![Michael A Cusumano
Professor of Management
MIT Sloan School of Management
I can’t think of anything more
important than building an agile
company, because the world
changes so quickly and
unpredictably
[Agility] comes in different forms, but
basically it’s the ability to quickly adapt to
or even anticipate and lead change.
Agility … affects strategic thinking,
operations, technology innovation and the
ability to innovate in products, processes
and business models.](https://image.slidesharecdn.com/whatisagile-150227073520-conversion-gate01/75/what-isagile-8-2048.jpg?cb=1669328870)
What isagile
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Exploration of what Agile is from a business point of view
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What isagile
- 1. Allan Kelly allan@allankelly.net @allankelly.net What is this thing you call Agile? and why should I care? (I'm only the boss around here) Norwich Developer Conference February 2015
- 2. Allan Kelly…  Provide advice on software development & business strategy  Training in Agile, Coaching, Consulting Author – Xanpan: Team Centric Agile Software Development https://leanpub.com/xanpan – Business Patterns for Software Developers (2012, Wiley - ISBN: 978-1119999249) – Changing Software Development: Learning to be Agile (2008, Wiley)
- 3. Disclaimer(Context, Software) • Everything I am about say is about software, specifically software development. • Software is the technology that the 21st century is built on. • Much of what I am about to say works also in the world outside of software. • But I make no claims about that world.
- 4. Chinchillas
- 6. Agile is a development methodology Agile is a a business strategy Agile is a state of being Agile is not waterfall Agile
- 7. Agile, Agile methods & the Agile toolkit The State of Agile (our objective) •Quick on our feet •Respond to change rapidly •Deliver quickly The Agile toolkit •Test Driven Development, Refactoring •Iterations, Time boxing •Retrospectives, .... Scrum XP DSDM Kanban ... Agile Methods Promise to create the state of Agile
- 8. Michael A Cusumano Professor of Management MIT Sloan School of Management I can’t think of anything more important than building an agile company, because the world changes so quickly and unpredictably [Agility] comes in different forms, but basically it’s the ability to quickly adapt to or even anticipate and lead change. Agility … affects strategic thinking, operations, technology innovation and the ability to innovate in products, processes and business models.
- 9. Agile Advantage 1. Agile increases return on investment 2. Agile reduces risk 3. Agile creates options
- 10. • $50,000/month costs • $1m revenue at the end -$200,000 $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 1 2 3 4 5 6 7 8 9 10 11 12 Costs Revenue Net cashflow Traditional NPV = $373,654
- 11. • $50,000/month costs • $90,000/month revenue after 1st month -$200,000 $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 1 2 3 4 5 6 7 8 9 10 11 12 Costs Additional Revenue Net Cummulative revenue Iterative NPV = $5 million
- 12. Traditional Agile (Iterative) NPV $373,654 $5 million IRR (no discounting) 9% 180% Monthly cost (for 12 months) $50,000 $50,000
- 13. NPV rockets because Something is delivered earlier … and something generates revenue for a longer period
- 14. Agile reduces risk by decomposing a large thing into many small pieces Project A: Risk = 30% Value at risk = £1m Therefore risk weighted value = £300,000 Prj B: Risk = 15% Value @ risk = £½m Therefore … = £75,000 Prj C: Risk = 15% Value @risk = £½m Therefore … = £75,000 E: Risk = 6% @risk = £200k Therefore = £12k F: Risk = 6% @risk = £200k Therefore = £12k G: Risk = 6% @risk = £200k Therefore = £12k H: Risk = 6% @risk = £200k Therefore = £12k I: Risk = 6% @risk = £200k Therefore = £12k
- 15. Risk reduction 1 big delivery $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 1 2 4 6 8 10 12 Riskperdelivery Number of deliveries Total value at risk Risk weighted per delivery
- 16. But wait! It does more • Incremental deliveries allow for feedback – Market testing • Feedback allows for course correction – Increases chance of success • Feedback allows for early cancellation – Reduced costs of failure
- 18. Diseconomies of scale Milk is cheapest in BIG cartons And small cartons of software reduce risk Software is cheapest in lots of small cartons
- 19. What do you want? • Fast – quick to market, quick to respond, … • Responsive – to customers, … • Effective – economical, high utilization, … • Quality products • Satisfied customers What do you really really want?
- 20. Agile might have a tool for that
- 21. Warning #1: Contradictions Some of what you want is contradictory Predictability <-> Flexibility High utilization <-> Short lead time Low cost through low quality
- 22. Warning #2: You too An Agile organization needs leadership with an agile mindset You can’t delegate this You have to live it
- 23. Leader’s Agile state of mind Speed is itself an advantage … being fast isn't about just working long hours … speed must be sustainable … speed doesn’t come from dropping quality
- 24. Leader’s Agile state of mind Diseconomies of scale Less is more Get good at working in the small Keep it small
- 25. Leader’s Agile state of mind Experiment … be tolerant of failure Fail fast, fail cheap … salvage
- 26. Why is your organization effective? What is its strategic modus operandi? Is that strategy compatible with Agile? 'Large organizations cannot be versatile. A large organization is effective through its mass rather than through its Agility.’ Peter Drucker 1968
- 28. Traditional MonthCosts Revenue Net cash flow 1 $50,000 -$50,000 2 $50,000 -$50,000 3 $50,000 -$50,000 4 $50,000 -$50,000 5 $50,000 -$50,000 6 $50,000 -$50,000 7 $50,000 -$50,000 8 $50,000 -$50,000 9 $50,000 -$50,000 10 $50,000 -$50,000 11 $50,000 -$50,000 12 $50,000 $1,000,000 $950,000 Total: $600,000 $1,000,000 Simple net cash flow: $400,000 Net present value (4% discount rate): $373,654 Internal Rate Return (no discount) = 9%
- 29. Iterative Simple net cash flow: $5,350,000 Net present value (4% discount rate): $5,193,772 Internal Rate Return (no discount) = 180% Costs Additional Revenue Cumulative revenue Net $50,000 -$50,000 $50,000 $90,000 $90,000 $40,000 $50,000 $90,000 $180,000 $130,000 $50,000 $90,000 $270,000 $220,000 $50,000 $90,000 $360,000 $310,000 $50,000 $90,000 $450,000 $400,000 $50,000 $90,000 $540,000 $490,000 $50,000 $90,000 $630,000 $580,000 $50,000 $90,000 $720,000 $670,000 $50,000 $90,000 $810,000 $760,000 $50,000 $90,000 $900,000 $850,000 $50,000 $100,000 $1,000,000 $950,000
- 30. Deliveries Value per delivery % Risk per delivery Weighted risk per delivery Total value at risk 1 $1,000,000 30.00% $300,000 $300,000 2 $500,000 15.00% $75,000 $150,000 4 $250,000 7.50% $18,750 $75,000 6 $166,667 5.00% $8,333 $50,000 8 $125,000 3.75% $4,688 $37,500 10 $100,000 3.00% $3,000 $30,000 12 $83,333 2.50% $2,083 $25,000
- 31. Options Better still… When technology deliver early With business involvement You can change your mind Prioritize high value / needed soon Postpone (cancel) low value