Exploring the delta in AgileSHIFT White Paper
- White Paper
- Digital transformation
- Project management
- Project progress
- Career progression
March 7, 2020 |
23 min read
- White Paper
- Digital transformation
- Project management
- Project progress
- Career progression
This White Paper explores the concept of the delta, explains how this is addressed in AgileSHIFT, and provides practical recommendations and examples on the subject.
Enterprise agility is key. It is not just about implementing an agile way of working in your IT department but a transformation for your whole organization. You have to understand where the market is going, where your competitors are moving, where your customers want to be, and, as a result, where your organization needs to be.
One technique to understand this is the concept of the delta. The difference between where the organization wants to be, expressed as ‘what great looks like’, and where it currently is.
This paper explores the concept of the delta, explaining how this is addressed in AgileSHIFT®, and providing practical recommendations and examples on the subject. It is aimed at senior managers, portfolio officers and transition directors who are overseeing fast-moving environments and are running the risk of competitors or disruptors taking over their organization’s market share.
2. What is AgileSHIFT?
What is AgileSHIFT?
3. Understanding the delta
Understanding the delta
We will explore the concept of the delta with the following fictional scenario.
Dr Parry is a dentist with 30 years of dental practice under his belt. He starts to notice a decline in his customer base. After a discussion with other dentists, he comes to the conclusion that they are using more modern equipment (e.g. 3D scanning, fully electronic chairs, soft lighting, ultrasonic sterilization equipment, etc.) and have introduced online appointment bookings. Following these discussions, the dentist now has a good idea of what great looks like in his environment. Taking into account the available budget, he decides to implement the online calendar, replace his dental chairs and install soft lighting.
Without investment, he will lose more customers, and if a new practice opens nearby, he may well have to close his. In the meantime, other dentists start using digital radiography and phosphor plates. This means his view on what great is must change again and this will be an ongoing reality. Will he, and can he, invest even more?
Delta: The difference between where the organization wants to be and where it currently is. This could be measured in terms of capability, performance, or value delivered. The larger the delta, the greater the vulnerability of the organization to competitors and disruptors.
To understand where your organization wants to be depends on where the competition is (or moving towards) and your customers’ expectations or unstated future needs. This delta can be found in some or all of your products, services, technology, processes, training, tools and techniques, materials, regulatory and legal environment. Amongst these components, there is a threat gap which disruptors can exploit, even if your organization hasn’t recognized or understood it yet. You have to understand the gap’s nature and scale and then take action to narrow it.3
3.2. What does great look like?
As with our dentist in the scenario above, one of the first steps you must take is discovering what is happening in your sector and industry. Think about robotic process automation (e.g. at DHL), bionic companies (combining capabilities of humans and machines), self-driving vehicles, artificial intelligence (e.g. IBM’s Watson for Oncology), neural networks, 3D printing, virtual reality and augmented reality (e.g. gaming industry, online retail), fifth-generation mobile networks, internet of things, blockchain and big data, to mention a few.
Where do you position your organization from a technical perspective? Can you expect a ‘tech-shift’ in your work and day-to-day life? Are you still in the ‘tech-supported or computer-based support era? Are you already in a tech-enabled environment using apps to perform business tasks (e.g. banking activities)? Or are you doing things that cannot exist without technology? The tech-centric environment where IoT has connected appliances to retail vendors, which when enabled by smart contracts can make payments without the need for banks by using blockchain technology. In a world where big data and technological advancement are key, digital is disrupting every element from business models to industries as a whole and impacting organizations from top to bottom.
Tech-supported: Refers to activities that were previously manual, but which can now be carried out with computer-based support.
Tech-enabled: Refers to previously manual activities that have now been improved by automation.
Tech-centric: Refers to activities that would not exist without technology.
Ask yourself if your industry will be disrupted? What is the state of disruption for your industry? In the book Make disruption work5 you can find a disruption curve showing the state of disruption for a range of industries (see Figure 3.1). Industries like public administration, chemicals or agriculture are at the lower-left end of the disruption curve (low state of disruption) and consumer electronics, media and travel are on the right upper side of the curve (high state of disruption). Insurance, banking, logistics and automotive are currently in the middle of the curve.
