Lean & Agile not only in IT…

At the end of 2012 I was invited to speak at Agile in Business conference… The conference closed with a panel discussion, and leader started by mentioning that for two days we’ve been listening about agile adoptions in IT, by such organizations as Allegro Group (mostly known for Polish internet auctions) and Gemius (internet audience research). These companies are built around software, he said, so let’s finally talk about Agile in business… A few moments later someone from the audience asked if there are any adoption examples in real companies, in banking or automotive industry… What about Toyota? I thought… What about investment banking? (mentioned often at lean agile conferences) I thought… And last but not least – what’s the difference between allegro.pl (built around core auctioning system) and any bank (built around banking system)? In my opinion most “business” organizations in XXI century are built around some core software system. Of course – software is not everything – but similarly, companies like Allegro Group, Gemius or Onet.pl are not all about software and programming…

Broken Computer

I decided to gather and share real life examples from around the world of organizations that are not strictly IT, which used agile or lean. And after a year I had a pleasure to be invited again to speak at Agile Management 2013. I tried to look at lean & agile world from different perspectives…

Agile Product Development

One of different faces of Agile, the one that deserves to be mentioned first, is Agile Product Development. In this category we have (overly discussed) topics of agile methods, like Scrum or Extreme Programming. These are the methods of organizing daily work of teams creating new products. These methods joined the mainstream some time ago, but at the same time they focus on team operations, which is not the primary point of interest for executives and senior management. But anyway, there’s one example to be mentioned…

Wikispeed

An example of a non-IT endeavor using Scrum on a daily basis is Wikispeed, an organization aiming at building a highly efficient sports car that will be using under 1,5 l per 100 km (or as the Americans say – going over 100 miles per gallon). Wikispeed is building another prototype of the car in weekly iterations, each of them delivering a working and improved car. The cycle time of the team (time from a new idea for improvement until “working and driving”) is one week, compared to a few years in the traditional automotive companies (ex. in Porsche it’s three years). The Wikispeed car is road-legal and it achieved a five-star equivalency rating for front-, side-, and rear-impact tests. And it’s kinda fast 🙂. You can find more about Wikispeed in one of many Joe Justice talks (the founder), you can start here: http://www.youtube.com/watch?v=pjempylJy1w.

Lean

The second area of the Agile body of knowledge 🙂 (some will argue that Lean was first – but I don’t want to get into a discussion about naming and precedence, what’s important is the idea) is processes improvement in an organization – with many techniques described as Lean. The story starts with Lean Manufacturing in Toyota, then, years later, the idea of waste elimination in software projects was described in Lean Software Development, and eventually the methods for business process visualization and improvement (ie. value stream mapping) are used in many other areas of management. The key concept of Lean is based on measuring and optimizing the cycle time – the time it takes a piece of work to go through its value stream. The shorter the time the more flexible we are in reacting to market.

Maersk

One example of a company that adopted Kanban (the most popular Lean method these days) in its software department is Maersk Line – the largest container shipping company in the world. Maersk is an example of a company with its core business having nothing to do with software, yet – as in so many enterprises in the 21st century – the software is the heart of the whole organization. Maersk improved the cycle time for two pilot projects by at least 50% (208 days reduced to 104 in one project, and 168 days reduced to 60 in the other). The average for the whole company before the Kanban implementation was 150 days and in a year after the adoption it was reduced to 90 days. Other KPIs were improved as well – number of defects was reduced by 88%, and delays – by 80%. ROI improved greatly from around 4$ to over 26$ per 1$ invested (for the core product). At the same time the effectiveness of the teams was improved (not expected but nice side effect of eliminating waste) – the average cost to implement a feature was reduced by 9%. More about Lean and Agile in Maersk Line is available in slides from Ozlem Yuce presentation – she’s responsible for agile adoption in the organization: http://www.slideshare.net/OzlemYuce/ozlem-yuce-less-131112.

