What’s The Age of Agile by Stephen Denning about? Why don’t traditional business practices work anymore?
In The Age of Agile, Stephen Denning covers the challenges modern companies face. He offers agile strategies and managerial principles that will help businesses overcome and avoid these obstacles.
Read more in our brief overview of The Age of Agile.
Overview of The Age of Agile
In The Age of Agile, management expert Stephen Denning challenges traditional business practices, arguing that today’s business environment is more unpredictable, customer-driven, and complex than ever. As such, it demands a more agile approach: Companies must continuously innovate to create value for their customers.
Denning offers a roadmap that organizations can use to become more agile, responsive, and innovative. By adopting these approaches, Denning asserts, businesses can improve their chances of success in an increasingly challenging marketplace and even revolutionize their industries.
Part 1: The Challenges of The Modern Business Landscape
Denning argues that changes in the business landscape mean that many of the old ways of managing and leading a company no longer work. In this section, we’ll explore three traditional business practices—assuming the future will resemble the past, focusing on competitive advantages, and top-down bureaucratic management—and explain why Denning considers them obsolete.
Obsolete Practice 1: Assuming the Future Will Resemble the Past
Denning explains that traditional business strategy relies heavily on analyzing past data to forecast future market conditions. The idea is that, if companies collect and analyze enough data about what has happened before, they can predict emerging trends and pre-emptively invest their resources accordingly.
Why It Doesn’t Work Anymore: Unpredictability
Denning explains that this approach falls short because data can only tell us what has happened before—not what will happen in the future. Data cannot predict disruptions and innovations, which are hallmarks of the modern business landscape.
Advancements in technology, communications, and interconnectedness translate into high levels of unpredictability and constant change. To remain viable, businesses must adapt swiftly to changing conditions, often by pivoting to tap new markets, create new products, and adopt new technologies.
As a result, companies can no longer depend on their analysis of data from the past to steer them into the future. For example, a company might develop a five-year strategic plan, only to find that within two years, a disruptive innovation has rendered their product obsolete, and now they have to pivot to a completely new product. Their strategic plan, though well-researched and supported by data, may turn out to be useless.
Obsolete Practice 2: Focusing on Competitive Advantages
The second traditional business strategy Denning targets is focus on competition and creating long-term competitive advantages. This concept, popularized by Harvard business professor Michael Porter, suggests that firms can achieve perpetual profits by positioning themselves in protected market niches where they’re insulated from competition by structural barriers. For example, large pharmaceutical companies benefit from patent protections, which give them the exclusive rights to sell specific drugs for years. They may also face few competitors because barriers like the high costs of research and development and the extensive FDA approval process hinder startups from entering the market.
Why It Doesn’t Work Anymore #1: Rapid Change
Denning explains that in today’s fast-changing, unpredictable business landscape, protected market niches are rarely permanent, as barriers to competition can swiftly collapse. Globalization or deregulation can erode a company’s competitive advantage by opening the market to new competitors. Furthermore, competitive advantages that are based on technological innovation can disappear when competitors adopt new technologies.
Why It Doesn’t Work Anymore #2: High Customer Expectations
Furthermore, a focus on competitors distracts companies from their customers. Denning argues that customers should be a company’s priority because customers have higher expectations than ever. While companies used to have the luxury of offering customers a sub-par experience and relying on marketing and advertising to drive sales, this is no longer a viable business strategy. Companies now have no choice but to provide real value that excites their users.
According to Denning, this change is due to three developments:
1) Many tech companies have succeeded in providing customers with immediate gratification and value, so many customers now expect high-quality user experiences and refuse to settle for anything else.
2) Customers have an easier time sharing and accessing information about products and services through online reviews. This means that companies are now limited in their attempts to maintain the reputation of their products purely through advertising and marketing.
3) The fast proliferation of technology, combined with globalization and deregulation, has resulted in a competitive economy where customers have more power because their range of options is larger than ever—they can afford to be choosy.
Obsolete Practice 3: Top-Down Bureaucratic Management
Finally, Denning discusses the traditional business practice of top-down bureaucratic management. This long-standing practice consolidates decision-making in a few hands through a strict hierarchy of authority. While this approach may have the advantage of clarifying roles and responsibilities, Denning argues that it no longer works in the modern business landscape.
Why It Doesn’t Work Anymore #1: High Level of Complication
Denning argues that as software and other new technologies have reshaped the business world, the work of creating value for customers has become much more complicated. Many digital products and services rely on intricate components working together interdependently. This creates challenges for traditional management, because a single top-down manager may have only a limited understanding of what their team is trying to build.
