Q&A on the Book EDGE: Value-Driven Digital Transformation

Jim Highsmith, Linda Luu, and David Robinson have written a book EDGE: value-driven digital transformation. The focus of the book is providing organisations with ways to respond to the fast moving, complex business environment and support the move to becoming digital businesses.    

Readers can download a sample chapter here and the book can be purchased from the same link.

InfoQ: Why did you write this book?

Jim Highsmith: We started thinking about this gap between strategy and delivery several years ago as  we worked with clients on their key issues. It started out to be a book on portfolio management but as we progressed, first delivering an internal workbook, that we realized that the solution for our clients was much broader. We also saw that new technologies were creating opportunities that overwhelmed clients, and that even when they focused on a digital strategy that they often didn’t have the capabilities to execute that strategy. In making a digital transformation we wanted to make sure our approach maintained true to basic agile principles that encouraged innovation. We summarized the core message of the book as "Eliminate friction to close the gap between fleeting opportunity and your ability to quickly capture it."

Linda Luu: About 5 years ago we started to see a trend in a lot of the clients that were going through this "digital transformation" journey. They were frustrated. They tried scaling agile. They tried CI/CD practices. They built product teams and some were even using data to drive their product prioritization backlog. At the end of the year, when it came to measuring ROI and reporting to the Board about whether their investments delivered to expectations, it was always a disappointing ’no'. Did they have the wrong ROI assumptions? Were expectations too high? Was there a misunderstanding about the promise of digital? No. Foundational to our book and what we consider the missing link between strategy and execution is a value driven portfolio that forms the foundation for making good decisions on what to invest and changing the fundamental way organizations measure success. We saw this problem so many times that we decided it was time to make a larger impact, beyond our consulting services, to bring this thought leadership to a wider audience.

InfoQ: Who is this book for?

David Robinson: The traditional answer might be a CEO, or CIO, or chief digital officer, or CMO, or chief strategy officer. We have a different answer. Whether your job title is one of these senior positions, or an individual contributor, we think the key personal trait for transforming to a modern digital business is the courage to move forward in the face of uncertainty. These Courageous Executives challenge the status quo again and again. Transformation isn’t for the faint of heart, and neither is EDGE.

As companies across all industries embrace the changes of our increasingly digital world, we’re seeing leaders at the helm of these companies dive deeper into how technology is implemented and how it works. Executives are learning that a strong grasp of technology matters, and they’re finding ways to adapt. A tenacious commitment to embrace technology is what sets apart truly Courageous Executives. They are boundless in their thinking, bold in their actions, and passionate about technology. These Courageous Executives are a major disruptive force in business, creating a powerful competitive advantage through their leadership style. (Excerpted from Guo, Xiao. "The Next Big Disruption: Courageous Executives." ThoughtWorks, July20, 2017.)

InfoQ: You use the term "Operating Model" for EDGE. How does this apply to a digital transformation?

Highsmith: Digital transformation - most businesses know they need to adapt, but get lost in the transition from strategic portfolios to projects. EDGE guides courageous leaders who believe in the transformative power of technology to drive a different kind of transformation - a Value-Driven Digital Transformation. Uncovering hidden value and resources, thinking big, but starting small, leaders are invited to answer three simple questions:

• How do we work?
• How do we invest?
• How do we adapt fast enough?

The answers craft the framework for a Holistically Agile operating model that builds tech into all areas of the business and shifts the culture to a product mindset that focuses and delivers on customer expectations.

InfoQ: The intent and message seem to be encouraging organisations to fundamentally change their approach not just to building products but to doing business. What are these changes and why are they necessary?

Highsmith: In the book we discuss the evolution of the business-IT relationship over the last 50 years; from one early in that period in which IT was basically a support function to today’s modern digital businesses in which IT is fully integrated into the business and vise versa. Just as "going agile" has transformed IT, business organizations need to be agile to survive and thrive. However, there are reasons a significant number of organizations are failing at the transition, just as many IT groups failed also. As we point out time and again in the book it’s hard because there are so many areas in which changes need to be made - from leadership to product mindset to autonomous teams and outcome measurements. This breadth of change is hard, but necessary. And there is not a handy guideline that works for organizations - each is unique and each needs to adapt the basic principles and practices to their uniqueness.  

