Companies are constantly reinventing themselves to gain or maintain competitive advantage and market share. This is nothing new. What is new is the increasing use of the term Agile in business management to describe fast-paced companies that are constantly looking to disrupt markets.
What is Agile? Well, the actual term is most commonly referred to as the Agile Methodology, though you will see variations of this. A long, long time ago in a galaxy far, far away… 2001 to be exact, 14 software development critical thinkers came together and wrote the now hotly debated Manifesto for Agile Software Development. Traditionalists in the DevOps world have viewed the Agile method as a chaotic, ad-hoc, disruptive and an open-checkbook approach to software development. Ironically, many of the authors of the manifesto themselves now argue that the intent of the manifesto is completely misunderstood and the term Agile is being misused and applied in broad terms, which is not what it is intended for. The reality is that agile is an adjective that can be used to describe just about anything.
Agile in Business Management
It’s no surprise that a vast majority of new and not so new companies are using many if not most of the techniques used in Agile, at least philosophically. Particularly, small companies. Agile as a business model is what drives innovation, creates opportunities and keeps companies relevant in an ever-changing landscape.
The following quote from an article written by Stewart Cruickshank best summarizes agile as a business model.
“What does being agile mean?
In the broadest sense of the word, following an agile business model means your company has an operational structure that gives it the tools to react quickly and efficiently to the ebb and flow of your market. To achieve this type of responsiveness, you need a huge degree of adaptability and flexibility at every level of your organisation.” — Stewart Cruickshank, Stormid 2017
IBM is a good example of a company with traditional business models who learned to embrace change, never taking for granted their market share in any technology subsector because of their rocky history. IBM has, for decades, reinvented itself from computer hardware manufacturing to software development, to consulting, to system integration partner. It was no surprise that in 2017, IBM announced that it was adopting Agile company-wide, not just in software development. This was more of a formal declaration to what IBM had already adopted long ago.
Purists of the Agile Methodology argue that it was never meant to be used as a company approach to doing business. Rather, it was meant to be used in small teams to create software. The origins of Agile date farther back then the authors of the Manifesto for Agile Software Development.
The origins of agile are deeply rooted in the philosophical approach used in Japanese manufacturing back in the 70s and 80s. Agile is based on the principles of Lean Product Development, which was originally developed by Toyota in the early 1920s by Sakichi Toyoda (not a misspelling), using the principle of jidoka which mean: the machine stops itself when a problem occurs. The idea behind Lean Production Development is that you stop the line when a problem is discovered and the line does not advance until the matter is resolved. This method was later adopted and used by other Japanese companies like Honda, Canon, and NEC in the 1970s and 1980s.
Many larger companies find it difficult to change what already works. For this reason, these companies respond to emerging threats the only way they know how, through acquisition. Acquisitions are the large companies’ response to agile pressure.
Jeff Desjardins wrote in a Business Insider article from 2018 listed two reasons companies resort to acquisitions, 1) strategy and tactics (an agile trait), and 2) gobbling the competition (an anti-agile tactic). If viewed from the agile perspective, the first reason is good for consumers, while the second reason is not.
The Good
Amazon’s reason for acquiring Whole Foods is very different than Alphabet’s acquisition of YouTube. Amazon is looking to understand the grocery business because its core market strategy is convenience and its core business strategy is vertical integration. Though Amazon has historically relied on third-party affiliations to sell products and ship products, Amazon’s ultimate goal is to produce, sell and ship its own products. On the other hand, Alphabet’s core market strategy is content and its core business strategy is crowdsourcing content creation. They both share common goals, however. They are both seeking new revenue streams to justify their market caps. Agility allows them the flexibility to experiment with unfamiliar markets that eventually give birth to new markets altogether. Today, ordering our groceries from Amazon’s Echo and streaming our live TV through YouTube TV is reshaping the way we manage our homes and the way we enjoy our leisure time. This translates into a better experience for companies and consumers alike, as stated in the quote below:
“…agile workflows create positive business outcomes — for instance, a more engaging customer experience, streamlined internal processes, and a thriving, collaborative corporate culture. ”— Comella-Dorda, Krishnakanthan, Maurone, and Shenai, McKinsey 2017
The Bad
Expedia is a good demonstration of how companies use acquisitions to eliminate the competition. They own Travelocity, Hotwire, Trivago, Hotels.com, Orbitz, and CarRentals.com. There is no economic gain or advantage for consumers. This practice of acquiring direct competitors is a large company’s way of dealing with the threats presented by agile companies.
The Downright Ugly
Companies that resort to eliminating potential threats (i.e. market disruptors) resort to more draconian measures. These companies do whatever it takes to stop companies that threaten their old business models. Their goal is to stifle change, innovation, efficiency, and competition. This is the ugly side of agility.
