We like to keep things varied with our Agile Managers and Leaders meetups, not only in the subject matter but also in the choice of venue. For our March meetup, our setting was the neoclassical elegance of Adam House, just off the Strand.
With similar elegance, we wove together two closely related topics for our meetup, both of which contribute to enabling Agile to achieve its full potential: the financing of Agile workstreams; and Business Agility.
Agile working with Finance
Business Agility Consultant, Dean Latchana, introduced himself to the group, and explained that he supports organisations with business transformation programmes and developing new ways of working across departments.
He has worked for a range of household names, including the BBC, the Telegraph, the Financial Times, Sainsbury’s and Nike. As his career progressed, he became increasingly interested in helping companies do more than just sprinting – he wanted to help them shape their strategies and achieve the desired outcomes, delivering value to the customer. He set up and is Editor of The Agilist.
In Dean’s experience, he has found that people think that the Finance function and Agile are distant cousins – but they’re not.
How traditional budgeting constrains Agility
Organisations need to be responsive. This is borne out by Ashby’s Law of Requisite Variety and summed up in Jack Welch’s famous statement from GE’s 2000 Annual Report: “If the rate of change on the outside exceeds the rate of change on the inside, the end is near.”
But traditional budgeting does not support the responsiveness required to keep pace with, or to outstrip, the rate of change on the outside. Traditional budgeting:
- is fixed for 12 months ahead and is difficult to change once agreed
- incentivises people into the wrong behaviours, including requesting more money than they may actually need
- requires very detailed, time-consuming planning
- assumes fixed human resources
- establishes KPIs and governance based solely on Plan A – no Plan B is anticipated
In other words, traditional budgeting is optimised for an ideal environment. But in the real world, the environment is not ideal. It is fast moving and there is a large amount of variability, much of it generated by customers. For organisations to be responsive in the way Jack Welch recommends, budgets need to be as flexible as that real-world environment.
Lessons from two captains
Dean asked the group to picture a ship sailing to Island A. Half-way through the voyage, there’s a typhoon to avoid. Next, rocks in the way of the ship’s course make Island B the preferable destination. This is how an organisation needs to be able to manoeuvre, with financial mechanisms acting as the ship’s rudder.
Returning to the analogy, if the ship’s captain had been determined at all costs to continue to Island A, the ship could have been wrecked and sunk with all hands lost. Traditional budgeting can have this effect in organisations, giving people an incentive to hit their targets by delivering Plan A even though variability in the market has since revealed Plan B to be best for the organisation.
Organisations need to be able to pursue a variety of targets, with processes and mechanisms that allow for flexibility in working towards them. Dean gave the example of team captain Diego Maradona in the 1986 World Cup and showed a video of the footballer in action. Once the ball is passed to Maradona, he doesn’t stick to a plan decided in the dressing room before the match – he is alive to the data coming to him at high speed from the environment about him as he races up the pitch. It is his responsiveness to these variables that allows him to get past the defence and score the goal.
Dean introduced Beyond Budgeting, a movement that has emerged in recent years with a set of principles and processes which aim to move beyond command-and-control towards a financial operating model that is flexible and promotes responsiveness.
The Beyond Budgeting movement recommends avoiding fixed outcomes, fixed incentives and fixed timescales, and adopting a budgeting approach based on business rhythms, dynamic forecasting and relative goals. It also recommends that authority is moved down the organisation from the upper echelons to cross-functional teams that support the business mission and take a Lean approach.
Dean recently helped an organisation to work in this way, framing the work in the Lean enterprise structure of Explore, Exploit, Sustain, Retire. He explained that while those initiatives in 'Sustain' were the cash cow for a business – the proven products and services that made the organisation the most money – it was vital also to invest in 'Explore' and 'Exploit'.
For an organisation to survive and thrive, there needs to be a pipeline of new ideas coming through. Importantly, in the 'Explore' and 'Exploit' stages, the Finance function in a business should not expect detailed business cases for the early-stage ideas that are being invested in. Instead, organisations should be placing lots of what Dean described as ‘small bets’, with minimal command-and-control being imposed but with lots of monitoring and measurement.
Empirical data from these exploratory experiments will help move ideas out of or along the pipeline. Ideas with potential can be moved into ‘Exploit’ to deliver more incremental value to the business while at the same time capturing more empirical data which will underpin the decision whether or not to sustain each new business idea.
Achieving Business Agility
An example of Agile working with Finance
IndigoBlue senior consultant, Alan de-Ste-Croix next took to the floor and started by providing another example of the Finance function supporting an Agile approach.
