What’s an agile business strategy? What are the correct priorities of companies?
According to The Age of Agile by Stephen Denning, companies can only thrive if they set the correct priorities and goals in response to economic challenges, which allows them to make swift changes as necessary. He covers three things companies should prioritize with an agile strategy: customers, the future, and continued innovation.
Below we’ll break down the agile business strategy with three principles.
Strategic Principle 1: Prioritize the Customer
Denning argues that the customer should be the company’s highest priority and that firms should focus on delivering value that excites their users. This principle of the agile business strategy challenges traditional management practices that prioritize profit leading to investor return over customer satisfaction. He stresses that profit is a by-product of thrilling the customer, not a separate or conflicting goal.
Denning explains that this shift requires companies to change their goals, structures, and processes to be customer-centric. Additionally, top management must cultivate company-wide enthusiasm for bringing joy to customers by exceeding their expectations.
Knowing how to bring joy to customers requires precise information about the needs they want met. Denning recommends constantly interacting with customers to gain feedback that will inform how you tailor products and services to their preferences. This process not only improves the final product but also motivates team members, who may find it rewarding to provide real value to others.
For example, online shoe retailer Zappos re-aligned their business to optimize customer service. To do so, they moved their headquarters to a city where they could afford their own in-house call center, rather than outsourcing. They removed time limits on service calls, staffed the call center 24 hours, and empowered representatives to make decisions to please the customer, even if they resulted in a financial loss for the company. This commitment to customer satisfaction, and customers’ many positive experiences with the company, has earned Zappos a loyal following.
Strategic Principle 2: Focus on the Future
Furthermore, Denning argues that it’s not enough to fulfill existing customer needs; companies must think forward and aim to fulfill needs that will emerge in the future. Business leaders must anticipate new market opportunities and imagine products that will someday become indispensable. This approach leads to high growth and profits by creating value in uncontested market spaces, rather than competing in existing markets.
For example, when meat-alternative company Impossible Foods was founded in 2011, the company didn’t cater to existing vegetarian markets but instead envisioned a future where meat-eaters may choose plant-based options for environmental reasons. Thus, they were able to create an entirely new market with plant-based foods that mimicked the flavor, texture, and cooking properties of meat.
| How to Identify Possible Future Markets While Denning calls on companies to identify future markets, business experts clarify how you might identify these markets. 1) Look at solutions found in other industries. If you’re trying to solve a specific problem or meet a specific need, ask yourself which other industries might deal with this same problem or need. Then, research how those industries have addressed it. 2) Identify lead users. Find people who are either trying to solve or have already solved the problem your company aims to solve for customers. Then, learn from their solutions. For example, mountain bikes were originally invented by hobbyists who optimized their bicycles for riding off-road, developing innovations like thicker tires and heavier frames. Manufacturers noticed and began mass-producing these innovations for a growing new market that they otherwise might have overlooked. Business experts recommend that you find such “lead users” through networking. Look to early adopters, niche communities, and others who are highly invested in the problem your company aims to solve. 3) Forecast demographic shifts. Populations change over time. By paying attention to trends in population growth, aging, and migration, companies can identify which markets may have room for growth. For example, as people in developed nations live longer and have fewer kids, elderly consumers are becoming a larger part of the population, leading to changes in customer preferences. |
Strategic Principle 3: Invest in Capacity and Innovation
To create products and services that fulfill future demand, companies must continuously innovate. Therefore, Denning argues, companies must invest heavily in building capacity for research, development, and production. He calls for companies to invest in their staff of engineers and developers and to retain expertise.
Denning explains that many companies fail to invest in developing their innovative capacity because they prioritize shareholder value instead. As a result, they pursue short-term gains at the expense of long-term, capacity-building investments.
Denning critiques two investor-centric practices in particular: stock buybacks and outsourcing. Let’s explore each practice and their drawbacks.
Why Stock Buybacks Are Detrimental
Denning explains that the pursuit of investor returns often leads firms to buy back their own stock. This pleases shareholders because it artificially inflates their stock prices by reducing the number of shares available, which boosts earnings per share. However, Denning argues that this practice only diverts company assets from growth and innovation, weakening the company in the long term. As a result, the firm’s capacity to create real value diminishes, leading to a negative and self-reinforcing cycle where more buybacks are needed to maintain stock prices, further eroding the company’s future prospects.
Why Outsourcing Is Detrimental
Furthermore, Denning argues that the pursuit of investor return often encourages companies to focus narrowly on cutting costs to widen profit margins. Like shareholder buybacks, this practice prioritizes short-term gains at the expense of long-term sustainability.
This is particularly evident in the case of outsourcing, where companies delegate parts of their business to another firm, often in countries where the cost of labor is cheaper. Denning argues that outsourcing can lead to an irreversible loss of knowledge and capability—companies can only innovate processes that they themselves participate in or have direct knowledge of. Once those processes have been taken over by other firms, the company is no longer aware of what goes on behind the scenes. This undermines their ability to improve on those processes, their products, or their services through innovation.