Monopolization
Though antitrust laws are meant to stop monopolies, technology is constantly changing, making it difficult to apply and enforce antitrust laws. Since mergers and acquisitions in the technology sector are so prevalent, particularly among small and midsize companies, it is difficult to assess when an acquisition threatens to control any particular market. This has led to a rise in interest in updating our Antitrust laws. Senators Amy Klobuchar and Elizabeth Warren, in there bid for the Presidency, are including updating and enforcing Antitrust laws in the technology sector as part of there campaign agenda.
Patent Trolling
Patent trolling isn’t limited to small shell companies in Texas. Many large companies patent ideas they have no plans on developing and introducing into products for use. These companies are often referred to as patent-assertion entities. They obtain patents for general ideas that affect entire industries with the sole purpose to force companies to pay them a licensing fee or risk being sued for patent infringement. Licensing fees created solely for the purpose of profiting from other businesses is also often considered a form of rent-seeking.
Rent-Seeking
Rent Seeking is the process by which large companies and even countries use government policies to make the entrance into a market impossible or profitable. Using rent-seeking tactics through political means to create a disadvantage to an entire industry for the sake of a few companies or one company, with no inherent benefit to consumers and the economy as a whole stifles economic growth, competition, and innovation. Everyone loses.
Intellectual Property Theft
China has long been accused of intellectual theft. Find a counterfeit product and chances are it was made in China. However, intellectual theft occurs among technology companies is not limited to China, and China is exposed to the same threats. Facebook is looking to copy WeChat. What makes WeChat’s business model so appealing to Facebook is its popularity in China as the all-in-one concierge, communication and payment application. Since there is no way to enforce intellectual property as it relates to technology, there is not much WeChat can do to stop Facebook from copying their model. This is not the first time Facebook stole another company’s playbook and made it their own. They have been stealing SnapChat’s ideas for years. Facebook did it when SnapChat introduced “face-recognition avatars” and again when SnapChat introduced “nearby friends.”
“This ‘take without paying’ philosophy that is pervasive in big tech within Silicon Valley comes from a place that is hardly new to those familiar with the business of innovating. As a company grows in size they are less capable of innovating, with extremely few exceptions. And even when most large technology companies continue to innovate they are really building upon the shoulders of acquisitions — whether it be the acquisition of companies or technologies. Innovation by M&A is common for large incumbents. Facebook did try to buy Snap. But Snap said no so now Facebook just copies Snap in order to keep bumping up their user and data numbers.” — Gene Quinn & Peter Harter, IP Watchdog 2017
Is Agile Management Necessary for Company Survival?
Agile is all about reinventing yourself, discovery, applying what works and dropping what doesn’t, all in nanoseconds to solve a problem before someone else does. Research and development costs incurred by new small and innovative businesses are necessary if we expect new companies to disrupt markets. Why is market disruption a good thing? Because it usually leads to change for the better, socially, environmentally, and sustainably. Elon Musk may upset SEC regulators with his arrogant and arguably defiant tweets, but he is a market disruptor. Before he came along, the automobile industry invested only in more efficient and cleaner fossil-fuel engines. Not only was there insufficient R&D in electric cars, but there was also no consumer demand for electric cars and there was no infrastructure (charging stations) to maintain electric cars on highways and byways. Tesla’s strategy used both technology and marketing approaches to create a “cool” factor. Suddenly, owning an electric car was cool. Forget about the environment. These cars are beautiful and fast. The higher price point gave them a luxury appeal. Like the iPhone, most everyone wants to drive a Tesla (though like the iPhone, most won’t admit it), not because it’s socially responsible, but because of its cool factor. This threat forced other manufacturers to jump into the race for electric car race market supremacy.
It is no surprise that Agile is often aligned with the SWOT analysis measurement of business planning. Agile is a more nimble approach to identifying the strengths, weaknesses, opportunities, and threats to today’s nimble companies in a dog-eat-dog corporate world. The term “too big to fail” is now replaced with “too big, will eventually fail” because large companies lack the agility to adjust to market changes.
Why Should You Care?
In a world faced with poverty, global warming, forest destruction, and biological threats, the agile approach to problem-solving will one day lead to sustainable, renewable resources that will help to eliminate most world problems. It is up to governments to find a happy medium in regulating agile companies, allowing companies that use agility to innovate and improve economies, while stopping those companies that use agility to stifle innovation and economies.
Ultimately, it is really up to us as informed consumers to understand the good, the bad and the ugly sides brought about by agile business models and to take action when we see companies that are not aligned with the best interests and values of the people. This economic evolution, during what is being described as the beginning of the third industrial revolution, is also resulting in the creation of one more factor in this equation: the new agile consumer.
