Amazon’s CTO Werner Vogel recently posted about the challenge of choosing the right metrics for cloud computing. He begins with the following observation where he introduces the idea of Return on Agility:Stopwatch Image

“In the many meetings with customers in which I have done a deep dive on their architecture and applications to help them create an accurate cost picture, I have observed two common patterns: 1) It is hard for customers to come to an accurate Total Cost of Ownership (TCO) calculation of an on-premise installation and 2) they struggle with how to account for the “Return on Agility”; the fact that they are now able to pursue business opportunities much faster at much lower costs points than before.”

Werner then goes on to describe the benefits of Return on Agility:

“Many of our customers come to AWS with a reduction of TCO and other cost savings in mind but after using AWS for a while most of them will claim that agility is the even more benefit for them. …The return on agility delivers business value by allowing you adapt rapidly, while remaining focused on your core competencies rather than distracted by operating IT infrastructure.

But more importantly it allows the business to change and dramatically reduce time-to-market for products. It drives down the cost of experimentation and allows companies to explore many more product directions with minimal risk. In the current economic climate where capital is scarce, being able to develop new products rapidly without the need for major capital investments is crucial to the success of businesses.”

 Werner’s post highlights the rising importance of business agility and the notion that we can (and should) account for this (he proposes using return on agility). This mirrors a slow-moving trend I’m seeing with my clients and in the IT industry. For products and IT projects seen as competitive advantages for businesses, the return on agility (time to market and flexibility to change) is more important than reducing IT costs. IT is being elevated from a cost center to a value-add service provider. As a result, they must be managed differently than is the norm today (commodity services at the lowest possible costs).

This comes in part because most businesses are struggling to keep up with the pace of innovation. It’s hard for organizations to continually meet (and even exceed) their customer’s expectations. In the era of the empowered customer,  organizations requiring 9+ months to rollout a new idea to customers operate at a distinct disadvantage in the marketplace.

In established markets, I’ve observed that today’s leaders are less concerned about their traditional competitors and more concerned about the start-up companies using technology to get between them and their customers. In the Financial Services industry, established banks and lending institutions are nervous about the impact of PayPal, Mint, Google Wallet and others. As a result, they are investing deeply in web and mobile technologies for sales and customer servicing. However, one of their biggest challenges (perhaps the biggest) is that despite their deep pockets and willingness to invest, these organizations have a low return on agility.

I work with organizations where 9-12 months is not uncommon to get a new idea to market for their mobile or web app. Lots of up-front planning, multiple rounds of design, layers of integration, deliverable sign-offs, testing, release planning, the list goes on. Four to six weeks is the norm to get a development environment setup and configured with test data. Production environments take longer, especially if new hardware is involved.

Increasingly, IT is getting pressure to not just keep costs low, but deliver capabilities quicker than before. IT’s traditionally long lead times are increasingly putting companies at disadvantages to more nimble startups who can innovate at a much quicker pace. This helps explain the growth Agile methods such as Scrum and Kanban, but they are not the complete solution. Cloud-based technologies are a large part too.

Improving Return on Agility

Agile methods, primarily focused on people and process, are improving return on agility. This is in part due to bringing visibility to delivery bottlenecks and encouraging collaboration. Unfortunately, until recently IT operational groups have largely been left out of Agile adoption trend. This is in part because their departments are 1) managed separately from development where Agile typically takes root and 2) managed  like a cost center where the goal is to keep everyone fully utilized at the cheapest rates possible – not deliver new ideas more quickly.

The DevOps movement has emerged in part to help close the gap between Development and Operations and bring some progressive ideas from the agile communities to IT operations. The effect is IT operations must start thinking of themselves as key components to business agility and start managing themselves in this manner. While people and process are two important dimensions, a critical third includes the technologies created and supported by DevOps and IT operations.

Technologies improving return on agility include virtualization and cloud computing, continuous integration, automated testing, code management, automated provisioning and deployments, application performance management and others. These are all having a profound impact on helping organizations become faster, more flexible and also less expensive by driving out waste and reducing the costs of computing, storage and networking. The progressive start-ups get this very clearly and as a result, can often compete directly with more established firms in mature markets exactly because of their business agility (and resulting low barriers to market entry).

Startup CIO’s and CTO’s I speak with leverage all of these technologies and have a high return on agility. Larger organizations, not surprising, are slower to evaluate and adopt these methods and technologies. However, their leaders will soon have no choice but to invest in Agile methods and related technologies if they hope to remain competitive in their marketplace. They’ll need to start thinking and acting more like a start-up if they want to improve their return on agility.

Measuring Return on Agility

Werner’s post also highlights something else I’ve seen throughout my career. Organizations spend quite a sum of money developing very sophisticated means to budget and measure costs down to the penny. Ironically, they spend comparatively little money and have very limited means to measure benefits of their investments and progress towards identified goals. While they may give lip service to ideas like ‘being more agile’, in practice they have little ways to measure their effectiveness of achieving this desired outcome.

It doesn’t have to be this way. While each organization’s specific measures of business agility may be slightly different, there are some universal metrics that form a starting point: Time to Market, Issue Responsiveness and Flexibility:

Time to Marketspeed from concept to cash. Also know as market responsiveness.

