Lean Enterprise

attempting to bring Lean Startup mindset to the Enterprise

book by Jez Humble and others ISBN:1449368425


Define, measure, and manage outcomes rather than output

we specify “true north” for our program of work

Then, at the program level, we work iteratively

Manage for throughput rather than capacity or utilization

Ensure people are rewarded for favoring a long-view system-level perspective over pursuing short-term functional goals

Balancing the Enterprise Portfolio

The key to managing an enterprise business portfolio, as with any financial investment, is to use an economic model

In Escape Velocity: Free Your Company’s Future from the Pull of the Past,44 Geoffrey Moore presents a “growth/materiality matrix” for visualizing existing investment decisions

we must understand the dynamics of the enterprise portfolio. This is described in the three horizon model

Horizon 3 is the domain of the Lean Startup

We then either move the idea into horizon 2 or shelve it

There are three significant problems conspiring to kill businesses that make it into horizon 2

Table 2-2. Three horizons

Why You Cannot Simply Hire or Acquire Your Way to Innovation

The problems occur when the acquired company—working on a horizon 3 or 2 product—is subjected to the horizon 1 governance

Acqui-hiring frequently fails for the same reason: taking great people and putting them into a pathological or bureaucratic culture does not change the culture—it breaks the people

Intuit uses a simple model to balance horizons 1, 2, and 3

The most important point to bear in mind when balancing horizons is that unless senior leadership takes an active role in managing investments, including putting in place appropriate management practices for different horizons and paying attention to how management is incentivized, core businesses will always find a way to use their corporate clout to sideline and ultimately neutralize the other horizons

How Aetna Created New Companies to Disrupt Its Core Businesses

Obama administration’s Affordable Care Act

Aetna decided to create a new company called Healthagen, “a separate organization, separately capitalized, separately compensated, and separately managed, so they’re not subject to the same management process at Aetna

Aetna has also created another subsidiary along similar lines to create a consumer marketplace and drive private exchange models


For further reading on portfolio management, we recommend Geoffrey Moore’s Escape Velocity: Free Your Company’s Future from the Pull of the Past

In the rest of this book we will mainly ignore horizon 1

Part II. Explore

When faced with a new opportunity or a problem to be solved, our human instinct is to jump straight to a solution without adequately exploring the problem space, testing the assumptions inherent in the proposed solution, or challenging ourselves to validate the solution with real users

Our mission would be to prevent anybody from commencing a major program to solve the problem or pursue the opportunity until they do the following: • Define the measurable business outcome to be achieved • Build the smallest possible prototype capable of demonstrating measurable progress towards that outcome • Demonstrate that the proposed solution actually provides value to the audience it is designed for

Chapter 3. Model and Measure Investment Risk

the principles behind the Lean Startup can be applied to all kinds of activities within the enterprise, such as building internal tools, process improvement, organizational change, systems replacement, and GRC (governance, risk, and compliance) programs

Model Investment Risk

An important goal of the planning process is to support an investment decision. In order to make this decision, we need to have a good understanding of the risks involved with the investment

Each of these business cases had 40 to 80 variables

1) The vast majority of variables had an information value of zero…2) The variables that had high information values were routinely those that the client never measured. 3) The variables that clients used to spend the most time measuring were usually those with a very low…information value.

Even in projects with very uncertain development costs, we haven’t found that those costs have a significant information value for the investment decision…The single most important unknown is whether the project will be canceled…The next most important variable is utilization of the system, including how quickly the system rolls out and whether some people will use it at all (ROI)

significant time is wasted on detailed planning, analysis, and estimation, which provides large amounts of information with extremely limited value

it’s typical for 50% of total product development time to be spent in such “fuzzy front end” activities (Planning, Estimating). Naturally, this leads to poor investment decisions and needlessly long product development cycles

perform a Monte Carlo simulation

allow us to find the variables to which we need to pay attention in order to make good investment decisions

the uncertainty in ROI for IT programs tends to be very high and increases with the duration of the program

ROI in IT programs is not very sensitive to cost, but rather to whether the program will be cancelled and to the utilization of the resulting system. These variables depend primarily on whether we have built the right thing. However, the standard enterprise planning process provides almost no validation of this.

