Enterprise Services Planning - Scaling the Benefits of Kanban

[email protected] @djaa_dja Copyright Lean Kanban Inc.

Anticipating demand across an ecosystem of shared services

Enterprise Services Planning

Scaling the benefits of Kanban

Presenter

David J. Anderson

MadridLeanKanban Southern

Europe21 April 2015

Improving customer satisfaction one service at a time


What is a professional services business?

Education

Finance

Government

Military

Insurance

Medical

Design

Media

Advertising

Sales

Marketing

Human Resources

Legal

Internet Technology

…

Professional

Service

organizations

build intangible

goods


What is a professional services business?

An ecosystem of professionals providing interdependent services, often with complex dependencies.


A Managers Dilemma

Managers are expected to make decisions

and predict outcomes accurately.

Their management training did not prepare them for the complexity of professional services environments!

Why are their daily decisions as well as long-term strategic plans plagued with uncertainty?


The challenge of professional services businesses

A constantly changing

external environment

has a ripple effect

across their entire

business ecosystem

Priorities change and

required capability & service

levels rise in response to

competition, disruptive

market innovation &

changes in customer tastes


The challenge of professional services businesses

Lack of alignment

between Strategy and

Capability leads to a

high risk, unpredictable

result.

Risks are not

adequately hedged,

performance is volatile

& untrustworthy. As a

result managers

cannot act & decide

with confidence


Vicious cycle of professional services work

We don’t understand risks so we say “Yes”

to almost everything

We don’t have enough capacity

to do all our work

We ask for more people

Dependencies between services

is complex & work blocks,

people are briefly idle

We don’t want people to be idle

so we ask for more work

Lead times get longer because of

so much multitasking &

complex dependency

delay

EverythingTakes

Longer Eventually things crash badly when we run out of money (or physical space) to

keep funding this expansion.

The result is a dip into chaos and unpredictable outcome such as merger, divestiture, reorg, closure of business

units and exit from line of business


What should we start next?

Will it be delivered when

we need it?

Do we havecapacity to do everything we need to do?


How will dependencies

affect our ability to deliver?

How many activities shouldwe have running

in parallel?

If we delay starting something, will the capacity be available

when we need it?


How do you create an achievable plan?

We plan for an organization that can react to changing events.

A business that can dynamically coordinate capabilities, dependencies, and workload

A business that is

risk managed, robust,

and resilient



*Kanban is a way to organize and manage work. It improves service delivery speed & predictability through a combination of limiting work-in-progress & deferred commitment

It uses visual management and Lean techniques such as limiting the amount of work in progress, and probabilistic forecasting.

Kanban helps to balance demand with capacity.

Balancing demand and capacity = improved flow.

Improved flow = Improved predictability.

Enterprise Services Planning (ESP) is an enterprise-wide

management solution that leverages Kanban*

to improve each service within your business.


Enterprise Services PlanningThe goal of Enterprise Services Planning

The goal of Enterprise Services Planning

is to achieve flow across the organization.

ESP encourages improved service delivery,

better customer satisfaction and a business that is

"fit for purpose”.


Definition ofEnterprise Services Planning



3 Organizational Steps

Foster a culture focused on continual

fit-for-purpose service delivery

Seeing Services

“Kanban” each service

Feedback Loop System

Identify interdependent services in your organization

Use the STATIK method to create a Kanban system for each service

Implement a set of responsive feedback loops


Enterprise Services PlanningStep 1: Seeing Services

Examples:

HR provides services throughout the organization, but they also need services from IT

Marketing provides services to product development but they need services from Sales and from IT

IT provides services to Customer Support. There is an interdependency between Customer Support, QA, and IT Engineering.

Different feature teams or product teams may have dependencies on each other

Many groups are dependent upon specialist individuals


Enterprise Services PlanningStep 2: Kanban the Services

Use STATIK (Systems Thinking Approach to Introducing Kanban) for each identified service1. Identify a service

2. Understand what makes the service “fit for purpose”

3. Understand sources of dissatisfaction regarding current delivery

4. Analyze sources of and nature of demand

5. Analyze current delivery capability

6. Model the service delivery workflow

7. Identify & define classes of service

8. Design the kanban system

9. Socialize design & negotiate implementation


Enterprise Services PlanningStep 3: Responsive Feedback Loops

StrategyReview

RiskReview

Monthly

ServiceDeliveryReview

WeeklyQuarterly

StandupMeeting

Daily

OperationsReview

Monthly

Replenishment/Commitment

Meeting

Weekly

DeliveryPlanningMeeting

Per delivery cadence

change change

change

change

change

change

changechange

change

info

info

info

info

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info

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change info


Enterprise Services Planning6 Planning Activities

ESP activities1. schedule and sequence work

2. forecast delivery dates and expected outcomes

3. allocate capacity

4. manage dependencies

5. understand and manage risk

6. ensure sufficient liquidity to react to unfolding events

ESP is about balancing demand with capacity to deliver,

keeping in mind the dependencies and risks


Enterprise Services PlanningAchieve “Fitness for Purpose”

