making the entire firm agile (& lean) - stevedenning · “maybe you mean the balanced...

Making

The Entire Firm

Agile (& Lean)

Steve Denning

Steve’s daily blog on Forbes

http://blogs.forbes.com/stevedenning/

http://blogs.forbes.com/stevedenning/

Video

Radical Management

Explaining the idea in sixty seconds

President, Ford Motor Company, 1960

Secretary of Defence, 1961-1968

President, World Bank, 1968-1981

Robert McNamara

“the smartest man I ever met”

John F. Kennedy

1978

http://upload.wikimedia.org/wikipedia/commons/1/10/Robert_McNamara_at_a_cabinet_meeting,_22_Nov_1967.jpg

1996: A knowledge

management

program was launched

1996-2000

2000: The World Bank

was benchmarked as a

leading knowledge

organizations

2000-2008 Teaching the Fortune 500

how to use

the power of

leadership storytelling Why

doesn’t it stick?

Why don’t

management

innovations stick?

(These are highly intelligent, educated people!)

In 2008, I began exploring:

Three principles

• The principle of disruptive innovation

• The principle of maximizing shareholder value

• The principle of customer delight

Good news and bad news

Quality

Time

X

Low quality

competitor

High profitability

Larger market

Why didn’t the incumbent respond?

“Low quality!” “Not serious!”

“Not our core customers!” “It’s low profitability”

1. The principle of disruptive innovation

Graph based on Clayton Christensen

Quality

Time

X

Low quality

competitor

High profitability

Larger market


• Oracle disrupted Cullinet

• Microsoft disrupted IBM

• DEC disrupted mainframes

• PCs disrupted DEC

• Laptops/tables disrupted PCs

• Mobile phones are disrupting laptops/PCs

• The Cloud is disrupting software

Quality

Time

X

Low quality

competitor

High profitability

Larger market


• Toyota disrupted General Motors

• Sony transistors disrupted RCA television

• Mini-steel mills disrupted integrated steel mills

• Digital cameras disrupted Kodak

• ASUSTek disrupted Dell

• Industry after industry: …

Always the

same unhappy

ending


Quality

Time

X

Disruptor

High profitability

Larger market

Why didn’t the incumbent respond?

“Not our core customers!”

“It’s low profitability”

The firm is acting rationally!

A very boring story!

Definition of insanity: doing the same thing over and over while expecting a different

result

There is a deeper reason why

in every case the firm didn’t

respond!

2. The principle of maximizing shareholder value

“The object of a firm is to

maximize shareholder value

i.e. make money”

• 1976: Mecklin & Jensen: “The theory of a firm”

• Most management textbooks & business schools

• Consulting firms

• Pervasive in the Fortune 500

And conferences like this!

Five interlocking & self-reinforcing elements

“Single fix” improvements don’t “stick”

Managers are controllers

of indivduals

Bureaucracy: rules, plans, reports

Top down commands

Efficiency, cost cutting

Make money for

shareholders

1. The purpose of a firm is to

produce outputs that make money

Five planks of traditional management

2. Managers act as controllers of

individuals


3. Work is coordinated by

bureaucracy


Rules

plans

reports

4. “The main value is efficiency”


5. Communicate by directives


Make money for

shareholders

Goal 2. The principle of maximizing shareholder value

The elements are interlocking


of indivduals


Top down commands


Role

Coordination Values

Communications

It kills innovation

Traditional management

systematically kills

disruptive innovation


Even successful innovation initiatives don’t last


of indivduals


Top down commands


R & D Department

Make money for

shareholders

Transactions, outputs 2. The principle of maximizing shareholder value

It kills lean manufacturing

“Only 1% of lean

initiatives meet their

goals.”

Jeffrey Liker


It kills marketing

25 ways in which traditional

management systematically

kills great marketing ideas


Within a few years, it had

been put on a back-burner

• BP

• Ernst & Young

• IBM

• HP

• World Bank

It kills knowledge management


Even the most

successful and

famous KM

initiatives didn’t

last

Traditional management

systematically kills

all the creative things

in organizations

• innovation

• lean manufacturing

• marketing

• knowledge management

• Agile software development


2001: Firms dying faster & faster

Source: Richard Foster Creative Destruction (2001)

2009: Conclusive proof of the

failure of traditional management

Deloitte’s Center for the Edge: The Shift Index:

Rate of return on assets and invested capital: US firms: 1965-2011

Declines are reflected in per capita GDP

http://blogs-images.forbes.com/stevedenning/files/2011/10/GDP-per-capita-growth.jpg

Traditional management also fails

in employee engagement

Source: Deloitte’s Center for the Edge: The Shift Index

Only 1 in 5

workers is fully

engaged in his

or her work

1. Director of Information Technology

2. Director of Sales and Marketing

3. Product Manager

The Three Most Hated Jobs in the USA

http://www.forbes.com/sites/stevedenning/2011/08/11/think-your-job-is-bad-try-one-of-these/

Even managers hate their own jobs!

