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Category Archives: Business Models

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Complex Project Failures: How Labels, Hierarchy & Ego Create Disasters in Management

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I recently read an article and Facebook post that got under my skin.

Frankly, as an electrical engineer with 27 years experience in software and product development, a former member of APEGA, and owner of one of those “iron rings”, I disagree with almost everything in The Atlantic’s Programmers: Stop Calling Yourselves Engineers.

The article is clearly written from a place of ignorance about software development.

One of my missions as an Agile trainer, coach and industry leader is to debunk the myth that ego and hierarchy leads to success, and to demonstrate that collaboration is critical in our software-driven society.

A Case Study in Truth: Volkswagen Fail vs Toyota Success

The Atlantic article uses an example regarding Volkswagen citing “The Volkswagen diesel-emissions exploit was caused by a software failing, even if it seems to have been engineered, as it were, deliberately.”

This shows the author has little or no understanding of what happened at Volkswagen and failed to do the necessary research to find out. If he did, he would have discovered that managers told the engineers that 230 euro for the “add blue” emissions subsystem was too costly, and ordered them to find another way, without a budget.

Toyota is out-innovating and bringing higher quality than their competitors. Their management philosophy is “go and see.” Quite the opposite of Volkswagen’s management philosophy of “make it so.”

 

In my certified Scrum courses, this is what I refer to as “belief in magic”. Most of the dysfunction described by the author in this article is not because of the lack of detailed planning or intricate documents but rather bad management decisions that employees, engineering ring or not, are forced to comply with.

Look at it this way… with $100+ billions in failures in software development and IT over the last 40 years, will four years of studying math and an engineering certificate fix these problems?

No, it won’t. It’s not the job title or credentials that causes failure. It is the organization that leads failure.

Scrum, Agile, Computer Science, Engineering, and Reducing Risk

Scrum and Agile are becoming increasingly popular, as noted by LinkedIn’s top 10 careers for 2017. The reason is because Scrum and Agile are the most effective risk mitigation strategies we know for software development.

The complexity of large software products dwarfs the complexity of traditional engineering projects like bridges and buildings.

Now, a bridge and all the engineering complexity required to keep it safe is serious and safety is critical. In fact, a Quebec bridge disaster inspired the Ritual of the Calling of the Engineer (written by Rudyard Kipling) and the iron ring. But, in terms of design and engineering, software is far more complex.

Complex engineering infrastructure like transportation systems, the power grid or pipeline networks would be unmanageable without the far more complex software used to manage these systems. (Image: Shanghai Nanpu Bridge)

 

I have worked with brilliant people with advanced degrees in engineering and computer science. I have also worked with brilliant people who came to the world of software development from the fields of music and psychology. I have admired the huge talents of developers whose only education was through learning on their own. In one company I managed the senior product designer had a high school degree. His colleagues thought he was brilliant and so did I.

Bill Gates failed to complete his first year at Harvard. Does that make him any less of a person?

The Fail of Engineering & Software Without Organizational Change

The ideas in the original article were tried over and over for decades and they failed.

Companies like Google, Apple, Uber and Tesla are moving faster as they continually create tomorrow’s products today, while sleepy manufacturers take 4 years to release a new car that is the same as the old car.

I know this because these companies call me. They want to know how to work like Google and Facebook so they can innovate faster AND build quality in. Why should a farmer sit in a combine all day just to point it down a row of grain when it is possible to automate the machine’s navigation?

Smart People Seek to Make an Impact

A friend quit mechanical engineering after he learned that effectively all of the engineering calculations he had to do to design most components at his employer had been done in the 1940s and were published in tables. He went into IT because the work was more interesting to him since it was new and the problems weren’t solved.

One of my clients makes pacemakers and they use Scrum to build the software that resides in the pacemaker. They use Scrum and automated testing to demonstrate to the FDA that with every iteration (1 to 4 weeks) the working system has no bugs or defects.

Most of the failures cited in this article were failure of management to:

  1. understand technology
  2. empathize with the challenges of building and maintaining complex systems
  3. give staff the time to build quality in

Instead we see management treat IT and software development as purely a cost center without a clear connection to return on investment (ROI). This creates a “cheaper is better” mentality that causes huge dysfunction and waste (see my video on the $8 billion spent on the botched healthcare.gov rollout, a website saved by using Agile techniques and engineers from Google).

