Pattern Pattern
PODCAST

Navigating the edge of digital transformation with Linda Luu

How do you drive value to your organisation's digital transformation?

In this episode, we are joined by one of the co-authors of "Edge: Value Driven Digital Transformation" Linda K. Luu, who educates us on where organisations should invest in to find success with their digital initiatives. She also gives an overview of the "lean value tree" and how it can help set priorities and put value in the organisation's work.

Episode outline

  • Linda Luu talks to us about her role as IBM's Associate Partner for Enterprise Strategy.
  • What is the "edge of chaos"?
  • We learn about the EDGE operating model and how it can drive our digital transformation initiatives forward.
  • Luu takes us through the concept of a "fitness function" to help achieve an improved customer value.
  • What does a "Tech@Core" strategy look like?
  • How does the "Lean Value Tree" help an organisation set priorities on the things they should be investing in?
  • Can a lightweight governance ensure that bureaucracy doesn't hinder innovation?
  • How can an organisation "adapt fast enough" and find success?

Transcript

Kevin Montalbo

Welcome to episode 61 of the Coding Over Cocktails podcast. My name is Kevin Montalbo. And joining me from Sydney, Australia is Toro Cloud CEO and founder, David Brown. Good morning, David!

David Brown 

Good day, Kevin!

Kevin Montalbo

All right! Our guest for today is a Consultant, Coach, Product and Experience Designer. She has 20 years’ experience building new capabilities in organisations seeking to respond faster to the shifting needs of customers, in the areas of design thinking, big data and analytics, portfolio management, and agile delivery. Her journey includes working with clients from Australia, North America, Canada, South Africa, and Brazil.

Today we’re going to talk to her about her first book “Edge: Value Driven Digital Transformation”, where she will share her learnings, stories, and many challenges of building organisational responsiveness in today’s environment fueled by technological change.

Joining us today for a round of cocktails is Linda Luu. Hi Linda, great to have you on the show!

Linda Luu 

Thanks for having me. And hi, David!

David Brown 

Hi, Linda! Welcome. Good to have another Australian on the program, although living in San Francisco. When did you make the move to San Fran?

Linda Luu 

Oh, about four years ago. But I've been away from Australia for about a decade. It’s been quite some time.

David Brown

I read that in your portfolio. In fact, you were with ThoughtWorks for a while, but you've more recently moved to IBM as Associate Partner of Enterprise Strategy. Tell us a little bit about your role there.

Linda Luu 

Yeah. Thanks, David! So, I left ThoughtWorks and I've been with IBM for about a year and it’s kind of a bit of a parallel to the work I was doing at ThoughtWorks. And kind of how this book came about is solving very similar challenges at IBM and our clients, but at a much larger scale. So, I kind of dived straight into a hundred-year-old company which is still going through the process of reinvention and working very closely with our clients in the consulting phase, evolving things like that; operating models, rethinking budgeting and for funding models and establishing what we call a value realisation office. So, replacing your traditional PMO. So, those are some of the kinds of work that I do now, as I made the leap to IBM. And we're still very much focused on clients and helping our clients kind of get through this digital transformation journey.

David Brown 

And it sounds like a lot of those things you're doing at IBM are also related to what you talk about in your book. So maybe we can jump into that. We've previously talked about edge computing on this podcast, and so yeah, we talk about computing on the edge of the internet, on the edge of the cloud,and close proximity to end users. But you are talking about a different kind of “edge” in your book? Is it more about a chaos-type principle? Can you tell us a little bit more about the concept in terms of edge as it relates to your book?

Linda Luu 

Yeah, sure. So it does sound pretty dark. I'll have to credit Jim Highsmith for coming up with the name, but “edge” actually comes from complexity theory. And as we were working on the book and thinking about a name, we were kind of playing with this space between too much structure and stability and status quo and then organisations having too much flexibility or too much autonomy or too much chaos. And so, we were playing with this term called “edge,” which is being at the edge of chaos, not quite over the edge, but in an area where organisations who want to compete in this digital age are really thriving. 