Quality

Time

X

Disruptor


??? Clayton Christensen’s

graph is incomplete

3. The principle of customer delight

A different way of managing has emerged …

The conceptual error in principle #2

“Maximizing shareholder value is

the dumbest idea in the world.

Making money for the shareholders

is the result, not the goal.”

Jack Welch, 2009


The key to the future

“The only valid purpose of a

firm is to create a customer.”

Peter Drucker, 1973


Delighting customers


Delighting customers

Goal

From controller to enabler

From bureaucracy to Agile, Scrum, Kanban

From command to conversations

From value to values

Role

Coordination Values

Communications

The elements are interlocking

Transparency

Improvement

Sustainability


Customer delight

is not a new idea:

Ancient Romans

e.g. Vitruvius’s treatise on

architecture

1. NEW GOAL: delight the customers

from outputs to outcomes 1

Is “customer delight” a serious business proposition?

“Customer delight” = “Providing a continuous

stream of additional

value to customers and

delivering it sooner”



“joy” “enchantment” “happiness” “raving fans”



• Perfectly perform

the job that the

customer wants

performed



• “customer success”

• “customer trust in us”

• Net Promoter Score



i.e. from outputs to outcomes 1

The goal is: delighting the customer

• “Making money” is not the goal

• “Being agile” is not the goal.

• “Working software” is not the goal.

• “Motivated staff” is not the goal

• “Satisfying the stakeholders” is not the goal

• “Flow” is not the goal

• All these are means to achieving the goal.

• Everyone must focus on the goal



“Maybe you mean the balanced scorecard?”

Delight the

customer

Motivate the

employees

Make money for

firm

Protect the

environment

Improve product quality

Be a good citizen

“Surely, a firm has many goals?”



“Everyone must understand the bottom line”

Delight the

customer

Motivate the

employees

Make money for

firm

Protect the

environment

Improve product quality

Satisfy all the

stakeholders

“No! The firm has only one goal!”

These are means to achieving the goal

The new bottom line

21st Century 4 buttons

Simple

Easy to use

iPod

LESS

IS

MORE!

20th Century 54 buttons

Complicated

DVD

controller



Aim for the simplest thing!



Deliver it sooner !

In a bureaucracy,

large amounts of

work wait in

queues




“Customer delight”

is

measurable.

48




49

Net promoter score =

% (Promoters – detractors)

Detractors Promoters

F. Reichheld:

The Ultimate Question 2.0

page 63


1 Philips Electronics

Philips NPS

x Average NPS

for sector

100% 80% 60% 40% 20% 0% -20% -40% -60% -80% -100%

x x

x

x

x x

Where Philips is lagging

Where Philips is “average”

Where Philips is “relatively strong”

Range for

the sector

F. Reichheld:


page 63



Philips NPS

x Average NPS

for sector

100% 80% 60% 40% 20% 0% -20% -40% -60% -80% -100%

x x

x

x

x x




Range for

the sector

Philips is not generally

delighting its customers

Ten-year share price 2001-2011

Philips Electronics: a company in decline

F. Reichheld:




Philips NPS

x Average NPS

for sector

100% 80% 60% 40% 20% 0% -20% -40% -60% -80% -100%

x x

x

x

x x




The firms that are the absolute best”

Apple

USAA

Range for

the sector

Absolute leaders

in NPS

x

x

The best firms have NPS

around 90%

F. Reichheld:




Philips NPS

x Average NPS

for sector

100% 80% 60% 40% 20% 0% -20% -40% -60% -80% -100%

x x

x

x

x x




The firms that are the absolute best”

Apple

USAA

Range for

the sector

Absolute leaders

in NPS

x

x

The task ahead for Philips

Customer delight Costs come down of

their own accord!

A paradoxical discovery!



The economics will drive it …

This is why the shift is inexorable

…

1. New goal: “Delighting the customer” means ….

a different way of running the organization.

2. New role for managers

3. New coordination mechanisms

4. Shift from value to values

5. New way to communicate



2. Enable

self-organizing

teams

2. NEW MANAGER ROLE: from controller to enabler 2


Controller of

individuals Enabler of self-

organizing teams


Self-organizing teams

are a very old idea

Legal juries in England, 1166

A diverse group of citizens

was preferred over decision

by one or more “experts”


The Difference: How the Power of Diversity Creates Better

Groups, Firms, Schools, and Societies by Scott E. Page

Diversity

defeats

intelligence!

