditional firms are organized in vertical silos. As a result, even as the technical teams and investments grew, insufficient thought was given to how technology could enhance the business, while software teams often did not know enough about the firm’s business to make sensible proposals. As a result, many digital transformations disappointed their sponsors.

By contrast, the world’s most valuable firms tend to operate as a network of competence, rather than a vertical hierarchy, thus reflecting the essence of the Agile Manifesto. Novartis is an example of the transition.

Firms Thrive When The Entire Firm Embraces The Agile Mindset

By 2024, the picture has become clearer:

Agile methodologies alone can generate some benefits at the team level, but the results are much greater when Agile mindsets, values and culture drive and upgrade those methodologies.
Major gains to the business tend to occur when the entire organization embraces Agile mindsets, values and culture, which are used to drive and upgrade the organizations’ methodologies.
Some 20% of firms globally have embraced these insights and are growing faster than the S&P500.
The remaining firms, which continue with command-and-control management and focus on maximizing short term profits are generally growing slower than the S&P500.
The core curricula of most business schools still mostly reflect the traditional view of management as a set of processes, methods, and systems; mindsets, values, and culture are treated as of secondary importance.
Conferences, certification organizations, and consulting firms continue to reflect and promote Agile methods and systems, as this is what their customers mostly prioritize.

To see how this sub-optimal situation should evolve from here, read part 2 of this article, coming soon.

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