And I have to say it's a bit of a play on words during the time when it took about five years to get the book out the door. And during that time, we got a lot of questions about what's the alternative to scale agile framework. So, kind of this idea that we want to scale agile. So, edge can kind of help with that. And it's a bit of a play on words because, well, SAFe is great as a framework and as a mindset for a lot of organisations. But we don't want to be “safe.” We want to kind of be at that edge of chaos. And so it's kind of how it was born.

David Brown 

It's interesting, because chaos has a negative connotation, right? So, if you are in a chaotic model, it sounds like it's unproductive and not organised, but you are actually saying you wanna be on the edge of chaos?

Linda Luu 

 

Yeah, absolutely. I think that when we talk about digital transformation and some of the principles that we've talked about in the book, what we're saying is that the status quo and the old way of doing things just doesn't work anymore. And a lot of organisations, when we talk about agile, they've got some success with standing up agile teams, throwing some cross-functional people together, delivering incrementally and starting to bring some of that mindset into the organisation that you're actually going to be able to get more feedback and learn a lot quicker by reducing things like cycle time. 

But actually, what we found is that's not enough. And a lot of our clients taught us that. You know, they've been doing this agile thing, they’ve stood up X number of product teams or agile teams, but they're still not getting the value out of their investment. So, what are we doing wrong? So, what we've put together in the edge book is actually — essentially, the different areas of the organisation call it “operating model” — that we believe needs to change and needs to make a fundamental shift to be able to get the most value out of investments and be able to compete in this digital economy.

David Brown 

So, let's talk about the operating model. The operating model, as I understand, is a set of principles and practises to enable an organisation to achieve organisational responsiveness, as you call it. Tell us more about the model. How can it drive digital initiatives forward?

Linda Luu

Yeah. So, originally when we're thinking about operating models, the immediate thing to think about is how should people work together? To solve that, we actually have three fundamental questions; how should we work together, how should we invest, and how can we adapt fast enough? So, underpinning those five areas that we believe an organisation needs to change. So, the first one is making strategy visible and actionable and actually tied to delivery. So, it's not this nebulous statement or set of PowerPoints that no one understands. And then shifting the portfolio approach, which is actually a really big component of the book, moving from evaluating ROI to actually measuring customer value and then being able to measure it incrementally and shifting the way you fund and budget for your portfolio. The third one is around governance and no one wants to talk about governance. But essentially, shifting the governance from this heavyweight process that is very focused on activity to making it more lightweight and can help facilitate faster decisions. 

David Brown 

I was gonna say this is interesting. This whole concept for computing, did it come through your observation that agile wasn't working, that you were getting feedback from organisations, and then you, you thought, “Look, we're gonna have to come up with something to solve this and develop a set of principles to guide people about a new way of thinking”?  What was the process that got you to this point?

Linda Luu 

Yeah, absolutely. I think that the number one question we get from clients is how do we scale these agile teams? So, they've proven successfully, say, 20 agile teams, and they wanna now scale out to say 300. And it's not a matter of copy and paste. And that's where we really came into, looking at those areas of changing an organisation, that what we call in the operating model as  “friction” because the old way of doing things, take your annual budgeting process as an example, having a process that decides how much money you want to spend and what value you expect and having that done on a yearly basis, pretty much assumes that you are waiting a whole year before. You can actually understand if you actually receive the value from that in investment and that's too long.

You know, what we've found is that even if you have the perfect plan, even if you have the perfect solution, the perfect product, and you really understood your customers, if it takes you that long to deliver and that long to take to get feedback, the environment has changed. The solution — someone's already done it. And the value that you could derive from that investment actually starts to degrade. So how you help rethink an organisation, how the pieces work together to be more agile and by agile, we don't mean agile teams. We mean the grassroots, like changing the thinking model to one of incremental delivery experimentation and really helping leaders through that kind of shift.

David Brown

Yeah, because there's always been this concept in agile that you're doing less waterfall approach to development with pre-planning and you're more responsive to customer needs and listening to them and iterating through change into the customer. But as I understand it, your concept is creating a metric for customer value, something you call a “fitness function” to achieve your goals. What is the fitness function? How does that work? 