Figure 3.1 The disruption curve
The position on this curve can be linked to the ‘fourth industrial revolution’ technologies (tech-shift) and how different industries/sectors might be affected in different ways and at different speeds. Ryan McManus describes this in his article, The primary phases of digitization over the past two decades and the emerging waves - the evolution of the revolution6. First, the focus was on content followed by services, physical products and machines, and now it is on complex analysis and prediction, and biology (genome editing).
In addition, climate change concerns are impacting on customer attitudes. Stakeholders will ask for eco-friendly solutions and this could be a future cause of disruption. In the Netherlands (October 2019), the most sold car was a fully electric car, leaving petrol, diesel and hybrid cars behind.
The nitrogen footprint could be another cause of disruption. In the Netherlands, at the time of writing, around 18,000 infrastructure and construction projects are put on hold because of this nitrogen footprint. A 50% reduction of the cattle breeding industry and reduced speed limits are now under discussion as solutions. Suppose a farmer reduces his nitrogen footprint by using a ‘cow toilet’ to become nitrogen neutral (this is, among other things, what great looks like in the farmer’s eyes), what impact could ‘be nitrogen neutral’ have on his competitors?
In a disruptive age, established business models are under attack. In the McKinsey article, Disrupting beliefs: A new approach to business-model innovation7 you can discover how incumbent companies can reframe their business models and these reframed models are part of what great looks like. Every industry is built around long-standing (often implicit) beliefs about how to make money. These beliefs cannot change until someone shows how it can be done differently. The following four steps, explained in the article, can be used to turn your beliefs upside down (the last step: ‘translate the reframed belief into your industry’s new business model’ is a step that will be discussed in section 4.3). What could a transformation look like? To explain the steps, the example of Airbnb will be used.
First four steps to turn your beliefs upside down:
- Outline the dominant business model in your industry. What are the long-established core beliefs in your industry about creating value?
- Airbnb example: You own a hotel, you rent out hotel rooms and offer breakfasts.
- Dissect the most important long-held belief into its supporting notions. What forms the basis for the most important core beliefs, e.g. views on customer interactions, technology performance or operating methods?
- Airbnb example: The hotel must be yours; customers expect that you clean the room, that you offer breakfasts.
- Turn an underlaying belief on its head. This means formulating a radical new hypothesis, one that nobody wants to believe, at least nobody in your industry.
- Airbnb example: you do not need to own the rooms; customers can clean the room and organize breakfast by themselves.
- Sense check your reframe. Many reframed beliefs will not be correct. Applying a proven reframe from another industry can succeed. Unlike product and service, innovations travel well from industry-to-industry.
- Airbnb example: you offer rooms you do not own to customers. Are there people who like to rent out their own room/house, are there customers who are willing to rent those rooms/houses? Uber is another example of upside down beliefs.
To define great, or your delta towards great, concrete figures, numbers or performance indicators for your organization will not always be available so you have to use a variety of methods. This can be detailed and concrete or sometimes just an abstract picture, drawing or model to visualize how you imagine great.
3.3 How fast can the Delta grow?
It is worth emphasizing that the delta is not static. If you know what great looks like today, you have no guarantee that it will still be the case tomorrow. Maybe a new disruptor enters the field, shifting your industry on the disruption curve (see section 3.2) or your competitors’ performance levels change by exploiting new technologies, adopting new working practices.
In Figure 3.2, the current state or position of your organization is reflected by the dark blue circle in the lower-left corner of the graph (Current State 1). Compare the dentist from the simple scenario above using old equipment and noticing a decline in his customer base.
If you are in Current State 1, then you aim to be in Target State 3, and in between (New Current State 2) you see the delta. In the dentist’s case, this is where he is able to use modern equipment (e.g. 3D scanning, fully electronic chairs, soft lighting, sterilization equipment, online booking etc.).
In the first bar (at the bottom of the figure), we find the current position (Current State 1) and the large delta (coloured in green) you are exposed by, too.
In the second bar, we see what happens after a transition. The dentist has implemented the online calendar, replaced his dentist chairs with fully electronic chairs and now uses soft lighting. He discussed with his assistant the why of this new way of working (changing mindset) with an online calendar and the decline in her working hours. These changes are reflected by the light blue part of the second bar in the figure. The delta is narrowed and reflects, in the dentist’s case, 3D scanning and ultrasonic sterilization equipment that he has not implemented.
