Making Sense of Agile for Management

From my very first corporate software development project, I can remember thinking that there was something profoundly wrong with the way the software projects were managed – trying to set your plan in stone at the front, then manage your work to that schedule just always seemed impossible. It was never clear what value we were getting from our estimates and schedules — they were never accurate until the end of the project, and, as a manager it seemed like inordinate amounts of time went to revising the schedule and to reseting expectations with customers.

At Salesforce.com, we’ve transitioned to Scrum in the last year. I’d dabbled with some of the Agile methodologies in previous jobs, but this is the first time I’ve been part of a complete implementation of the practices. I have to say this is also the first time I’ve ever felt that things we do for project management all make sense and really add value over the course of the project. It makes us better at shipping product.

In the process here, I’ve read several books, but the one that I have found most useful as a manager has been Lean Software Development, by Mary Poppendieck. It goes beyond the individual practices to give a framework for why Agile works and ties the framework back to examples from other companies and industries. I found that it really helped pull the big picture into focus – it helped me understand where to spend my energy during the transition to get the most of the practices.

Declining Cost of Production

I went through a phase of reading books that related economics to biology. If you think about it, when you’ve got a really good theory of economics, it should help you explain the things we observe in nature (animal behavior, evolution, etc).

During this time, I ran into this “law” — the cost of to produce a unit of any thing declines on an inverse power law relationship with the number of units produced (on a global basis). And it turns out this is true for many things, including such basic things as eggs. This was first observed by Kenneth Arrow, in his 1962 paper “The Economic Implications of Learning by Doing”. I ran into it in Bionomics by Michael Rothschild.

You hear a lot about Moore’s law and Metcalfe’s law. I’m always surprised you don’t hear more about this one, since its at least as profound in its impact on new technologies.

(not) the formula for business success

There are a number of really great books about business strategy and the challenges of managment for high tech company (e.g. Crossing the Chasm, Innovator’s Dilemma, etc). What makes them great is that they provide a theory of business — they provide an analytical framework for understanding where your business is and a set of principles for guiding your future actions.

The problem with them is that people misunderstand the role of theory in business: they treat these theories like they are a set of rules — a formula for success — often at the encouragement of the authors of those books.

There is no substitute for first hand knowledge of your market and a detailed understanding of your business; no business strategy can truely be successful unless it has been informed and shaped by those factors. Theory should play a supporting role in the formation of strategy, not a determining one.

In fact, the misuse of theory is quite rampant. Beyond the books, there are folk theories about everything — why is Microsoft/Oracle/etc so successful, what makes open source so popular, etc. And it seems many people think that if they could simply repeat the formula, their business will be a success too (e.g. Sun seems to have a terminal case of Microsoft Envy).

The thing is, it wasn’t the formula that made Microsoft so successful, it was seeing that the time was right and that company was in the right position to play out a strategy like they did.

This really became clear to me when I was reading this summary of von Clausewitz, a 19th century military theorist. He was working in the time of the scientific revolution; there was a wide spread belief that it would soon be possible to reduce many fields to a set of governing rules. One school of military thought believed war would soon be reduced to a set of rules for maneuvering troops to achieve advantage.

Clausewitz opposed this school of thought arguing that theory existed not to proscribe behavior but merely to inform the thought of the general in battle. Great strategy came from great generals who had coup d’ oeil — the ability to read the state of battle in progress and intuitively see the opportunities it offered. Theory didn’t exist to be applied dogmatically, but simply to help develop the general’s coup d’oeil.

Do you think you could learn to be a chess grandmaster by rote learning of a collection of class openings and end games? Of course not — the number of possible chess games is far too large for that to be feasible as a chess playing technique. When they psychologists study chess grandmasters, to see what allows them to play such a computationally intractable game so well, one thing that stands out is their ability to very quickly read a board and understand it as a set of strategic groupings.

Why should business be different?

Google’s “Do no evil”

People make fun of Google’s “do no evil” motto. But, in their case, its not just ethics but good business. Google lives and dies by the good will of its users and customers — none of whom have, in a practical sense, very strong lock in to Google’s technology. At the same time, much of the low hanging fruit for a search company like Google, involves doing kinda creepy things (like pay-for-placement, selling data mined from users, etc) . In order to last and avoid the fate of their predecessors, they have to walk a fine line — “Do no evil” seems like an excellent guide.

thought provoking discussion of group size in social settings

Chris Allen, over at Life with Alacrity has posted a thought provoking discussion of group size. The post takes the Dunbar Number (i.e. the upper bounds on human groups is about 150) as it’s starting point and considers the affect of the purpose of the group (ie survival vs other activities) on the optimal size. Along the way, he provides some interesting references to empirical data from the on-line multi-user gaming. Check it out.