There are many problems you can’t engineer or code your way out of.

Organizational Change or Bust

Systems thinking and organizational design are potential solutions to fix the issues mentioned in the article. Many of these problems are rooted in managers making decisions about how the work should be done when they themselves are disconnected from how the work gets done. Would you appreciate having a hospital administrator instruct the surgeon on how to perform surgery on you? Probably only if the administrator is also an expert on your procedure.

Peter Senge wrote about systems thinking and organizational design years ago in the Fifth Discipline. There is no excuse to waste months and years and blame entire job functions when talented engineers, software developers, business managers, and others can create and deliver consumable, useful products as a team, every single week under a different organizational approach.


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How do we get to the customer?? A startup with a great idea, an identified need, a prototype and…

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I was recently cleaning out a storage area and came across one of the prototypes from a startup I co-founded in 1993. It is a prototype battery powered portable digital audio sound processor for the hearing impaired.

Background
High quality audio processor prototype for hearing impaired
At the time my partner and I were working on a joint venture project to pioneer the first generation of all digital hearing aids. The hearing aid project was tough because the enormous constraints of a very small device that will run on very low power continuously for days. In learning about hearing aids we realized that they are not good for listening to music. Hearing aids have a very limited frequency range, so low and high frequencies are not amplified. Listening through hearing aids is sort of like listening to an AM radio, but worse. The limitations of analog technology caused a technical barrier to better quality. The other main limitation was that hearing aid users wore them for long periods so they demanded convenience and small discrete size above all else.

The big idea

We realized that the hearing impaired could hear much more music and have a great listening experience if they had a device that would treat the full spectrum of sound available to their impaired ears. Headphone, Walkmans, and portable CD players were common, so people were willing to carry music devices. We envisioned a portable device that you could take to the concert or use in your home.

Testing our idea
inside the prototype
To be able to test our idea we ran some quick tests using a PC with an audio card. We processed some music with hearing loss algorithms and did A/B testing with a few hearing impaired to see if they notice a difference. We got mildly positive results. However testing in a Lab is quite different than a user using this processing in their own home or wherever they needed it. We also wanted to be able to test different settings and algorithms for compensating hearing loss for music. This meant we had to build a portable prototype that would allow us to program different processing ideas quickly, yet would run for a few hours on a battery. We also needed to do it for the lowest cost in the shortest amount of time, since this was money from our own pockets and time from our evenings and weekends.

Building the prototype

Motorola 56002 Digital Signal Processor Motorola 56002 DSP Evaluation board
PC JTAG interface audio inputs and outputs User interface
We built the prototype using a combination of off the shelf components and custom circuits. The first consideration was could we power the device circuitry using a battery? We discovered we could use a large rechargeable cell phone battery and a switching power supply component to get the power we needed. Around that time Motorola released an evaluation board for their 56002 Digital Signal Processor (DSP). I had been programming this DSP off an on for 4 years and it was excellent for audio processing, so we had our main logic board and processor. Most evaluation systems need some adjusting to your application, and this was the case for us. In additions to adding battery driven power supply, we needed to increase the system’s memory and add flash memory to store the settings and programs. We also needed to add buttons and LEDs for users to control the settings and volume. We also added a high quality digital audio interface to connect headphones, a microphone and line audio inputs for sources such as a CD player.

Testing with users

A number of hearing impaired users volunteered to test the system for us. We set them up with 4 different programs that they could select and a volume control they could adjust. We then sent them off with the device in a waist pack with the goal of using the device whenever they listened to music or went to a show. We also asked them to compare the quality of music and audio to their hearing aids. In the device we could track what programs and volume levels they were using. After a number of field tests, users reported mild improvements in listening to music, and a preference for certain settings in the device. The algorithms I had developed were working, however I knew we could continue to greatly improve the effectiveness of the hearing compensation processing.

The missing link – distribution

We proceeded with marketing and sales discussions with Audiologists. Audiologists are the Medical clinicians who test people’s hearing and prescribe hearing aids. This was the natural channel for our device, since it would need to be customized for the hearing impairment of the user. In learning about Audiologists’ business we discovered hearing aid manufacturers were heavily incentivizing them to sell hearing aids with high margins, discounts and free trips. A good quality hearing aid cost on the order of $800 to $1000 per device. Because Audiologists were focused on selling hearing aids to improve speech perception, there was little interest in offering our product to the hearing impaired. In doing our market research we found a simple device that offered some of our features for amplifying audio without the ability to do custom hearing compensation. Sales for this device were struggling and Audiologists were lukewarm to the device. Hearing aids were so expensive that most customers would only pay for them. The high margins hearing aids provided Audiologists meant they’d rather sell and fit hearing aids then a specialized device for music and audio.