InfoQ: What are the characteristics that make EDGE unique?

Highsmith: First, many of the scaling frameworks available focus on bringing agile methods to big organizations and/or big products. EDGE focuses on the agility and innovation necessary to create a modern digital organization. Second, EDGE is holistic, meaning that it brings together a number of capabilities needed for transformation--technology, value-driven portfolio management, product mindset, adaptive leadership, lightweight governance, and autonomous teams. Third, EDGE drives the concepts of outcome-orientation and value-driven from goal level strategy to product initiatives. Forth, just as the agile movement as a whole has been driven by the values and principles of the Agile Manifesto, EDGE is driven by the fundamentals in the manifesto and builds on those to create a set of values that drive EDGE. Last, EDGE is not just based on theory, but on actual engagements with clients over the last 5+ years.

InfoQ: What is a "Customer value fitness function"?

Robinson: One of the most uncomfortable changes for senior leaders undergoing digital transformation is the change in performance measures. The most profound of these is the switch from internal ROI to external customer value. While this is a measurement change, it is more fundamentally a change in perspective, a change in your gut-level basis of decision making. It means the first and foremost question an executive leader asks is not "How will this impact our bottom line?" but "How will this impact the value we deliver to our customers?" ROI isn’t the objective; instead, it is a constraint. You need to make a profit to continue delivering customer value however; ROI is a business benefit (internal) but not a customer value (external).

Complexity theory includes a concept called a fitness function. A fitness function summarizes a specific measure to evaluate how close a solution is to achieving a stated goal. In other words, it drives an organism (biology) or an organization (economics) to achieve its purpose - survival and procreation for an organism, thriving and continuation for an organization. As opportunities expand exponentially, you need a process, and a fitness function, to focus investments now and in the future. You need to build capabilities, modern technology platforms, and learning and adaptive practices - all driven by a set of values and principles.

Critics may say that customer value is too intangible, that ROI is a tangible measure and therefore better. In the book How Leaders Build Value, the authors suggest that 85 percent of a company’s market capitalization can be attributed to intangible factors such as leadership, culture, and patents.

Given the turbulence and uncertainty of today’s business environment, picking the right measures of customer value and other intangible factors can be daunting. Nevertheless, one of the key capabilities required is the ability to discover and capitalize on the opportunities that this turbulence creates. Technology organizations need to make the transition to speed and adaptability from cost and efficiency as their fitness function (given that everyone’s primary one is customer value). You should not conclude that ROI and cost/efficiency are now unimportant - in fact, they are very important. They are not the primary drivers, but they are secondary, but still critical measures.

InfoQ: What happened at around 2007 that triggered the societal and structural changes that resulted in the need for agility today?

Highsmith: The year 2007 was an epic inflection point that has caused turmoil in both the economy and specific enterprises. In his book Thank You for Being Late, Thomas Friedman anointed 2007 as the year when multiple technologies came to fruition and kicked "digital" acceleration into high gear. Apple introduced the iPhone, Hadoop ushered in the big data era, GitHub multiplied software development capabilities, Facebook and Twitter expanded the reach and influence of social media, Airbnb showed what small companies could do with these new technologies, the Kindle changed book reading and the publishing business, and Google launched the Android operating system for phones. The confluence of all these technologies enabled new companies such as Airbnb, to become much bigger. Thus 2007 was the inflection point that separated the pre-digital and digital worlds.

Also, 2007 was the mid-point of another transition - a business one - illustrated by an article and a book published 10 years apart. In 2003, Nicholas Carr wrote a controversial article in the Harvard Business Review titled "IT Doesn’t Matter," which argued that IT had become a commodity and, therefore, could not contribute to sustainable competitive advantage. This article emphasized cost reduction as the path to success for a commodity product. IT organizations were constantly admonished to reduce costs, a focal point that caused ballooning technical debt further impeding their digital transformation.

Ten years later, Rita McGrath, professor at Columbia Business School, wrote that in today’s fast-paced, uncertain world, sustainable competitive advantage itself was no more, being replaced by transient competitive advantage in which learning and adapting quickly was the ticket to success. In Carr’s world, IT should be governed by cost considerations. In McGrath’s world, responsiveness and customer value should drive IT.