Stoos Network

The third part of agile world is focusing on the organization as a whole. Two years ago 21 people founded a network for spreading ideas focusing on modern management techniques – The Stoos Network. Stoosians share a view that management as most of us do it now is not enough for the challenges of XXI century. One cannot disagree that management as we know it today was an invention as many others. The foundations of the management were created by Taylor at the turn of the 20th century… Another invention of this era is a phone. And I believe it’s obvious for everyone that since then telecommunication and phones underwent several revolutions. Yet, when we think about management – we still try to manage organizations as if we were in the industrial revolution era… An extremely important part of necessary revolution in management that I have in mind is the question of organization culture and relations with employees. In the 19th century employees that needed to be managed were mostly unqualified blue collar workers. Douglas McGregor coined the Theory X and Theory Y (http://en.wikipedia.org/wiki/Theory_X_and_Theory_Y) in the ’60s and that’s already a while. The companies focusing on commanding and controlling its employees (according to the Theory X) are growing bureaucracy and procedures, which often drive away the most talented people. I am absolutely sure that one of the greatest threats for all companies these days is the risk of loosing key staff and problems with drawing in talents. One great (and thus often quoted) talk about revolution in management was given by Gary Hamel: http://www.youtube.com/watch?v=K3-_IY66tpI.

Statoil, Handelsbanken

Modern management questions many of the old practices, which after some thinking often turn out to introduce more dysfunctions than they actually address. One such practice is annual budgeting. I think that anybody who at least once had been affected by budgeting or tried to move resources between budgets doesn’t need an explanation of many issues caused by budgeting. There are many people believing that the cost of these issues is too high to compensate any benefits that budgets are hoped to bring. Some organizations dropped annual budgeting completely, ex. Statoil in Norway or Handelsbanken in Sweden. The concept of managing without budgets has been described in Beyond Budgeting, often presented by Bjarte Bogsnes (vice president of Statoil). Beyond Budgeting is not limited to dropping budgets, though it’s one of its cornerstones. Check out more about that in Bjarte’s lecture here: http://www.youtube.com/watch?v=Ed1g_Crw6v8.

World Bank

Another large organization, with its representative active in the Stoos movement, is World Bank. Steve Denning, who for ten years has been a senior director there, described his ideas in a book Radical Management. His main point is that management needs a radical change, and is very explicit in his inspirations coming from agile software development methods such as Scrum. In my presentation I mentioned a discussion held recently at the Agile Warsaw monthly meeting, which has been recorded and soon will be available at the AW YouTube channel (though the discussion was in Polish): http://youtube.com/agilewarsaw.

Thogus Products

Many (if not most) of enterprises are nowadays facing the risk of loosing their market share. By loosing I mean commoditization of core products or services. The closest for us in TouK telco market is a perfect example of this situation – telco operators for years were like gooses laying golden eggs – the service was brand new, the product was innovative. Nowadays it is obvious to everyone that the role of telcos is slowly being reduced (not only in Poland) to data transmission. And all telcos are looking for any idea to somehow get some added value for their customers – so far without any great success… A similar situation was faced by Thogus Products, a founded in US in the late ’50s family business dealing with plastic injection molding. After 40 years of stable growth, when the crisis of 2000s was starting, the president came to realize that the market gets smaller and smaller, the margins go down, the pressure from Asia is increasing so despite a stable financial situation the only future for Thogus is changing its core service and moving away from manufacturing and becoming an innovative technology business. To make it happen he had to lay off 50% of the crew, he had to find out who was really passionate about building an organization fit for 21st century. And despite the reduction of staff the company managed to double it’s income. More of this story you can find in an interview with the president and owner Matt Hlavin: http://www.youtube.com/watch?v=-XxlAn7N2Ts.

Zappos

Finally Zappos, an online store selling shoes and a company doing so many management innovations. I wanted to use their example to show that many organizations turned their operations upside down. In this case I mean call centres and customer service in general. Enterprises are spending millions of dollars these days to create new products, for marketing and for sales. Very often they have no direct relation with their end users or customers. This relation gets direct at one moment – when a customer calls with a problem. And too often in organizations their call centres are “cost departments”, which operations need to be optimized. Too often customer service is outsourced (often in western companies – outsourced to Asia). Too often the effectiveness metrics in a call centre are percentage of time on the line and time to close an issue. Too often the work in a call centre is scripted or automated… Let’s be fair – we all know it, we all are being called by scripted sales people…

Zappos turned their customer service upside down (or I would rather say – upside up). After a two-week training (which by the way is mandatory for all employees no matter the title and role) call centre operators are getting their desk, their phone, no script and one job – solve the problem of the calling customer. And one metric – the number of happy customers. No surprise Zappos is known for being “powered by service”. About customer service, or as they call it about customer experience, in Zappos you can hear in this talk: http://www.youtube.com/watch?v=UOQb1WyvG5A.