But as mentioned before, the delta is not static, so it will grow again. In the third bar, we see the New Current State 2 reflected by the dark blue bar. In the dentist’s case this new current state contains the online calendar, fully electronic chairs and soft lightning too. The delta includes 3D scanning, ultrasonic sterilization equipment, and digital radiography and phosphor plates (the Target State 4). You must decide what you will do to narrow this new delta (reflected by the light blue bar in the fourth bar). Here, this could be the implementation of 3D scanning, digital radiography and phosphor plates. After implementation, the new delta contains the ultrasonic sterilization equipment. This will be an ongoing process and you must keep changing to manage the delta, otherwise competitors will be ahead of you and take it all.
|Current state 1||Old equipment (manual chairs, hard lighting), manual agenda|
|New current state 2||Electronic chairs|
Reduction of assistant hours
|Target state 3||Modern equipment (e.g. 3D scanning, fully electronic chairs, soft lighting, ultrasonic sterilization equipment, etc.)|
Reduction of assistant hours
|Target state 4||More modern equipment (e.g. 3D scanning, ultrasonic sterilization equipment etc.)|
Table 3.1 Explanation of the different dental case states
3.4 Is a large Delta a risk?
Kodak developed the first digital camera, but they did not believe that the market would be dominated by digital photography. Others thought ‘great’ would be based on digital photography. Kodak chose to focus on analogue photography, they thought their gap to bridge was a narrow one: just continue to innovate the existing analogue photography technology. However, the delta was huge, and it was easy for competitors to make use of this delta to enter the digital camera market. Kodak did not understand this huge delta was a ‘life threatening’ risk for them. We all know how this ended.
It is worth thinking about examples of organizations that did not understand the delta they were facing. Nokia, Iridium, Polaroid and Blockbuster were all unsuccessful in understanding where they were as an organization and where they needed to be.
Think about banks, which had little competition for decades. They also thought that they knew what great looks like and now find themselves threatened by fintechs and blockchain. Their delta is potentially huge, too. New entrants can easily build a large customer base by offering innovative products, services and slick delivery using the latest technology.9
Think about innovators who changed us: Spotify, Google, Amazon, Uber, ApplePay. They all demonstrate the following: ‘Go digital or die’4. But there are other innovators (like EasyJet and Aldi) who have been tremendously successful largely by leveraging price and convenience.
The book, Exponential Organizations10, includes case studies that describe how organizations (e.g. Airbnb, Netflix, Tesla, Waze) have grown 10 or 100 times faster than their peers, by leveraging technology and strategy. If, in your industry, you are facing competitors who could be described as exponential organizations (ExOs) and if you are not, your delta will grow exponentially and it will probably be impossible to survive.
4. Narrowing the delta and closing the gap
Narrowing the delta and closing the gap
4.1 The difference between the Delta and the Gap you are aiming to bridge
In the previous sections, we discussed what great looks like and what the corresponding, sometimes abstract delta is. The delta is, as stated, the difference between where the organization wants to be and where it currently is. If your idea about great is just a dream or vision, it will be difficult to make it concrete. If you want to narrow the delta, you must put a dot on the horizon. This dot could be equal to what great looks like but in many circumstances, you have to set a more realistic and tangible goal reflected in this dot. What do you want to achieve? What exactly are you going to do? Is it feasible? Do you have enough budget? What benefits are you aiming for? Will that result in value for yourself and your customers? The difference In the previous sections, we discussed what great looks like and what the corresponding, sometimes between your dot on the horizon and the current state is the gap you want to bridge.
See Figure 4.1 for a visualization of the delta and the gap.
The dot on the horizon symbolises where you realistically want to be with your organization. In Make disruption work5, Alexandra Jankovich and Tom Voskes state that digital technology is a game changer and that you must consider the six new rules when setting your dot on the horizon:
- End customers are the real assets.
- Owning physical shops gave you privileged access to customers. If you replace the physical shops by online platforms you must focus on the interface to your customers. If you own the interface, you own the customer. Prominent examples of online stores are Apple, Nespresso, Michelin, Gillette and BMW.
- Fat margins get stolen.
- Incumbent retailers enjoy a fat margin. Digital disrupters enter the market and steal margin from the retailer, passing it to the customer. These disrupters invest aggressively in growth and attack the value chain, driving down prices.
- Winner takes all.