InfoQ: What are some of the new metrics that leaders should be looking at and why are things like roi no longer useful pointers?

Luu: ROI isn’t a bad measure, we believe it’s still important to understand at a high level what the potential size of the marketing opportunity and the cost-reward of targeting the opportunity. The problem with ROI, however, is that it is a lagging indicator which means the work has to be delivered before we can measure whether the expected ROI came to fruition. By then, we’ve already spent the money, and often the temptation is, if the initial expected ROI didn’t meet expectations, the temptation is to continue to pour more money into the product hoping the return will pay off.

We believe the new metric leaders should be looking at are those focused on customer value.

One common misconception about measures is that they are created after the work is defined, and are used to track activity progress. Measures that are defined and articulated correctly become a powerful way to shape the work that will help achieve the desired outcome without constraining creativity. There are three primary reasons for using Measures of Success (MoS) in EDGE:

• MoS help leadership shape and align the work, without prescribing a specific solution.
• MoS replace deliverables as the primary description of what is expected from the team doing the work.
• MoS are used throughout the delivery process to demonstrate progress, prioritize work, and support decision making on incremental funding.

Customer-value MoS, such as delivery time (order to receipt) and customer satisfaction, are good measures of outcomes that represent customer value. Often organizations confuse the outcome they are trying to achieve by the measure of success. For example, if you run a mortgage business, you might measure success by the number of home purchases enabled. The customer outcome (goal) you are trying to achieve would be articulated as "to enable more people to successfully buy a home". This is an important distinction because, used together, can help create clarity and organizational alignment of what outcome you are trying to achieve for the customer. Focusing only on measures alone gives temptation to optimizing for the metric, and loses focus on the customer value you are aspiring to deliver.

InfoQ: What does Technology at the Core mean for businesses and technologists?

Highsmith: Tech@Core means that technology is your business - no matter what your business. Today new cars contain upwards of 100 million lines of code. Autonomous cars will pass a billion lines of code. Cars are rapidly becoming mobile computers. So are auto manufacturers in the car hardware business or the software development business? Of course, the answer is both - they have to be in the world class hardware business and world class software business - and the two much be seamlessly integrated. The seamless integration doesn’t only apply to the hardware and software, but even more importantly to the people and teams. No longer, as was the case in the past, can hardware and software engineers be separated - either physically or intellectually. The same is true for business and IT - where knowledge of technology and business needs to permeate the entire organization.

InfoQ: You propose creating autonomous teams rather than empowered teams. What is the difference?

Highsmith: Empowerment, as practiced, doesn’t go far enough, as authority is dribbled out to employees by management. So we will make this explicit differentiation between empowerment and autonomy. Empowered teams have only the decision-making power assigned to them by management. Autonomous teams have decision-making power over everything except that retained explicitly by management. This is a big difference. We will use the term "autonomy" because it suggests both a wider range of team self-governance and a sense of innate power rather than delegated power.

InfoQ: You have a list of Edge Principles - what are they and why do they matter?

Robinson: I think that a primary reason agile methods have been successful for more than 20 years is that the core Agile Manifesto principles have remained relevant to people. Some have offered modifications here and there, but the original 4 values and 12 principles have endured. Core principles identify values that endure in the face of evolving practices. Both are important and interdependent on each other for success. Principles without practices are just fluff, while practices without principles become static.

When I review new books I always look for the answers to two questions: (1) What new and different ideas are in this book? (2) Is there a new and different combination of ideas in this book? I think the answer to how EDGE is different lies in the second question. This is one reason we think EDGE is "holistically" Agile - in that it brings together a number of ideas under a framework, much like eXtreme programming did in the early years of the agile movement. [Figure 3.1 below]

The three principles on the outside loop - outcome-based strategy, value-based prioritization, and lightweight planning and governance - focus on answering the "how should we invest" question. The inner loop principles - autonomous teams; adaptive, learning culture; and self-sufficient, collaborative decisions - speak to working together and adapting fast enough. But in reality, the relationships between the key questions and principles are multifaceted. Lightweight governance, for example, also helps  define how teams work together. When scaling agile and lean methods, there’s often a disconnect as the scaled versions attempt to create a prescriptive structure or process rather than an adaptive one. We believe that your decision-making framework is more important than detailed processes.