Linda Luu 

Again, “fitness function,” the term comes from complexity theory. And I would describe it as, kind of, the highest level measure in the organisation, what the organisation's focusing on and to measure how close a solution is towards a goal. And in traditional organisations, the pre-digital era, the primary measure was cost and efficiency. You can get technology or the IT department and see how fast and how cheap you can do a piece of work to support, say, a product release, and that's no longer helping organisations really compete. We know that essentially, it's too slow and the operating model talks about essentially helping organisations think about customer value. And so, the fitness function, that primary measure shifts for technology to be around speed and adaptability. And through that process, it's gonna thrive innovation rather than starving innovation, helping innovation thrive.

David Brown 

Through what processes? Like, how can you make innovation thrive? It sounds great in principle, but what are some of the specifics of those processes?

Linda Luu

Yeah. So, in our book, we mentioned portfolio is kind of a core concept or function that changes an organisation. We talk about innovation. Take for example, in a traditional way, a strategy is about creating the perfect plan and understanding your market and understanding where you want to compete your customers. That gets put away and a solution comes about. But that solution is only probably one idea of potentially so many ideas that could come about and be valuable. 

But how do you test those ideas? It’s kind of this idea of like a thousand flowers blooming. You could just try a whole bunch of stuff and hope that it works. But what we talk about is how do you bring just enough structure to help leaders steer through that kind of ambiguity or what could I invest in and how could I innovate quickly and get the feedback quickly in the market to be able to essentially decide whether or not something is worth investing in, or actually stop work. That's actually no longer valuable because there's something that's actually more important, more exciting for customers. And we actually see customer uptake in a different area.

David Brown 

Are there any case studies you can share with us? You don't need to mention company names necessarily if it's confidential, but just in terms of principles, of how people have been able to utilise this concept of the edge of chaos?

Linda Luu

Yeah, so I would say that a lot of clients ask for examples and we always kind of point to the digital natives. You know, they've come from an environment where they're not starved by legacy technology and they've got a fresh start and technology is core to their business. And what we've been working on is working with organisations that have actually been disrupted. So that's telcos, that's automotive, that's insurance and banking and airline. Those are all the examples that we have actually embedded in the book without names of where we've actually kind of brought this idea of a new operating model, next generation operating world to life.

David Brown 

How important are technology platforms to all of this? You mentioned some are hampered by legacy technology, so digital native companies have not been so hamstrung by that. So, what kind of role does technology play in all of this?

Linda Luu 

So that means that if you're an insurance company, you're not an insurance company, you're a digital company that operates and sells insurance products and technology and the digital experience is core to your business. So, technology is no longer an afterthought.

Yeah, it's quite controversial, but there's a chapter in our book called Technology at Core. And it really is about shifting the mindset of leaders. And I don't mean just technology leaders or leaders in the organisation to think about technology not as a supporting function, but actually core to the business, like technology is the business. So that means that if you're an insurance company, you're not an insurance company, you're a digital company that operates and sells insurance products and technology and the digital experience is core to your business. So, technology is no longer an afterthought. And so, when we talk about digital platforms and technology strategies, it’s about helping leaders through changing the mindset that technology is that thing that the other silo in the organisation has to deal with. So, when it comes to things like annual planning and rethinking about products and services that the organisation wants to compete in technology, the digital experience is part of that journey and core of that thinking.

David Brown

Yeah, I'm glad you mentioned that because often on this podcast, we've talked to guests about the role technology plays and the role that people play. And often, I think it's a greater emphasis placed on the role that organisational change is required and the role people play. And so the technology stack is kind of pushed back a little bit and in terms of its importance, you said, “Look, the technology's there and you can always get it if you want it,” sort of thing. 

But really, you know, I'm not trying to discount the challenge associated with the organisational chain. It's enormous in terms of cultural change but I like the fact that you've got a chapter Technology@Core, and really, you should be thinking about making yourself a technology focused company, regardless of what industry you operate in, if you want to move into the digital age, just as what we're talking about, right? All organisational cultural change is gonna need to happen to facilitate that, but technology is still going to be at the core. Is that what you're saying?

