The Agile Executive

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Posts Tagged ‘Techno-Economic Paradigm

A Note on the Macro-Economic Crisis

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Re-reading Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages by Carlota Perez, I was struck by the following paragraph:

So, once again, the amount of money available to financial capital has grown larger than the set it recognizes as good opportunities. Since it has come to consider normal the huge gains from the successful new industries, it expects to get them from each and every investment and will not be satisfied with less. So rather than go back to funding unsophisticated production, it develops sophisticated instruments to make money out of money. [Italicized  and highlighted by IG]

Perez published the book in 2002. Her words of wisdom seem to be appropriate today even more than they might had been then.

(Click here and here for related discussions of Agile in the context of the current macro-economic crisis.)

Written by israelgat

April 13, 2009 at 12:20 pm

The Language, The Issues

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Colleague Clarke Ching asked me about the language I use in interacting with executives on Agile topics. To quote Clarke:

Obviously the language one uses with a developer is quite different from the language one uses with a program manager. Likewise, the language you [Israel] use in discussing Agile with executives must be quite different. What language do you use? In particular, what language do you use amidst the current economic crisis?

What language do you use amidst the current economic crisis?

I view the economic crisis as part of life. Having grown up in Israel, I still clearly remember:

  • The 1956, 1967 and 1973 wars;
  • Various economic crises;
  • Any number of measures taken by the government to cope with financial crises. For example, devaluing the currency on many occasions.

We all survived and the country moved forward in leaps and bounds. We simply learned to accept dramatic changes as inevitable, to continue doing what we believed in. We, of course, changed tactical plans in response to disruptions such as a change in the value of the currency, but continued to do the right things strategically. Such turbulence, and possibly worse, has been characteristic of much of the world for many years now. Just think of Eastern Europe, Latin America or Africa.

Fast forwarding to 2009: I try to put the economic crisis in perspective. I have discussed the techno-economic cycle along the lines articulated by author Carlota Perez in her book Technological Revolutions and Financial Capital: The Dynamics of Bubbles and olden Ages.  In my recent post Why Agile Matters,  I stated:

  • The fifth techno-economic cycle started in 1971 with the introduction of the Microprocessor;
  • This cycle has been characterized by software going hand-in-hand with miniaturized hardware. We are witnessing pervasive software on unprecedented scale;
  • Furthermore, software is becoming a bigger piece in the contents of just about any product. For example, there are about 1 million lines of code in a vanilla cell phone;
  • Agile software significantly reduces the cost of not “only” software, but the cost of any product containing software;
  • And, Agile software enables us to respond faster and more flexibly to changes – in the software, in the business process that is codified by the software, in the product in which the software is embedded.

In short, I speak about software as an important factor in the bigger scheme of things – the techno-economic cycle.

What language do you use in your conversation with executives?

I describe the benefits of Agile in the business context. For example, when I meet an executive of a major financial institution, I discuss with him/her issues of compliance and risk his company is facing.  For a global financial institution I typically discuss the critical needs during transfer of trade from London to Wall Street. A lot of things need to work seamlessly in order to ensure smooth transition. If things do not work well within the short transition window, the implications are dire:

  • Unacceptable risks. Billions of $$ could be lost if a global financial company cannot start trading on time in Wall Street;
  • Severe compliance issues. The executive with whom I speak and his/her company could get in serious regulatory trouble due to a failure to reconcile trades and keep the required audit trail.

The ties of these business imperatives to Agile are straightforward:

  • Higher quality code reduces the risk of a ‘glitch’ in the transition of trade from London to Wall Street;
  • Should a financial institution suspect a glitch might happen, Agile usually enables Application Development and Operations to fix the code faster than traditional methods;
  • And, using virtual appliance technology enables deploying the fix in minutes instead of months.

I usually cite the examples of Flickr and IMVU to demonstrate how fast one can deploy software nowadays. I make it crystal clear that I do not expect a global financial institution today to be able to deploy every thirty minutes or every nine minutes as Flickr and IMVU do. However, I stress that the software industry is clearly heading toward a much shorter cycle between concept or problem identification and deployment. I point out that he/she has an opportunity to be ahead of the power curve, to gain competitive advantage in the market through superior velocity in both development and deployment. Obviously, a faster introduction of a new hedging algorithm could make a big difference for a financial institution.

What do I typically hear from the executive in such a conversation?

The responses I usually get tend to reflect the alignment (or lack thereof) between the financial strategy and the operational strategy a company follows:

Reflections on The Use of Agile Methods by the Entrepreneur

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Walter Bodwell has posted his reflections on The Use of Agile Methods by the Entrepreneur. To quote Walter’s summary:

It looked at agile from a different point of view than typically done.

See here for the full review of the presentation by Walter.

Written by israelgat

March 5, 2009 at 2:36 pm

The Use of Agile Methods by the Entrepreneur

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Sebastian Hassinger and I just finished delivering this presentation in Agile Austin. It is a ‘think-piece’. Comments on the presentation will be highly appreciated.

