Creating Robust, Resilient & Antifragile Organizations (using Kanban)

Copyright Lean Kanban Inc.dja@leankanban.com @lki_dja
Creating Robust, Resilient &
Antifragile Organizations
What does it take to be…
…“built to last”?
Presenter:
David J. Anderson
Lean Kanban North
America
San Diego
May 2016

Emotional Motivation for Change

Nobody wants to lead the next Nokia!
From $56 to $2!

Motivation for adoption? Kanban has agendas
Managerial Motivator
• Senior-level
• Lead the business (strategy and
positioning)
• Confidence they can deliver on strategic
goals
• Legacy (long term survival)
• Mid-level
• Up-managing – answer the hard questions
with confidence
• Down-managing – make difficult decisions
with confidence
• Line-level & Individual
Contributors
• Relief from abusive environment
• Overburdened
• Quality suffers
• Low job satisfaction
Kanban Agenda
• Survivability
• Service-orientation
(and customer focus)
• Sustainability

What are they afraid of?
Manager
• Senior-level
• Mid-level
• Line-level &
Individual Contributors
Fear
• Mid-level managers lie to me. There
is no transparency. Bad news
arrives late. Too late to intervene
• Business failure
• Senior leaders over-react. I don’t
trust them with information
• Line managers & workers can’t be
trusted to deliver on their promises
• Our bosses constantly set us up for
failure
• Burn out

Taleb’s Model for Organizations

A new way to look at organizations
• Fragile
• Resilient
• Robust
• Antifragile
• At risk of total failure /
financial ruin
• Takes damage, avoids total
failure, recovers
• Absorbs uncertainty, repels
blows, avoids damage
• responds to stress by
mutating, maintains fitness
for purpose
• purpose and identity can
change entirely

Fragile

Resilient

Robust

Antifragile

Moneyball highlights fragile, resilient & robust

Fragile lead time distribution
Weibull, k=0.8

More Robust Lead Time

Examples of Lead Time Distributions

Kanban mitigates risk of fragility
Kanban systems limit WIP and improve flow
efficiency
Lead time distributions are much thinner tailed from
full kanban systems with WIP limits and pull fully
implemented
In general, the Kanban Method contributes
significantly to trimming the tail, reducing risk and
improving resilience, robustness & antifragility

Examples of fragile entities
Monocultures are fragile
Highly cohesive social groups are fragile
Monopolies are fragile
Firms with a dominant market position coupled to
complacency or hubris are fragile
Single class of service kanban systems are fragile

the Greenland Norse were fragile

Monopoly skischool franchises didn’t survive
deregulation in the 1990s

Squeezes

Deadlines create squeezes
How to deal with a squeeze
 Contingency (start early, buffer time)
 Liquidity – more capacity (people, resources, money)
 Demand shaping – divert demand
• Defer quality problems, non-functional requirements, or features
for some niches/market segments until later

Dealing with squeezes
Contingency is expensive but can be robust
Liquidity can be expensive but can be robust
 Kanban & Enterprise Services Planning provide some
relatively cheap ways of improving liquidity
Deferring quality problems is cheap but inherently
fragile!
Heroic effort appears cheap but is inherently fragile!
 And often expensive to maintain, e.g. recruitment cost of
replacing burned out people, or inflated cost of “hero”

A better way to deal with squeezes
Hedge risk of a squeeze with optionality
 Sequencing which maximizes optionality (commit early
because you know why – low uncertainty)
 Capacity allocation
 Discretionary (or refutable) demand
 Smart portfolio & product mix selection
Optionality is not free but it is often (much) cheaper
than contingency

Resilient organizations avoid catastrophic failure
Likelihood = Probability of x
Impact = f(x)
Probability of short or long landing = 1/14 million
 fat tail problem
 black swan event

Impact function matter more than likelihood
Examples of 2 short landings in last 3 years. Likelihood 1
in 14 million flights
Impact - SFO Asiana Boeing 777. July 2013. Aircraft is
written off, no loss of life - 2 crew severely injured.
3 teenage passengers die after incident, killed by
emergency vehicles attending the scene
Impact - Rostov-on-Don Russia. FZ981 Boeing 737.
March 2016. Total loss of aircraft, passengers and crew.
62 deaths

Resilient organizations avoid catastrophic failure
F(x) - the potential impact - always overrides probability of x - the
likelihood. The two parameters cannot be multiplied together to
prioritize risk management.
Risk mitigation - reducing the impact - is more important than risk
reduction - reducing the likelihood
When there is a risk of total ruin, however unlikely, we need to pay
attention to it and manage it.
Probability of delay versus impact of delay
Class of service reduces probability of delay, x, for items with a large
impact (f(x)) of delay

Blocker Clustering helps with resilience
Identify Risks
Identify Likelihood & Impact
Reveals probability of delay
versus impact of delay
Root Cause Analysis
Reduction & Mitigation
actions
http://www.klausleopold.com/2013/09/blocker-clusters-problems-are-not.html

Resilient organizations use classes of service
Class of service reduces probability of delay, x, for
items with a large impact (f(x)) of delay