Linda Luu 

Yeah. And in our book, when we talk about technology strategy, we talk about things like really understanding seismic shifts and understanding and proactively looking at what's happening in the market that could actually disrupt or change the way our customers interact with us. Say, take AR/VR as an example, how is this new interaction fundamentally going to change  the way we interact with our business? And can we actually think about when we're thinking through our strategy of what we are actually going to offer to our customers and is that going to be at the forefront? 

And a lot of our clients, particularly on the business side, when they engage consultants, they ask, “Help me understand this technology thing. Help me understand what emerging trends are happening and how to rethink about generating customer value for my business.” And Tech@Core is about increasing the capability in the organisation so that everyone in the organisation really thinks about it in this way. It's not an outsourced function, or it's not left to the IT department to come up with the best report or the best diagram that shows us how our tech architecture and technology is going to evolve over time, but is actually fundamental to thinking about mapping out your strategy.

David Brown

What about the concept of the citizen developer and driving technology down to end users to empower them to embrace technology, to facilitate change? How realistic do you think that is? And how important is the technology side of things still, largely an IT function with IT professionals driving it?

Linda Luu 

Oh, when I think about my clients and the best clients that are actually really embracing digital in their organisation, it's not just the developer, it's not just a UX person rethinking about evolving interactions. It's actually everyone in the organisation in tune with what's happening in the market and this kind of emerging technology. And I think that's very influential. Going back to your question, the best ideas and the best kind of innovation start to happen when you have that developer who's read about it through a blog or gone to a conference about some emerging technology, that's done some really cool things, and it might not be something that you invest in. It's not your horizon one, it's not something that's going to fundamentally change your business today, but they're thinking about it.

And you start to see things during showcases and software showcases. Someone's gone and experimented a little bit with it and said, “Hey, I've tried this thing. It's really cool. Now, how could we actually harness that?” And that's kind of very grassroots, really thinking about experimenting and this culture of people being very excited and empowered to be able to try different technologies. And it's not being handed to them in that, “You have to deliver this project in this timeframe to this budget. Go and do that. Don't worry about this other thing that's shiny and new on the side.” “Within guardrail” is what we call that to be able to help foster that kind of creativity and innovation within the teams, and then elevating that. 

So, it's not just the developer that's talking about some cool trend in technology that they're experimenting with. It's the leader saying, “I actually understand you're getting to that. That's a really interesting piece of work that you're doing. Let's leverage that. Let’s rethink how we might be able to build that into our ongoing plan and technology strategy and keep an eye on what that could possibly do for our business.”

David Brown 

One of the things I find really interesting about your concept and driving this innovation through empowering individuals and focusing on customer value and experimenting with ideas and seeing which one works and all that sort of stuff, but then you keep drawing it back to budget, right? You keep saying, “Okay, but we need to allocate resources to one of these ideas.” So, it's great to have this chaotic cut concept where there's all these ideas being spun up in terms of creating customer value. Which ones do we now invest in? And I think you've come up with something called the “lean value tree” to make that kind of decision model. Can you tell us and run us through that concept?

Linda Luu

Yeah, so the “lean value tree” is a very deceptively simple tool that we included in the book as a way to help be more tangible when we talk about portfolio and make and break them down. Portfolio in an agile way, what does that actually mean? So really, simply “lean value tree.” The name is adopted from the fact that it's “lean,” because we take the strategy and we break it down to very small, stoppable chunks, kind of in the way that agile teams break down their backlog. It's “value” because we no longer talk about solutions. You know, we're not gonna build an app or create this e-commerce thing. What we wanna do is actually talk about outcomes and customer outcomes rather than solutions. And then it's a “tree” because everything that we want to invest in, everything that we want to do, including the work that isn't being funded is tied all the way through to delivery teams.

So, this is where we say the operating model ties together the execution. The lean value tree helps to do that. And I would say the biggest thing that's really made an impact with the lean value tree is this idea of bets. So the tree has levels. We have goals, bets, and initiatives, and then most organisations stop at three levels, but they can go further. And this bet mindset is essentially that you can't predict the future and things will change. So, what is your hypothesis of value? What are you willing to invest in to help you achieve that goal and make it visible on a page or in a single place in the organisation that could be referenced? And that's really, really where prioritisation starts to kind of evolve. 

