CHAPTER 9

The Agile Management Process

Think, Do, and Learn

If everything seems under control, you’re just not going fast enough.

—Mario Andretti

Now that you have an idea about how to structure your organization, you are ready for the next step: establishing your methodology. You can set these up through a simple process of three continuously repeating steps. This section briefly discusses the purpose of these steps and explains exactly how to implement them. In chapters 10, 11, 12, and 13, you can find more details about these steps and associated approaches and tools.

9.1 Active and Passive Adaptivity

Agile management ensures that organizations are adaptive to changing requirements. In Section 3.2, we saw that changes can have two different causes.

Passive Adaptive

Changes can arise out of external developments such as market trends, which can be analyzed via the STEEPLED model, and contribute to changes in competitors and customers. Sometimes, these developments are internal, such as changes in IT systems, staffing, skills, leadership, and culture, which we analyze using the 7S model. The above is summarized in Figure 9.1. If an organization adapts this way, they can be called passive adaptive.

Figure 9.1 Autonomous developments can take place externally and internally

To be able to anticipate or react quickly and effectively, it is important to periodically monitor the elements in Figure 9.1. For changes that fit within its schema, it is necessary to determine what effects they might have (or be having) on your organization. And finally, you need to estimate the severity of their possible impact (high/medium/low) and the probability (high/medium/low) that this will happen. This simple equation lets you determine where you need to pay the most attention:

Priority = Impact × Probability.

Active Adaptive

Alternatively, the change may be a result of an organization’s own initiatives. Here we are talking about active adaptivity. This concerns the strategy you have chosen. You start with your market definition, and this serves as your compass. Your market definition is about your common purpose. It is a description of the market your organization focuses on. For example, does British Airways focus on transport in general or only by air? And only passengers, or cargo too? And only nationally, or internationally? Those choices have far-reaching consequences. For example, for what British Airways sees as its direct or indirect competitors, such as bus and train companies, car rental companies, shipping companies, and maybe even car manufacturers and tour operators. And for who British Airways considers as its potential customers, for example only consumers, or also business travelers. Overall, with a good and clear market definition, you have, as it were, ring-fenced your domain.

The adjustments that you make to your market definition and your go-to-market strategy are in-company initiatives that also lead to change. The initiatives that mostly occur can be seen in the Ansoff Matrix, Figure 9.2. These are:

Figure 9.2 The Ansoff Matrix shows your strategic options

• modifications to existing products or services in existing markets (“market penetration”);
• introduction of new products or services in the current or new market (“proposition development” and “diversification”);
• introduction of existing products or services in a new market (“market development”).

Let us, for illustration, look at Starbucks. When Howard Schultz took over the company in 1987, there were six branches. Although coffee consumption had fallen, year on year for a decade, he noticed that the market for specialty coffee had increased from 3 to 10 percent in the same period. He decided to focus on affluent, highly educated people who had money for “gourmet” coffee. In addition, he wanted to create a “third place” where people could spend time in addition to the home and office. By 2013, Starbucks was established in sixty countries and sales totaled $14.9 billion, with a gross profit of $2.5 billion. But this growth was not achieved without setbacks. In 2006, Starbucks were opening seven new stores a day but, in the crisis years between 2007 and 2010, the company had to close approximately 900 branches and lay off more than 34,000 workers.¹

When the global economy recovered, growth returned, aided by a sophisticated strategy. Here is how that strategy might look through the lens of the Ansoff Matrix²:

• Market penetration—Starbucks wants to improve its products for its core customers. In a limited number of branches, it invests in the so-called Clover coffee machines and exclusive kinds of beans, which, together, produce superior coffee. Additionally, for all branches, they improve the entire range of “La Boulange” patisserie goods.
• Proposition development—Following the acquisition of the retail chain Teavana, which sells exclusive teas and tea accessories, Starbucks Coffee begins offering teas in all its branches. In addition, they increase their product range to include oatmeal cookies, nonalcoholic cocktails, and iced coffee.
• Market development—Starbucks accelerates the opening of offices abroad again, rolling out its international expansion.
• Diversification—Starbucks responds to the trend of health and wellness by opening Evolution Fresh branches, which also sell juices, salads, and wraps. They offer packaged Starbuck’s coffee and beans in their own branches and also in third-party outlets.