Applying the Scientific Method to Product Development

We should stop using the word “requirements” in product development, at least in the context of nontrivial features. What we have, rather, are hypotheses

In Running Lean (O’Reilly), Ash Maurya explains how to execute a Lean Startup model

simplified Business Model Canvas

determine if you have a problem worth solving

Then, design a minimum viable product (MVP)—an experiment designed to maximize learning from potential early adopters with minimum effort

Definition of Measurement

given that product development is effectively a form of discovery, how much time and money should we spend on validated learning? Game theory actually provides a formula for the expected value of information (EVI).

it is covered in Douglas Hubbard’s How to Measure Anything

Expected Value of Information

Applying the Lean Startup Approach Internally Within Enterprises

we look for a customer willing to work with us to pilot the new system

Once we have a pilot team, we design and execute a minimum viable product

The hardest part here is to limit scope so as to solve a real problem but deliver something in the space of days or weeks

whether we actually meet the measurable customer outcome we set out to achieve

Principles for Exploration

OODA loop

common misconception (primarily by people who have not actually seen the diagram) is that these activities are carried out one after the other in a loop, and that disruption is achieved by going through the cycle faster than your opponent

There are two important flaws with this interpretation

First, in reality both humans and organizations are performing all of these activities simultaneously

Second, it is often advantageous to delay making decisions until the “last responsible moment

System 1

Conscious decisions are made by System 2

The OODA model can also be applied in the context of customer engagement

The build-measure-learn loop seems straightforward, but is hard to adopt in practice due to its combination of a scientific approach (building to learn) with an engineering mindset (learning to build

The key to being successful with these cycles (and the scientific method in general) is to use them systematically and continuously

how fast can we learn?

Scientific Management Versus the Scientific Method

applying the scientific method to product development is fundamentally different from the traditional plan-based approach and requires different skills and behaviors

traditional project management is the wrong model for conditions of uncertainty

Table 3-2. Traditional project planning versus Lean Startup


Chapter 4. Explore Uncertainty to Detect Opportunities

We introduce the concept of Discovery to show how to quickly map out a business hypothesis to create a shared understanding of a problem and engage stakeholders

Then, we will describe how to use a disciplined, scientific, evidence-based approach to experimentation to answer the fundamental question—not “can we build it?” but “should we build it?”


Discovery is a rapid, time-boxed, iterative set of activities that integrates the practices and principles of design thinking and Lean Startup

Customers and Users

it useful to distinguish between the customers of a product or service, who pay for it or invest in its development, and the users

It’s essential to engage both customers and users as key stakeholders in the co-creation

During Discovery, we create a collaborative and inclusive environment for a small cross-functional, multidisciplinary team to explore a business, product, or improvement opportunity. The team should be fully dedicated and co-located to maximize the speed of learning and the effectiveness of real-time decision making. It must assume ownership of delivery and be empowered to make the necessary decisions to meet the objectives of the initiative.

The final—and too often forgotten—members of the team are customers and users

Creating a Shared Understanding

When starting a new piece of work, it is imperative that the group creates an environment maximizing the potential of everyone involved

As Dan Pink argues in Drive,68 there are three key elements

shared sense of purpose

people must be empowered by their leaders to work autonomously

the space and opportunity to master their discipline

The process of shaping the vision begins by clearly articulating the problem that the team will try to solve

Go Gamestorming

the supporting Go Gamestorming Wiki

games that encourage engagement and creativity while bringing structure and clarity to collaborative ideation, innovation, and improvement workshops

One of the fundamental techniques of Discovery is the use of visual artefacts, models, and information radiators to communicate and capture group learnings

Structured Exploration of Uncertainty

When exploring uncertainty, it is important to start broad—to generate as many ideas as possible to cycle through before narrowing our focus on where we will start

They invited their customers to become part of the innovation process. For two days, they ran co-creation workshops that generated over 80 new ideas

The team then set up an innovation lab in a hotel lobby for a week, rapidly experimenting with each idea to discard it or validate it as a viable customer problem to implement

Within days, the team identified three winning ideas to invest further effort in developing

thinking exercises designed to generate multiple ideas for discussion and debate. We then use convergent thinking to identify a possible solution to the problem

From here, we are ready to formulate an experiment to test it

What Business Are We In?

Understanding Our Business Problem to Inform Our Business Plan

Search versus execution is what differentiates a new venture from an existing business unit. Once a business model is validated, then it should move into execution mode

It is critical to consider many different business models in the early stages of a new initiative

Instead of writing a business plan, which can become a lengthy process, we outline multiple possible models—each time-boxed to 30 minutes—on a canvas

nine essential components

each component of the canvas represents a set of hypotheses

The Business Model Canvas differs from other canvases listed in Table 4-1 in that it doesn’t assume that product/market fit is the riskiest hypothesis that must be tested first

Understanding Our Customers and Users

Put a Face to Your Customer and User

A persona is a representation of the problems, needs, goals, and behavior of a hypothesized group of customers or users

Go, Look, See

Turning Insights and Data into Unfair Advantage

How Companies Mine Data to Discover Your Secrets

Using Insight to Inform Hypotheses and Experiments

Accelerate Experimentation with MVPs

An MVP enables us to use a minimum amount of effort to generate the maximum amount of learning when experimenting with customers

It’s important to distinguish between an MVP in Eric Ries’ sense and the initial public release of a product

Cagan defines an MVP as “the smallest possible product that has three critical characteristics: people choose to use it or buy it; people can figure out how to use it; and we can deliver it when we need it with the resources available

Should We Build It, Not Can We Build It?

