Enterprise Services Planning - Scaling the Benefits of Kanban

dja@leankanban.com @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
Madrid
LeanKanban Southern
Europe
21 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
Everything
Takes
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 have
capacity to do
everything we
need to do?

How will
dependencies
affect our ability
to deliver?
How many
activities should
we 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

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.

The goal of Enterprise Services Planning
The goal of
is to achieve flow
across the organization.
ESP encourages
improved service delivery,
better customer satisfaction
and a business that is
"fit for purpose”.

Definition of

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

Step 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

Step 2: Kanban the Services
Use STATIK (Systems Thinking Approach to Introducing
Kanban) for each identified service
1. 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

Step 3: Responsive Feedback Loops
Strategy
Review
Risk
Review
Monthly
Service
Delivery
Review
WeeklyQuarterly
Standup
Meeting
Daily
Operations
Review
Monthly
Replenishment/
Commitment
Meeting
Weekly
Delivery
Planning
Meeting
Per delivery cadence
change change
change
change
change
change
change
change
change
info
info
info
info
info
info info
info
info
change info

6 Planning Activities
ESP activities
1. 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

Achieve “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)

Fit 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 Indicators
drive 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
Evolving
Process
Roll
forward
Roll
back
Initial
Service Delivery
Process
Future process is
emergent
Evaluate
Fitness
Evaluate
Fitness
Evaluate
Fitness
Evaluate
Fitness
Evalua
Fitnes
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
Strategy
Review
Risk
Review
Monthly
Service
Delivery
Review
WeeklyQuarterly
Standup
Meeting
Daily
Operations
Review
Monthly
Replenishment/
Commitment
Meeting
Weekly
Delivery
Planning
Meeting

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 Review
Risk Review helps us
anticipate service
delivery predictability
Harvest 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

Strategy
Review
Risk
Review
Monthly
Service
Delivery
Review
WeeklyQuarterly
Standup
Meeting
Daily
Operations
Review
Monthly
Replenishment/
Commitment
Meeting
Weekly
Delivery
Planning
Meeting
2 Feedback Loops
3 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

ChangeRequests
SLA (customer expectation or fitness criteria)
60 days
Use Lead Time Distribution to Evaluate
Service Delivery Effectiveness
22-150 day
spread of variation
85%
on-time
15% late
Due Date
Performance
(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
ChangeRequests
Mean
TailMedian
Mode
Control the shape of the distribution by
managing flow and avoid extending tail of
the distribution

Pull transactions measure kanban liquidity
Done
Pool
of
Ideas
F
E
I
Engin-
eering
Ready
Deploy-
ment
Ready
G
D
2 ∞
No Pull
Ongoing
Development Testing
Done Verification Acceptance
3 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…
Simple
Self-generating
Relevant
Leading Indicator
Observed
Capability
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 Taxonomies
2 -> 6 categories
Cheap
Fast
Accurate
Consensus
Managed Risk
Heterogeneous
Expensive
Time Consuming
Fake Precision?
May still be
High Risk
Homogenous
Cheap
Fast
High 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
New
Mid
Cow
Expedite
FD
Std
Intangible
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-
eering
Ready
Deploy-
ment
Ready
G
D
GY
PB
MN
2 ∞
P1
AB
Ongoing
Development Testing
Done Verification Acceptance
3 3
Expedite 1
3
Fixed
Date
Standard
Intangible
2
3
DE
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 1
risk 2
risk 3
risk 4
req
complete
Color of the ticket
Typically used
to indicated
technical or
skillset risks
H
Decorators
(Shape & Color)
(Letter)
SLA or
Target 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 Start
Here
Commitment point
timeJan
10
Nov
11
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 kanban
system 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 Start
Here
Commitment point
timeJan
10
Nov
25
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 late
start
Commitment point
timeJan
10
Dec
19
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
impact
When we
need it
98th
percentile
Early Start
Commitment point
timeJan
10
Aug
11
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
impact
When we
need it
Earliest Start
timeJan
10
Aug
11
Latest
viable
start
Dec
19
Optimal Start
Nov
11
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 Capacity
Demand
Observed
Capability
Demand
Demand
Observed
Capability
Observed
Capability
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 with
overall system capability

“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

Enterprise Services Planning - Scaling the Benefits of Kanban

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