After more conversations and demonstrations we put the business idea and this prototype on the shelf. We saw that while there was a need in the market and the technical solution to meet that need, the realities of the distribution channel meant the device would likely not succeed in reaching the customers. Trying to build an independent marketing and distribution channel through pro-audio retail channels such as stores was explored, but looked overwhelming and risky. The devices required hearing testing for baseline data, hearing compensation and user validation, a process far too complicated for a retail setting.

Our expensive lesson: If you are doing a Startup and using Lean Startup methods, identifying a need in the market and the solution is not enough. We found a need and a solution, we tested it and proved our solution worked. We discovered that you also need to prove you can get your solution into your customer’s hands. Perhaps now, 20 years later, we could do something similar with a smart phone. The challenge of getting the product properly configured for a user’s specific hearing loss remains.

I am ever grateful to my fellow investors/learners in this experiment:
Dr. Abram Gamer and Don LaFont.
– Robin Dymond.

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Doing a startup but not in Silicon Valley? Here are 8 things to consider.

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I returned to Calgary Alberta Canada after 8 years living in Virginia and working with tech companies in the US and Europe. I still work with companies in US and Europe. I was quite involved with Calgary’s nascent startup community from 1996-2004, either with my own ventures or working with others. During that time I founded the TBL Napkin, a tech entrepreneur’s networking group that met for 3 years until the tech crash killed interest in it. At those events we hatched the idea that we eventually turned into the Banff Venture Forum, an investment forum for tech and energy startups in western Canada and it is still going strong.

Starting a company in Calgary has its own pros and cons, and while it is neither the best nor worst place in the world, Calgarians tend to have some blind spots, so here are some key points to keep in mind. I think these lessons apply to any startup that is not located in a technology hub.

1. Too much and too little money.
While Calgary has a huge and very wealthy oil and gas sector, that wealth and the expertise that comes with it doesn’t translate to technology companies. The mindset in oil and gas is completely different, how you start companies is different, and how you grow is different. So after many losses investing in tech, most O&G money stays in O&G where they understand the business. This means chasing investment from O&G people is valuable time wasted. The problem for startups is that all that wealth drives up people costs, and while sweat equity and shares work in the Valley, they simply don’t have the same value here.

2. Cashflow is king
The vast majority successful Calgary startups that grew to successful businesses focused on real cash-flow from real customers (not advertising). Cashflow early has two positive effects, it forces you to really listen to customers, and it provides immediate market based feedback on your idea/plans. Since Calgary sucks for raising tech startup money, real customer cash in the door really reduces the startup pain of debt, credit cards, family loans, stress, etc. This also means that capital intensive or infrastructure type companies (i.e. networking tech, hardware, nano tech etc.) that require lots of capital and/or long sales cycles should be avoided, or take your idea and move to where the customers and the financing are located. Same goes for advertising based companies.

3. Nobody knows your name
Calgary or most other Canadian and European cities are just not in the map in the US. In 8 of years living on the US east coast, it was rare that I would meet someone who had heard of Calgary, let alone know where it is. When I said Calgary, I could have been saying Riga Latvia. When I said Calgary was like Denver, it didn’t help, since they didn’t know where Denver was either. While you can say they are ignorant, consider that in a 6 hour drive you can go from Richmond Virginia through Washington DC, Baltimore, Philadelphia, New Jersey and New York city, not to mention all the smaller cities and suburbs. Drive 6 hours from Calgary and… well one more hour and we’ll get to Saskatoon! From Northern Virginia to Boston, over 50 million people occupy just 2% of the US land mass. People build very large successful businesses that in only exist in that small East coast corridor. Chances are you could be competing with a startup from that area, and they can drive to the customers. So you need to think about how you will differentiate your company while minimizing the potential disadvantage your location.

4. Do other stuff to pay bills
Calgary’s Smart technologies started out distributing and selling conference room equipment, projectors, etc, and did that for many years before and during the development of their smart board technology. Numerous companies have used consulting to pay the bills while they worked on the product or paid others to work on it. The best deal is if you can find a customer to fund your development because they really want what you can provide. Just make sure you retain ownership/marketing rights.