Prioritisation sounds so easy. We say, “Okay, well, let's build a lean value tree and let's do it.” This is actually one of the hardest things. Often we start with prioritisation as being who screams loudest in an organisation is right. The highest paid person in the organisation gets to decide. And what we are actually doing is putting some more discipline using the lean value tree to actually map out what it is we're trying to achieve. And therefore, what are you willing to invest in to make that happen? And then shifting the focus towards experiment and getting the data to support that throughout the year. So that means that if a piece of work can't be justified throughout the year, it will be killed in the same way and work will get stopped. Low value work can get stopped incrementally throughout the year, rather than waiting until the budget's being spent to evaluate whether or not something's actually proven valuable. 

So, that kind of helps really run the back on the prioritisation front. It’s helping executives really trying to get back to the discipline of saying, “Well, if you want to achieve x, what is it you are willing to invest in? How are you going to break it down?” And communicate that to teams that this is where you're actually putting your money behind.

David Brown 

So, if you're investing in some concepts so they can develop a proof of concept, develop, and establish the sort of value they're going to contribute so that they can continue to get further budget. To develop that, you're going to have to require some sort of governance model. And you talked about governance and you talked about a lightweight governance. So you're emphasising the concept of a lightweight governance to ensure that there's not too much bureaucracy, that's gonna hinder innovation. How does the governance work in this model?

Linda Luu

Yeah, so there's a kind of a few shifts that we need to make to enable lightweight governance as opposed to heavyweight governance. And that is once you've broken down the work into a lean value tree, it's changing the decision rights to be able to steer the poor portfolio throughout the year. But that would mean in traditional ways, there's usually like a central governing body that makes decisions around what gets funded and then what continues on, but actually, the lean value tree and lightweight governance breaks that down further. So, what we call the “bet owners” actually have the autonomy and the accountability to make decisions throughout the year about what they believe is actually going to return the most value out of the portfolio of investments and it's gonna hit their goals.

So typically that means there's a change to leadership, accountability, and KPIs to align back to the lean value tree and the bets that they're accountable for. So we have “goal owners” and bet owners, and they can actually have the autonomy to stop a piece of work. If they feel like there's no returning value, then there's data to support that. And they have to justify whether or not it's actually worth continuing to invest in throughout the year. So, going to request more funding, if something is actually proving more valuable. 

And that's the fundamental shift for a lot of organisations. We start with asking, “What happens if you don't achieve the benefits?” And usually the responses are, “Well, we haven't measured it. We don't have the data yet, and no one's looking.” And, you know, most organisations just kind of don't want to go back to it because they know that there was very little value delivered and it was too hard when the money's being spent. And so, our governance really is about bringing back some of that discipline.

For one recent client, they told me that, “We stop work all the time. We declare work is no longer valuable. We stop it, but then the team still works on it.” And so, when we talk about discipline, it really is about bringing back some of that discipline to say, “If something isn't valuable and we all know it,” and you talk to the people on the team saying, “Why are we building this? There's no customer value in this. Customers don't even want it, actually. Stop the work.” It can't be someone's pet project. It can’t be someone on the executive team who really believes that this is valuable. If that was the case then they had to justify it. And they're accountable for the delivery of that value

David Brown 

To wrap up, I'd like to talk about sustainability and, and how organisations can adapt fast enough. So given that you mentioned that even digital savvy industries only have a 26% success rate —I've got that figure from your own excerpt from the book — how can companies adapt fast enough when they're having such a large value rate?

Linda Luu

When we talk about adopting and evolving fast enough, it's the organisation having that kind of organisational grit to keep going, to keep learning, and continuously setting up the infrastructure, if you like to be able to learn and continuously evolve.

