The Impact Of Agile On Profitability
Updated: Mar 21
How Does Working In Agile Improve EBITDA Efficiency, And Revenue Growth
EBITDA efficiency and revenue growth are critical for any business, and Agile working methods can significantly improve performance in these areas.
In this post, we explore how Agile methodologies can impact EBITDA efficiency through enhanced cost control and operating margin and how Agile can drive revenue growth through increased market demand and improved product innovation. We will also examine how Agile work can help companies better respond to market changes and stay competitive in today's fast-paced business environment.
More Efficient Resource Allocation
Typical resource allocation challenges stem from the following:
Having too many or too few people allocated to a project
Incorrect/ insufficient competencies are available in the team.
Staff idleness due to waiting on other teams (dependencies)
Agile prescribes a particular approach to how teams should be made.
First, the teams should include staff with all the necessary skills to complete the project. This addresses the 2nd and 3rd challenge above - an Agile team is independent of the skills of other teams. It can create end-to-end solutions with the available resources - no dependencies on anyone else.
Second, Agile teams are usually limited in their size. A study by Harvard Business Review found that smaller teams are better able to make decisions, adjust to changes quickly, and communicate better, leading to better collaboration and problem-solving in today's fast-paced business environment. Another reason smaller teams are more compelling is that they are less prone to group dynamics issues affecting larger teams, such as social loafing, free-riding, and lack of accountability.
Furthermore, smaller teams are more manageable, giving the team leader or manager more control over the group, which can be beneficial in ensuring the team stays on track and achieves its goals.
According to the "two pizza rule" (popularized by Amazon CEO Jeff Bezos), a team should be small enough that two pizzas can feed everyone. In practice, a team of around 6 to 8 people is often considered optimal - this rule can often be observed to be followed by Agile teams.
In this way, nimble, lean, and cross-functional Agile teams are more effective in delivering the desired results faster and lowering the costs for a business.
Faster Time To Market And Increased Customer Satisfaction
Agile working methods advocate frequent deliveries of working products to customers. That is often achieved by working in short time iterations.
In contrast to the traditional (so-called “Waterfall”) model of working - where the results of a project are handed over to the customer only at the end of the project - Agile teams hand over fractions of total benefits at regular time intervals. In Scrum - the most popular Agile framework - these time iterations are called “Sprints” and typically last from 1 to 4 weeks. The Scrum team releases completed work (to customers) at this high-frequency level.
Naturally Scrum teams cannot deliver the entire value of a project to the customer in shorter time just because they work in Sprints. However, they apply the concept of “minimum viable product” (aka MVP): after each Sprint, they try to release to the customers the minimum viable 'package' of benefits that make sense and that customers can use - something that is functional, usable, reliable, well designed, and easy to use (not just one of these categories).
Besides offering value faster to the market, working in Sprints and on MVP has another advantage: Agile teams can get valuable customer feedback after each Sprint. Teams inspect this feedback and adapt their course in the next Sprint. This technique allows Agile teams to reduce the risk of working on something with very little value to the customer. Instead - they can focus on developing just the right innovations that the customer needs. Contrary, this risk of delivering something irrelevant is the highest in traditional Waterfall projects. The team often works in a feedback vacuum for too long and too late, after spending time and effort, realizes that the delivered features are outdated or outpaced by competitors.
In this way, working in short time iterations (Sprints), delivering some value to customers in each iteration, inspecting the feedback, and adapting the strategy before the next iteration - altogether allows Agile teams to deliver value faster and have more satisfied customers.
Besides retrieving constant feedback by collaborating with the customers, Agile teams also pay close attention to maintaining high efficiency and performance levels inside the team. Applying specific Agile frameworks such as Scrum or Kanban helps because they prescribe particular processes or activities that support the teams to stay organized.
First, Agile teams sit down and define how they will collaborate (aka their “ways-of-working”): which working principles to follow, which Agile frameworks apply, roles in the team, handling of the documentation, organizing their communication, defining the workflow, and other topics.
Second, teams at regular intervals stop and inspect how they work. Some automated performance trackers may help by providing data on the team's performance. But more often, Agile teams use the retrospective technique to review how they collaborate and decide on the necessary changes or updates required in their collaboration model.
Some Agile scaling models also prescribe specific procedures to enhance collaboration at an intra-team level. One example is “Scrum of Scrums” - a practice where each team delegates one team member to represent the team in a more significant sync meeting where similar representatives meet from all the teams. The team representatives are typically rotated inside the team, and their job is to update their team on what was discussed on the Scrum of Scrums. This and other collaboration methods are described in detail in some of the most popular Agile scaling frameworks (e.g. SaFE, LeSS, Nexus, Disciplined Agile).
In this way, by applying the principle of “inspect and adapt” to themselves and other collaboration techniques, Agile teams regularly improve their ways of working and collaboration efficiency and maintain high productivity and satisfaction.
How its teams' work can affect the company's EBITDA efficiency and revenue growth. By applying Agile principles and ways of working, teams are kept lean, fast, independent, and self-sufficient. This allows for better cost control and increases the operating margin.
Furthermore, Agile teams frequently deliver value to customers - ensuring faster time to market and greater customer satisfaction, which improves revenue. Finally, Agile teams inspect and improve their internal collaboration, maintaining high productivity, efficiency, and satisfaction. This helps Agile companies respond quickly to market changes, stay competitive, and sustain business growth in the long term.
About the Author
Jānis Dirveiks spent 4 years in management consulting and assurance, followed by 10 years building tech products and sustainable product development processes in the fintech industry. As a practitioner at RingStone, he works with private equity firms globally in an advisory capacity. Before RingStone, Jānis facilitated Agile transformation programs in some of the biggest Nordic banks and helped build Agile product development processes in early startups. He has consulted process transformation efforts in various private and public sector companies and is an avid public speaker and proponent of Agile ways of working. Jānis holds an MSc in Global Politics from the London School of Economics and Political Science and a BA in Media & Communications from Goldsmiths, University of London.
Contact Jānis at Janis.Dirveiks@ringstonetech.com