5. Go park yourself
The founder of Calgary’s critical mass parked himself in New York for long periods of time, and went up and down Madison avenue trying to sell Golf instruction CDROMs. That led him to landing a web site design contract for Mercedes Benz. At the time, critical mass didn’t know much about the web. A Calgary based company that built chat services for commerce web sites moved to LA to be physically close to their customers. Two years later Ask Jeeves bought them for XXX hundred million. If you need to sell to companies in Boston, hire a local sales person and go sell there with them until you know the roads and lobbies/offices of those companies by heart. You will then learn if your product is really needed (Golf CDROM? No thanks) or if you should be doing something else.

6. Stay small and manage the burn closely
You need people to make progress, but you also need feedback, answers and real information about the market, which means lots of learning for the founders. Learning is actually more important then building product. Learning progress is understanding what the market really needs and how to deliver it with the least amount of work and (borrowed) money. Find cheap ways of getting noticed, and be relentless about talking with potential customers and experts in your market. Give yourself a point every time you ask a question and subtract two points for every statement you make. The second mouse gets the cheese. All successful businesses have a simple economic equation at their core (even yours!). Know your equation forwards, backwards, and know all the factors that influence it.

7. If you don’t succeed, welcome to the club
Tech startups fail 90% of the time. So treat doing a startup as a learning experience and a chance to do something you have dreamed about doing. If your startup doesn’t succeed, well chances are you learned much more then you thought you would, and you have some scars to show for it. People who know about startups respect the attempt, and will be interested in hearing your stories and sharing theirs.

8. Press replay
A group of Calgary based entrepreneurs have been working the business model of direct media and font sales since the early 90s with Image Club Graphics, (sold to Aldus/Adobe Studios) to Eyewire (sold to Getty) to Veer (sold to Corbis) to iStockphoto (sold to Getty) to Stocksy and Dissolve. While this is neither original or particularly creative, it is effective since entrepreneurs can reuse business assets like contacts and refine the specific knowledge of that business. A similar thing has occurred in security software, where some Calgarians built an expertise in security software products and have continued to start, build and sell companies in that business domain.

Doing a startup takes guts. Doing it in Calgary increases the difficulty, but hey if my friends at Target Process can bootstrap development of an Agile Project Management tool from the very poor dictatorship of Minsk Belarus, why can’t you build your startup here? By the way, Target Process has sold 200+ seat licenses to Calgary’s Smart Technologies.

Cheers,
Robin Dymond.

Robin Dymond, CST is an international trainer and consultant in Scrum, Agile, and Lean methods. He offers certified Scrum Master, Product Owner, Lean and Kanban training, and has trained over 3000 people in Canada, USA and Europe. A speaker and author, he’s presented keynote talks and sessions at conferences including Agile Eastern Europe, Agile 20XX and others. He is President of Innovel International Inc. Dymond has 24 years experience in software and a BScEE from University of Calgary.


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How Spotify Works. Agility with 1 product and 1200 people

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Scaling Agile at Spotify. What True Organizational Agility Can Look Like.


Henrik Kniberg and Spotify released an illustrated video on how Spotify is Scaling Scrum and Agile from a 1 team startup to a 1200 person powerhouse of the online music industry. Spotify is a disruptive force in the music industry, forcing record companies, radio stations, and artists to rethink their business models. Spotify is also an Agile company from the ground up. Spotify got its start using Scrum with one team, so there has been no “Agile Transformation” for the company. Instead the company faced the problem of how to maintain the Agility they had with one team while growing quickly.

The video describes their team structure, the organizational structures that span multiple teams, and the key principles that guide their decision making. I think it is fantastic that Spotify was willing to open the Kimono and show the world how they work, and that Henrik, as their Organizational Coach was able to present it is such a compelling visual way.

This is the cutting edge of organizational agility. For most companies, this kind of organizational model is a fantasy, it is so far removed from their current organization’s structure. If I were a music company executive, I would be scared as hell. Instead, I look forward to continuing to help companies achieve their own improvements for Agility in their own business context.