  • Release Lead Time – Elapsed time  (weeks, days, minutes) from new idea request to customer release (includes all phases of delivery)
  • Release Cycle Time – Elapsed time from starting work on new idea to customer release (subset of lead time, discounts time spent waiting on the backlog)
  • Build Time – Elapsed time to make a defined change (subset of cycle time, discounts release process)

Issue Responsiveness – quickness at identifying and resolving problems (i.e. non-planned work)

  • Resolution Time – Elapsed time (minutes, days, weeks) from problem occurrence to resolution. Can be further broken down into times to 1) detect, 2) notify and 2) resolve issue.

Flexibilityability to respond to changing conditions. Time to Market and Issue Responsiveness are key components of flexibility

  • Changeability – Cost  (money, hours, story points) required to make a defined change (e.g. build small feature, fix minor bug, procure new environment, deploy new release)

Organizations that start to plan, track and measure their return on agility, using the metrics above as a starting point, are well positioned to identify new opportunities worth pursuing to improve their return on agility.

Summary

Before business leaders invest in new initiatives they want to see a business case with a positive return on investment (ROI). Progressive IT leaders should consider including return on agility in their case for adopting Agile methods, DevOps and cloud-based technologies for environment management, continuous integration, automated testing and release automation. IT leaders should get serious about measuring their return on agility and demonstrating results that not only justify further investment, but also highlight their role in enabling business agility – an outcome all business leaders want.

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Ryan Shriver (9 Posts)

Ryan Shriver is a Managing Consultant with Dominion Digital, an award-winning process and technology-consulting firm. Based in Richmond, VA he leads their Innovative Products solution that helps people deliver the right products at the right time, quickly with high quality. With services related to experience, value, speed and quality, he helps clients holistically focus on improving their customer's experience.

Working with Internet technologies since 1995 and practicing Agile since 2001, Ryan has deep experience in systems architecture and large-scale agile product development. He's presented internationally on topics including Scaling Agile, Measurable Business Value and Agile Engineering. He's founder and program chair of Innovate Virginia and posts is thoughts, articles and conference presentations to the agile engineer.

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5 comments for “Return on Agility and the Cloud

  1. Alex G
    September 11, 2012 at 8:31 AM

    Agility comes from how you run your operations, not from using cloud. Key thing is to learn to procure HW before you need it. Got to have spare capacity ready. In the end it’s also cheaper than cloud as we’ve found that our storage is 3x less expensive than cloud prices when converted to TB/month. That includes cost of SAN cabling and ports, too. Our compute is almost equal, cheaper by just a little bit. We are, however, able to leverage economies of scale, which SMBs would not be able to do.

    Also, if performance and security are important, cloud can make you less agile.

  2. September 11, 2012 at 12:03 PM

    Alex G –
    I agree Agility comes from how you organize and run operations, but the cloud (and its capabilities) provide important building blocks that can help organizations be more agile. For example, reducing the time it takes to procure a new environment, test an application and deploy or rollback are all related to improving return on agility. While you don’t need the cloud to do this, it does make it much easier and more practical for many organizations.

    I can’t speak to your specifics, but the notion of “procure hardware before you need it and always have spare capacity on hand” smells like a work around to the problem of “it takes a long time to procure hardware”. Why does it take a long time to procure hardware? Is it people, process and/or technology that’s the bottleneck?

    If it took minutes to procure new computing and storage (via Amazon EC2 or others – perhaps even automated), would you still recommend spending capital today to buy extra hardware that’s not needed now (or maybe never)? Could that capital be used in other parts of the organization more effectively?

    No easy answers here, but thanks for the comments and dialogue.

  3. September 11, 2012 at 3:35 PM

    I agree that IT Operations teams can help their companies achieve and sustain competitive advantage. Application performance management is a key capability to making this happen. We wrote a post on our corporate blog about how one of our customers is using APM technology to enable “lean methodology” in their IT operations: http://www.virtualizationpractice.com/partner-showcase/extrahop/

    A lot of times, performance monitoring tools focus on speed and response times, which are important. But equally important is the ability to free up valuable IT Ops resources so that they can respond to business needs faster. Many SaaS providers use APM to not only improve performance, but efficiency because that directly translates into costs for them. If they can process a request with less resources than their competitors, that means they can offer lower prices or improve profit margins. These are just some of the aspects of APM that are very important but not highlighted very often.

  4. Paul
    October 3, 2012 at 4:45 PM

    i think of return as a business effort for increased revenues, reduced costs or reduced risk. For new development, for example, I would think the business sponsor already has a business plan. If they’ve developed a CAP/GAP curve, the volume under the curve would represent return. Agility would directly impact these curves.
    I read a quote from Adrian Cockcroft (i believe) along the lines of “how much does it cost to be slower than your competition?”. I think business gets this
    Business also needs to be flexible (risk mitigation). Agile is a path to implementing business initiatives at speed – good or bad business ideas. Agile and cloud give business the opportunity to try/adapt/accelerate/turnaround. This allows business to be more risk seeking. Traditional IT procurement/investment methods may not fit here.

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