Exploit vs. Explore – When to Choose Agile over Traditional Approaches

Agile ways of working have become extremely popular since 2001 when the Manifesto for Agile Software Development was published. But does agile work in all contexts? Would traditional project management approaches be a better choice for some contexts? This blog outlines the factors to consider when choosing one approach over another.

Context Counts! Experts agree that context counts when choosing the approach to managing work.

Deciding When to Choose Agile over Traditional Approaches

Previously I touched on this topic in Agile is Better than Waterfall and How to Succeed with Hybrid and Blended Agile Approaches. That second blog post included the relatively popular Stacey Complexity Diagram as a possible way to choose which approach works best for your particular context (see below).

The idea is to look at the certainty you have around the “What” is to be built (the vertical axis) and the “How” we are going to build it (the horizontal axis) and then choose the correct approach based on that. Work that falls into the simple domain would leverage traditional approaches, while complicated and complex work would leverage agile methods.

After reading Karim Harbott’s excellent book, The 6 Enablers of Business Agility, I learned a better approach. [You can read my review of Harbott’s book here.]

Exploit vs. Explore is Better than Agile over Traditional

Harbott contends that all organizational activity can be broken down into two categories. Exploit activities are those that are used to maintain existing products. Explore activities are those that are used to generate new ideas and businesses.

Exploit work is not new or innovative. It is the maintenance of products or services that have already been developed. For exploit work, more traditional project management approaches with upfront planning and control work well. This works also lends itself nicely to annual budgeting cycles.

Exploiting activities are those that relate to current products and services. The focus is on predictable delivery of those products and services, incremental improvements, and a focus on reducing costs, and improving efficiency. For these types of services, the work is known and predictable:

These activities are largely understood and predictable, and success relies on effective execution toward a known goal…An example of effective exploiting is Amazon’s implementation of algorithms to improve the efficiency of the efficiency of picking and shipping items from its fulfillment centers.

— Karim Harbot, The 6 Enablers of Business Agility

Exploring activities are a different animal.

Exploring is the act of seeking out new products, services, customer segments, and even entire business models. The strategy here is to compete through innovation and sometimes the reinvention of the entire organization. It is an uncertain, unpredictable pursuite that tends t involve a lot of trial and error. As such, making predictions and detailed plans is often not possible. To return to our Amazon example…it continously explores new products, services, and business models.

— Karim Harbot, The 6 Enablers of Business Agility

Explore work is that innovative work that organizations due to launch new products or find new markets and customers. For Explore work, the number of unknowns makes traditional project management approaches ineffective. Instead, organizations that are tackling Explore work need to run many small experiments with uncertain outcomes. Annual budgeting cycles, large upfront planning, and long timelines would be wasteful and inappropriate for Exploring work. Instead, organizations should use lightweight agile techniques such as those described in Eric Reis’s Lean Startup to make many small bets with minimal upfront planning.

Both Exploiting and Exploring are happening within all organizations at the same time. However, the approach and focus of each are very different. The skills required to execute them and the outcomes being sought are also very different. This highlights the importance of choosing agile over traditional approaches for Explore work.

Let’s look a little more closely at some examples.

Exploit – Amazon Warehouse

For Exploit work, let’s take a look at Amazon building a new warehouse. Maybe you have seen one of these going up or in operation. I’ve seen them outside the Chicago area and they are ginormous!

The things that make Exploit work effective are those things that your organization is probably pretty good at. The focus is on control and predictability.

• Annual Budgeting – Annual budgeting is effective in the exploit approach. Things don’t change much so the effort involved in upfront planning is probably not going to be wasteful.
• Chains of Command – Strict chains of command or hierarchy work well with the exploit approach. We want to know which executive is in charge and make sure all the decisions are routed through her.
• Project Paradigm – Treating work as a project means looking at work as temporary, unique, and delivering a specific outcome. We create the scope, timeline, and budget and then we manage to that plan. Variances from the plan need to be explained and changes to the plan are treated as scope creep.
• Assign and Hold a Project Manager Accountable – Along with the previous item, we put a project manager in charge of delivering the project to the timeline, scope, and budget. They win by delivering OTOBOS. And in most cases, organizations ignore whether the project delivers the benefits that were expected.

Explore – Amazon Pharmacy

An example of Explore work from Amazon is the Amazon Pharmacy. Amazon Pharmacy was an entirely new business and a great example of Explore work. When Amazon Pharmacy launched in November of 2020, it was hailed as “arguably Amazon’s broadest push into the healthcare business to date”.

So what are the characteristics of this work? Innovation, new business models and delighted customers. You don’t get those by using the command and control approach described above.