About Red and Blue Oceans

In this situation, the Ansoff Matrix is a good tool that gives you an overview of your strategic options, which you can define and analyze. The attractiveness of these options can be determined by assessing the strength of suppliers, buyers, and competitors, as well as the threats of substitutes and new entrants using Porter’s Five Forces model. Each of the five forces has multiple subfactors, but the full application of Porter’s model is beyond the scope of this book (there are many good books and articles about it.).

However, it is worthwhile to stop for a moment and examine a particular aspect of diversification. In his excellent book Blue Ocean Strategy,³ Chan Kim coined the terms “blue oceans” and “red oceans” as metaphors for the competitive field in which your company operates. The red ocean is a bloody place: filled with sharks, constantly fighting with each other for their piece of the prey. In the real world, this means that there are too many strong providers offering very similar products and services. In a saturated market, they can only compete on price to gain market share, creating a downward price-spiral. In the longer term, only a handful of players will remain, and all will need to minimize their costs repeatedly, to make any kind of profit. The choice for operational excellence is their only chance to survive. We all want to avoid swimming in a red ocean.

But a blue ocean is worth a plunge. We’re not saying it’s a subtropical swimming pool with a waterslide and a hot tub, but the blue ocean symbolizes the unknown market space—space that you create yourself instead of fighting competitors for it: you make the competition irrelevant. Instead of battling for a slice of the pie or the crumbs, you simply make the pie bigger. Just like a wedding cake, upon which you put another tier where you can eat all alone. Because everything in this additional market space is new, there are no rules yet, and that gives you opportunities that do not exist in the red ocean. You can maximize these opportunities by renewing or refreshing your product or service, so that you create value for both your customer and your own organization. In addition, you need to reduce costs for things that your clients find less important. The chance here is great that you can introduce a real game changer.

But where on the map can you find the blue ocean? I imagine that, sometimes, you go to the theatre; maybe you’ve even been to the circus. Both have their limitations. The theatre is usually static, auditoria are usually not that big, and the building is often in a relatively inaccessible location in the downtown area. The circus is especially fun for children, often a little corny, with a musty old tent and worn benches. And rather sad for the animals, right? Would you have thought of combining circus and theatre? That’s exactly what, 30 years ago, the Cirque du Soleil did: creating a unique and very successful genre of entertainment, and they remain the only provider. They still use a tent, but theirs is beautiful, warm, large, and airy with very comfy chairs. There are no animals, but the acts are impressive, involving much color, light, movement, and live music. An impressing experience where you can spend a lot of money without a problem, entertaining your business partners or staff, and where you can also treat them to a superb dinner before the show. A brilliant business model: high prices and no competition.

Then there’s Dyson, asking very high prices for powerful bagless vacuum cleaners with a nice design. And Swatch, who found a gap in the market for Swiss watches for a product with modern design and good quality at an affordable price. Or Nintendo, who changed gaming forever with its 3D dual touchscreen for its portable gaming machine and the motion sensor on its Wii console. Or else, the US do-it-yourself chain Home Depot, which sells very popular courses for budding handymen. And, of course, the hit show Starlight Express that really pushed the boundaries of the musical.

Overall, if you can, look at diversifying into a blue ocean. Grab your travel-sickness pills, stretch out your sea legs, put on your sou’wester, and step aboard the blue ocean reconnaissance ship.

New Requirements: Internal and External

Whether you adapt passively or actively, you are going to have to deal with new requirements; requirements that can be external or internal. In both cases, this manifests concretely in the customer behavior. External is obviously the market: the people or institutions that buy your products or services. Internal means the departments within your own organization, your internal customers. As you saw in Section 7.2, the internal customer is always the next step in the value creation for the external customer. This step is represented by a process that arises from another (and in some cases your own) department. The output of one process is the input for the next; one process is always the customer of the preceding process. This is a fundamental principle of the Lean approach: The next process is the customer.

