What it is and the value it drives
From the 1970s through the 1990s, Japan led innovation in “process”: as industry was booming, the Japanese manufacturing system created many gold standard methodologies to systematically expand output, improve quality, and drive continuous improvement. Among them were Gemba Kaizen (continuous improvement), the Kanban system of inventory management, Just-in-time manufacturing, and "The Toyota Way". Manufacturing companies deployed these “ways of working” across the globe, harnessing gains and becoming lean production machines.
As digital technologies emerged in the late 1990s and early 2000s, new methodologies for product creation emerged. Among the multitude of digital ways of working, two different, but tightly related frameworks have gained popularity and repeatedly proven their effectiveness: Agile and human-centered design.
In 2001, a group of software enthusiasts met in Snowbird, Utah, and the Manifesto for Agile Development was born, based on four principles:
Value individuals and interactions over processes and tools
Value working software over comprehensive documentation
Value customer collaboration over contract negotiation
Value responding to change over following a plan
This simple yet powerful approach was meant to drive speed and introduce the notions of “testing and learning” and "failing fast". One of the byproducts of the agile mindset is the concept of striving for Minimum Viable Products, or MVP, involving faster go-to-market times and simpler iterations of a product, in order to gauge consumer response and deliver value as quickly as possible.
A McKinsey investigation in 2020 of 22 organizations across six sectors established that Agile, when fully adopted, has quantifiable benefits across four dimensions.
Customer satisfaction. Agile organizations have the potential to improve their NPS (Net Promoter Score) by 10-30 points, thanks to their "customer obsession" helping align value streams and team goals towards delivering customer impact.
Employee engagement. When employees have clear missions and are empowered with real responsibility to set the direction of their products, companies' eNPS (Employee NPS) scores have raised by 20-30 points.
Operational performance. Measured in terms of time-to-market or employee productivity depending on sectors, Agile organizations have improved their operational performance by 30 to 50%, by creating transparent metrics reflecting real-world performance and helping employees fully dedicate themselves to well-defined value-creating tasks.
Financial performance. These three outcomes combine to improve financial performance, measured as full-time employee cost reduction, by 20 to 30%.
The other methodology in this chapter, human-centered design, has also outgrown its original purpose. One of its embodiments, "Design Thinking", was originally coined in the late 1950s, to indicate a systematic framework for design ideation; in the 1990s, design consultancy IDEO adapted it to business development, where it began to gain widespread popularity. Design thinking relies on five pillars of "empathize, define, ideate, prototype, test": much like Agile, these principles emphasize the importance of understanding the end users and seeking validation early. In order to help organizations listen to consumers, design thinking provides a broad array of techniques (e.g., ethnographic research, consumer co-creation, functional prototyping) and tools (e.g., user personas, trend scapes, user journeys).
Human-centered design also has demonstrated quantifiable benefits, as uncovered by McKinsey research from 2018. In the McKinsey Design Index framework, companies are scored by their design performance along the dimensions of analytical leadership, cross-functional talent, continuous iteration, and user experience.
From a survey of 300 publicly listed global companies over a five-year period, it emerged that a strong design culture correlates with better financial performance: companies with top-quartile McKinsey Design Index scores outperformed industry benchmark growth by a ratio of 2-to-1; moreover, higher MDI scores correlate to higher revenue growth and, for top- quartile companies, higher returns to shareholders.
Where it is today
Agile, as a general framework, is embodied in several methodologies, including Scrum, Extreme Programming, and Kanban, Feature-Driven Development. While they may differ in structure and terminology, they share the same focus on early value delivery, customer-centricity, and cross-functional collaboration.
Pioneered by "digital native" companies such as Google, Netflix, and Spotify, Agile has become the de facto standard in designing development organizations and managing software delivery. Spotify, for example, even published their own "Spotify Model for Agile @ Scale", which lays out a company-wide flat organization: cross-functional "squads" are minimal units focused on building a product; these are in turn grouped into broader "tribes" with aligned product goals; finally, professionals with similar skills belong to cross-cutting "chapters", which enable knowledge sharing across the company.
However, Agile is no longer exclusive to development teams or software companies, and several large players across industries are embracing "enterprise agility".
In 2015, Dutch banking group ING initiated a reorganization of 3,500 employees from marketing, software development, and product management into squads of nine people, with the goal of shortening time-to-market and increasing customer and employee satisfaction: by adopting Agile, they could align teams to create more delightful omnichannel experience and raise their NPS, engage employees by giving them ownership of their products, and shorten go-to-market of software almost four-fold by leveraging modern DevOps development practices.
Toyota, birthplace of Lean and the Toyota Production System (TPS), is committed to continuous innovation in product development: by appointing a Chief of Agile, it made a clear statement of this intention, and has now developed an evolution of the TPS based on Scrum, called "Scrum the Toyota Way", which originated at Toyota Connect in the US and is making its way back to Japan. In Japan itself, Woven Planet Holdings (formerly known as TRI-AD, Toyota Research Institute - Advanced Development), has been working since 2018 on developing radical new businesses around autonomous vehicles and smart cities, leveraging Agile from the outset.