3. Dynamic

linking

3. COORDINATION: From bureaucracy to dynamic linking 3

3. COORDINATION OF WORK: Dynamic linking 3

Client

driven

Short

cycles

Bureaucracy:

Internal plans, targets, reports, meetings

Dynamic linking Clear line of sight to customer

Flow


Dynamic linking: work in short cycles—smooth flow

direct customer feedback

the customer is the boss

In software

Lean

Agile

Scrum

Kanban

Even “lumpy” work!

E.g. Toyota

Quadrant Homes

Naval radar system

Polaris submarines

Thousands of organizations

Combines disciplined execution

with team creativity


Progress is measured by direct client feedback

“Most changes make things

worse for the customer”

The case of

the missing

button

4. FROM VALUE TO VALUES: radical transparency 4

4. From value

to

values

4. FROM VALUE TO VALUES: radical transparency

Alan Mullaly CEO, Ford

4

“Just do it”

68

Get the product out

4. FROM VALUE TO VALUES: continuous improvement 4

The status quo is

never good enough

5. INTERACTIVE COMMUNICATON: conversation 5

5. From top-down

to

conversation


Commands

kill

motivation


Money

kills

inspiration

5. INTERACTIVE COMMUNICATON: conversation

Top-down commands

5

Peer-to-peer conversations

Individually, none of the shifts is new

WHAT’S NEW: doing all at once

Delight the

customer


From bureaucracy to dynamic linking

From command to conversations

Radical transparency

Goal

Role

Coordination Values

Communications

… an organization is at war with itself

Making

money for

shareholders

Top-down

commands

Agile

Lean

Kanban

Without all five shifts ….

From controller

to enabler

From bureaucracy

to dynamic linking Radical

transparency

Role

Values

Communications

“Once you introduce this, it affects

everything in the organization—the

way you plan, the way you manage,

the way you work.

Everything is different.

It changes the game radically.”

Mikkel Harbo

VP, Systematic Software (Denmark)

Delighting customers means systemic change

More than a new set of management tools!

“Implementing radical management

is like learning a new language.” It’s like: • “Up to now, we have spoken English. • From here on, we will speak in, say, δαβƍƢ.”

Why? I hate

it! *&^%*#@!

I’ll never learn it?

Why not stick to

what we know?

Bad idea!

20th Century thinking 21st Century thinking

R U

B I

C O

N


R U

B I

C O

N

“You take

what we

make!’

“We want

to help solve

your problems!”


R U

B I

C O

N

Producing

outputs

Generating

outcomes


R U

B I

C O

N

Manipulating

things

Interacting

with people


R U

B I

C O

N Make money

off the

customers

Add value

to the

customers


R U

B I

C O

N “Making

money is

the goal”

“Making

money is

the result”

“A sense of urgency”

“Shared value”

20th Century thinking 21st Century thinking “Partial fixes” “New paradigm”

“New ecosystem”

R U

B I

C O

N Delight

the customer


From bureaucracy to dynamic linking

From command to

conversations

Radical transparen

cy

Goal

Role

Coordination Values

Communications

The transition is inevitable

Two- to four-times

gains in

productivity

Economics will drive the change!

These are not little differences…

It won’t happen easily

Lean Manufacturing

The world’s best plant

Ford’s Hermosillo plant

in Mexico

1990s: Ford’s Romeo plant

in Michigan

2006: The new CEO,

Allan Mullaly, embraces it

Firms may prefer to die than to change

“A new scientific truth does not

triumph by convincing its

opponents and making them see

the light, but rather because its

opponents eventually die, and a

new generation grows up that is

familiar with it.”

Nobel laureate Max Planck

Change is inevitable…

The economics will drive it …

Lead the revolution!

• Be the strategy (not support the strategy)

• Master leadership storytelling

• Educate your bosses: what management is about

• Join with others

• Take charge of your future

The opportunity for Scrum and Agile

“Your time is limited: don’t waste it living someone else’s life.”

Steve Jobs

The real voyage of

discovery consists not in

seeking new landscapes,

but in having new eyes.

Marcel Proust

Webinar with Joe Justice, CEO of Wikispeed

A 100 mpg gallon car developed in 3 months • No resources • No manufacturing experience

Webinar: Don't miss "Making Your Organization Agile" a monthly mashup with Peter Stevens and Joe Justice, CEO of Wikispeed on Thursday May 17 at noon ET. Register at http://t.co/o1iPOKQ4

http://t.co/o1iPOKQ4



making the entire firm agile (& lean) - stevedenning · “maybe you mean the balanced...

Documents