S02E04 Twin engines of high-performing companies: optionality and focus
Explore and exploit, 2% companies, flow means focus, introducing Kanban
On a personal note
It’s been a while… Life took me on a bit of a detour— becoming a father to my son Otto and renovating a farmhouse that I hope to call home one day. These past 18 months have been busy and fulfilling in ways I hadn’t quite imagined.
But I’ve missed writing here. Complexity and the many ways it shapes our lives, work, and decisions haven’t stopped fascinating me, and I’m looking forward to reconnecting with all of you who share this interest.
Let’s pick up where we left off. In my last essay, I explored how open-ended options and a deep understanding of non-determinism empower leaders to navigate uncertainty. However, options only add value if we can exploit them. This begs the question:
How do we Reconcile Optionality with Focus?
In business strategy, there is a constant tension between exploring new opportunities and exploiting existing ones. The former requires an openness to new ideas and a willingness to take risks, while the latter demands focus and discipline to execute efficiently.
Very few companies excel at operational excellence and innovation at the same time. Research by BCG puts the number at around 2%:
Of the 2,500 public companies we analyzed, just 2% consistently outperform their peers on both growth and profitability during good and bad times. These “2% companies,” as we call them, are able to renew themselves in large part by driving innovation and efficiency simultaneously.
Amazon has historically done a great job of pushing the boundaries in both domains:
Exploring: Amazon consistently demonstrates its commitment to innovation with new initiatives such as Alexa, AWS, and, more recently, ventures into areas like healthcare and satellite internet (Project Kuiper). AWS, for instance, started as a risky, unconventional move for a retailer, but it's now a cornerstone of their growth strategy.
Exploiting: Amazon’s fulfillment operations are a model of efficiency. Its use of robotics, automation, and advanced logistics has set industry benchmarks in cost efficiency and speed. This focus allows Amazon to achieve economies of scale that few can match, ensuring that core e-commerce operations remain highly profitable and defendable.
Only companies that prioritized digital transformation in the past (modern software development practices, cloud infrastructure, automation,…) have the option to capitalize on new technological waves, like machine learning. Digital laggards have closed off most technological paths. Opening them up will take a lot of time.
Optionality is the practice of keeping promising paths open. In and of itself, it does not lead to innovation or operational excellence. It only positions companies to take advantage of opportunities. To seize these opportunities, they need another critical skill: focus. By honing the ability to focus, high-performing companies learn to prioritize their efforts and exploit some of the opportunities that optionality has brought within reach.
Hence the title of this essay. To stay at the top of the food chain, 2% companies rely on the twin engines of optionality and focus. It takes both capabilities to thrive in good times and bad.
We already explored optionality in S02E02. But what does focus mean in an organizational context?
Focus = Flow
Focus refers to the ability to direct one's attention to a specific task or goal and sustain that attention over time. It is about maintaining attention to the task at hand while filtering out distractions and irrelevant information.
Focus is closely related to the concept of flow: the complete absorption and engagement in an activity. Athletes call it "being in the zone" — a state characterized by a sense of effortless concentration, a loss of self-awareness, and a feeling of immersion in one's actions.
From personal experience, we know how much we can accomplish in a flow state. We also know it’s not easy to get there. And it’s fragile—one notification on your phone, and it’s gone.
Teams can achieve a similar flow state, consistently delivering value to customers. However, as the scale of coordination grows, it becomes harder and harder to maintain flow and focus. It’s doable for small teams - this is what gives startups a leg up. In enterprises, it’s exceedingly rare.
Unlike optionality, focus requires ruthless prioritization, clear goal-setting, and disciplined adherence to metrics. This can feel constraining but is necessary for operational excellence.
Is there a management methodology that helps us internalize these requirements?
There are a few. Back in season one, I wrote about cybernetics. Any organizational model worth its salt has its roots in cybernetics. The most influential translation of cybernetics to operational practices is probably Deming’s SPC, or Statistical Process Control. It is also the hardest one to grasp by far. I may cover it in a separate essay.
In this introduction, I will focus on Kanban. If cybernetics is the trunk, SPC is the principal branch, and Kanban is an easier-to-reach sub-branch of statistical process control.
A brief Introduction to Kanban
Flow is a central concept from Kanban that tracks how value moves through the system. Most people know the Kanban board as a visual workflow management tool, but fewer understand the underlying mechanics. Let’s explore them with a familiar example: traffic.
