"In Lean, value -- not resource utilization -- is the key driver of work."

Opening Statement

The heart of a modern enterprise is the knowledge work it does. How to run a factory effectively is fairly well understood these days. But knowledge work activities such as strategy, market positioning, effective services, and the like are what make for an effective business. Enterprises are beginning to move away from the mass production paradigm and into an overall systems view using the Lean paradigm. Lean knowledge work emphasizes getting the most from (or better, with) people through appropriate decision making across the board, from executives through front-line workers.

Yet the reality -- and competitive opportunity -- is that most knowledge work today still runs under the archaic mass-production paradigm. Just look at the classic IT front-office/back-office divide: as sacrosanct in many circles as ever, in the name of efficiency it is inherently wasteful. It throws an impenetrable wall between those doing the work and those for whom the work is being done. Vanguard Consulting (UK) and others have conclusively demonstrated that this divide is both unnecessary and inferior to a Lean business-system approach.

Mass production institutionalizes suboptimization through principles such as maximum utilization of all resources, large infrastructures, and techno-centrism. In Lean, value -- not resource utilization -- is the key driver of work. The Lean principles of the value stream, flow, pull, and perfection enable maximum delivery of value per unit time and for the available resources. Lean enables leaders to take an holistic view of what to seek and how to achieve it. It is the only currently available mental framework that is fully consistent with getting the most worthwhile outcomes for the least global expenditures.

Today, Lean and Lean-related concepts such as strategic value, operational kanban, and complex-adaptive systems work are beginning to transform entire enterprises in multiple industries. Lean amplifies the effects of holistic thinking already in place. It increases the competitive advantages of those enterprises that choose to press further down this path.

One of the best indicators of this shift to a whole-system view is the rapid acceleration of "reverse offshoring" of business that had been transferred to lower labor-cost nations in previous years. Offshoring rose to complete dominance over the last 20 or so years because of a deep faith that mass-production principles work best for knowledge work. For the last 50 years, all major business schools have defined costs in the mass-production way. According to the "unit-cost equation," costs are based upon just three factors: direct labor, overhead, and materials. Business leaders were taught to use this overly simplistic and inherently suboptimal calculation to drive their most critical enterprise business decisions. This institutionalized the ignoring of significant and subtle system-level costs, thereby harming companies¹ and, indeed, entire nations.²

In contrast, a systems perspective reveals there are hidden costs to offshoring that often overcome all wage and overhead savings and lead to a net increased cost for the enterprise. Worse, long feedback cycles exacerbated by organizational/procedural boundaries between onshore and offshore operations cripple the ability of the enterprise to react to changing market conditions and, thus, to innovate or even compete. As Patrick Dixon of RedPrairie recently said, "We cannot manage supply chains ... with the complexity we now have across very long distances."³ By looking beyond the unit-cost equation, we are seeing that the benefits of offshoring shrink drastically as the scope and scale of the work grows.

Increasingly, executives are realizing that considering the rest of the picture can increase their enterprises' velocity and agility. In 2012, we saw an acceleration of reverse offshoring. A 2012 EEF manufacturer's association survey found that 40% of companies are bringing production back inhouse. Another 25% are returning to local suppliers.⁴ Reverse offshoring is just one sign that more and more leaders are including the "extra factors" needed to produce a more effective business system and plan. The new business system is not the soulless automation of Frederic Taylor but rather a complex system that is above all comprised of people interacting with other systems of people.

This is a change in sea level that cannot be stopped even if the economy goes back into recession. Many organizations that previously took a fractionalized approach and "squeezed everyone equally" are now weaker players than they were before. Those who took the systems view are now stronger. The weaker organizations that turn to an holistic-systems approach will rebuild their competitive position. Those that don't will be (indeed, already are being) replaced by organizations that do.⁵ This is happening because a human-systems approach that also allows for complexity and unpredictability shows much more potential for improving the enterprise system as a whole than does optimizing bit parts individually. The multiyear overall sagging stock trends of traditionally fractionalized players like most banks and aerospace companies, versus the upticking stock trends of integrative systems organizations like Amazon and Salesforce.com, show conclusively that this is already happening.⁶

Many people know that, in just a few decades, Lean transformed Toyota from a tiny manufacturer in a devastated country with no resources or infrastructure into the world's largest auto manufacturer. Less well known is that many of Toyota's improvements were -- even then -- made to its knowledge work using techniques that had no basis in manufacturing.⁷ Now we see growing pockets of such broad, Lean-systems change in many enterprises starting down the same path.

Today's migration to the Lean paradigm is different from the wave of so-called Lean techniques that swept through industry two decades ago. Then, incomplete understanding of the first translations of the Japanese Lean writings (in particular) led to the interpretation that Lean meant innumerable small kaizen projects to "remove waste" (which was and generally still is incorrectly defined), plus ossifying Six Sigma initiatives. Worse, knowledge work was almost never distinguished from manufacturing.