- if you can increase the traffic of your customers, generate more via the online platform and improve the conversion rate, then you will generate more revenue. Cost of traffic increases as the market matures. If you cannot afford online advertising, you will not survive. Look at organizations like booking.com and trivago.com who are examples of the winner taking all.
- Digital is a new channel.
- It requires an investment in resources. Your digital channel probably cannibalizes selling via your physical shop but if you do not do this, competitors will.
- People search for needs, not brands.
- When browsing in a shop, you look at the shelf for a specific brand. In an online world, there are no shelves. You enter questions about your needs and let Google be your retailer.
- Customers expect the best.
- Once you have seen an improved service from one company, you want to see it everywhere. You want transparency (Alibaba), accessibility (live chat 24/7, like with one.com), speed (Amazon) and relevance (Netflix).
To facilitate the decision to go ahead and bridge the gap, a business case can be used to see if it is affordable and viable. To convince investors, a minimum viable product (MVP) could help to test your hypothesis about your dot on the horizon.
Minimum viable product (Eric Ries, Lean Startup): A version of a new product or service which allows a team to collect the maximum amount of validated learning about customers with the least effort. The MVP for the Dropbox service was a simple movie.
Furthermore, I would suggest that you reserve some budget to explore options for future competitive value streams or if you want to be the next disruptor and expand the delta for your competitors.
4.2 Cyclecity Bike shop: A business scenario
Assume a shop in Cyclecity selling customized bikes is facing a decline in its sales revenues. A market study resulted in a several new insights into what great in the world of bikes could look like:
- The city where you live offers public rental bikes. These bikes are rather heavy because many people are handling them roughly. New rental bikes must be light weighted.
- It becomes more difficult to use mobile route planners due to police fines when using them by hand.
- The local cycling club just started to promote children’s tours, but their parents are complaining in your shop about the prices of these bikes and the fact that within a year, they have to buy new bikes as their children get taller. New bikes offer integrated route planners.
- Police figures show that the number of stolen bikes is increasing. New bikes must have theft reducing attributes.
- Bike sharing and co-ownership is gaining ground.
In Figure 4.1, this is reflected by the green binoculars (Great) in the upper right corner.
Figure 4.1 Gap between the current status and the dot on the horizon
Figure 4.2 Business model canvas
Ms Gazelle, the bike-shop owner, visualizes her future (the light blue dot on the horizon) where she is still selling bikes, but she offers rental bikes too. These rental bikes are lightweight and suitable for using in the city and for kid tours. All her rental bikes provide mobile route planners, tracking equipment (to find them when they are lost or stolen).
She sees possibilities to offer maintenance, including bicycle tire repair, via partnering with the local package distributors. She does not believe in bike sharing and co-ownership. The bikes she will sell are standard bikes, she stops customizing them. Her marketing focus will not be on bike shows but on city events and multimedia to promote her bike rental opportunities.
|Business model canvas item||Current state||Dot on the horizon|
|Key partners||Bike clubs|
Social media contractors
|Key activities||Sales, marketing and production|
|Sales, marketing and production|
|Key resources||Manufacturing system|
|Value propositions||Full electric hybrid|
Selection of brands
|Full electric hybrid|
Selection of brands
Find my bike and bring back service
|Customer relationships||In-shop customer service||In-shop customer service|
3rd party mobility service partners
3rd party mobility service partners
Online rental booking
|Customer segments||Performance-driven, quality-minded people|
Urbanites and conscious people sports life
|Performance-driven, quality-minded people|
Urbanites and conscious people sports life
|Costs||Innovation and exploration|
Sales and marketing
|Innovation and exploration|
Sales and marketing
Distribution partnership for maintenance and repair
Development on in-bike mobile screen with app
|Revenues||In-store bike sales service|
and maintenance show
|In-store bike sales service|
and maintenance rental
The shop owner needs to make a transition to be ready for the coming years. She uses a business model canvas to reflect the current state (dark blue) and her dot (light blue) on the horizon (to be state) in terms of key partners, key activities, key resources, value propositions, customer relationships, channels, customers, costs and revenues. This will help him to understand the gap he has to bridge.
What could a transformation look like?
The business model canvas (current and to-be state) gives the starting point to design the transformation and bridge the gap or in other words to narrow the delta. Frameworks like Managing Successful Programmes (MSP)11 and Management of Portfolios (MoP)12 or the GDS/IPS’s 7 lenses of transformation13 could be beneficial to support this journey.