Part 1 of How Spotify’s Engineering Culture Works


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App Store’s Little Shop of User Interface Horrors

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I am trying to find a specific kind of iOS application. I am using the App Store in iTunes, on a Macbook Pro with a 27″ external monitor, extended keyboard, and wireless mouse. But it doesn’t really matter. I could be on my ipad, and the experience would be just as frustrating. Apple says that they have 500,000 apps available for iOS. This is a big point of pride for Apple. Well let’s look at all the tools Apple gives iOS users to navigate 500,000 Apps to find what they want.

I would like to find a keyboard utility the can replace the iPad software keyboard with one that has arrow keys for editing and is more accurate. I don’t know if such a utility exists, however the keyboard and text editing capabilities of the iPad are a regular user complaint. I open iTunes and click on iTunes Store and then the app store. See the screen shot below. I am confronted with a giant rotating advertising banner that often features Apple products like ibooks 2 and iTunes U. Scanning the rest of the page I see headings New and Noteworthy, and Quicklinks, this section includes additional lists featuring Apps chosen by Apple.

Apple App Store Front

The Apple App Store Front

On the right there is a “Top Charts” list featuring more Apps that are the top of some metric, also controlled by Apple. Other Navigation headings include the enlightening “What’s Hot” section, featuring another Apple controlled list of Apps. Scrolling down the page are 7 more lists defined by Apple staff.

Futile Browsing
What if you know generally what kind of App you want? Well out of the whole first page of the App Store, there is only one small button that might take you to where you want to go. Under Quicklinks is a dropdown list with broad categories. How long do you think it would take for most users to find this single button with its hidden categories? Well, they probably wouldn’t. I did, because I am writing this article and went over the App Store’s front page very carefully. Clicking on the drop down I am confronted with a long list in very small font, of all the categories. After a couple tries I click on the category Utilities.

Utils

iPad Utilities Landing page. No further categories, more Apple controlled lists. Click image to see UI detail.

The Utilities page loads more Apple lists, with New and What’s Hot again listing Apps that Apple has chosen to feature. This is the end of the category navigation. Only after scrolling down do we find the All Utilities iPad Apps section. The section has 3960 applications, of which we can see the first 24 with listed with “most recently released” at the top.

App Store Ipad Utilities landing page screenshot

App Store Ipad Utilities page, 3960 Apps

To find a keyboard I re-order the list and click on “K-O” since I am looking for a keyboard utility. iTunes returns 180 applications from App iXML to LogVu. I find 2 Apps with the first word Keyboard. After viewing an App I click the Back button, however the list is different and I am disoriented. The 3960 Apps are reordered by release date again and I am back on the first page. After multiple tries I give up on browsing. However there are likely other keyboard utilities that use different names, so I will try another approach.

Searching for Something?
ITunes has a global search feature in the top right of the application. searching “keyboard” in this search utility returns results from movies, music and every other section of the iTunes store. Filtering by Apps, and then again by iPad Apps returns all iPad Apps for “keyboard” a whopping 581 entries, all conveniently sorted by well, actually I cannot determine how they are sorted, and I can’t change the sort. My search for a keyboard utility has returned Apps from almost every category, including Utilities. More specific search terms, such as “keyboard utility” or “keypad” or “arrow keys” returned more specific results, including everything from emoticon Apps to remote controls for PC and Mac applications. Apparently it is easier to turn the iPad into a keyboard for a PC application then it is to create a different keyboard for the iPad itself.

Searching returns long unordered lists with no descriptions


Power Search: Did you Miss it? I did.

In doing the search I stumbled upon the Power Search feature. Power Search allows you to select a more detailed search criteria. Where do you find it? Well that’s a good question as power search appears and disappears from the App Store UI, even while you use it. It also doesn’t seem work, missing some Apps, or returning Apps not in the category selected.

Too little information
As can been seen in the figure above, search results include a picture, the title of the application, the date it was updated and the price. There is literally no way to judge whether an App is worth your time unless you click on it and view the application’s page. Even on this page critical information about the App is hidden from view on the App’s own page, Users are forced to click again to read more than the first 2 lines of the App’s description.

Useful information is hidden from users on the App's own page

Your App is lost in the App Store
App developers should be very concerned about How Apple is controlling access to their applications. By not building in effective browsing and search features, Apple is preventing customers finding your application. This means all the time, effort, and money spent on your App is wasted, since unless the marketers running the App Store choose to promote your App in the Apple controlled lists, potential customers can’t find your product.