Now, most on the front lines of Lean find this older interpretation not only inadequate, but in conflict with Lean's single-minded focus on value delivered. The best current understanding of Lean has raised the productivity of entire programs by up to four times, increased product quality up to tenfold, and led to strong growth in customer satisfaction and loyalty.

The biggest risk in undertaking Lean IT is resistance from existing workers. In some cases, people have been exposed to pseudo-Lean programs that were used to provide cover for layoffs and other measures that made workers into the losers. Today, a skilled Lean transition lowers people's defenses by starting where people are at in their work and moving them incrementally toward improvement while involving them in transformation decisions. Workers win, as they are truly part of the enterprise team.

A friend of mine was W. Edwards Deming's last assistant. He said that Deming, in his last year of life, was depressed that almost no one had understood what he had taught. In the years afterward, one seldom heard any practical suggestion associated with Deming's name or ideas.

We are now a handful of years into the second major wave of Deming adoption. This time people are truly "getting it." We've learned much over the last 20 years from complementary disciplines like cognition, complexity theory, and systems thinking, and it has validated and helped us understand the insights of Lean pioneers like Deming, Shigeo Shingo, and Taiichi Ohno. Real-world evidence has shown us that Lean is broad and deep enough to improve our delivery of value across the whole lifecycle and in all domains -- including, and perhaps especially, IT.

The key to improving business effectiveness is to improve our understanding of the world in which we live and do business. Providing options and lenses for new thinking is the purpose of this edition of Cutter IT Journal.

IN THIS ISSUE

In our first article, Lean pioneers Daniel Jones and Steve Bell define Lean in terms of both customer and business value. They explore the downsides of popular mass-production IT approaches such as outsourcing, enterprise systems (e.g., SAP), and traditional information system design and then discuss helpful Lean alternatives. They also consider a number of IT dichotomies that we can leverage through Lean tools; for instance, creative versus routine, repetitive work.

Next we hear from the leading European advocate of the holistic-systems approach to both IT and services, John Seddon. In his article, Seddon explains how industrial thinking has made IT work dysfunctional and how applying a rigorous systems approach leads us, first, to identify the right problems to solve, and second, to the most helpful ways to solve them. Seddon also warns us to watch out for first-wave "Lean" techniques that are really dressed-up versions of the same old suboptimized industrial ways.

One of the world's leading experts in the application of complexity theory to human systems, David Snowden, talks next about how introducing humans into systems changes everything. He explains how we can improve such systems (including most IT operations) by using a directed exploration approach. Such exploration will usually identify customer value that far exceeds what one could discover with classical tools like market research, or as often happens, imposition by a priori mandate. He also unwinds the confusion about the difference between efficiency -- the preoccupation of traditional IT and business systems -- and genuine effectiveness.

In our fourth article, Lean Systems Institute founder and CEO Frode Odegard distills nearly a decade of hard-won lessons on what it takes for organizations to successfully convert to Lean and see the gains last. Odegard observes that the challenges enterprises have with Lean adoption become simpler when several dimensions are addressed in sync. These include the organization's value streams, governing structure, product architectures, information architectures, and social constructs. He also shares four highly useful approaches for improving products and organizations, selected according to the situation being addressed.

We round out this issue with two deep dives into applying Lean to specific aspects of the enterprise. In the first of these, Saulius Astromskis, Andrea Janes, Alberto Sillitti, and Giancarlo Succi of the University of Bolzano explain how combining process mining with real and virtual Lean worksite visits (gemba) allows the IT organization to see what is actually happening in its processes. Armed with this insight, it can fix real instead of imagined problems and improve the things that matter for meeting goals.

Our sixth and final article, by Kevin Brennan of the International Institute of Business Analysis (IIBA), describes an approach IIBA has used to integrate classic strategic planning with Lean operations and Lean strategy deployment (hoshin kanri), thus connecting enterprise goals to program execution.

The articles in this issue survey some of the best thinking on how the Lean paradigm can transform IT and the enterprise as a whole. As you read them, please consider jotting down your thoughts and then sharing them with us at Cutter (jsutton@cutter.com). Lean theory and practice are still growing, and for us all to keep growing with them, we need to hear your Lean thoughts and stories.

ENDNOTES

¹ Pianti, Mario, and Massimiliano Tancioni. "Innovation, Wages, and Profits." Paper presented at the 18th Annual EAEPE Conference, Istanbul, Turkey, November 2006.

² Krugman, Paul. "Does Third World Growth Hurt First World Prosperity?" Harvard Business Review, July 1994.

³ Dixon, Patrick. "SustainAgility." Keynote address to RedShift:2012, Hollywood, Florida, May 2012.

⁴ "Offshoring Goes Into Reverse." Airmic News, 6 September 2012.

⁵ "The Shift Index: Measuring the Forces of Long Term Change." Deloitte, 2011.

⁶Deloitte. See 5.

⁷ Kennedy, Michael N. Product Development for the Lean Enterprise. Oakleaf Press, 2003.

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