What large enterprises can learn from tech startups
Large corporations have dominated the market for a long time, but things are rapidly changing. Disruptive startups, of which there are many, are posing a threat to the seemingly unshakeable market positions of these large established firms.
The incumbents, who have not really been successful at self-innovation, have every reason to be worried. These digital startups are using agile practices to deliver products and services to customers more efficiently and with greater reliability.
By scaling agility across all business units and product groups, digital giants should design and build features much more quickly, get early customer feedback and enhance them in rapid iterations.
Becoming an agile enterprise
More than 70% of the companies that were on the Fortune 1000 list a decade ago have since vanished, replaced by more agile organisations. Startups are small and have relatively flat structures, and are therefore more flexible, willing to experiment and can change course rapidly. They can get to the market sooner, achieve a faster return on investment, and respond quickly to customer feedback and changing market conditions. These startups are also able to ensure that their products and services are aligned with opportunities.
Enterprises are extremely efficient at executing established business models. Give them a concrete product idea, and a known, well-researched market, and they will easily find a great way of delivering the former to the latter.
However, if there is no clarity as to what the product would look like, and if the end-user is yet to be completely discovered, their usual innovation practices start to bring more damage than benefits.
The biggest barriers to success are the existing operating models and organistional structure. If these hurdles are overcome, then agility at scale is a possibility.
Another big challenge is the application-architecture legacy and monolithic applications. The architecture is not built around micro-services and APIs that allow you to make changes to specific components of application architecture. Therefore, you cannot test and release features fast enough and without having to resolve a lot of dependencies on other parts of your application landscape.
To survive the threat of disruption, enterprises need to shift to a responsive culture. Organizational agility is critical for survival. An agile business is flexible, fast-moving, quick to adapt to change, capable of responding to challenges rapidly and able to seize opportunities as they arise.
Organisational agility requires fast decisions, much more flexible organisational structure and ease of communication. One of the key necessities is to learn to adapt. They need to become more flexible, experimentative and agile – just like most startups are – and they must let go of the traditional business models, even if they achieved great results with those models previously.
Instead of continuing to focus on meeting economies of scale over a fixed scope, businesses should become more agile, innovation-driven and responsive to changes in customer demands.
Fewer than 20% organizations consider themselves “mature adopters” with widespread acceptance and agility across business units. Meanwhile, the companies that are deploying agility at scale have accelerated their innovation by up to 80%.
Here are some ways in which enterprises can work towards becoming agile:
1. Define domains with precision
Based on business strategy and customer expectations, companies should form a comprehensive view of how to bring together capabilities and practices from across a disconnected enterprise. Form small and nimble teams that are empowered to make decisions. These focus groups should operate autonomously just like a startup. Domain leaders must be empowered with complete ownership based on business, operation and technology interests.
2. Encourage entrepreneurial spirit
One of the key differences between corporations and startups is how they look at failure. Embrace failures, as they are an opportunity to learn and get better. Increase budgeting every time a project achieves market validation, just like in a venture capital approach. Avoid high risks by investing in multiple initiatives instead of betting on one or two big projects, and set up a milestone-based investment system.
3. Bring in agile ways of working
Companies must train their employees around new forms of collaboration and agile ways of working. Instead of the traditional ways of planning, identify value streams to realise portfolio-level business objectives and organise agility training to deliver value.
Prioritise backlogs based on cost of delay and duration. Cost of delay should take into account business value, time criticality, risk reduction and opportunity enablement.
Improve agility-technical practices and build a strong culture of continuous improvement. Implement shorter planning horizons, continuous experimentation and hypothesis-based development. These practices can help speed up the process of ideation to production and implement a much more user-centered design. Roadmaps and plans should be revisited quarterly or monthly, and projects reprioritized continually.
4. Build the workforce
Enable upskilling of employees to acquire new digital skills and hire new talent. Free them from thorough supervision and the need to plan out and report on every small project aspect. Engineers should become self-organised and dedicate themselves to agile ways of working. They should focus on the build-measure-learn cycle by working through minimum viable products (MVPs), pivots and iterations to get things closer to what is expected, better and faster.
5. Agility is for everyone
The enterprises that value adaptability and rapid, experimental iterations are the ones that will not only survive but also ultimately thrive in today’s digital landscape. Becoming an agile enterprise is a journey. Start small; focus on one value stream, then another. Gradually, look to expand this philosophy across the entire enterprise. At some point, all the departments should become closer to customers, be more open to experimentation and take advantage of changing market opportunities, be it sales, marketing, finance or HR.
You never know where groundbreaking innovations might come from, so look to establish an agile, safe-to-fail and innovative culture within your enterprise as a whole.
Chirag Nanda is director, trading & risk management at Sapient Consulting.