A lesson from Amazon and Musician’s Friend
Apple customers and iOS Developers both lose with Apple’s App Store User Interface. Navigating the App Store is painful, slow, and ineffective. It is clear that the App Store in iTunes was never designed to handle an inventory of 500,000 Apps. The App Store and the other storefronts in iTunes need a major investment to bring them up to the ecommerce standards of today. Instead of providing effective tools that allow users to find the Apps they need, Apple is pushing dozens of lists, in the hope that Apple taste makers know what Apps their customers want. This is bad for the App market, bad for App developers, and very bad for App Store customers. Apple needs to take a lesson from ecommerce sites such as Musician’s Friend and Amazon. Those sites handle as many or more products then the App Store and they provide the tools users need to find the products they want. App store users, whether on the PC, iPad or iPhone need to be able to browse and search effectively to find the Apps they need. Today the App Store is a little shop of horrors to use, devouring both customer’s and developer’s time and money. I still have not found that keyboard utility to replace Apple’s iPad keyboard, so I will continue to reach for the laptop and leave the emails for the Android powered Motorola Droid Pro World phone with its real keyboard.


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Wall Street Journal? New York Times? Why is Lean and Agile not a story?

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Over the last 2 years we’ve seen some pretty hard times in economies in Europe and especially the USA. Financial services and lending business were in an state of near collapse. With each day companies were announcing job cuts. Job losses in the US are higher than they have been in 30 years. Now that the economy has stopped shrinking, and markets are starting to improve, companies are facing a much more difficult business situation. Stock prices and profits have recovered in some sectors, however most companies face slow growth, and systemic changes in their marketplaces. The US consumer has lost a substantial amount of net worth. That group is not coming roaring back to consume like they have in the past. Many of the businesses that cut staff will not be hiring them back, either because they don’t need the capacity, are doing something different, or are out of business.

Many State and local governments are facing heavy shortfalls in revenue. One important reason for declining tax revenue is property taxes. Property taxes are hard to collect when the property is in foreclosure. Commercial properties are also strapped as their clients break leases or only make limited payments. These losses often result in commercial property owners going out of business. The commercial property failures significantly lag consumer mortgage foreclosures, since commercial properties are not affected until their clients start going out of business. Booming government deficits, high unemployment, slow growth, and increased competition in a global marketplace.

As bad as the economy is now, I am sure it is not as bad as Japan’s collapsed economy just after World War Two. That is when Toyota decided to enter the automotive business. 60 years later Toyota leads the industry by most benchmarks, and are more profitable then the next 4 automotive companies combined. During this recession GM and Chrysler collapsed, and all three big auto companies required billions of taxpayer dollars just to survive as much smaller companies. At the same time Toyota took thousands of idled workers and launched retraining programs so they would be ready for the next generation of manufacturing, new assembly systems, and upcoming products.

The great recession of 2008/9 was bad for airlines, many shrank 10 to 15% and some went bankrupt. During this same recession Southwest Airlines managed to grow by 1%, while paying its pilots more than any other US Carrier. Southwest has been profitable for 36 years straight.

There is a major story that is being completely overlooked by the American Media. That story is how some companies have found a way to gain not one or two years of competitive advantage, but 10-20 years competitive advantage. How some companies consistently innovate and thrive, while others consistently fail to meet the expectations of their customers, employees, investors, and the public. These under-performing companies may have survived the recession, however unlike GM and the banks, there is no bailout coming from cash strapped governments to save them.

What do successful companies like Toyota and Southwest airlines do differently? Can they provide a road map for other organizations? What stopped GM from changing and how to recognize those patterns in other companies?

The New York Times and Wall Street Journal are missing the boat for their readers. There is an important story that European and American business leaders are largely clueless on. I know because of the conversations I have with their VPs, managers and staff. The executives running those companies have a fiduciary duty to get up to speed and start to redesign their organizations so that their companies stop surviving and start thriving.

Dilbert.com


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Part 2: Building Your Business Case for Adopting Agile and Lean

In the first post we reviewed what drivers you should consider for your business case, and what baseline measures to consider to show improvement. Make sure you take some measurements so you know where you stand. There can be a lot of resistance to Agile in some organizations, having data to show improvements helps take out some of the politics. Even if there is no resistance now, adopting more advanced practices will challenge your people and require investment. The data will show why you need to continue to invest.

Given that we have determined the key performance indicators we want to improve, we need to determine what changes are required and the level of investment. There are a number of things we need to look at for investment, but first we want to consider two things: feedback opportunities and the journey.