Written by israelgat

March 3, 2009 at 10:55 pm

Why Agile Matters

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Agile matters because it is a critical factor in the techno-economic process. In fact, it fits nicely in both the classical theory of techno-economic cycles, and the latest revisions to the theory. Whichever school of thought you might follow with respect to what the nature of the current macro-economic crisis is and what the implications for your company might be, Agile will serve you well.

Technological revolutions

In Technological Revolutions and Financial Capital, author Carlota Perez views technological revolutions as part of techno-economic cycles. According to Perez, techno-economic cycles are composed of a sequence of events that proceeds in the following way:

  1. A major technological innovation introduces a new infrastructure
  2. The new infrastructure disrupts both industry and commerce (and very possibly society)
  3. Overtime, the new technology gets to be understood; it then gets harnessed
  4. As the new technology gets harnessed, confidence in it grows and it gets used broadly. Consequently, in good time, the new infrastructure itself becomes a stabilizing force
  5. A new technological innovation disrupts the prevailing order and gives rise to start a new techno-economic cycle

Perez identifies five successive technological revolutions between the 1770s and the 2000s:

slide1

To summarize, Perez perceives that technological revolutions are subject to laws of cyclicality. The cardinal law in the cyclicality is that intertia eventually becomes the legacy of successfule innovation.

Has the techno-economic paradigm been disrupted?

In a recent Harvard Business Review article, authors Hagel, Brown and Davison suggest that we are witnessing a profound shift:

The historical pattern – disruption followed by stabilization – has itself been disrupted.

Hagel, Brown and Davison perceive an exponential pace in information and telecommunication. The exponential pace creates a new reality and a new order:

Because the underlying technologies are developing continuously and rapidly, there is no prospect for stabilization. Businesses and social institutions constantly find themselves racing to catch up with and learn the steadily improving foundational technologies…  The core technology infrastructures that once formed the bedrock have turned into plasma.

Choosing between the two theories

The debate about which techno-economic paradigm – the Carlota Perez paradigm or the Hagel, Brown and Davison paradigm – is better suited for the current circumstances is beyond the scope of this blog. Be it as it might, Agile fits well with either paradigm, though in a different manner.

Agile as a low cost input

If you believe the classical techno-economic paradigm a la Perez continues to prevail, you need to think of software produced by hyperproductive Agile team as a low-cost input in the techno-economic system.  If Agile is massively adopted, it will satisfy the four conditions stipulated by Perez for an input to be a key factor in the technological revolution:

  1. Clearly perceived low – and descending – relative cost
  2. Unlimited supply for all practical purposes
  3. Potential all-pervasiveness
  4. Capacity to reduce the cost of capital, labour and products as well as to change them

The potential  implications of Agile software getting to satisfy these four conditions are far reaching. According to Perez, the current technological cycle started in 1971 with the introduction of the microprocessor by Intel. Hence, one might think of Agile software as a “mid-life kicker” to the current techno-economic cycle.

At the micro-economic level, the implications of Agile as a low-cost input for traditional enterprise software vendors are dire. As pointed out in the post Enterprise Software Innovator’s Dilemma, some low-cost input effects are already manifesting themselves through Open Source Software.

 Agile as agile

If you subscribe to the “bedrock into plasma” paradigm advocated by Hagel, Brown and Davison, you need to view Agile from the point of view of, well, agility. Irrespective of whether your business strategy calls for adapting to the market or shaping it, speeding up the business, not “just” R&D, is absolutely of the essence. You need to apply the Agile principles to the way you develop your business and your customers.

The point in nicely illustrated in The Lean Startup presentation by Steve Blank and Eric Ries. The authors are emphatic in their recipe for success:

Winners are those that can move faster than their competition.

To move faster than the competition, Blank and Ries recommend applying Agile principles to customer development. In so doing, they extend Agile beyond the traditional starting point when the (customer) problem is supposed to be known but the (software) solution is unknown. They elevate the paying fields to the level in which customer development is done in  parallel to product development. This kind of uninterrupted flow in the feedback loop between developer and end-user makes Agile extraordinarily powerful. 

For further research

I encouraged you to consider the ramifications of the ideas presented above and to comment on them in this blog and elsewhere. Of the numerous avenues that we can explore in pursuing the boundaries of Agile, the following topics are particularly intriguing:

  • Alan Fusfeld introduced the Technological Progress Function as a tool to quantify technological progress as function of time and scale. The opportunity exists to combine software metrices, the technological progress function, and the techno-economic paradigm in a unified model.
  • As pointed out above, inertia eventually becomes the legacy of successful innovation. Conversely, one needs to overcome inertia in order to introduce successful innovation. Jim Highsmith‘s recommendation to innovate through experimentation a la Agile is very powerful at the project level. It is not fully clear how a similar approach could be facilitated at the policy level.