+

These must be balanced to deliver what your customers need and expect: to be “fit for purpose”

Product component (capability/brand/non-functional elements)

Service delivery component

demand /customer expectations/ customer satisfaction)


Enterprise Services PlanningFit for purpose one service at a time

Produce superior customer service and be robust & resilient – even in a rapidly changing external environment.

Using ESP, run an effective,

risk managed business.

Align enterprise strategy with capability.


Key Performance Indicatorsdrive continuous evolution

in service delivery


What makes a pizza delivery service“fit for purpose” ?

Fitness criteria are metrics that measure things customers value when selecting a service again & again Delivery time Quality

• Functional (order accuracy)• Non-functional (hot & tasty)

Predictability• Product consistency• Delivery predictability

Safety• conformance to regulatory

requirements


Select Key Performance Indicators Carefully!

KPIs should be fitness criteria metrics!

KPIs should assess service delivery capability and indicate fitness for purpose indicating your likelihood of surviving and thriving by adequately satisfying your customers?

KPIs should be recognizable by your customers as something meaningful!


Fitness Criteria drive evolutionary change

EvolvingProcess

Rollforward

Rollback

InitialService Delivery

Process

Future process is emergent

EvaluateFitness

EvaluateFitness

EvaluateFitness

EvaluateFitness

EvaluateFitness

We are never “done” with change. We evolve

to “fit for purpose”


Other Useful Metrics

Some other metrics are useful Those which guide improvements

Those which indicate general health

Is your metric evaluating and guiding a specific change to improve fitness of your business such as an initiative to improve vendor response times?

Or, is it a general business health indicator such as liquidity?

If not a fitness criteria, an improvement driver or a general health indicator, then it is a metric that you almost certainly don’t need! It should be removed!


Kanban Cadences


10 Feedback Loops, 7 Meetings with a regular cadence

StrategyReview

RiskReview

Monthly


WeeklyQuarterly

StandupMeeting

Daily

OperationsReview

Monthly


Meeting

Weekly




Strategy Review

A quarterly meeting to review and assess our current markets, segments & lines of business

strategic goals & position

go-to-market strategies

KPIs

capabilities

alignment of strategy & capability

Attended by senior executives and representatives from strategic planning, sales, marketing, portfolio management, risk management, service delivery, & customer care with input from front line staff


Risk ReviewRisk Review helps us anticipate service delivery predictabilityHarvest blocker tickets and cluster

them based on cause.

Each cluster represents a known risk affecting tail of the lead time distribution

Assess the frequency & impact to prioritize risk reduction & mitigation activities


StrategyReview

RiskReview

Monthly


WeeklyQuarterly

StandupMeeting

Daily

OperationsReview

Monthly


Meeting

Weekly



2 Feedback Loops3 Meetings for Improved Service Delivery


Standup Meeting

Daily

Disciplined conduct and acts of leadership lead to improvement opportunities

Problem solving & improvement discussions are taken outside the meeting


Service Delivery Review

Weekly

A focused discussion about system capability

Usually in private (often 1-1) between a more senior manager and individual(s) responsible for the system operation

Review against fitness criteria metrics, e.g. current capability versus lead time SLA with 60 day, 85% on-time target

Discuss shortfalls against (customer) expectations

Analyze for assignable/special cause versus chance/common cause

Discuss options for risk mitigation & reduction or system design changes to improve observed capability against expectations


Operations Review

Monthly

Disciplined review of demand and capability for each kanban system

Provides system of systems view and understanding

Improvements suggested by attendees


Organizational Improvements Emerge


Forecasting


Lead Time & Weibull Distributions

Lead time histograms observed to be Weibull distributions typically with shape parameter 1.0 < k < 2.0

This example is a Weibull distribution with a scale parameter equal to 65 and shape parameter equal to 1.4

Outliers with known special causes at 87 & 105 are omitted from the “best fit” curve


Change

Req

ues

ts

SLA (customer expectation or fitness criteria)60 days

Use Lead Time Distribution to EvaluateService Delivery Effectiveness

22-150 dayspread of variation

85%on-time

15% lateDue DatePerformance(DDP)