Feedback and the business case:
When preparing a business case we usually make numerous predictions. As with any form of plan, these predictions can be dangerous because they do not reflect reality. For example, the very common calculation of Net Present Value (NPV) is used to predict the value of a business opportunity in today’s dollars. However NPV is based on a prediction of revenue 3 to 5 years in the future, and a single discount interest rate is used to reflect all of the risks inherent in the plan. Therefore we probably don’t want to use NPV to make very many decisions. Instead we should look for opportunities where we can validate or correct our assumptions on an ongoing basis. How soon can we start to measure improvements? How often can we reflect on our opportunities and ground our assumptions? Are we looking at the right data? Build in regular feedback into the business case to inspect and adapt its assumptions. Look at the data but more importantly talk to people, since Agile and Lean derive their value by improving transparency and the working environment.

The journey and the business case:
Adopting Lean and Agile takes a while. Toyota has been at it since World War II and they state they are not done. A large U.S. bank started adopting Lean and Agile in 2004 and they think they are half way in 2008, with progress and setbacks along the way. Do not expect to be done in one year or two. That does not mean you need to plan through 2020, but you do need to consider that there will be stages of adoption and differing levels of investment over time. It would be premature to decide today what we will need to invest in 3 years down the road. We don’t know yet, but we will need to invest to continuing improving. We often see organizations who get the basics of Scrum down and then declare victory. We strongly recommend you do not declare victory, because after 50 years and 3 generations of leaders, Toyota is still learning how to do this right. Chances are excellent the work in this space will become integral to the company from now onward.

Initial investment
The business case can be organized in many ways, however we suggest that for each new team that will adopt Lean and Agile methods there should be the following initial areas of investment:

  • Training for team members and management
  • Real estate and infrastructure improvements to support collaborative work and regular delivery of product into production
  • Consulting support to stand up new teams and projects
  • Executive coaching for customers, senior management, middle management, and functional managers.

These four areas of investment drive to an outcome of helping each area of the organization transition smoothly to Agile, with minimum disruption and personnel changes. The team oriented investment is the most concrete in that most organizations are adopting at the team level and the return on investment can be directly measured at this level. The investment should have a positive return for the company based on the improved results of teams who switch to Agile. The organizational goal is to put in place a high quality process that will accelerate learning and acceptance of these new ideas across the organization.

Return on investment
There are numerous ways to structure the Return on Investment calculation. Below is an example that uses four revenue improvement classifications based on external customer facing improvements:

“Our customers will receive 50% more functionality in the next 12 months, resulting in improvements in:”

  • Retained Revenue $____ – customers that stayed with us instead of moving to our competitors
  • New Revenue $____ – new customers we gained because we delivered 20% more features that drive new purchases
  • Operational Savings $____ – We reduced average time to deliver a project by 30%, or we saved the call center reps 10 sec per call because of the new features we released this year, resulting in XX less call center cost
  • Incremental Revenue $_____ – We added 30% new features that we could charge additional fees for to our current customer base

If the projects are strictly for internal clients it is still valuable to find the external benefits received by the end customer. However there are considerations for Return on Investment for internal projects:

  • Our improved time to market with these features will result in XX% more revenue over the next year.
  • Our 30% faster delivery of features meant an X month reduction in the predicted project timeline, and a cost savings of $Y from the planned budget.
  • Our customer satisfaction score will rise from poor to very satisfied, resulting in 90% less project re-work and a cost saving of $X

In addition to these ideas, what other benefits should you be considering? If staff morale improves and there is less staff turn over, how would this be valued? There are the hard costs of finding and hiring talented people (recruiting fees, interviewing, training, supplies, etc.), and there are the soft costs (reduced productivity, impact on co-workers, re-learning how to do the work by a new person, etc.). When possible, benefits that appear non-financial usually have a real return on investment. Research the “non-financial” benefits to find the financial connection.


Review and Feedback

The proposed model is an initial team oriented business plan. The investment and ROI are both specific to the team and their context. This allows for grounded review of how the process improvement is working for that team. These reviews can start relatively early in the cycle, consider a three month timeline to review the plan, the metrics in place, and determine what adjustments are required to the business case, and the practices of the teams that impact the ROI.

Please note the numbers presented here are fictional and for example purposes only. The actual numbers are dependent on your business context and opportunity.