Why It Doesn’t Work Anymore #2: A Need for Quick Adaptability
Denning contends that top-down bureaucratic management makes companies slower to react to changes and adapt to new practices. Because every idea needs to work its way up the decision-making ladder to be ratified, companies with this management style become inflexible. Since modern businesses must be flexible to survive, the unwieldy nature of this management style makes it difficult for companies to keep up.
The Solution: Become Agile
Denning asserts that in order to thrive in the modern economy, companies must let go of the old ways of doing business and instead adopt agile practices. (Broadly speaking, Denning’s definition of “agility” is a company’s ability to adapt to change swiftly and successfully.)
The rest of this guide will cover Denning’s advice to business leaders looking to make their companies more agile. First, we’ll explore the strategic principles that guide agile companies at the highest level of decision-making. Then, we’ll discuss how management can become more agile to support these strategies.
Part 2: Agile Strategy
According to 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. In this section, we’ll cover three things Denning says companies should prioritize: customers, the future, and continued innovation.
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 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.
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.
Part 3: Agile Management
Denning argues that to thrive, companies must ensure their management—the organization of teams, decision-making, and reporting structures—is as agile as their strategy. Denning highlights three important principles of agile management: small, self-managing, multi-disciplinary teams; networked coordination between these teams; and guidance from upper management. Let’s explore each.
Managerial Principle 1: Small, Self-Managing, Multi-Disciplinary Teams
Denning argues that companies can continuously innovate their products and services by organizing their workers into small, self-managing, multi-disciplinary teams. These small groups are organized around a single project—such as solving a problem with their current product or developing a new feature—and are granted wide latitude in selecting their methods for achieving these goals. How far that discretion extends will vary from company to company, but in general, the goal is for the team to move quickly without waiting for their decisions to be approved.
Denning lists four benefits to these types of teams: smaller tasks, faster development cycles, more independence, and more suggestions and ideas.
1) Smaller Tasks
Denning’s approach allows firms to break down large, complicated problems into smaller, more manageable tasks. Developers can thus test out targeted solutions without being encumbered by the complexity of working on the entire product at once.
2) Faster Development Cycles
Focusing on a smaller task allows teams to move more quickly through the iterative cycle of development, accelerating their research. By working in short cycles and focusing on small, incremental improvements, these teams can constantly generate value for customers.
3) More Independence
By working autonomously with little need for verification and approval, these teams can adapt more quickly to new information and customer feedback. Denning argues that traditional top-down management slows teams down by requiring decisions to be ratified and verified from on-high.
4) More Suggestions and Ideas
By eliminating the need for top-down planning, teams are free to leverage innovative ideas from all levels of the organization. When ordinary workers can make suggestions and offer their perspectives, this creates a wider pool of ideas for future innovation.
Managerial Principle 2: Coordination Between Teams
Though working independently, these small teams must still coordinate their actions to work together toward the company’s larger goals. Denning recommends that companies allow their staff to collaborate across teams in an interlinked network that shares information and resources directly through regular communication. This not only gives team members faster and easier access to resources and information to complete their tasks, but also gives them a broader perspective of how their actions fit with those of other teams into broader company goals.
Denning argues that companies must break down silos between teams to facilitate this level of coordination. When teams are cut off from each other, they end up with blind spots and outdated information, which leads them to work incompatibly or even at cross-purposes. To prevent unproductive siloing, Denning recommends widely sharing information to keep everyone informed on company matters such as overall strategy, the activity of other teams, and new developments that might impact the company. He also suggests bringing staff together into common spaces and periodically exchanging staff between teams. This allows staff members to informally share information that may be relevant to their roles.
Managerial Principle 3: Facilitation from Upper Management
While this may all sound like a demotion for upper management, Denning contends that company leaders play an enormous role in an agile organization. Rather than managers, they must become facilitators of a networked, collaborative environment. Denning highlights two ways that upper management can achieve this.
First, upper managers must set the ground rules for how the small teams operate. These parameters define their purposes, discretionary resources, decision-making authority, and channels of coordination with others. This allows teams to move independently without stepping on each others’ toes, duplicating efforts, or working in incompatible directions.
Second, managers must set the tone for their company’s culture. Denning argues that business leaders foster company culture by showcasing and reinforcing core agile values, such as bringing joy to the customer, collaboration, and initiative.