InfoQ: It seems like many of the ideas come from agile software development - are they really applicable beyond the software development environment and what needs to change for them to be useful?

Highsmith: One of the issues facing organizations in becoming digital is that that the technology group may be agile and other parts of the organization are not. This limits the effectiveness of agile software development groups because there is  a cultural mismatch between the two groups. The fundamentals of agility are more organizational and mindset than technical, so they work as well beyond software development - you just have to apply them to different circumstances. For example I’ve used agile values and practices with hardware engineers, although I ran into some reluctance to do pair electrical engineering.

InfoQ: How do technical leaders influence and contribute to making these changes in their organisations?

Luu: Leaders play a crucial role in guiding, enabling, and taking a macro view of some of the systemic challenges teams face in the pursuit of delivering value. A technical leader’s role in this new operating model is to model a culture of learning, failing early, and experimentation. Their role is to encourage teams to really learn about the customers needs and how the product they build makes customer’s  lives easier. To facilitate this learning, leaders must take a holistic view of the portfolio of work, reduce the amount of team dependencies, learn what frustrates teams and find unconventional solutions to unlocking the value in the teams. We call this Adaptive Leadership, and it’s about leaders with the mindset that their role is not about having all the answers, but about really listening to what’s painful for teams and removing that pain so people can do their best work.

About the Book Authors

Jim Highsmith is an Executive Consultant at ThoughtWorks, Inc. He has 50-plus years' experience as an IT manager, product manager, project manager, consultant, software developer, and storyteller. Jim has been a leader in the agile software development community for the past two decades. Highsmith is the author of Adaptive Leadership: Accelerating Enterprise Agility (Addison-Wesley, 2014); Agile Project Management: Creating Innovative Products (Addison-Wesley, 2009); Adaptive Software Development: A Collaborative Approach to Managing Complex Systems (Dorset House, 2000), which won the prestigious Jolt Award; and Agile Software Development Ecosystems (Addison-Wesley, 2002). Highsmith is the recipient of the 2005 international Stevens Award for outstanding contributions to systems development. Highsmith is a coauthor of the Agile Manifesto, a founding member of The Agile Alliance, coauthor of the Declaration of Interdependence for project leaders, and cofounder and first president of the Agile Leadership Network. Jim has consulted with IT, product development organizations, and software companies in the United States, Europe, Canada, South Africa, Australia, Brazil, China, Japan, India, and New Zealand.

Linda Luu is a Consultant and Head of Digital Transformation for ThoughtWorks, Inc. North America. She has 20 years’ experience building new capabilities in organizations seeking to respond faster to the shifting needs of customers, in the areas of design thinking, big data and analytics, portfolio management, and agile delivery. In 2010, frustrated by the pace of product development and organizational change at a large bank, Luu left Aussie shores and headed to the United States to learn better ways of working. During this journey, she was fortunate to have the opportunity to work with amazing individuals who pushed the boundaries of how organizations could function both at a macro and team level. This experience made her excited to share the learnings, stories, and many challenges of building organizational responsiveness in today’s environment fueled by technological change. Her journey includes working with clients from Australia, North America, Canada, South Africa, and Brazil. Luu is on the board of Rutgers Big Data Certificate Program. She holds a double degree in commerce (finance) and science (applied math) as well as an MBA from the Australian Graduate School of Management. She is married and a proud mother.

David Robinson is a Principal Consultant at ThoughtWorks, Inc. where he focuses on helping clients drive digital transformation. He is the global leader of the Responsive Organizations offering at ThoughtWorks. Robinson has consulted with large enterprises driving digital transformation in the financial services, transportation, logistics, retail, and entertainment industries across the globe. Robinson has 30-plus years’ experience in information technology as a CIO and other leadership positions. He has grown three start-ups (two wins, one loss), and also spent a few years outside of technology, leading business units. As a recovering executive, Robinson has been focused on building more human organizations by innovating new ways of working that unlock the talent and passion of creative people.