Now it’s time to take some concrete steps, guided by the results of your STEEPLED or 7S analyses and the strategy you chose via the Ansoff matrix and Porter’s Five Forces model. And that’s precisely what agile management’s Think–Do–Learn cycle is designed to help you do.

9.2 The Think–Do–Learn Cycle: The Basis of the Agile Management Process

As you now know, agile management is a way of working which, at its core, uses experimentation to achieve continuous learning and improvement. By working with hypotheses, minor adjustments are made in processes, products, services, or experiences. Then these are tested in practice and, on the basis of the results, adjustments are reversed, retained, further refined, or supplemented. This cycle continues indefinitely.

Many different variations of this cycle, with their own names, are in circulation. You might come across:

• the build–measure–learn cycle within the Lean Startup approach (and ING’s think–try–adjust approach or the try–listen–refine approach of McDonald’s);
• the define–measure–analyze–improve–control cycle or the define–measure–analyze–design–verify cycle within the Six Sigma approach;
• the observe–orient–design–act cycle in the Boyd decision-making process;
• the feedback cycle of sprint meetings within the Scrum approach.

Despite their differences, what all these cycles have in common is that they are based on the principles of the Plan–Do–Check–Act cycle, which—as we saw in Section 6.1—is, in its turn, based on the empirical cycle of the scientific method. The PDCA process is probably the most well-known and proven cycle because PDCA is central to the Toyota Production System and to Lean. Here’s an example of how proven the PDCA cycle is: the US space agency NASA cannot afford to make any mistakes, and this applies especially to their complex cooperation with foreign organizations such as ESA, JAXA, CSA, and Roscosmos within the International Space Station project. That’s why NASA applies the PDCA cycle in all its processes.

What is special about the PDCA cycle is that it can facilitate major breakthroughs, as well as frequent small improvements, in new and existing situations. This makes it suitable across innovation, product development, continuous improvement, and achieving adaptivity. For these reasons, the PDCA process was selected as the supporting platform for the principles of agile management. But, because experience showed that many organizations have difficulty distinguishing between the Check and Act phases, for practical considerations, we combined them. And in order to emphasize the goal of experimenting, we also changed the nomenclature here. Our resulting cycle has three steps, known as Think, Do, and Learn. Figure 9.3 is a global look at the content of the three continually repeating steps of the agile management process.

Figure 9.3 The three steps within the agile management process

The better you are in the application of these process steps, the faster it will go, spinning your agile flywheel and making your organization continually more adaptive. See it as a vortex that makes a whirlpool shape in the water. The top of the vortex is wider than the bottom. The top circles, which you first go through, have a greater circumference than the circles that you go through later, at the bottom. If you maintain a constant speed, you’ll go through the lower circles in a shorter time. So, the longer you work in the vortex of the agile management process, the more knowledge and experience you gain and the shorter the duration of each iteration.

To stay with the metaphor of a vortex, even the trunk of a tornado has this form. The speed of rotation gives a tornado its enormous sucking power. So the vortex of the Think–Do–Learn cycle gives your organization the power, as it were, to rapidly suck changes in and “process” them. Incidentally, it is not true that the Think–Do–Learn cycle is a rigid sequential process. This is truly iterative in nature. That means that sometimes you quickly go back and forth between the Think and Do phases, because you have discovered something on the way that asks you to change your assumptions. So you act quickly, responding on the basis of insights gained.

In the sections that follow, we focus on the purpose and activities of each of the three steps separately.

9.3 Think: Identifying and Prioritizing Improvements

During the Think phase, you determine what the goals will be for a new iteration of the Think–Do–Learn cycle. These goals can be based on the outcome of the Learn phase of your just-completed iteration. For example, because a particular change in approach does not give rise to the expected improvements in the result. Or it does, so you’re wondering what might deliver additional change. In both cases, you are curious about what has caused the just-completed iteration to meet or not meet expectations.

