Concepts of the CAO approach


Speed is Required But Insufficient For Adaptability

Speed of delivery can be easily “sold” to management. But speed is not enough to be Agile at the organizational level. When organizations fall into this trap, they organize development around teams that specialize around small business domains to “maximize focus and thus speed of delivery.”

When market changes substantially, the teams get overloaded with the number of changes they have to deal with because the highest-value work exceeds the capacity of the system to absorb changes (see Figure 1.1). Organization turns out to be fragile and is like the Titanic—moving fast toward the iceberg but unable to avoid colliding with it.

(Figure 1.1, changes overloading the narrow specialized Team 1)

What It Means to Be Adaptable

Imagine a product group with several cross-functional teams. All teams have the skills to work across all domains, technical components, applications, and all tools. Therefore, each team can pick up any feature that comes into the product group, which means that all teams in the product group can always work on the most critical work. Also, imagine that all teams optimize for delivering a feature in short cycles (e.g., two weeks) from an idea into the hands of the end user, which means that they have fast feedback for learning. As a final step, imagine that the teams split large work items into small items, which they then work on during each cycle (see Figure 1.2).

(Figure 1.2, product group organized for adaptiveness).

Resource Efficiency

In a resource efficiency paradigm, organizations strive to “attach work to resources” to maximize the amount of time that a resource stays busy. The goal is to find economies of scale, so that increasing resource efficiency leads to decreased unit costs. In organizations that stick to this strategy, one could find the following organizational elements:

  • Resource management
  • Employees assigned to several projects/products concurrently
  • Narrow specialization supported by corresponding HR practices
  • Functional hierarchy organizational design
  • Lots of started but not finished work (WIP)

    Unfortunately, because of the relationships among utilization levels, cycle time, and variability, this strategy causes an exponential increase in end-to-end cycle times in delivering value to the customer in product development.

    Flow Efficiency

    Flow efficiency is a strategy of focusing on the amount of time it takes to move from identifying a customer need to satisfying that need. Flow efficiency focuses on the unit that is processed, a product feature. To improve flow efficiency you should ensure that the work is always being worked on. That means creating an organization that is organized around a specific need (product feature) and requires all staff to work together. A cross-functional team ensures the feature is always being worked on and does not wait in a queue.

    Senior management should make a strategic choice about the relative importance of the two types of efficiencies because the organizational design decisions heavily depend on that and largely define the level of agility.

    A simple model (see Figure 1.3) helps to make choices regarding the primary operational focus. The horizontal axis is the level of flow efficiency (from low to high), vertical axis is the level of resource efficiency (from low to high).

    (Figure 1.3, different operational foci)

    In the top right-hand corner is the perfect state, which is characterized by high resource and flow efficiencies. The challenge to reaching this state is the variability in product development. Another challenge is that it requires perfectly flexible resources, such that capacity and competence can be easily adjusted. Thus, it’s extremely difficult to rank high on both flow and resource efficiencies simultaneously. In turn, an organization needs to make a strategic choice about the relative importance of two types of efficiencies.

    Agile organizations prioritize flow efficiency over resource efficiency.

    Typical Agile Organization Journey

    Agile organizations typically have the journey illustrated in Figure 1.4. The starting point is “A” or “B”. The first move is focused on establishing the flow, so that the organizational system transfers to point C.

    (Figure 1.4, typical journey of an Agile organization)

    At point “C”, the organization has reached a good flow efficiency by creating a product group and cross-functional teams, thus average cycle times are significantly decreased. The next step is optimizing the resource efficiency and thus moving to point D. That can be done by training and developing people, by introducing standards, and by attacking sources of variability. Finally, with continual improvement, the organization strives to reach the perfect state and to become proficient in both flow and resource efficiency.

    In summary,

    In today’s fast-paced business environment, many organizations prioritize speed over other factors when striving for agility. They create specialized teams and divide the product and value stream into small parts. However, this approach can backfire when market changes exceed an organization’s capacity. To avoid this pitfall, it’s important for organizations to prioritize broad specialized teams with flow efficiency over resource efficiency. Broad specilized teams ensure that value is delivered to the customer quickly by continuously working on the most important product features. This requires cross-functional teams that work together to ensure that features are always being worked on and not waiting in a queue. Senior management plays a crucial role in determining the relative importance of resource and flow efficiency, as these decisions have a significant impact on organizational design and the level of agility. Ultimately, organizations that prioritize broad specilized teams with flow efficiency over resource efficiency can achieve true agility and remain competitive in today’s dynamic business landscape.

    The creating agile organizations approach

    Foundational concepts:

    Applying the concepts: