Lean Business and the Value of Flow

SteveTendonGuest

Decision Making through Explicit Mental Models

In today’s information overloaded world, we all need to make numerous decisions in the course of our day. Speed of decision making is often a critical element. One shortcut we take, whether it happens deliberately or not, is the usage of Mental Models. (See P. Senge’s “The Fifth Discipline”).

Often, when facing a decision, we just make it without any deeper thinking. We just know what is the right thing to do, supported by our beliefs and experience. We are making such decisions on the basis of some mental model; on some well held belief in how the world works.

Mental models are very useful. They may be imperfect; but they are practical. They give us a lens through which we can interpret reality. They are like a shortcut to avoid overburdening our minds with needless thinking, and quickly jump to a decision or action. Mental models help us filter through amounts of data and information, without becoming overwhelmed.

Typically, mental models are tacit and assumed to be understood the same way or shared by others. Miscommunication is often the result of people not sharing the same mental models.

Most mental models are also flawed, because they offer an imperfect interpretation of reality. Hence, one strategy to improve the quality of our decision making, is to explicitly focus on better mental models, and on making sure that they are explicitly articulated and shared by all people in our organization.

Mental models are often flawed because they are often based on wrong assumptions. Once such assumptions are exposed and reconsidered, then new,  more powerful mental models can be derived. They are often bewilderingly simple, to the point that they will seem obvious.

Oftentimes, the new mental models are indeed obvious in hindsight; but that does not imply that they are self-evident to begin with. Generally, we need to do some deep thinking and question our own assumptions before the obviousness is uncovered and becomes self-evident.

Mental models have a profound impact on how we make decisions, and hence on the overall performance of our businesses.

A Mental Model to Explain the Business Value of Flow

To illustrate the power of mental models, let’s try to understand why it makes business sense to focus on flow by highlighting the underlying mental model. In particular, in this post, we are concerned with operational flow and financial flow.

Any business is concerned about how much work, value or financial results they are able to produce as time goes by. Typically, the situation is represented by a simple graph that shows how “well” the company is doing over time. It might look like this:

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Of course, this is a simplification – it is a model, after all. One such simplifying assumption here is that the rate of delivery is linear; but let’s work with that assumption. The purpose is not to have a perfect model of reality, but to reason about it and see if we can gain some deeper insight.

The Desire to Increase Performance

Most organizations are under pressure to always deliver more. Typically this happens because of the competitive market landscape they operate in. They need to deliver more work which, hopefully, results in better financial results.

It is very common for the business owners to push the organization to deliver more. Improvement initiatives might be undertaken, with the desire and intent to increase the rate of delivery. Such desire can be visualized like this:

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One common assumption is that the organization’s performance is directly proportional to the organizational effort. Hence, the belief that if only the organization would put in “more effort,” it would be able to produce more work per unit of time, and the rate of delivery would increase as desired.

Increasing Performance through Effort bears Many Downsides

However, increasing the organization’s effort, typically bears costs, like:

  • Investments (like purchasing new equipment)
  • Staffing (hiring new people)
  • Assets (like buying new offices)
  • Restructuring (like putting new management structures in place)
  • Reorganization (like moving to new premises)
  • Retraining (like getting new people up to speed)
  • … and so on!

Most improvement operations focus only on trying to increase the slope of that line of delivery. Another, often unstated, assumption is that the desired increase in the  rate of delivery can cope with and match the rate of demand; but that rate of demand is often not taken into consideration at all.

The Rate of Demand is Important Too

If the rate of demand were taken in consideration, we would have to realize that demand arrives at a higher rate than the rate of delivery; and that it happens earlier in time (because work needs to be done between receiving the demand and delivering it).

It might be represented like this:

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Now that we have plotted these two fundamental lines, the demand line and the delivery line, we can start reasoning about them.

(Besides: these two lines are the fundamental base lines in the so called cumulative flow diagrams, which are well known tools for managing flow. Though here we are not concerned with the finer details of such diagrams, but only with the conceptual model.)

The Difference Between Demand and Delivery is Even More Important

If we consider the difference between the demand line and the delivery line, then the vertical difference between the two lines represents how much work needs to be done, at any given moment in time. The horizontal difference represents how long any given piece of work will take from the moment the demand is created, to the moment the work is delivered.

(Note: this is really a huge oversimplification of what happens in reality; but again, this is an imperfect model which we use to reason about what happens in real life; not to describe things in minute detail.)

We can illustrate the notion like this:

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Why Companies are Always Overburdened

It is very common that most organizations feel stretched, as if they were constantly overwhelmed.

When the rate of demand is greater than the rate of delivery, it is not surprising. Have you ever had the feeling that work just piles up, and gets more and more; while time to finish things just gets longer and longer?

