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Focus on Flexibility: Leanness of Software Firms

Flexibility in software industry can be understood as the agility of software development, but also as the firm’s capability to quickly react to changes in the industry and in the customer demand. In this year's analyses we found that the kind of flexibility is strongly associated with experimenting with different business models and collecting information from customers regularly.

Eric Ries and Steve Blank call these flexible companies as “lean startups”, but the type of flexibility is not limited to young or small firms. Rather the authors suggest a methodology which favours experimentation over elaborate planning, customer feedback over intuition and iterative planning over traditional plan-based development. It's like the agile approach in software development, but the methodology is meant for developing business.

In this year's analyses on business models of Finnish software firms, we focus on their business flexibility and how the Finnish firm would score on the leanness suggested by Ries and Blank. Overall, the respondents clearly report experimenting and customer-oriented orientation when searching and developing their business model.

Frequencies of responses to questions regarding leanness of business development
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Especially customer feedback is preferred over intuition. Most firms report collecting often information from customers about their needs, assessing their products/services against these needs, and deciding promptly on their reactions to new customer needs. These attributes would indicate a customer-oriented strategy.

Also, iterative planning seems to be preferred over plan-based development. Most respondents indicate that the firm's the business planning is an ongoing process and that they continually adapt their strategy based upon feedback from the market. Many firms also experiment with different business models and try different approaches until they find a working one.

We also found differences in experimentation and customer-orientation between young and more established firms. When talking about companies' strategic decisions, the business planning of software start-ups seems to be more ongoing and involving process than in the established companies, and start-ups also adapt their strategy more based upon feedback from the market.

What is the value of these findings then? First, the lean methodology suggests a new way of thinking about the strategy and organization that is applicable to both young and more established firms. And second, should large and established firms have difficulties in reaching preferred level of business flexibility, they should investigate internal ventures and investing in external startups.

- Marko and Eetu