Lean Enterprise: How High Performance Organizations Innovate at Scale (Lean (O'Reilly))

by Jez Humble

The business world is moving from treating IT as a utility that improves internal operations to using rapid software- and technology-powered innovation cycles as a competitive advantage. This has far-reaching consequences.

The purpose of an organization is to enable ordinary human beings to do extraordinary things. Peter Drucker

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Creating, updating, and communicating the company’s purpose is the responsibility of the enterprise’s executives.

If leaders do a good job, the organization will be able to adapt, to discover and meet the changing customer needs, and to remain resilient to unexpected events. This is the essence of good governance.

creating a high-trust culture in which everybody is aligned in their goal of building a high-quality product on demand and where workers and managers collaborate across functions to constantly improve — and sometimes radically redesign — the system.

Giving people pride in their work rather than trying to motivate them with carrots and sticks is an essential element of a high-performance culture.

The key to creating a lean enterprise is to enable those doing the work to solve their customers’ problems in a way that is aligned with the strategy of the wider organization.

Budgeting and financial management Instead of a traditional budgeting process which requires all spending for the next year to be planned and locked down based on detailed projections and business plans, we set out high-level objectives across multiple perspectives such as people, organization, operations, market, and finance that are reviewed regularly. This kind of exercise can be used at multiple levels, with resources allocated dynamically when needed and the indicators reviewed on a regular basis.

the flexibility provided by software can, when correctly leveraged, accelerate the innovation cycle. Software can provide your enterprise with a competitive advantage by enabling you to search for new opportunities and execute validated opportunities faster than the competition.

Dear Eric, thank you for your service to this company. Unfortunately, the job you have been doing is no longer available, and the company you used to work for no longer exists. However, we are pleased to offer you a new job at an entirely new company, that happens to contain all the same people as before. This new job began months ago, and you are already failing at it. Luckily, all the strategies you’ve developed that made you successful at the old company are entirely obsolete. Best of luck!

The value hypothesis asks whether our business actually provides value for users by solving a real problem.

In the Lean Startup methodology, we take a systematic approach by working through this process iteratively. We start by working out what we need to learn by creating a value hypothesis. We then decide what to measure in order to test that hypothesis. We then design an experiment, called the minimum viable product, which we build in order to gather the necessary data from real customers to determine if we have a product/market fit.

The trick is to invest a minimum of work to go through this cycle. Since we are operating in conditions of extreme uncertainty, we expect that our value hypothesis will be incorrect. At this point we pivot, coming up with a new value hypothesis based on what we learned, and go through the process again.

We keep doing this until we either achieve a product/market fit, decide to stop experimen...

Limiting initial investment and creating resource scarcity is essential to managing the risk of innovation. Given that most innovative ideas we have will not succeed, we must come up with simple, quick experiments to eliminate bad ideas rapidly and cheaply.

Whenever you hear of a new IT project starting up with a large budget, teams of tens or hundreds of people, and a timeline of many months before something actually gets shipped, you can expect the project will go over time and budget and not deliver the expected value.

Organizations tend to start new projects with large teams both because they assume (wrongly) that this will help finish sooner and because they use processes, such as annual budgeting cycles, that stimulate land grabs for favored projects and resources.

Many enterprises try to roll out new methodologies, practices, processes, and tools across the entire organization in one go, ignoring the fact that people respond to such innovations in different ways and that there is no one-size-fits-all approach to adoption. It is common to see this kind of “big bang” approach fail to achieve expected results, or be quietly abandoned to give way to another new initiative attempting to address the failings of the last.

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kaizen

A project typically requires a business case to be written to gain a budget allocation, which in turn leads to a large amount of upfront planning, design, and analysis. The various departments must then coordinate the work and execute the plan. Success of a project is measured by completing the original plan on time and budget. Sadly, however, whether the project “succeeds” according to these criteria is irrelevant and insignificant when compared to whether we actually created value for customers and for our organization.

Ensure people are rewarded for favoring a long-view system-level perspective over pursuing short-term functional goals.

The key to managing an enterprise business portfolio, as with any financial investment, is to use an economic model. However, this is not a widespread practice.

How to Measure Anything, Hubbard

The way the world tells you whether what you are doing is valuable is whether they send you money. Donald Reinertsen

When there is a large amount of uncertainty in the key metric we care about, we begin by identifying the variables with the highest information value — the riskiest assumptions.

How to Measure Anything

maneuver warfare. “Disruption”

The key to being successful with these cycles (and the scientific method in general) is to use them systematically and continuously. Applying them systematically means using them as a general tool to explore all types of risk, ensuring that the expense of running an experiment is commensurate with the value of the information we will discover.

Our purpose is to base further investment and portfolio management decisions on evidence, not science fiction.

When forming a team, it is key to keep the group small, including only the competencies required to explore the problem domain. Large teams are ill-equipped for rapid exploration and cannot learn at the speed required to be successful. The group must know their limitations and boundaries, taking responsibility to reach out and engage others outside the group for input and collaboration when appropriate.

Through the feedback they provide, customers and users are co-creators of value for any solution.

Divergent thinking is the ability to offer different, unique, or variant ideas adherent to one theme; convergent thinking is the ability to identify a potential solution for a given problem. We start exploration with divergent thinking exercises designed to generate multiple ideas for discussion and debate. We then use convergent thinking to identify a possible solution to the problem.

A business plan is the execution document that existing

companies write when planning product-line extensions where customer, market, and product features are known.

The plan is an operating document and describes the execution strategy for ad...

The result of a business is a satisfied customer. Peter Drucker

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They are essentially collections of assumptions that must be tested and refined throughout our customer development process.

This is a powerful technique to remove decision bias from our prioritization process and enable data-driven decisions.

Big data is a tool, not a solution.

By offering a taste of the solution we are aiming to build, we give them evidence that it works and provide an opportunity for feedback on the solution we are building.

Starting with the question of what we want to learn from the experiment, we can define how we will observe and measure it, and finally create the cheapest, quickest, and simplest MVP to test our assumptions, measure the effect, and use that learning to formulate next steps.

OMTM is a single metric that we prioritize as the most important to drive decisions depending on the stage of our product lifecycle and our business model. It is not a single measure that we will use throughout our product lifetime: it will change over time depending on the problem area we wish to address.

Use A3 Thinking as a Systematic Method for Realizing Improvement Opportunities

Root-cause analysis Detail the hypothesis and assumptions, or a set of experiments performed to test for cause and effect.

Understanding A3 Thinking: A Critical Component of Toyota’s PDCA Management System by Durward K. Sobek II and Art Smalley.

Other examples include the elevator pitch18 and the Five Ws and One H (Who, What, Where, When, Why, and How).