A few years ago, Alan worked at a government department and encountered the five-year budgeting cycle of the UK government. After a General Election, there’s a spending review which sets the budgetary framework for the next five years, within each year of which there’s an annual cycle. In this context, all public spending proposals have to be accompanied by a very detailed business case using HM Treasury’s ‘five case model’ and utilising ‘Green Book’ guidance.
In order to be able to respond to conditions as they are right now, Agile projects take an iterative and incremental approach and require investment as early as possible. So, Alan decided to take a different approach.
He submitted a ‘five case model’ every three months, describing what had been delivered in the previous three months, what would be delivered in the next three months and how the next five years looked from this up-to-date perspective. The funding governance body initially thought that this was odd, but then they grew to like it.
If it’s possible to introduce a more flexible funding approach in a government department, it should be possible to achieve in any organisation.
What’s at the heart of Business Agility
Throughout his Agile career, Alan has been posing two questions on any project:
- How will we achieve the right change for this company?
- How will we achieve the right rate of change?
The first question is very important. It’s easy to set Scrum teams up, to get them delivering and to optimise their efficiency – all without a shred of actual value being delivered. For Alan, velocity is a vector – it’s not about speed, it’s about direction.
Too often, Agile is isolated within delivery teams. In order for it to deliver greater value and promote the responsiveness of an organisation, the flow of information and business intelligence needs to be optimised. Importantly, organisations need to be able to pivot – i.e. to change direction in response to the latest empirical data on how the market is changing and responding to the organisation’s products and services.
Across the organisation, there needs to be an Agile mindset, with the same drive towards value. This embrace of the Agile mindset across the whole enterprise is often described as Business Agility.
Making it flow
Alan explained that at IndigoBlue, we optimise three layers of the organisation to achieve Business Agility:
- CXO – setting the mission and direction, providing investment, removing impediments
- Key Indicators – at the portfolio level, metrics monitoring performance against objectives and the roadmap, informing CXO decision-making
- Delivery metrics – at the delivery level, allowing throughput to be optimised and feeding key metrics on velocity and burn-up back to the Key Indicator and CXO layers
Business Agility is about making the three layers work well together, so that you can trace the stories that a delivery team is working on back up to the roadmap and to the objectives set by the CXO layer. By optimising the flow of information and insight, you promote responsiveness and gain the capacity to know when to pivot or persevere.
Business Agility in action
Alan provided the example of an organisation with which IndigoBlue had recently worked. This company’s app had achieved a great deal of success in a short period but had rapidly reached the 'Sustain' stage of the product lifecycle. Uptake was starting to plateau. Hitherto focused on the European market, the business wanted to break into the US market to drive its next phase of growth.
When IndigoBlue was engaged, the 100-people-strong company had 18 product development initiatives underway. It was imperative to gain visibility of the work in progress and the teams’ capacity to deliver. So, we recommended visualisation of the portfolio on the office walls, visible to everyone. We then optimised delivery in the teams, allowing us to measure throughput at the portfolio level and velocity at the team level.
Together, this provided Alan with the metrics he required in order to supply empirical evidence to the company’s executives that they would have to focus on the three highest-priority initiatives in order to achieve their ambitious goal. It would be necessary to stop the other 15 initiatives in order to reduce work in progress.
Thanks to Alan’s compelling evidence, the executives recognised the need to prioritise and focus. A strategic roadmap was put in place, including incremental milestones at the portfolio level which allowed early value to be delivered and insight to be captured and factored into the ongoing delivery of the subsequent increments.
The company went on to break into the US market and secure multi-billion-dollar investment, with remarks made during the due diligence undertaken by the investors on the quality of the Agile planning and delivery.
The Business Model Canvas and Value Proposition Canvas
Achieving Business Agility depends on having a clear understanding of:
- your organisation and its goals
- your customers’ needs
- and how your products and services reduce pain and increase gain for them
Alan recommended Strategyzer’s Business Model Canvas and Value Proposition Canvas. Had he known about these tools while working with the app developer, he would have used them to help the company arrive at their three prioritised initiatives sooner.
Using these tools, you can identify working hypotheses of the product or service features that look to have the highest potential to meet your customers’ needs. These can then be carried across into your User Story Map in order to shape your product roadmap and product backlog.
Once your objectives are identified, your roadmap is delineated, your metrics are agreed and incremental delivery is underway, you will be able to capture and optimise the flow of the data your organisation requires in order to achieve Business Agility.
Request Financing IT in an Agile Organisation
IndigoBlue is in the process of producing a white paper, Financing IT in an Agile Organisation, which explains how CFOs and Finance teams can allocate funds to IT for product development in a way that enhances the capacity for business responsiveness, while at the same time ensuring that there’s still proper financial oversight and governance.
To request to receive a copy once it is published, please email firstname.lastname@example.org.