The Return on Investment of Kanban

Presented by Martin Aziz at Kanban Global Summit 2022.

Have you ever been asked for a business case for implementing Kanban in your organization? This talk looks at both sides of the equation: what business gains you should expect in the short, medium and long term. As well as the optimal implementation strategy for kanbanizing your organization. By attending you’ll understand how Kanban can net your organization large and sustained returns while keeping investment levels much lower than a typical agile transformation.

Transcript

1. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth THE RETURN ON Investment OF KANBAN SquirrelNorth MARTIN AZIZ martin@squirrelnorth.com CONSULTING | COACHING | TRAINING
2. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth “They want to see a business case before we can proceed!”
3. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth = Return on Investment BENEFIT Cost Big number Small number x 100 BIG GAINS MODEST INVESTMENT Organizations focus too much attention on the denominator. The numerator is where the real action is!
4. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth Early & Ongoing Improvements. Prevents Plateaus. Prevents regression. Manages risk. KANBAN Time Performance Ongoing Improvement vs Plateau Early Performance Improvements Performance Drop Business Risk Disruptive Change Introduced Baseline Performance Standard Change Model
5. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth Kanban implementations alongside an organization going through improvements to its maturity. K MATURITY MODEL ANBAN
6. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth No shortcuts. Without adequate expertise support, frequently plateaus Organizational maturity
7. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth The Return on Investment V E R Y E A R LY R E T U R N S s q u i r r e l n o r t h . c o m SquirrelNorth Let’s explore the ROI at this level.
8. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth RETURNS OVERHEAD
9. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth VISIBILITY FOCUS & OVERBURDENING Visibility on how busy everyone is. Increased focus of reducing concurrent work has the opportunity to avoid overloading people. Focus reduces unproductive and expensive overtime, and allows quality levels to be better managed. Individuals are less overburdened.
10. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth Increased collaboration on a team The visibility made available by a board offers the opportunity for increased collaboration between people. People can converge around the board, see who needs help and increase the chances of collaborative opportunities. Collaboration to keep work that needs to progress flowing.
11. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth Outlook Blues!
12. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth HIDDEN IMPACT OF Overburdening LACK OF FOCUS “It’s time for another status meeting!”
13. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth COORDINATION COSTS UNDER CONTROL Coordination Costs 20% Front End Transaction Costs 15% Back End Transaction Costs 15% Value Add 15% Failure Demand 35% Higher Concurrent Work Reduced Concurrent Work All Work – 100% Coordination Costs 10% Value Add 40% Failure Demand 30% Front End Transaction Costs 10% Back End Transaction Costs 10% All Work – 100% The “coordination costs” of the organization is drastically reduced. 50% reduction in the cost to operate those areas using Kanban in under 6 months! Knowledge work has reverse economies of scale.
14. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth ROI LOW MATURITY KANBAN 50% overhead reduction with ML1 Kanban. What does that look like modeled against a department with a $20M operating budget?
15. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth ROILOW MATURITY KANBAN * Fixed assumptions: Department budget remains at $20M, a 10% profit margin, using lowest return numbers.in range. 12 Coordination Costs from 20% to 10% - $0.5M 1 2.5 $ MIN 18 MONTHS 0 % 0 OPERATING COSTS PORTION OF RETURN 6 18 Months Coordination Costs from 20% to 10% - $2M
16. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth The Return on Investment E A R LY R E T U R N S s q u i r r e l n o r t h . c o m SquirrelNorth Let’s explore the ROI at this level.
17. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth RETURNS FLOW
18. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth COLLABORATION IN-PROCESS SUPPORT SITUATION One team’s “blocked” is another team’s “to do”! One team’s “done” is another team’s “to do”!
19. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth AGGREGATED TEAM KANBAN We can visualize connected teams through a board design pattern called Aggregated Team Kanban. Teams have the ability to observe how their work impacts the other team and provide the opportunity to make adjustments to their process.
20. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth COLLABORATION BETWEEN TEAMS This aggregated view allows for the possibility of collaborating across teams. This has the impact of two or more teams operating more as if they were one unit. Faster Process Slower Process Team 1 may overloading Team 2 is visualized. This unevenness of the flow, once visualized gives the opportunity to manage it.
21. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth BENEFITS FLOW BETWEEN TEAMS Throughput Increase Fewer items getting stuck, the volume of work reaching a “done” state begins to increase. Up to doubling of throughput. Reduced Time to Market With the reduction of delays, the length of time work takes to get to done improves Lead Time. Lead time reduction reduced between 10% to 50%. Increased Customer Satisfaction Providing a faster service means a fitter one. Affects customer’s selection choices in a positive way.
22. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth ROIFLOW BETWEEN TEAMS * Fixed assumptions: Department budget remains at $20M, a 10% profit margin, using lowest return numbers.in range. 12 Months Coordination Costs ML1 20% to 10% - $2M to $2.5M Throughput 1.5X to 2X - $1M to $2M Lead Time 10% to 50% - $0.2M to $1M 18 Months 5 % 6 COSTS 3.2 $ MIN 18 MONTHS 5 % 3 GROWTH
23. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth The Return on Investment M O R E R E T U R N S s q u i r r e l n o r t h . c o m SquirrelNorth Let’s explore the ROI at this level.
24. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth RETURNS VALUE
25. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth SERVICES ENTER THE CUSTOMER Customer I got it! Customer I need this! THE SERVICE
26. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth SERVICES IMPLICATIONS Customers don’t care if a specific team is highly productive. They experience the network of collaborating services. Even if you consider yourself a 'product company', it is the output of services that produce, maintain and deliver those products. Your organization is composed of a network of these services. 3 1 2
27. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth SERVICES IMPROVING SERVICE FLOW Is improving services as simple as ensuring the flow of services from start to finish? Reality is usually more complicated. Services tend to navigate complex networks. FLOW OF VALUE
28. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth SERVICES KANBAN TOOLS FOR SEVICES Adding to the challenge is demand continues to outstrip our capability. DEMAND CAPABILITY CUSTOMER NEEDS GROWING GROWING & ADAPTING AT A SLOWER RATE
29. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth SERVICES KANBAN TOOLS FOR SEVICES We look at managing both sides to achieve greater balance. Over 150+ practices exist to support these two goals. DEMAND SHAPING CAPABILITY IMPROVEMENT Cost of Delay Classes of Service Deferred Commitment Board Design Capacity Allocation Upstream Options …150 Identify and Manage Delay Manage Lead Time Manage Variation Bottleneck Handling Decoupled Delivery Cadences Feedback Loops …150 DOWNSTREAM DELIVERY BOTTLENECK SELECTION CRITERIA COMMITMENT POINT
30. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth SERVICES FITTER SERVICES Kanban experiences its highest impact, along with the economic results, when we recognize and attempt to manage services for value. Customers who are getting what they need in a timely manner, among other fitness criteria, are ones that will choose you more often.
31. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth BENEFITS SERVICE ORIENTATION Less Abandonment, More value delivered. We choose the right options. We don’t waste time and resources on the wrong things. Reduced Time to Market Most delays are encountered between groups – these are now managed. Lead time improvements within a range of 50 to 90%. Throughput of value Increase Unfinished work isn't spending a lot of time waiting in the wrong places. Throughput can more than double. More Consistency The management of delays between groups reduces sources of variability. Your outcomes become more consistent, easier to predict and promises are kept.
32. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth ROIservice orientation * Fixed assumptions: Department budget remains at $20M, a 10% profit margin, using lowest return numbers.in range. 12 Coordination Costs ML1 20% to 10% - $3M to $3.5M ML2 Throughput - $1M to $2M ML2 Lead Time - $0.2M to $1M 18 5 % 6 COSTS 8.2 $ MIN 24 MONTHS 5 % 3 GROWTH 24 Months Lead Time Improvement 50 to 90% $1M to $1.5M Throughput 2X to 2.5X - $3M to $5M
33. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth ROIPATTERN 1 0 % 0 OPERATING COSTS PORTION OF RETURN COSTS 5 % 3 TIME Returns are early. Returns are sizeable. Early returns are from managing costs. Later returns are from business growth. Growth eclipses cost management. RETURN OVERHEAD FLOW VALUE
34. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth The Return on Investment M AT U R E R E T U R N S s q u i r r e l n o r t h . c o m SquirrelNorth Let’s explore the R at this level. Let’s explore the ROI of Kanban at this level and beyond.
35. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth RETURNS RESILIENCE
36. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth market leadership Organizations at this level already offer services that are fit internally and for their external customers. Their goal is more about sustaining their market leadership both economically and in the face of market changes.
37. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth MARKET LEADERSHIP Long-term business survival over tactical success Success measured against meeting customer's needs vs competitor positioning A curiosity to understand how the work gets done and the drive to improve Patience to see through vision that is not always possible through a quick fix Make decisions to minimize the risks of delivering unfit services Requires a mature leadership culture to be present. It was formed in the previous ML.
38. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth IMPROVED DECISION MAKING The limitations of ROI become more apparent when trying to use it to differentiate between multiple good opportunities. ROI as a decision-making mechanism becomes a barrier to the innovation required to maintain business resilience. Decision-making at this level of maturity recognizes that multiple-dimensions of risk need to be considered.
39. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth QUANTITATIVE ANALYSIS We get a better sense of our capabilities. They can be managed against our customer expectations. We improve decision making, predictions, and reliability for our customers. Delays are better understood and managed.
40. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth ROI is no longer a dominant decision driver. Currently-fit services are replaced with the ability to maintain that fitness. ROI HIGHLY MATURE ORGANIZATIONS Running a business is recognized as risk taking. We know how to manage these risks. We have the capability to quickly adapt to changes to the market. We know how to expose ourselves to opportunity without exposure to ruin. Capabilities Mature 3
41. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth ROIPATTERN 1 0 % 0 OPERATING COSTS PORTION OF RETURN COSTS 5 % 3 TIME RETURN OVERHEAD FLOW VALUE RESILIENCE
42. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth The Investment ON KANBAN s q u i r r e l n o r t h . c o m SquirrelNorth
43. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth = Return on Investment BENEFIT Cost Big number Small number x 100 BIG GAINS MODEST INVESTMENT Let’s finally examine the denominator!
44. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth INVESTMENT SERVICs
45. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth The ratio of each support service driven by goals and budget. SUPPORT A MIX OF SUPPORT & TARGET GROUPS COACHING CONSULTING RAPID BUILDING OF LANGUAGE AND SKILLS PROVIDING EXPERTISE DEVELOPING AND SUSTAINING EXPERTISE TRAINING
46. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth DEPTH HOW MANY SERVICES HAVE ADOPTED KANBAN? KNOWLEDGE HOW WELL DO WE UNDERSTAND KANBAN TO FULLY LEVERAGE IT? HEIGHT WHERE IS KANBAN DONE? PORTFOLIOS / WORK STREAMS SERVICES TEAMS INDIVIDUALS WIDTH HOW MUCH OF THE DELIVERY CHAIN DOES KANBAN HELP MANAGE? SCALING KANBAN’S IMPACT
47. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth DEPTH HOW MANY SERVICES HAVE ADOPTED KANBAN? KNOWLEDGE HEIGHT WIDTH SCALING KANBAN’S IMPACT Scale by 'Kanbanizing' One Service at a Time
48. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth Kanban investment CONTAINED PER SERVICE KSD STATIK FEEDBACK LOOP FEEDBACK LOOP TIME GAPS FOR EXPERIMENTS TO RUN FEEDBACK LOOP GAPS GROW OVER TIME AS MATURITY GROWS KSI MATURITY TRIGGERS FURTHER SKILL NEEDS DEVELOP A COMMON LANGUAGE INTRODUCE KANBAN INTO THE SERVICE(S) TRAINING CONSULTING COACHING Focus efforts primarily on managers (or whoever is/can take responsibility for a service). Develop language first and then Kanbanize using STATIK. No full-time embedded coaching. Coaching is to support managers during feedback loops to reflect on and develop new experiments. MANAGERS KANBAN INVESTMENT COSTS ARE MINIMIZED
49. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth Kanban investment ANTIPATTERNS OVERLY FOCUS ON TEAMS HIRE FULL TIME EMBEDDED COACHING OVER FOCUS ON IN-HOUSE KANBAN TRAINING CAPABILITY FAIL TO DEVELOP IN-HOUSE KCP- GRADE COACHING CAPABILITY GRAND TRANSFORMATIONS OVER EVOLVING ONE SERVICE AT A TIME
50. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth ROIINVESTMENT COSTS * Fixed assumptions: Department budget remains at $20M, a 10% profit margin, using lowest return numbers.in range. 20 SERVICES - TRAINING 20 LEADERS $50K to $100K STATIK 20 SERVICES $125K to $200K 5 % 8 TRAINING 1.2 $ M 5 % COACHING 24 Months COACHING 20 SERVICES $600K to $800K COACHING 20 SERVICES $400K to $500K 3 $ MIN TYPICAL EMBEDDED AGILE COACHING VS 1
51. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth = Return on Investment BENEFIT Big number Small number x 100 BIG GAINS MODEST INVESTMENT 8.2 $ M 1.2 $ M COST Returns are early. Returns are sizeable. Early returns are from managing costs. Later returns are from business growth. Growth eclipses cost management. Investment is limited, targeted and impactful.
52. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth KEY MESSAGES 1 0 % 0 OPERATING COSTS PORTION OF RETURN COSTS 5 % 3 DEPTH HOW MANY SERVICES HAVE ADOPTED KANBAN? KNOWLEDGE HEIGHT WIDTH IMPLEMENTING KANBAN IS A PROCESS OF RAISING AN ORG’s MATURITY RETURNS ARE EARLY AND ONGOING. INITIALY OVERHEAD THEN GROWTH SCALE IMPACT ONE SERVICE AT A TIME DEVELOP THE CAPABILITIES OF LEADERSHIP. LARGE IMPACT, SMALLER INVESTMENT
53. s q u i r r e l n o r t h . c o m SquirrelNorth s q u i r r e l n o r t h . c o m SquirrelNorth THANK YOU! MARTIN AZIZ martin@squirrelnorth.com CONSULTING | COACHING | TRAINING