Companies are also adopting design thinking to continuously innovate in products and services, remain competitive, and best serve their customers.
Capital One originally built its business model on selling credit cards directly to consumers, but as competitors started matching this offering, it was faced with the need to reinvent itself: it created a new division, Capital One Labs, focused on innovation by human-centered design, which led to the launch, for example, of the "Capital One 360 Cafes", a bank branch/café hybrid space.
Global coffee chain Starbucks followed a similar path by instituting the "Tryer Center", a place where researchers and baristas could collaborate and design new products: for example, a barista on rotation at the Center contributed to the invention of a new cold brew machine, which was small enough to fit in most cafés.
In Japan, airline ANA launched its Digital Design Labs in 2016, with the goal of perpetuating the company's traditional "rebellious" nature. Its initiatives have included VR projects at airports, remotely operated robotic "avatars", and the crowdfunding platform WonderFLY.
How the technology will continue to evolve
Over the next decade, methodologies will evolve, but the principles of Agile will remain a guiding framework, inspiring how teams and organizations deliver customer value.
As more departments across companies embrace it, there will be a sustained incentive for development of scaled Agile frameworks in 2020, the Scaled Agile Framework (SAFe) and Scrum@Scale reached versions 5.0 and 2.0 respectively. While SAFe guides large enterprises on gradually reaching business agility, Scrum@Scale focuses on defining how large networks of Scrum teams can be configured for most efficient interaction. In light of the 2020 COVID-19 pandemic, the tenets of co-location proposed in the Agile Manifesto will need to be reviewed. As larger proportions of their workforce work remotely, companies will seek to codify best practices for distributed teams to collaborate across time zones. Digital project management and collaborations tools, such as Atlassian's Jira and Confluence, Slack, Zoom, etc. will become even more central in ensuring transparency within and between teams.
Further breaking down functional silos, one can expect to see more efforts to cross-skill and upskill individuals within teams: on one hand, cross-skilling enables teammates to self-organize more flexibly by performing multiple functions (e.g., front- and back-end software development, testing, design); on the other, upskilling, through informal and formal learning, helps employees deepen their expertise and improve their effectiveness (e.g., training developers on cybersecurity and ML).
From a service development perspective, omnichannel and multi-platform solutions are becoming the norm in many sectors: just like a bank account can be managed from a smartphone after it is opened at a branch, a car is not only a physical product, but also the aftercare service as well as its continuously upgraded software. Design thinking is already applied to physical product design, digital design, and service design, and frameworks integrating the three will likely mature in the near future.
Consumers are also increasingly expecting universally accessible products, that can be used by people with diverse abilities and backgrounds without barriers: design thinking is already primed to understand the needs of diverse users, and more techniques and tools will be formalized to apply a renewed focus on DEAI (Diversity, Equity, Accessibility, and Inclusion).
The key future applications
Agile and design thinking have the potential to radically improve the performance and product quality of organizations across sectors, as well as help reshape manufacturing and information processes for flexibility and scalability. Japanese companies in particular, with their history of operational excellence and superior design, could bring themselves to the next level by including aspects of these frameworks.
While manufacturing excellence requires fine-tuned management of complicated processes, projects in almost every domain nowadays have to deal with complex processes, comprising dynamic networks of people, physical and digital components, regulations, and shifting user needs. An Agile mindset, when layered over a stable and focused organization, can help navigate such complexities.
Japanese companies in most sectors stand to benefit by empowering employees and collaborating more effectively with customers. While software development, marketing, and R&D have successfully adopted Agile in various scenarios, more functions such as customer support, human resources, legal and finance stand to benefit in productivity, employee motivation, and stakeholder satisfaction.
Design thinking, likewise, builds naturally on the proud Japanese tradition of superior products and services designed to delight an increasingly international customer base with constantly shifting demands. Applying a design-thinking lens to business development will help Japanese companies to understand customer needs and create services and products to meet them. Companies need to embrace transformation boldly, and lead by example.
First, as illustrated by the chart below, Agile is not a laundry list of initiatives to pick and choose from, but a comprehensive culture change. Companies are most likely to succeed in redesigning their organization if they address levers across the five dimensions of People, Processes, Technology, Structure, and Strategy, rather than just implementing a few isolated initiatives.
Second, organizational transformations require shining examples of success and leadership support to inspire employees and win their enthusiasm. When Agile was still an emerging methodology in the US, individual teams would often adopt it first, as an experiment, and the gains in productivity and shorter time-to-market would serve to make a case for broader adoption. As exemplified by the above examples of innovation centers and design labs, Japanese companies could approach change by strategically identifying teams to pioneer new ways of working, and gradually radiate their influence to the larger organization.