Yeah, that's a good question. I think when I look at this kind of digital transformation era, this idea that organisations will be always transforming, there's no static state and there's no end state to the transformation. When we talk about adopting and evolving fast enough, it's the organisation having that kind of organisational grit to keep going, to keep learning, and continuously setting up the infrastructure, if you like to be able to learn and continuously evolve. And that's if the organisation's always in this kind of state of change and state of life. Like, how do you kind of wrap your arms around that? Are we actually doing this fast enough and are we actually getting the value that we expected from customers? I think one of the things that we — and I've been doing this a lot more at IBM — we've kind of come to the conclusion that to really help organisations evolve and move culturally towards a different way of working, they need to really think about the value streams and an organisation and the approach to change. 

And one thing that we talk about in the book is this “lean change model.” So you're always going to be changing and you've got to have the data to be able to prove to the organisation that something like a more dynamic funding model is actually going to help reduce the friction in your operating model and to actually help me deliver value faster to customers. So, let's prove that out. And taking this step further is actually rethinking about the value streams in your organisation and all the pieces that are needed to deliver that value and transforming that way. So, are we actually adapting fast enough? I think the way to measure that is are you actually getting the value? Are your customers actually getting value from you? And are you able to measure that incrementally? 

And then evolve the organisation. Continuously evolve the organisation in that way. So, that means we talk about funding. We are talking about leadership changes, governance changes. That means it's a lot to deal with. So, taking a slice of the organisation and continuously evolving it in that way, we found, helps move a lot faster in the transformation efforts and towards value. The opposite of that I guess, is to kind of try to move functionally. Like, let's blow up our governance, then let's blow up our budgeting and our funding cycles and let's add more agile teams. And I think I've got data now to prove that that's too slow in a lot of organisations. And I get very little value from transformation efforts and then that's kind of been seen as a kind of a failure.

David Brown 

Yeah. And I wonder also, like in the software industry, we talk about failing fast in terms of innovation. You need to be prepared to fail fast. So, I wonder if there's a similar concept here. If 75% roughly of projects are failing, then you really want to make a decision on those projects, which are not contributing customer value quickly. So, you can fail fast, learn from it, move on. So you find that 26%, which are gonna be your winners. Is that a key ingredient here as to your budget and approving funding for concepts? You talked before about canning projects early, if they're not contributing customer value, is that a key ingredient here in order to be able to move forward? To find those success stories is to can and fail fast on those ones that aren't working?

Linda Luu 

Yeah, I think you hit the nail in the head. And why I think the lean value tree particularly has been so popular is that it brings that visibility in that you have to make trade off decisions. You can't invest in everything. But if you only had, say, a hundred chips to base on to help achieve your goal, are you gonna continue to put those a hundred chips towards something that isn't actually going to help you achieve your goals? Like, you already know that within the first quarter, why would you keep going? And to start to look for alternate sources of value and start to kind of experiment out whether or not something else could actually be more valuable in the market. And essentially, we talk about killing projects and killing ideas earlier.

That is definitely one part, but actually what we find is just getting into the mindset of what is actually more valuable. Nevermind the stuff that you have to kill, that stuff is usually fairly obvious when you lay out all the initiatives and the lean value trees and why we work out this thing, that's not even important. But if you have five bets, which one are you actually going to get investment in? Do you put your money in all five or do you believe that one is actually going to be the superstar and start investing in that and prove out and run your experiments to see if that's actually going to  give you the return that you expect?

David Brown

Linda, some really interesting concepts in Edge: The Value Driven Digital Transformation. Where can our listeners learn more about your book and what you are writing about and follow you?

Linda Luu

So, I think LinkedIn is probably the best place to find me right now. I'm currently still on maternity leave, so I'm a little bit slow to respond. But yeah, LinkedIn would definitely be the place to ask any questions. I get a lot of questions around particularly the implementation of the lean value tree, because it's very deceptively simple and very hard to implement because it requires so much mindset shifts. So you hit me up on LinkedIn.

David Brown

And your handle is “Linda K. Luu.”

Linda Luu

Yup. That's right.

David Brown 

Great. Thanks, Linda! Very, very, very interesting talking to you today.

Linda Luu

Thanks very much! Thanks for having me.

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