For the bike example, I will use the 7 lenses of transformation (vision, design, plan, transformational leadership, collaboration, accountability and people) to give a first, but incomplete, impression of how the transformation programme could be outlined.
The bike shop moves into the digital era with a customer-first focus on those who need (rent) sophisticated, app-supported, bikes for a short period of time. On top of this, she rents children’s bikes for half-year periods. In-shop bike buyers will be served as long as the demand is there for standard bikes. Special marketing efforts focus on the adult bike renters and children’s bike renters. Customers can use an app to manage their bike rental and access 24/7 online support.
The bike shop customization department will disappear. Existing customization staff will have the opportunity to become rental bike specialists. There is a need for a bike rental app including the ‘find my bike’ option, a support app including route planning, call for support and a web-based portal to manage all rented out bikes. All application design, development, maintenance and operations will be done by an external partner.
Partnership with local distributors needs to be set up and staff will receive training in bike maintenance and repair. All partnerships need to be provided with contract and service level agreements (SLAs). The rental bike specialists manage the SLAs.
The first steps will focus on bike renting in Cyclecity. In the first three months, agreements need to be established with the local distribution partners and education of their staff, and with an IT supplier for the application developments. In the meantime, the first batch of rental bikes will be bought and pilots with rental can take place. When the web-based portal is ready, the internal bike shop staff needs to be trained. When apps are ready, a marketing campaign will be launched to make Cyclecity citizens aware of the rental possibilities. City events will be held twice a year as part of the awareness campaign. After testing the hypothesis that there is demand in other cities, the next step will be the roll-out of bike delivery points in those cities and make arrangements with local distributors.
The bike shop owner’s leadership is about creating the right amount of uncertainty to generate productive organizational distress. This requires a higher appetite for risk and an understanding that transformation can take a significant amount of time from bike shop staff. The shop owner needs to convince his shop staff to stay and move away from customized bikes and get trained to become bike rental specialists.
Local package distribution partners need to be persuaded to move into the bike maintenance and repair business. This will ask a lot of the bike shop owner.
One of the success factors in this rental bike adventure is the collaboration between bike shop and the package distribution staff. To ensure the IT supplier will deliver the right software, an incremental delivery approach (e.g. Scrum) will be used, and a product owner will be co-located at the IT supplier venue
(but remains an employee of the bike shop). The product owner must stay in close contact with the bike tenants. He can offer city trips with bike tenants to experience their bike usage and hear their first-hand feedback.
A selected staff member will be given accountability for the rental business. He/she becomes the second bike shop shareholder (max 20%, the bike shop owner has the other 80% of the shares).
Several staff members need to be trained in different skills. One of the focus points will be online marketing. All staff must contribute to this newly adopted form of communication. A product owner needs to be trained as well as the staff to manage the SLAs.
It is evident that all organizations are vulnerable to the threat of disruption. A focus on the delta in your industry is not a one-off exercise. It requires a continuous process to narrow this shifting delta by setting dot after dot on the horizon and continuously bridging the gap between your current, actual state and these dots. The delta and value creation is a central concept within AgileSHIFT.
You have to be aware of potential disruptors or competitors who explore the delta and could become exponential organizations and respond accordingly. If you can turn your beliefs upside down to create your own great or become an exponential organization and be the disruptor in your industry, it will give you a jump ahead of your competitors by enlarging the delta for your competitors.
6. About the author
About the author
Henny Portman is partner of HWP Consulting. He has 40 years’ experience in project management. He was the thought leader within NN Group of the PMO domain and responsible for the introduction and application of the PMO methodologies (portfolio, programme and project management) across Europe and Asia. He trains, coaches and directs (senior) programme, project and portfolio managers and project sponsors and built several professional (PM(O) communities.
Henny Portman is accredited in a variety of qualifications, including P3O, PRINCE2, MSP, MoP, PRINCE2 Agile, AgilePM, AgilePgM and AgileSHIFT trainer and a SPC4 SAFe consultant and trainer. He is a P3M3 trainer and assessor and PMO Value Ring Certified Consultant (PMO Global Alliance). In addition to this, he is an international speaker and author of many articles and books in the PM(O) field and blogger (hennyportman.wordpress.com).
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