How Groups Should Maximize Value: An Economic View

Andrew Keener — Agile Rising

Take an Economic View is principle #1 of Scaled Agile Framework’s nine Lean-Agile principles, but what does that mean in practical terms? In this post, we explore three key concepts that help lean-agile leaders understand an economic view, not as charts or graphs, but as insights about decision-making.

Of the people, by the people, for the people

Between corporate politics, professional culture, and the emphasis on products, technology, and processes, it is easy to lose sight of the simplest aspect of the Economic View: People work to make products and tools that other people need to live and work.

We can make this more lyrical: Economics means people make things for people so they can feed their people. All of those people are working to support their personal goals and values, while many of those people are also working to feed, support, and educate their children.

When groups of people work and trade together they form a market. At scale, all of these people working and trading in various markets become an economy. That means, to borrow from Abraham Lincoln’s famous words, an economy is made of the people, by the people, for the people.

In practice, this means that every decision must prioritize the well-being of the people: this economic view emphasizes human action and the impact of groups on one another as they work and trade, acquire knowledge and use that knowledge to pursue their values.

Economics is all about choices and the people who make them.

We see this paradigm embodied in the Agile Manifesto: “Individuals and Interactions over Processes and Tools” and the first pillar of the SAFe House of Lean: “Respect for People and Cultures.”

The goal of technology is to maximize the value generated for people as a society. The economic view assumes all these people have their own lives, their own interests, and diverse evaluations of any given information, work, or product.

Understanding this means, quite simply, we should never assume we know what people need or want; we must hypothesize, experiment, and learn: this fundamental search for new and changing understanding about people and culture requires respect.

The goal of lean is to generate that value in the shortest sustainable time between demand and supply. The goal of agile is to respond to changing demands rapidly by changing what the same group of producers will supply as a market evolves, without being dragged down by the inertia of yesterday’s plans and sunk costs.

No matter how new technologies, tools, and processes change the way human knowledge is applied to create value, we must never forget that people and the society they build together is the reason behind all we do.

Every decision is a trade-off

If the fundamental drive of Lean economics is to maximize the value provided to people and society with the shortest sustainable time between demand and supply, this will shape the way we approach investment decisions. This principle is complex and adaptive. We are considering value produced against the time it takes to meet demands, and the ability to sustain production.

Rather than a single, clear-cut maxim (e.g. “Maximize shareholder ROI”), there are several trade-offs at play in every decision made. This is not only unavoidable, but it is also the fundamental principle of economics.

“No exchanges of goods (for other goods or for money) would ever take place unless the same physical thing had different values to different people.”
― Knowledge And Decisions, by Thomas Sowell, PhD, Professor of Economics

Here are some generic trade-off questions that exemplify the need for Lean decision-making:

  • What if we maximize production efficiency but our employees cannot sustain the pace of work required? Here we have a trade-off between value to people versus sustainable lead time.
  • What if making a better product slows down time-to-market?
  • What if shortening time-to-market requires environmentally unsustainable production methods?
  • What if maximizing shareholder value destroys the economic sustainability of local communities?
  • What if we maximize corporate citizenship so extensively that we bankruptcy and layoffs result? This one is interesting, as there could be a trade-off between two types of value to society.

Many more examples could be listed; trade-off decisions are everywhere. One clear result: any rule that attempts to maximize a single variable is doomed to failure. Rules that maximize ROI can lead to short-sighted investment strategies, eroding the sustainability of the corporation, impeding innovation, destroying communities, and the environment.

Rules that maximize the price of shares or stability of share prices can result in little value production.

Unfortunately, like any variable of any complex adaptive system, attempting to maximize a single component can actually lead to dramatic, unexpected—even opposite—results.

The clock is ticking

“The cavemen had the same natural resources at their disposal as we have today, and the difference between their standard of living and ours is a difference between the knowledge they could bring to bear on those resources and the knowledge used today.”
― Knowledge And Decisions, by Thomas Sowell, PhD, Professor of Economics

The solutions we produce, the problems we solve, and the technologies employed to enable our solutions are the means to an end. It is human, all-too-human to become so consumed by the technology, the tool, the solution, that we end up losing sight of “value to people and society”.

The value produced is our goal, the technology, tools, products, and solutions are merely the means to our end goal–enriching the lives of people and improving our society. Enriching lives is time-critical because we all have a limited number of days to spend on Earth.

The endeavor to make those days as vibrant, beautiful, and rewarding as possible, for ourselves and others, is not a technology problem, it is an existential imperative. While we are, what difference did it make? The clock is ticking.

This is why the economic view requires a look at the bigger picture and the ways our individual interactions produce a system that creates value. Is it the most value we could produce? Or are we wasting time, energy, talent, and inspiration by focusing on minor tasks and the tools that help us complete them?

Consider a simple allegory–planting a tree. There is an old proverb that says, “The best time to plant a tree was 20 years ago. The second best time is now.” Whether it is beautiful blossoms in the Spring, cool shade in the Summer, or delicious fruit by Fall, trees can add immense value to the experience of our homes.

Suppose one day you realize your neighborhood could use more trees, you start a not-for-profit, take donations, and get to work. To keep costs low, you walk to a nearby forest preserve to collect seeds, dig with your hands, and use only the dirt in each yard for soil. This will be a slow means to your end, but it can still get the job done. Then one day you decide that using a shovel would be much better.

You invest all your resources in making shovels, as many as possible, the best and most efficient shovels ever made–and rarely, if ever, do you plant a tree. This is exactly what happens in many of our enterprises and government agencies today. Each division of our organization gets obsessed with “building the best shovel” to the detriment of the overarching goal of “planting trees.”

We owe to ourselves and others to recognize the bigger picture of the organization and the “value to people and society” it was intended to produce. Distractions in the form of hierarchies, paperwork, budget cycles, purchase orders, better tools, digitalization, and a million other complexities will focus on the wrong thing. The question is existential, “What difference does our organization make? What is our purpose? What is our vision?” Once aligned on that, we can organize around the flow of value, eliminating the wastes of time, energy, talent, and enthusiasm that come between our individual work and the value it creates for society.