The initial business case should look at a 12 to 24 month timeline, the improvements anticipated and the costs expected. The result should be a substantial Return on Investment since the costs are relatively low compared to the time to market improvements gained. Work through the numbers, and please contact us if you have any questions, we’d be happy to help. Stay tuned for the next entry in the Lean and Agile Business case!

Robin Dymond


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Four Weeks

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Zara ModelThink delivering working software every 30 days is difficult? Got an idea for a great new outfit? How long would it take to see that idea become a piece of clothing available in 1000 stores? As we look to improve our businesses’ ability to respond quickly to its customer needs, its helpful to look at other businesses that have used speed to generate huge advantages and gain marketshare from much larger rivals. An unlikely place to look is fashion retailing.

When Madonna gave a series of concerts in Spain, teenage girls were wearing at her last performance the outfit she wore for her first concert. When Spain’s Crown Prince Felipe and Letizia Ortiz Rocasolano announced their engagement in 2003, the bride-to-be wore a stylish white pant suit. Within a few weeks, hundreds of European women were wearing something similar. All thanks to Zara, the pioneer of fast fashion. In April 2006, the company owned by the Inditex Group, took the lead in fast fashion apparel away from giant Swedish retailer, Hennes & Mauritz (H&M) by posting $8.15 billion in sales in 2005, compared to H&M’s $7.87 billion.

Zara Tokyo store

How can Inditex thrive when Europe’s entire textile industry is under threat from cheap imports from China? After all, labor costs in Europe are 17-20 times higher than in Asia. In a word – speed. It takes Zara four weeks to go from identified consumer need and fashion concept to clothes in its stores. Most of Zara’s inventory is sourced through this fast channel. To enable this speed Zara owns the complete supply chain, from manufacturing through distribution and retail. Some 300 designers work at the firm’s head office in La Coruña in Galicia in northern Spain, producing 1000 new styles per month. They are in daily contact with store managers to discover bestselling items. The remaining inventory is sourced through low cost off shore manufacturers, similar to other retailers.

Zara’s fast products are deliberately created in small batches to avoid oversupply. Most lines are replaced quickly with yet more new designs rather than with more of the same. This in turn generates scarcity of supply. Shoppers cannot be sure that something that has caught their eye will appear in the store again—or can be found at another Zara store, even in the same city. A higher average selling price is maintained.

Zara’s production cycles are much faster than those of its nearest rival, Sweden’s Hennes & Mauritz (H&M). While an entirely new Zara garment takes about four to five weeks from design to delivery; a new version of an existing model can be in the shops within two weeks. This process takes six to twelve months for an average retailer. In a typical year, Zara launches some 11,000 new items, compared with the 2,000-4,000 from companies like H&M or America’s giant casual-fashion chain, Gap.

Text box - reacting quickly Don’t try to predict, react.
The fast production chain at Zara removes a significant amount of risk that comes with fashion forecasting. So Zara finds itself in the “blessed” position of not really having to take a bet on fashion as much as follow it. A 2004 Bain & Co. study found that fast-fashion outlets in Spain and Britain posted average double-digit sales growth, compared with 4% growth in overall retail sales in those countries.

Zara Open Concept Work Space

Zara’s design work space is open concept and highly collaborative.

Fashion trend identification is a daily constant effort. All of Zara’s shops use point-of-sale terminals to report directly to La Coruña. On top of that, every evening store managers consult a personal digital assistant to check what new designs are available and to place their orders according to what they think will sell best to their customers. In this way, its store managers help shape designs. Zara does not employ star designers but often unknowns, many of whom are recruited directly from top design schools. Inditex is extremely clever in how it uses technology, says Andrew McAfee, a Harvard Business School specialist in the corporate use of information technology. The company keeps its technology simple—even a little old-fashioned—but as a result spends five to ten times less on information technology than its rivals.

Zara Toronto store Zara is also more parsimonious with advertising and discounts. It spends just 0.3% of sales on ads, compared with the 3-4% typically spent by rivals. “We try to avoid markdowns” says JM Castellano, Inditex’s deputy chairman. For many retailers 35-40 percent of total merchandise is sold at hefty discounts. “This business is all about reducing response time” says Castellano. “In fashion, stock is like food, it goes bad quick.”

    This article contains material from various internet business news sources including The Economist, 3isite.com, AMR Research, and others.