Predictability


Forecasting methods

ESP relies on two types of forecasting approaches

Reference class forecasting

Monte Carlo simulation

Reference class forecasting requires an assumption of an equilibrium – the near future will reflect the continuing conditions of the recent past

We sample data from a period in the recent past and use it to forecast future behavior

The sample period is determined by evaluating the volatility in kanban system liquidity


Little’s Law provides simple but effective medium to long term forecasts

Delivery Rate(from the kanban system)

System Lead Time

WIP=

Little’s Law uses the mean lead time

Mean is strongly affected by the tail on the lead time

distribution

Change

Req

ues

ts

MeanTailMedian

Mode

Control the shape of the distribution by managing flow and avoid extending tail of

the distribution


Pull transactions measure kanban liquidity

Done

Poolof

Ideas

F

E

I

Engin-eeringReady

Deploy-mentReady

GD

2 ∞

No Pull

Ongoing

Development Testing

Done Verification Acceptance3 3

Work flows through a kanban system when we have well matched work order or items of WIP

with suitable staff to add valuable new knowledge and progress work to completion.

For work to flow freely in a kanban system, we must have work available to pull and suitably

matched workers available to pull it. Hence, the act of pulling is the indicator that an item of

work was matched to available workers and flow happened.


Can you tell which of these systems is more liquid?


System volatility can be measured as the derivative of pull transaction rate

We can compare volatility across systems and over-time within a

system by observing the derivative of the rate of pull transactions.

The derivative is robust to different sizes of system


Analysis of Derivative of Pulls

By understanding the bounds of volatility for a reference data set, we can monitor whether current conditions continue to reflect the recent past


Liquidity is a General Health Indicator Metric

Our measure of liquidity, as pull transaction volume and the spread of its

derivative, meets the criteria* for a useful metric…

SimpleSelf-generatingRelevantLeading Indicator

ObservedCapability

Liquidity is a global system measure.

Driving it up should not cause local optimization or undesired

consequences!

* Reinertsen, Managing the Design Factory 1997


Risk Profiling


Qualitative Taxonomies2 -> 6 categories

CheapFast

AccurateConsensus

Managed Risk

HeterogeneousExpensive

Time ConsumingFake Precision?

May still beHigh Risk

HomogenousCheapFastHigh Risk

A middle-ground in effective Risk Management


Market Payoff Taxonomy

Front-loaded – Most of the value is realized early in the lifespan of the product with a long residual tail

Payoff Function Shape

Bell curve – Most of the value is realized in the middle of the lifespan with slow initial uptake and a somewhat symmetrical tail off

Back-loaded – Initial take-up is slow with value realized close to a natural end-date in the product lifespan


Visualize Risks to provide Scheduling Information

TS

Market Risk

CR

Spoil

Diff

Lifecycle

Cost of Delay

Tech Risk

Delay Impact

NewMid

Cow

Expedite

FD

StdIntangible

ELE

Maj. Cap.

Disc

Unknown Soln

Known but not us Done it before

Commodity

Risk profile for a work item or project

Outside:Commit Early

Inside:Commit Late

Items with the same shape carry the same risks. They cannot be prioritized or sequenced. From a group of items with the same risk profile pick whichever

ones you like.

It is also wise to hedge risk by allocating capacity in the system for

items of different risk profiles.


Custom Profile Contains Narrative


Visualizing Risk


Visualize & Hedge Risks on the Board

Done

F

E

I

Engin-eeringReady

Deploy-mentReady

G

D

GY

PBMN

2 ∞

P1AB

Ongoing

Development Testing

Done Verification Acceptance3 3

Expedite 1

3

Fixed Date

Standard

Intangible

2

3DE

Use the rows on the board and the color of the tickets to visualize the two primary business risks from the risk profile. Other risks can be displayed on the tickets …


Visualize risks on tickets for service requests

Title

Checkboxes…risk 1risk 2risk 3risk 4

req

com

ple

te

Color of the ticket

Typically used to indicated technical or skillset risks

H

Decorators(Shape & Color)

(Letter)

SLA orTarget Date

Business risk visualization highlighted in green

Sometimes used to highlight technical

dependencies

Sometimes used to visualize legacy process artifacts

such as “priority”

Start dd/mm/yyyy

dd/mm/yyyyDue

End

Other

Dates

Age (days elapsed)

Sometimes used to record local cycle

time per work state


Scheduling


When should we start something?

impact

When we need it

85th

percentile

Ideal StartHere

Commitment point

timeJan10

Nov11

If we start too early, we forgo the option and opportunity to do

something else that may provide value.