By far the most likely outcome is that we learn our assumptions were invalid and we need to pivot or stop our approach

An example set of types of MVPs


Interactive prototype


Wizard of Oz


Working software

How Do Our Vision and MVP Work Together?

Cagan defines vision as the shared understanding that “describes the types of services you intend to provide, and the types of customers you intend to serve, typically over a 2–5 year timeframe.”86 As such, it provides a roadmap and context for MVPs

Early evangelists, particularly in enterprises, should buy into our entire vision, not just our first MVP experiment

able to fill in the gaps in our solution as they feel the pain of the problem we are trying to solve

The One Metric That Matters

single metric that we prioritize as the most important to drive decisions depending on the stage of our product lifecycle and our business model

linking it to the assumptions

basing it on rates or ratios

It should not be a lagging metric

Founder of Intuit Scott Cook says that founders should focus on “love metrics,”

Use A3 Thinking as a Systematic Method for Realizing Improvement Opportunities

An A3 report (so called because it fits on a piece of A3-size paper), composed of seven elements, embodies the Plan-Do-Check-Act cycle of experimentation

Remember, metrics are meant to hurt


Discovery allows us to safely explore opportunities in conditions of extreme uncertainty

We must adopt the mindset in which all our ideas are hypotheses based on assumptions that must be tested, and that most of these assumptions will be proved wrong

Chapter 5. Evaluate the Product/Market Fit

In this chapter we will discuss how to identify when a product/market fit has been achieved and how to exit the explore stage and start exploiting

Innovation Accounting

When exploring, accounting must not be ignored or deemed irrelevant. It simply needs to be interpreted differently

Measurement Fallacy

invest energy in collecting the metrics that help us make decisions

Table 5-1. Examples of vanity versus actionable metrics

Dan McClure’s “pirate metrics

In order to determine a product/market fit, we will also need to gather other business metrics, such as those shown in Table 5-4. As always, it’s important not to aim for unnecessary precision when gathering these metrics. Many of these growth metrics should be measured on a per-cohort basis, even if it’s just by week

Table 5-4. Horizon 3 growth metrics

Which metrics we care about at any given time will depend on the nature of our business model and which assumptions we are trying to validate. We can combine the metrics we care about into a scorecard, as shown in Figure 5-2.100

In terms of governance, the most important thing to do is have a regular weekly or fortnightly meeting which includes the product and engineering leads

The goal of the meeting is to decide whether the team should persevere or pivot

Energizing Internal Advocates in the Enterprise

we need to be careful that any critiques do not become focused on individuals or their behavior within the system

Do Things That Don’t Scale

We must continue to optimize for learning and not fall into simply delivering features

In the early stages, we must spend less time worrying about growth and focus on significant customer interaction

We need to focus on finding passionate early adopters to continue to experiment and learn with

Our goal should to be to create a pull system for customers that want our product, service, or tools

Customer Intimacy

Developing Empathy with Customers: Sometimes the Answer Is Inside the Building

By keeping our initial customer base small—not chasing vanity numbers to get too big too fast—we force ourselves to keep it simple and maintain close contact with our customers every step of the way

Build a Runway of Questions, Not Requirements

runway is a series of questions that we need to test to reduce uncertainty and improve our understanding of growth opportunities

Create a Story Map to Tell the Narrative of the Runway of Our Vision

Story maps are tool developed by Jeff Patton, explained in his book, User Story Mapping

Story maps help with planning and prioritizing by visualizing the solution as a whole (see Figure 5-3). Story mapping is not designed to generate stories or create a release plan—it is about understanding customers’ objectives and Jobs To Be Done

When we start to harden, integrate, and automate our product, it impacts our ability to rapidly adapt

We want to ensure that we are constantly interacting. If we optimize only for building without constantly testing our assumptions with our customers, we can miss key pain points

When we find a customer with a problem that we can solve manually, we do so for as long as possible

Leverage Frugal Innovation

Engineering Practices for Exploring

We will (as Martin Fowler puts it) deliberately and prudently accumulate technical debt in order to run experiments and get validation

