It has been well over a decade since the Agile Manifesto was written, and even longer since Scrum was first adopted. It may be time to forget the Scrum framework as you know it — and I am about to explain why.
I have visited many companies in recent years that have been obsessed with creating more and more Scrum teams. In organizations with a large flow of information exchanged among employees, four or five people are needed to create a new team. At least nine individuals per group are required to create specific software.
Deep integration between provider and distributor
Therefore, from the traditional concept of Scrum, the focus is on supporting different roles that are capable of the successful development of a product. The roles focus on resolving a problem that is normally targeted toward what the tool can do for the customer. However, this has changed — and has changed a lot — in recent years. Let us begin by discussing the current situation within markets, understanding what it is that you can do and where to focus the efforts of your organization.
Within the markets for which a software product is traditionally developed, the value chain is divided into three parts:
- The company produces (or creates) a tangible or intangible product.
- The company is a distributor.
- The company is a consumer or end user.
In many cases, the there can be a mix, but at least one of the above categories is always the dominant factor. The way in which money is most easily made is through the monopolization of one of these — for example, being the supplier or distributor alone, or integrating two of these areas in one company. In the latter scenario, you produce and distribute the goods yourself. Both options have been employed for years, and they ultimately allow money to be made more easily, as you are controlling the market.
One example of the integration of two areas is a magazine whereby the creation of the content (production) and the distribution is carried out by the same enterprise. Another example is an airline whereby the aircraft, sales, and management of the planes is carried out by the same company (e.g., Ryanair in Dublin, Ireland).
This is what we call integration. That is, whoever creates or produces the service or product and whoever carries out the handling and distribution are integrated under the same block
in such a way that they control a large part of the market.
Here, the focus of software development is normally centered around teams that can develop products that make it possible to unify the services of the supplier and distributor under the same umbrella.
If the supplier and distributor are not from the same company, the most effective way to integrate is through the attainment of exclusivity rights, something that will guarantee a strategic alliance. Under these circumstances, if you have a good product to offer (shoes, insurance, etc.), it is assumed that customers will come your way. For that reason, the user experience takes a back seat, given that here the crucial factor is relying on a strategic distributor, plus a product, and a software that can integrate both parts.
As the Internet and smartphones became available on a massive scale and at affordable prices, the first disruption surfaced in the markets, changing the structure, the rules, and the way in which we see and create software. The shift to digital allowed any enterprise to become a software company and to be able to distribute its product for free.
An airline or a train company no longer had to physically send tickets, because now it was possible to integrate the supplier and distributor under the same website and, as a result, the customer was offered the entire solution in a unified/integrated way. Transaction costs were reduced to practically zero, easily expanding the software reach to hundreds of users in record time. This is what we call aggregation and is part of the Theory of Aggregation coined by Ben Thompson.
The user experience
This first disruption fundamentally changed the concept of how companies competed with each other. A distributor no longer operated according to the exclusive relationship of the products that it could offer to a set of customers but instead focused on the fact that with better software, it could integrate production and sales with its users. It was then when a new factor began to come to life, which was known to Scrum teams as the user experience
The company that was able to unify supplier and distribution with an excellent user experience would win more customers. This would in turn make it possible for more people to use the product and therefore provide greater feedback for the development teams (Scrum), something that would allow for quicker growing and improvement of the software product (virtuous cycle). In turn, this would simultaneously help product owners more easily focus on the particular functionalities that the market demands.
Law of Conservation of Attractive Profits
Also appearing at this point is a second disruption that was originally described as the so-called Law of Conservation of Attractive Profits. It indicates that when a disruption occurs, the incumbent previously dominating the market (for example, a ticket sales firm) would no longer dominate, and its profits would fall. However, they wouldn't be lost but rather they would be transferred to another part of the chain, most likely adjacent.
Here's an example to make things clearer: Before the Internet, in order for hotels to secure more guests, they would offer rooms under a brand that the customer recognized and trusted. I remember the first time I traveled to Seattle, I stayed at the Hilton because I trusted its brand's high quality, an essential requirement if you were never in the city before.
During that time, hotel chains integrated the property that offered rooms with the trust of the user experience, leaving the reservation mechanism in the hands of others (modularizing/outsourcing), something that was usually carried out through a travel agency.
As the Internet became more comprehensive, new players broke into the market. Let us take a look at Airbnb as an example. It allows anyone to rent a room or a property. In this case, the market began to function differently.
The Internet transformed the trust in digital through an excellent user experience. It also created the possibility of using reputation, whereby guests could vote on their stay with a particular host. This way, the trust becomes a digital asset and the property is modularized or outsourced.
When the trust became a public asset (no longer belonging to the incumbent of the monopoly) and the fact of being digital and integrating with the reservation system (website), it was no longer necessary for the property to be located in the same place. Any apartment or room in the world could be a candidate.
What was in the past a monopoly of a brand linked to trust has now evolved into digital, which made the brand no longer hold the most important value; rather, the focus became the experience that the user had from the moment of their reservation until the end of their stay.
Consider a taxi firm. In the past, it monopolized the cars and their dispatch, and in several cases, the reservation system and the payment system (credit cards) were outsourced.
Now with the existence of Uber, Lyft, Cabify, etc., trust has once again become digital, through the opportunity for passengers to rate drivers and vice versa. At the same time, the cars have been outsourced or modularized (i.e., it could be any working car in the area!), and the system of dispatch and payment is integrated on the Web platform.
In all cases, trust has become digital, which makes profits move in the direction of these new companies but generates losses among the original "owners" or "incumbents" of the market.
This is what the Law of Conservation of Attractive Profits predicts: When a disruption appears in the market, the money that is lost by whoever used to have a monopoly is transferred to another adjacent stage of the chain.
The new center of the universe
In the future, we could see other players in the travel industry, banks, airlines, etc., enter into the market where the digitization of trust allows the most important factor to be the user experience from start to finish, without taking into account who is effectuating the transportation. A minor exception to the digitization of trust perhaps does exist, and it is the concept that both the service is excellent and the price is reasonable. For example, in Spain the taximeter service is excellent, with friendly staff and reasonable prices. The cars are new, and they are always clean. There is certainly a lot less of an impact of the digitization of trust on its modularization, or its impact is due to the adjacent companies or services. But I know few companies that have customers who are very satisfied and consider the prices of the service to be more than reasonable.
Similarly, the focus of software creation itself no longer revolves around computational tasks or features in order to resolve a specific and temporary problem; rather, the focus is on satisfying the customer from beginning to end. And if a company aims to survive, it must focus and transform the Scrum/Kanban or whatever Agile framework is used in its user experience teams.
The understanding of this latter discipline as being the new center of the universe for the organization, and the consequent changes to the structures of the teams and the organization, are part of the urgent steps that are necessary for moving forward.