If we start too late we risk incurring the cost of delay

If we pull the work into our kanbansystem on Nov 11 we have a 6 out

of 7 chance of on-time delivery


We can study sensitivity to different start dates

impact

When we need it

50th percentile

Later StartHere

Commitment point

timeJan10

Nov25

If we start as late as November 25 we only have a 50% chance of on-

time delivery

However, the cost of delay incurred if we deliver within 60 days is

relatively small. We have an 85% chance of achieving delivery with

acceptable cost of delay

85th percentile


What is the latest we could start?

impact

When we need it

0th percentile

Very latestart

Commitment point

timeJan10

Dec19

If we start as late as December 19 we have 0% chance of on-time

delivery

We have about a 10% chance of a total loss delivering the promotion

beyond the expiry date of the opportunity

85th percentile

total loss


To be certain of delivery without incurring any cost of delay is expensive

impac

t

When we need it

98th

percentile

Early Start

Commitment point

timeJan10

Aug11

If we are conservative and do not wish to carry any risk of late

delivery or any risk of incurring an opportunity cost of delay, then we must start as early as August 13th.

We must commit to our Spring Break 2015 promotion during

Summer 2014!!!


Window of opportunity

impac

t

When we need it

Earliest Start

timeJan10

Aug11

Latest viablestart

Dec19

Optimal Start

Nov11

On August 11st the item becomes available for selection at Kanban

system replenishment.

The ideal time to start is November 11th.

After December 19th our option to deliver this item expires and we would discard it from our pool.


Tools


We need tools!

Existing Kanban software products largely seek to replicate the function of a physical board

They don’t facilitate decision making during regular meetings

Enterprise Services Planning is easy to understand but laborious to implement• No one built a Gantt chart manually!

A new breed of tools will emerge offering ESP support


Tools will facilitate decision making

ESP software tools will facilitate the decision making to run the enterprise

Assist with risk assessment & hedging

Assist with capacity planning

Provide forecasts

Make recommendations based on known risk management policies

Facilitate regular cadence meetings such as Replenishment, SDR, & Ops Review


Manufacturing Kanban to MRP

1947 Kanban in manufacturing –Taiichi Ohno• Term “kanban” not adopted until

1964

1964 Manufacturing Requirements Planning – Joseph Orlicky• Book published in 1975

Kanban to MRP 17 years


Knowledge Work Kanban to ESP

2004 Kanban in knowledge work (IT services) introduction at Microsoft, Dragos Dumitriu & David J. Anderson• Book published in 2010

2015 Enterprise Services Planning• A new class of software tools which

implement the Modern Management Framework

• Book published ????

Kanban to ESP 11 years?


ESP – Anticipating Demand, Allocating CapacityDem

and

ObservedCapability

Dem

and

Dem

and

ObservedCapability

ObservedCapability

Looking downstream, you want the system to help you anticipate and

manage dependenciesLooking upstream, you want the system to help you anticipate and

manage demand

Combine the two, and across the organization you smooth flow end-to-end and help keep demand in balance withoverall system capability


Enterprise Services Planning“The Future of Kanban”

“Fit for Purpose” service delivery• Fitness criteria metrics & classes of service

Anticipate Demand• Comprehend WIP limits, staffing levels and

required liquidity levels

Shape Demand• Allocate capacity to hedge risk

• Bifurcate demand with risk policies

Scheduling, Sequencing & Selection• Intelligent recommendation engine utilizing

risk profiles & risk management policies

Intelligent Human Capital Development• Skills acquisition linked to system liquidity

• Determine real ROI for skills & experience investment


Thank you!


About

David Anderson is an innovator in management of 21st Century businesses that employ creative people who “think for a living” . He leads a training, consulting, publishing and event planning business dedicated to developing, promoting and implementing new management thinking & methods…

He has 30+ years experience in the high technology industry starting with computer games in the early 1980’s. He has led software organizations delivering superior productivity and quality using innovative methods at large companies such as Sprint and Motorola.

David defined Enterprise Services Planning and originated Kanban Method an adaptive approach to improved service delivery. His latest book, published in June 2012, is, Lessons in Agile Management – On the Road to Kanban.

David is Chairman of Lean Kanban Inc., a business operating globally, dedicated to providing quality training & events to bring Kanban and Enterprise Services Planning to businesses who employ those who must “think for a living.”


Labor pool liquidity is a concept adapted from the work of Chris Matts. Kanban system liquidity is a concept developed in collaboration with Raymond Keating, CME Group

Lead time & pull transaction data courtesy of CME Group

Risk profile courtesy of BazaarVoice

Acknowledgements


Leadership & Management

Enterprise Services Planning - Scaling the Benefits of Kanban