If so, then this diagram can explain why:

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The Value of Matching Delivery to Demand

The reason why work actually piles up is not only due to the continuous arrival of new demand. It is also consequence of the fact that (in most cases) the decision to start the work happens almost as soon as the demand is received.

If we combine the learnings from the earlier diagram where we illustrated the desire to increase the delivery rate to such extent that it could match the demand, with the last diagram above (where work just accumulates and times get longer and longer), we can reason as follows.

If the delivery rate matches the demand rate (i.e. the two lines are parallel), then the amount of work to be done at any given time remains constant (rather than continually increasing). Likewise, the amount of time to finish any given work would also become constant (rather than being ever increasing).

In other words, the system would become stable (constant amount of work) and predictable (constant amount of time).

On our diagrams, it would look like this:

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Yet, no matter how much companies invest in increasing their performance, this ideal balanced and stable state seems never to be attained.

Could there be another way to make those two lines parallel and thereby both avoiding to overburden the system, while making it both stable and predictable?

Thinking about the Demand Line instead of the Delivery Line.

It is just so natural to think about acting on the delivery line, and “increase its slope,” because that is what we have direct control over. It is just so natural to want to make the delivery line parallel to the demand line, as that would resolve many issues.

There are other possibilities, however, where focus is not on trying to affect the delivery line.

One such possibility  is to exercise “demand shaping” and deliberately decrease the slope of the demand line. For instance, one could decide to stop serving the less profitable customers or market segments, and focus only on those of high value.

On the diagram, it would look like this:

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Of course, in most places, the idea of serving less customers or a smaller market place is not very popular.

Moreover, in knowledge work, the demand line is often (artificially) steeper than what it really needs to be. (See “feature creep.”) It becomes extremely hard to make the case of reducing the demand, when there are many stakeholders who all claim some critically vital reason for their demand to be immediately served.

The Quest for Stability and Predictability

Whether we try to increase the rate of delivery or decrease the rate of demand, both approaches strive to achieve a condition where the two lines are parallel. When the lines are parallel, the system is not overburdened and, above all, it becomes stable and predictable.

Being stable has huge business value. A stable and reliable system has greater odds of being around next year.

Likewise, being predictable is at the core of being able to “keep our promises” whenever we make any to clients or other stakeholders.

But it seems that achieving this is next to impossible.

On the one side, increasing the rate of delivery is hard, it almost certainly incurs costs, takes time and is (mostly) prone to failure. (Note: the reason why it incurs costs and has high odds of failure will be further explored with the mental models of constraints management.)

On the other side, decreasing the rate of demand is mostly out of our control, and is rarely accepted as a wise and viable business decision.

Yet, there is value in having those two parallel lines.

Could we achieve it in some other way?

Unintended Consequences of Good Intentions

To find that other way, we need to question some of the assumptions, and consequential beliefs, decisions and actions, that typically happen.

Given that the rate of demand is greater than the rate of delivery, the organization is pressured. Decreasing demand is out of the question; and demand pressure invariably results in more and more work in the system.

One recurring refrain is: “We have customers waiting to be served, we cannot let them wait! We must start working on their requests ASAP, so we can tell them they are being served!”  The idea is that in order to be responsive and to best serve customer needs, we must immediately jump to action and start working as soon as there is an incoming request.

At the same time, there is this idea that since most work is already late, the sooner you start serving a customer’s demand, the sooner the work will be delivered.

These are the two assumption that we need to reconsider:

  • To best serve the customer, we must be able to tell them we are serving them immediately.
  • The sooner you start work, the sooner it will be finished.

In the next post in the two-part series, we will explore the ways we can approach rethinking these assumptions.

This post is an extract from the course material of the TameFlow Performance Leadership Training. The course is delivered online by Steve Tendon, and is  aimed at team leaders and their teams (up to 16 people). The course is very demanding and lasts 90 days. Participants are entitled to an extended 90 day free trial of Kanbanize Enterprise Plan with Premium Analytics. Existing Kanbanize users are entitled to a 10% discount on the course fee.

Steve Tendon is a management consultant, business advisor and author. He holds a MSc in Software Project Management with the University of Aberdeen, and a MIT Fintech Innovation: Future Commerce certificate with the Massachusetts Institute of Technology. With a background in Software Engineering, he led the development of numerous applications in various fields, like: banking, health care, legal, human resources, and others.

As a management consultant focusing on organizational performance, he has had a number of significant assignments. For Wolters-Kluwer (a global information services company based in Amsterdam), he designed a digital transformation resulting in 40 million Euro cost savings.  Steve is the creator of the TameFlow management approach. TameFlow was critical for William-Hill (a FTSE 100 iGaming company in London) to increase productivity by 240% and reduce time to market by 70%, and also win the UK Agile Awards 2014. TameFlow is used across many industries, like: aviation, automotive, financial services and others.

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