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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
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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
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What is a professional services business?
An ecosystem of professionals providing interdependent services, often with complex dependencies.
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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?
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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
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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
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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
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What should we start next?
Will it be delivered when
we need it?
Do we havecapacity to do everything we need to do?
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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?
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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
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Enterprise Services Planning
*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.
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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”.
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Definition ofEnterprise Services Planning
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Enterprise 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
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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
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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
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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
info
info info
info
info
change info
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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
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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)
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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.
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Key Performance Indicatorsdrive continuous evolution
in service delivery
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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
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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!
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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”
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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!
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Kanban Cadences
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10 Feedback Loops, 7 Meetings with a regular cadence
StrategyReview
RiskReview
Monthly
ServiceDeliveryReview
WeeklyQuarterly
StandupMeeting
Daily
OperationsReview
Monthly
Replenishment/Commitment
Meeting
Weekly
DeliveryPlanningMeeting
Per delivery cadence
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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
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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
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StrategyReview
RiskReview
Monthly
ServiceDeliveryReview
WeeklyQuarterly
StandupMeeting
Daily
OperationsReview
Monthly
Replenishment/Commitment
Meeting
Weekly
DeliveryPlanningMeeting
Per delivery cadence
2 Feedback Loops3 Meetings for Improved Service Delivery
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Standup Meeting
Daily
Disciplined conduct and acts of leadership lead to improvement opportunities
Problem solving & improvement discussions are taken outside the meeting
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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
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Operations Review
Monthly
Disciplined review of demand and capability for each kanban system
Provides system of systems view and understanding
Improvements suggested by attendees
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Organizational Improvements Emerge
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Forecasting
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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
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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
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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
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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
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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.
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Can you tell which of these systems is more liquid?
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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
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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
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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
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Risk Profiling
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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
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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
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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.
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Custom Profile Contains Narrative
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Visualizing Risk
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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 …
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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
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Scheduling
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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
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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
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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
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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!!!
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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.
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Tools
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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
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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
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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
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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?
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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
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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
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Thank you!
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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.”
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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
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