Lean Startup

Last area of Agile world is its youngest member – Lean Startup (even though it’s root goes back to Customer Development method from the ’90s). In my opinion the key element (that Eric Ries and Steve Blank are talking about) is the definition of the startup itself. When we are thinking about a startup we intuitively see a small, starting company, two teenagers in a garage, starving for food and building some new revolutionary product or website. The authors of Lean Startup go away from this concept. They say that a startup is any organization or a part of it, which operates in a highly unpredictable environment (in terms of finance, technology or else) that has one goal – to find a working and repeatable business model (mainly customers willing to pay for a given product or service). Established enterprises starting projects that are developing new products perfectly fit into this definition. They tend to have one advantage – they are more or less backed up financially. Personally I believe that we should go even farther. My hypothesis is that most of today enterprises needs innovative and market changing products…

IMVO

A good example of Lean Startup ideas and why a typical way of starting a company is often destined to fail (success rate under 10%) shows IMVO, started in the early 2000s by Eric Ries. I don’t want to copy the story, let me just say that IMVO for half a year was working on version 1.0 of their product, when, after the first customer focus group, it turned out that no one is going to use the product that is working this way. Most of the work had to be thrown away. The only thing left was the knowledge that users won’t use this software. Ries started to think if it was possible to get the same knowledge faster and cheaper. And he came to a conclusion that even one day of work would be enough, they just had to create a single webpage describing all the benefits of the product with a single download button. This button didn’t have to work, because as it turned out, the users were not interested in such product. The knowledge gathered would be the same. Effort required – at least hundred times lower. That conclusion became the core concept in the Lean Startup. The beginning of any product or new service (similarly in a startup or established enterprise) is only about finding a working business model, that is (simplifying a bit) finding customers. At the same time the budget of such project should not be used to develop as many features in a product as possible or the best quality. It should be used to do as many experiments and as many updates to the business model (in Lean Startup updating the business model is called Pivoting).

More about Lean Startup can be found in one of many Eric Ries talks, like the one here: http://www.youtube.com/watch?v=fEvKo90qBns.
Regarding Steve Blank (Eric’s mentor) I recommend watching an interview with him in Commonwealth Club here: http://www.youtube.com/watch?v=1RTcXwJuCaU.

Summary

Many enterprises (at least in Poland) treat Agile suspiciously. Executives and senior management do not see any of the problems that Lean and Agile are trying to address. Often the attempts to use a method like Scrum are treated as trying to move the risk by the IT department to business department, or worse, by a vendor to a customer. The paradox here is that Agile is completely about something else. In the traditional project contracts the risk is taken by a vendor only in theory. Eventually the responsibility for the right delivery of wrong products is only on the business. The responsibility for employees leaving the company and problems with attracting new talents is only on the business. The responsibility for fat and wasteful business processes is only on the business. I personally believe that the common denominator in all methods and practices found in the extremely large in 2013 Agile world is common sense and not accepting absurdities. Unfortunately common sense is not that common and enterprises are full of absurdities. I believe it is ridiculous to continue a project that is commonly believed not to deliver the expected business goals and to close such a project celebrating success. I believe it is ridiculous to accept and do nothing about conflicts between different divisions in a company (and even let it happen). Agile in its wide interpretation is a loud objection against (gu)estimations, feasibility studies and reports in Excel (Excel can be used to prove any initiative to be worth doing and to be successful despite the reality). Being agile means accepting the reality even if it is hard and unpleasant. Being agile means being loyal to the truth. Being agile means accepting the fact that we know few things about the market, the business and the future and not lying to ourselves that our plan is right at the beginning. We know the plan will have to adapt, we only don’t know when and how much. I personally believe that adopting agile for enterprises is not an extravagance or an experiment, it’s the way for the enterprises to survive in the long run.

If nothing happens — Check printer
Daniel Rehn
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