Tom Peters: 16 hard truths about off-shoring

Tom Peters has a list of 16 hard truths about off shoring. I found the list thought-provoking. These two were my favorites:

9. Big Companies are off-shoring/automating almost exclusively in pursuit of efficiency and shareholder value enhancement. (This is not new or news.)

10. Big companies do not create jobs, and historically have not created jobs. Big companies are not “built to last;” they almost inexorably are “built to decline

There are also some quotes at the end that are worth a read.

google and the price of IPOs

The Entrepreneurial Mind has an entry on Google and their IPO. The question in the post: is it worth it.

The IPO puts the company in a fish bowl. All of the decisions that were made in private must now see the light of day. Unique companies become quite common as a result.

The lure of the big pay day? entices many to consider an IPO. For Google, it could mean billions of dollars in market capitalization. It may sound strange to ask such a question when billions of dollars are on the line, but here it goes: at what cost? The corporate culture of Google will change over time once they go public. It will have to. It is an inevitable outcome of an IPO.

He goes on to question if they’ll be able to support their lifestyle (e.g. the Googleplex) after a bad quarter or two.

My IPO experience was that the corporate culture changes once you’ve decided to IPO, not after the IPO. It starts with the ramp up in hiring — standards for new hires in terms of ability and cultural fit decline, because every day the decision of who to hire moves farther and farther away from the founders. Inevitably, more people who are there just for the IPO start to sneak through the filter and the culture starts to focus more and more on the the IPO and public valuation.

By the time you get to IPO, the company has changed so much that many of the founders feel alienated. As their options vest, they cash out and leave for greener pastures or move off on to “special projects”.

After the IPO, because the investors and the new managers are focused on valuation, the business is optimized for near term stock price. That means delivering steadily increasing profits, if possible. You’d be surprised the games people will play to extend the curve just one more quarter.

This can be just as bad when things go south — stock driven execs pursue the numbers single-mindedly even at the expense of the companies basic ability to execute on its strategy. For example, at a software company, I understand trimming staff in some areas where the staffing requirements scale with number of customers. But why would you do across the board trimming? Why does it suddenly take you fewer engineers to meet the market requirements for next quarters release? It doesn’t. It takes fewer engineers to meet next quarters profitability because revenue has gone down.

AP: greenspan defends handling of 90s tech bubble

AP ran a story about a speech Greenspan gave recently defending his management of 1990s bubble as the only safe option for economy.

“There appears to be enough evidence, at least tentatively, to conclude that our strategy of addressing the bubble’s consequences, rather than the bubble itself, has been successful,” Greenspan said.

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Not quite true: he did make some effort to curtail the bubble with his comments about “irrational excuberance”.

The alternative was to raise interest rates quickly to make saving an attractive alternative to investing. I can’t imagine how high interest rates would have had to have gone to do that, but safe to say, it was high.

I believe, concurrently, he was trying to manage for Y2K by increasing the money supply (aka lowering interest rates). Some have pointed to Y2K spending and the flood of money as one of the root causes of the tech bubble.

strategery in the software business

related to Microsoft envy, is the fixation by many strategists in the software business on emulating the tactics Microsoft used on its climb to the top.

The biggest fixation is on creating lock in — getting a customer committed to your product by packaging a feature in such a way that switching to a competitors product would entail paying some substantial cost, e.g. by exposing a unique/desirable feature via a proprietary API; by making it easy to get your data in but hard to get it out; etc. In principal, there’s nothing wrong with this; it can generate sustainable competitive advantages.

Where most companies seem to go wrong is in (1) underestimating the degree to which customers are sensitive to switching costs; (2) by going out of their way to increase the switching costs unnecessarily. This particularly true in areas where customers have a fair bit of experience buying, e.g. the enterprise software business, where buyers often have a decade or more of experience working with software vendors. In their pursuit of strategic sustainability, they blunt the competitive advantage of the feature.

Which would you rather have: a feature with weak but sustainable competitive advantage? or a feature with strong but unsustainable competitive advantage?

My personal opinion is that, in most cases, you’d rather have strong competitive advantage. You should focus on generating advantages and let the sustainability of the advantage sort itself out. All you get from sustainability is complacency.

why warren buffet is buying foreign currency now

Fortune magazine had an article by Warren Buffet about why he is buying foreign currencies for the first time in hist life.

In a nutshell:

… my reason for finally putting my money where my mouth has been so long is that our trade deficit has greatly worsened, to the point that our country’s “net worth,” so to speak, is now being transferred abroad at an alarming rate.

The article contains an extended analogy about two islands to illustrate the point. It also contains a proposal for how to deal with the trade imbalance.

I don’t understand the way trade is measured well enough to agree or disagree with what he’s saying. Regardless, always interesting to listen to what America’s most successful investor is thinking about.