Of course you might start with something completely new, or you might be using the Think–Do–Learn cycle for the first time. Then, you cannot use the results of the Learn phase as your starting point, so you have to choose another. In this case, you can formulate your goals based on the “voice of the customer” sources, which form part of the Learn phase.

In both cases, it means that you are trying to discover what new requirements your organization must meet and how it can adapt to them in the best and quickest way. Making adaptivity tangible starts with setting good goals and adjusting to them. Apart from formulating these goals, during the Think phase, you will have to identify how you will achieve them concretely. In other words, you’ll need to know who is going to do the work, and how and when.

For determining both targets and activities, you are lucky to have a box full of practical tools. Chapters 10 and 11, therefore, examine the following instruments:

• Business-model canvas;
• Value-stream mapping and process mapping;
• Personas and customer journeys;
• Prioritizing activities;
• Working with hypotheses and metrics;
• Flexible planning.

9.4 Do: Building and Testing Improvements

Once you’ve completed the Think phase, you are ready for the next step: Do. Here you are going to carry out those activities to which you have given the highest priority, in two steps. Whatever you plan to adapt and adjust, you first have to build. This could be something very small or something very big. For example, it could be just the customization of a particular phone number, or the launch of a completely new product. And because, at its best, agile management works as much as possible in small steps, that large project for the launch of a new product can be cut down into as many small projects as practical. However you approach things, you will always have building activities. Second, you should offer what you’ve built to your internal or external customer to find out how he reacts: The proof of the pudding is in the eating. So you will need to conduct measurements to determine whether your expectations, that you set as hypotheses during the Think phase, are actually true.

To do this effectively, there’s a doctor’s bag full of handy instruments just for this. In Chapter 12, the following are discussed:

• Building customer-value propositions;
• Building customer experiences;
• The “minimum viable product”;
• Testing and measuring.

9.5 Learn: What Have the Improvements Delivered?

All the activities are now behind you and all the measurements have been completed: time to determine how the Do phase went. Now you want to know to what degree the test results you have measured match your expectations. You also want to determine to what extent the implementation of activities in the Do phase went according to plan. Are there any notable exceptions? To what extent was your plan correct and complete in order to best facilitate the implementation?

The Learn phase is about gathering as much relevant information as possible about what happened during the Do phase. To this end, many different sources are available. Besides measuring your own activities, you will especially need to look at the behavior of your internal or external customer. How did he react to the adjustments you made?

Once this information is complete, you can determine whether the adjustments that you experimented with, during the Do stage, have brought an improvement compared with the previous approach (also known as the standard or baseline). If so, then this is the new standard and, naturally, you will be curious to learn if there is further room for improvement. If not, this will remain the current standard and you can look for possible alternatives, or get started with all the other changes from your prioritized to-do list. In every case, there is still something to learn, which means that you can start a new iteration of the Think–Do–Learn cycle.

In order to make optimal use of the Learn phase, another arsenal full of weapons and ammunition is at your disposal. These are discussed in Chapter 13:

• Evaluation
• “Voice of the customer” sources
• Pivoting and continuing

In short, get to work! For how to make a useful start, see Chapter 10.

By reading this chapter, you’ll have discovered the following:

•  You can be either passive adaptive or active adaptive. Passive means that you monitor the internal and external changes and you adjust to them. Active means that you take the initiative, within the framework of the Ansoff Matrix, and that these initiatives require adjustments.

•  To facilitate these adjustments, in addition to how the organization is structured, is another foundation-stone of the agile management approach: the process. This process is a cycle based on the scientific method. The process consists of three steps: Think, Do, and Learn.

•  In the Think phase, you determine what improvement possibilities exist and which have priority. The Do phase sees you building and testing your improvements. The Learn phase is about seeing what your improvements have delivered and, based on these results, what the next logical step should be.

References

1.  Loeb, L. (2013). “Starbucks: Global Coffee Giant has New Growth Plans.” Forbes. January 31.

2.  Gertner, J. (2012). “Most Innovative Companies in 2012: 24–Starbucks.” Fast Company, February 7.

3.  Kim, C., and R. Mauborgne. (2005). Blue Ocean Strategy. Brighton: Harvard Business School Press.