So how do you create entirely new business models? Here are some ways”

• Make Many Small Bets – This is often called the venture capital investment model. Rather than setting an annual goal for one big project, you fund a bunch of small innovations. The funding starts out small but as viability and payback are demonstrated, the funding increases.
• Small, Self-Managing Teams – Jeff Bezos was famous for his two-pizza teams, meaning, teams that could be fed by two pizzas. But more important than the size is the idea that the teams are self-managing. They are given the goal, vision, or big picture and then left to figure out how to get there. They can move more quickly because they make decisions at the point where the information resides.
• Embrace Uncertainty and Expect Failure – Along with the idea of making many small bets, it is important to remember that many of the ideas are going to fail. Innovation is not synonymous with certainty. The only certainty is that some things will fail. If your organization is big on blame and pinning failure on those who are held accountable, well, you won’t inspire creativity and innovation.
• Foster Learning Networks – Rather than use a hierarchical model where decisions come down the food chain, innovative organizations use networks. They allow individuals to seek out the knowledge they need across the organization. These network relationships allow for faster transmission of knowledge and ideas.

Explore vs. Exploit – so what?

Why is this distinction between Explore and Exploit so important? Well, it can determine the success or failure of an organization.

Exploiting is about wringing the profits out of a product or service. Activities are predictable which means that plan-driven, predictive approaches will succeed. We can set up annual budgets for exploit projects and likely succeed. When we execute those plans, we can expect tight controls.

Modern Management Thrives on Control

Exploiting has been the successful model for the last 100 years. It has its roots in the work of Frederick Taylor and Scientific Management, Henry Ford and the Assembly line, and Max Weber’s bureaucratic management.

• Frederick Winslow Taylor – Taylor used the scientific method to determine the one best way to do manual labor. He created what is called the Scientific Management Principles. Those led directly to specialization, best practices, and separation between those doing the thinking (managers) and those doing the work (employees). That approach works great for shoveling coal but fails miserably for modern knowledge work. Yet Taylor’s legacy still dominates management practices today!
• Henry Ford – Ford built on the ideas of Taylor and pushed specialization to the limits. His legacy includes the serial approach to work, like waterfall, and the daisy chain of handoffs that come with it.
• Max Weber – Max Weber is credited with creating Bureaucratic Management which further encouraged specialization, hierarchy, and rules and regulations. These are antithetical to agile ways of working.

These concepts and approaches worked great for the manual work of yesterday. But they simply don’t work today unless you are shoveling coal. It doesn’t work when you are trying to grow market share or fend off a competitor like Amazon.

Company Lifespans are Shrinking

Those that don’t see the importance and priority of innovation and creativity, should consider the increasingly shorter lifespan of companies today. 60 years ago, the average lifespan on the S&P 500 was over 30 years. That number is trending down below half of that today. That means that on average, companies are only living half as long.

Source: https://www.statista.com/statistics/1259275/average-company-lifespan/

Why? Well, you can blame it on various market forces. The shift to digital photography caught market leader Kodak flat-footed and you can see where they have landed. They were founded in 1888 and they dominated photography for over 100 years. But they missed the opportunity to embrace digital photography. And in 2012, at age 124, they declared bankruptcy.

Borders Book store was 40 years old when it went out of business. They were displaced by Amazon in 2011 when Amazon was 17 years old.

Blockbuster was 28 years old when it went out of business, displaced by Netflix in 2013 when Netflix was 16 years old. Netflix, who at one time had proposed that Blockbuster buy them, had the last laugh as Blockbuster shuttered.

The key takeaway here is that competition is increasing. If you are not innovating, you are rolling the dice on your longevity. Some portion of your focus needs to be on the Explore domain.

Don’t Mix Agile and Traditional Approaches

This may be obvious after reading the previous sections, but don’t mix agile and traditional approaches in the same initiative. Don’t ask people to use Scrum and then micromanage them or hold them to the project plan that was created during your annual planning cycle.

Why would you even consider this? Well, there are many reasons that people pursue this:

1. They Can’t Let Go of Their Traditional Ways of Working – Sure we want to be agile (or at least benefit from agile), but there is no way we can give up our hierarchies, micro-management, and the sense of certainty that comes from predictive approaches.
2. They Simply Don’t Know Better – Hey ‘why not mix it up?’ seems to be the motto of this camp. What can it hurt? They haven’t taken the time to understand what Agile ways of working entail and they don’t understand the benefits of working that way.
3. They Think Somehow it will be better – Everyone believes they are pretty smart. This group believes that the approach they have found or created by experiment is better than what the agile founders came up with.

Whether you call it Water-Scrum, Scrummer-Fall, or the most accurate label, Waterfail, these approaches are bound to fail as I outlined in What is Hybrid Agile. Still, I know people are going to do it even though it is not recommended.

Letting go can be tough.