Increasing value delivered in services industry through transparency
Frustrated with ridiculous markup margins on mattresses, sleazy sales tactics, and fatty dealer networks that create little value for the customer, John-Thomas Marino & Daehee Park from Tuft & Needle set out to disrupt the horizontal-resting-space industry. Dealer facilities? Too much waste, little value. Skip it and use an online-only distribution channel. Confusing and elaborate product configurations such as nano-infused-dream-sleep layer? Nope, but we’ll allow you to pick a mattress size! T&N also exposed the real cost of manufacturing a great mattress, created value for the consumer through simplification of the purchasing process, removed sleazy sales tactics (and dealers, in general), and sent the Sealy’s of the world into a tailspin with an excellent product priced under a thousand bucks. I have a perfectly good mattress at home, but I want to buy T&N just to support these guys.
T&N is not the first company to leverage a customer-centric business model that borrows a lot of patterns from the Open Source software forefathers. The same can be said about Soylent, the manufacturer of a nutritional drink. Soylent is using iterative design and implementation of an inexpensive, healthy food alternative for busy people. Their mission - a healthy, quick meal for three bucks. Even their packaging is minimalistic - a simple, minimally branded bottle with the calorie count on the front. Their objective is to reduce cost and focus on what is valuable to the customer - the ingredients (you can go on their website and see how they source every component of the meal). Car dealerships, the worst offenders in my mind, are moving away from pushy sales tactics and taking unfair advantage of uneducated consumers through open pricing policies and fixed commission models “inspired” by disruptors like truecar.com and Tesla. Tesla, in fact, does not have a dealer network and allows you to configure and purchase a car as if you were re-ordering cat food on Amazon (seriously, you can place an order online in around three minutes, total). Fantastic customer experience. Did I mention I want to buy a Tesla now?
All of these companies are carving out more value and creating a better customer experience by eliminating waste. I am convinced the same is happening in the software services industry through adoption of lean practices, rapid prototyping, and Agile software development.
The premise of Agile, or specifically Dual-track Scrum, is enabling the Product Team to deliver better software faster, and having the flexibility for the software to pivot along the way as requirements change through delivery. Agile is also a inherently transparent process. In each sprint, the team is handling daily stand-ups, planning meetings, demos, and sprint retrospectives - all activities that integrate very closely with the stakeholders and sponsors. In an industry where large IT projects run 45 percent over budget while delivering 56 percent less value than predicted, Agile adoption may just be the silver bullet.
The usual culprit in budgeting, planning, and executing projects of such magnitude is the outdated procurement process and metrics used throughout delivery. The larger the scope - the more requirement studies are necessary, it may seem, ahead of time.
Locking in all requirements (such as acceptance criteria and business rules) ahead of implementation actually defeats the purpose of using an Agile delivery framework. This type of approach implies that requirements and design of the solution are decoupled from delivery, as opposed to discovered along the way using Dual-track Scrum. What happens in these instances is that “requirements” actually do not reflect user needs, because all design decisions are made at the beginning and software is not able to pivot and adapt throughout delivery (nor is there user testing along the way). To further deteriorate the validity of such requirements, the analysis is usually performed by an analyst that is not necessarily part of the solution group, and the way they capture requirements may implicitly dictate design! Did I mention that business requirements tend to change through time? They do.
So the alternative to fixed-bid software purchasing is Agile time and materials, and the concept scares the hell out of sponsors who are already playing a defensive game based on insights such as the one published by McKinsey. So how do we proceed? How do you enable your organization to maximize the value delivered from your investment?
Counter to popular belief, iterative software delivery lives in perfect harmony with budgeting. Time and materials does not imply lack of budgets, accountability, or metrics. The workflows to arrive at investment dollars and the rituals to manage spend throughout delivery are different, however, as compared to fixed-bid purchasing. The ideal scenario is to establish a product roadmap (and user stories) ahead of the game, estimate the effort at a high level, and then do iterative design and delivery. Rapid prototyping is another great tool you can use along the way. I realize this is a little different than using a “fixed bid, all bells and whistles are defined prior to starting”, but you still establish dollars for the effort, you still track delivery, and you still use metrics around the scope delivered. One of the best benefits of this approach is that you take ownership of functional software every two weeks (each sprint). There’s very little room for a vendor to indicate a percentage of completion and actually mislead the client. Additionally, your stakeholders (and board) can have visibility into features being built and sense progress vs. wait-for-end-of-project to see deliverables. Value-centric, user-first approach, much like in the examples of truecar.com, Soylent, Tesla, and Tuft & Needle.
Consider the opposite approach. What happens if the “fixed bid" team delivers exactly what was captured in the requirements document, but the assumptions were incorrect? What if the scope actually needed for the MVP launch by the end-user is much smaller than stakeholders initially considered? What if the MVP could cost $300,000, but you’ve spend $1.5M to date because business analysts and stakeholders were covering their asses and trying to bake in as many unnecessary features as they could? I know this sounds familiar. Where’s the value now?
Agile endorses healthy team behavior - and that’s across both teams. There’s also disruption baked in the approach - it’s a process that does not tolerate incompetence, activity without progress, or lack of ownership in delivery. It is also a lean approach - the Product Team interacts directly with the stakeholders and customers (no bloated “strategists”, “account leads”, and other agency bullshit). Agile allows you to fail quickly, minimizing wasteful spend. If you take a minute and look at how innovation has been bred in this country, it becomes obvious that failure should be a calculated fraction of the investment. Where Dual-track Scrum helps is to fail fast, fail often, and be transparent through delivery. Instead of having a 45 percent deviation on budget (that you discover the last month of delivery), a Product Manager will raise a red flag as soon as a sprint (two weeks worth of work) de-rails. Since we’re delivering working software to stakeholders and users with each sprint, we will also know very quickly if there’s a disconnect between promised and delivered value.
It will take time and strong, rebellious leaders for procurement practices to get comfortable with Agile and adopt a new way of thinking about delivering value for the enterprise. These same leaders will either make or break the products that are being built with their hands-on approach, ownership, and accountability. Leaders with backbone, with ability to stand by and justify a new way of partnering, collaborating, and innovating. Fixed-bid doesn’t work. Waterfall doesn’t work. Your business analyst working on a hundred page spec for half a year is corporate masturbation. Requirements are outdated the day they are written. There’s a better way. A transparent, lean, accountable way that dramatically increases customer experience and adoption.