In my session at Scrum Gathering Seattle, “A Business Case for Agile” (which would have been more aptly named Agile Real Options), I began with the premise that the exponential rate of technological change has made mounting uncertainty a permanent feature of the business landscape. Therefore product life cycles are getting shorter and shorter. As a result, a product’s investment return horizon is also getting shorter and shorter. In fact, we are asymptotically approaching a point of “unknowable” return — a point at which business cannot make rational investment decisions using traditional methods.
In Steve McConnell’s keynote address, “The Journey to Organization-Wide Scrum“, he made a seemingly controversial statement that went something like this: “Businesses would rather be wrong than have uncertainty“ (sorry Steve if I butchered your quote in this paraphrase). I think Steve was trying to explain that senior executives cannot run a business in an unrelieved state of uncertainty. It is not acceptable to their boards, shareholders, and other stakeholders. But if the rate of technology change makes it difficult if not impossible to effectively forecast the outcome of business investments, what is senior management to do?
Well they can always go to Vegas and play roulette. One could make the argument that the executive that raids the company’s treasury and bets everything on black has effectively forecast the probability of a future return. Furthermore, given the generally poor track record of non-Vegas related projects, with roulette odds of just under fifty percent, might be a better alternative than betting on one of the company’s internal projects. So why not just take the budget allocation of the next capital project and send the CFO and his staff to Vegas? About half will come back boasting a raging success. (Of course, the other half might not want to make the trip back.) Well, the reason we don’t do that is simple — the shareholders don’t need to pay big salaries to have management do something they can do on their own. The reason that senior executives are often the highest paid in the company is because there is an expectation that they will be able to get a superior return at a reduced risk. Yes, even achieving a risk-adjusted return would beat Vegas odds with reasonable consistency.
So I go back to the comment: “The business would rather be wrong than have uncertainty.” What I like better is: “The business is very interested in being right, therefore they need to find a way to address uncertainty.” They need to limit business risk to an acceptable level in a world where this is increasingly difficult—and it isn’t going to get any easier. In other words, senior management needs to earn their keep. So again, what is senior management to do? Well, instead of deeming Agile techniques as the cause of uncertainty, they need to take a closer look at how these very practices help address uncertainty. In fact, when fully applied at the project, portfolio, and executive decision-making levels, an iterative feedback-driven approach is the best opportunity businesses have today to navigate uncertainty and consequently obtain a competitive advantage.