Imagine a crowded highway with four lanes. During peak hours, the system operates near 100% capacity utilization. If one lane closes due to an accident, we see a non-linear effect on cycle time—the time it takes to travel the highway. Reducing capacity by 25% causes cycle time to rise far more than 25%. If an accident were to occur at night, it wouldn’t impact cycle time due to lower capacity utilization.
The throughput of this system is the number of cars reaching point B from point A. At night, the throughput is lower, but only because fewer cars enter the highway — not because the system is congested. The highway remains highly efficient since the few cars that do enter, travel quickly.
Applying Kanban Principles to a Software Team
If a team operates at 100% utilization, any unforeseen request (a production bug, a question from another partner in the ecosystem, unexpected discovery work,...) will wreak havoc on the cycle time of the system.
It is possible (and very common) to overwhelm the delivery part of the system if the ideation process upstream is not in sync with the throughput capacity in development. In Kanban terms: the arrival rate of items in the system is higher than the departure rate (more cars entering than exiting the highway leads to congestion).
Note: in software teams, the congestion is often caused by work being pushed into the system, rather than the team pulling work from the backlog. This video does a great job of illustrating the concept of pull:
Allowing too much work into the system slows the system down. The Kanban philosophy encourages its practitioners to visualize the workflow (including work-in-progress) and actively manage it.
If a team has 10 user stories floating between ‘in progress’ and ‘done’, WIP is 10. When WIP is high, stories spend longer waiting in the system. High WIP leads to the flow of value slowing down due to coordination overhead and context switches.
Saying that WIP is high is another way of saying that a product team has high “utilization”. Or from the team’s perspective: the team has very little slack. While not intuitive, it is necessary to leave slack in a team’s planning.
it provides the optional capacity to absorb unexpected work, such as new feature requests or production bugs, without derailing the entire workflow. It supports optionality by keeping paths open to respond to unplanned opportunities.
it also enables focus by reducing cognitive load, allowing teams to achieve flow and focus on fewer, higher-priority tasks. In turn, this frees up time to tackle complex problems without interruption.
Flow vs Resource Efficiency
But flow goes beyond team productivity to the organizational level. Work struggles to flow in a company organized in silos that prioritize their own interests over the customer’s. This is where resource efficiency differs from flow efficiency.
Resource efficiency maximizes the utilization of resources like people and machines, assuming the more you use them, the more output you get. This assumption only holds to a point.
Beyond a certain utilization level, cycle time and throughput decline due to congestion and queuing. Flow efficiency, however, shifts the focus from pushing the system to its limits toward enabling work to move smoothly. By focusing on flow, teams can generate more value without overburdening their resources, achieving a balance that benefits both the work and the people doing it.
To achieve flow efficiency, organizations need to organize around the value chain, not around functions or departments. This means breaking down silos and organizing teams around the flow of value to the customer.
This is a much larger topic, and later in the season, I will review techniques to address them, like Team Topologies, Wardley Mapping, and Domain Driven Design.
Bringing It All Together: Integrating Optionality and Focus
High-performing companies don’t alternate between exploration and exploitation; they balance the two, integrating optionality and focus to adapt fluidly to change without sacrificing core strengths. A focus on flow efficiency provides the flexibility to combine these engines, enabling teams to stay responsive to emerging opportunities (optionality) while remaining committed to priorities that drive value (focus).
This is the operational perspective, at least. At the strategic level, companies may place bets they deliberately compartmentalize from core operations—just as Amazon did with AWS and is doing with Project Kuiper. By keeping these initiatives separate initially, companies can explore new directions without diluting their core focus.
If the bet succeeds, these “2% companies” benefit by leveraging lessons and resources across these compartments. Two more examples illustrate this approach:
Apple’s push into health with Apple Watch
Meta’s bet on VR (although the jury is still out on the success of this strategy)
Optionality without focus leads to wasted potential; focus without optionality leads to rigidity. Salesforce’s acquisition of Slack illustrates the former—Slack’s integration into Salesforce has yet to materialize into growth. Intel’s loss of its edge in mass production of leading node ASICs exemplifies the latter—focusing too narrowly on established processes and missing new growth areas in semiconductor innovation.
Companies that successfully marry focus and optionality create a unique adaptability, allowing them to thrive in both stable and volatile markets.
Further reading
Daniel Vacanti: Actionable Agile Metrics for Predictability
Eliyahu M. Goldratt: The Goal
Chris Miller: Chip War: The Fight for the World's Most Critical Technology