Our advice is this. There are two practices that should be adhered to from the beginning that will allow us to pay down technical debt later on: continuous integration and a small number of basic unit and user-journey tests

we must then pull the lever hard in the other direction, kill the momentum, and transition our focus from building the right thing to building the thing right

consider the alternatives to the Big Rewrite described in Chapter 10

Engines of Growth

In The Lean Startup, Eric Ries argues that there are three key strategies for growth—choose one:




For enterprises, however, there are further growth options to consider


*Platform *

Transitioning Between Horizons to Grow and Transform

We must be aware of the pitfalls at each stage, including transitioning at a wrong time and selecting a wrong strategy for each horizon

Lean Development and Lean Operations, by Steve Bell

Toyota has demonstrated that an enterprise that adopts lean thinking seamlessly across development and operations can gain a lasting competitive advantage

Lean development and operations are interrelated and complementary, but very different in nature

When attempting to cross Horizon 3, indicators of customer satisfaction and continued engagement are important signals to monitor for future growth

The five critical enablers of growth when transitioning from explore to exploit are


imperative to select the right market

Monetization model

Customer adoption

Forget “big bang” launches

Team engagement

Innovation Takes Time: From Auction to Marketplace


Part III. Exploit

In this part, we discuss how to exploit validated ideas

ven in organizations which have adopted “agile” development methods, the value stream required to deliver a project often resembles Figure III-1, which we describe as “water-scrum-fall

There are several frameworks that deal with scaling agile software development methods. In general, these frameworks take small teams practicing Scrum and add more structures on top to coordinate their work. However, these teams are still embedded within a phase-gate program

Our approach differs in several important respects

Chapter 6. Deploy Continuous Improvement

how you move from low performance to high performance matters

companies whose engineering teams do a good job of delivering their work on schedule and simplifying their systems achieve better business results with much lower cost bases, even if their IT investments aren’t aligned with business priorities

The HP Laser Jet Firmware Case Study

They had been on the critical path for all new product releases for years, and were unable to deliver new features

they took the bold but risky decision to build a new firmware platform from scratch

Drive Down Costs Through Continuous Process Innovation Using the Improvement Kata

Understand the Direction

Planning: Grasp the Current Condition and Establish a Target Condition

we incrementally and iteratively move towards it at the process level

Getting to the Target Condition

How the Improvement Kata Differs from Other Methodologies

It is not a playbook; rather, as with the Kanban Method, it teaches teams how to evolve their existing playbook

Single-Loop Learning and Double-Loop Learning

Changing the way we think and behave in reaction to a failure is crucial to effective learning. This is what distinguishes single-loop learning from double-loop learning

Rother presents the Coaching Kata in addition to the Improvement Kata

How the HP Laser Jet Team Implemented the Improvement Kata

What Happens When We Do Not Achieve Our Target Conditions?

Results are not the point

Designing for Iterative Development

Managing Demand

common for this kind of improvement work to get crowded out by business demands

why it’s important to make it visible by activity accounting, including measuring the cycle time and the time spent serving failure demand such as rework

Managing Cross-Cutting Work

Do Not Use Team Velocity Outside Teams

Creating an Agile Enterprise

teams have relative autonomy to choose and evolve their own processes, provided they are able to meet the program-level target conditions for each iteration

All business demand was also managed at the program level. Notably, product marketing requests always went through the program-level process, without feeding work directly to teams

Generative organizations don’t manage by metrics and targets. Instead, the Future Smart management “use[s] the metrics to understand where to have conversations about what is not getting done


Chapter 7. Identify Value and Increase Flow

Most enterprises are drowning in a sea of overwork, much of which provides little value to customers

Lean Thinking provides a proven alternative which “can be summarized in five principles: precisely specify value by specific product, identify the value stream for each product, make value flow without interruptions, let the customer pull value from the producer, and pursue perfection

In this chapter we show how the five lean principles were adopted by Maersk to reduce the cycle time of new features by over 50% while simultaneously increasing quality and return on investment (ROI)

The Maersk Case Study

Maersk Lines, the world’s largest shipping company

chose eight goals for all teams

Previously, features had always been batched up into projects, resulting in many lower-value features being delivered along with a few high-value ones

implemented a new process for managing requirements

Features were prioritized using the Cost Of Delay method

Putting in the extra effort to calculate a dollar value is essential to reveal assumptions, come to a shared understanding, and move away from relying on the most senior person in the room making the prioritization call

the distribution of cost of delay followed a power law curve

Increase Flow

also book by Trevor Owens and Obie Fernandez ISBN:1118852176


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