Resilient organizations use experiments
Resilient organizations use experiments but control
the financial risk
Avoid risk of ruin from overbetting on too many
experiments
Portfolio management with “Kelly betting”
 If you have 60% confidence in payoff bet up to 20% of
what you can afford to lose
“bet size” includes option development experiment
and cost of exercising the option, designing &
building production version and bringing it to market

Resilience requires a reason to pick yourself up
and try again
Resilient organizations have a strong sense of
purpose
Resilient organizations have unity and alignment
behind that sense of purpose
Resilient organizations have “Einheit”
Purpose can be values based such as “superior
customer service” – Virgin Group

Purpose or values weigh more strongly than
identity with resilient organizations
Unity and social cohesion comes from a strong sense
of purpose or a set of shared values

Feedback loops for tactical concerns
Immediate service delivery
Selecting the right things, framed in the right way
Responsiveness to tactical opportunities

Robust organizations…
Are risk hedged
Have optionality
Have liquidity
Have strong capability with low variability
 Flight to quality (in uncertain times)

Feedback loops for operational concerns
Do we have enough capacity to cope with volumes of
demand over time?
How do we hedge risk?
Do we have the correct risk assessment framework
to analyze demand?
Are we collecting the right metrics?
Are we managing risk quantitatively?

Leveraging an understanding of
fragility, resilience & robustness

Volatility & Turbulence
Risk is manageable in conditions of stable volatility, i.e.
where there is no/very little turbulence. Turbulence implies
unmanageable risk
Ergo, turbulent systems are fragile systems

Kano Analysis, Strategy & Risk
Performance
Customer satisfaction
Investment
(time, money)
linear
exciter
dissatisfier
Fragile
Robust
Antifragile
Call quality as a function of radio
spectrum is hard to replicate. Some radio
spectrum is therefore worth a lot more
than other bandwidths.
Correctly aligning marketing strategy - sell
quality, signal robustness, call integrity - with
decision to purchase expensive radio spectrum
provides a robust differentiated position

Entropy

Entropy in a housing neighborhood

Diversity of housing makes a robust neighborhood

Without restriction entropy will continue

Left unchecked a new monoculture develops

Eventually maximum entropy occurs

Robustness is fragile – a philosophical dilemma
Fragile systems are often stable
 Perhaps maximum entropy has already been reached? Like
a well stirred Campari orange
Robust systems exist in a fragile state vulnerable to
entropy
Explicit policy is required for diversity or organized
inequality to enable robustness
Low trust environments subject to corruption will
entropy from one fragile condition to another.
Robustness cannot be sustained in low social capital
environments

Singapore is Robust

3M – Minnesota Mutation Machine*
3M has innovation built into its DNA
However, 3M doesn’t seem to have been capable of
developing products that require long periods of
investment and large sums of capital
 E.g. in comparison, IBM invested in speech recognition for
50+ years
 We don’t fly in 3M planes, get our power from 3M
generators or use 3M smartphones, telecoms networks or
computers
* Collins & Porras, Built to Last

IBM has a long history of identity change
1911, CTR = The Tabulating Machine Company, the
International Time Recording Company, the Computing Scale
Company and the Bundy Manufacturing Company
1924 CTR becomes International Business Machines
1964 System/360 Mainframe family launched
1981 PC launched
1991 Sold Lexmark
2002 acquires PWC Consulting
2005 Sold PC business to Lenovo
2016 Announced exit of mainframe business
Now, primarily a professional services firm! What will its next
identity be?
Does IBM have antifragility built into its DNA? Can it keep
reinventing itself?

John Menzies founded in 1833 as a newsagent in
Edinburgh. Identity change in 1998 to distribution &
airport baggage handler

Microsoft is robust rather than antifragile
Robustness comes from lack of complacency or
hubris. Bill Gates’ “be paranoid”
Shift perception to collective tribal insecurity
Deep pockets. Lots of optionality
Cooperative effort to strengthen the tribe
Personal Sacrifice
Symbols are more important
Common enemy
Rituals practiced
“Be Paranoid”

Microsoft is robust rather than antifragile
Acquisition of Minecraft maker is
entirely consistent with identity as a
developer tools company
Promotion of Sateya Nadella head of
developer tools is entirely consistent
with core identity

Identities that are looser, wider, broader
umbrellas are robust and enable antifragility

Virgin are robust and may be antifragile so long as
they survive the transition from Sir Richard
Branson as their leader

What is Virgin Group’s Identity ?
Not a record label but they are
Not a retailer but they are
Not a travel company but they are
Not a communications company but they are
Not a media company but they are
Not a fitness company but they are

Virgin’s brand
Virgin’s brand is fun, irreverent, associated with
superior customer service and “cool” things people
need and use regularly
 Except Virgin Galactic which is just “cool” and Richard
wants it

Feedback loops for strategy
A learning organization that can ultimately learn to
reinvent itself
Antifragile organizations have feedback loops for
strategy including regularly assessing
 purpose
 capability alignment with purpose
 whether they are “fit for purpose”
 Identity
Antifragile companies can shed core businesses while
embracing new ones

The Organizational Dilemma

Organizational Dilemma
Loose social cohesion encourages the behaviors required
for antifragility
 Loose attachment to identity
 Liberal experimentation
High social cohesion enable resilience & robustness
 Unity and alignment
High trust & high social capital are required for antifragility
Designed & controlled inequality is required for robustness
 Social mobility within organized inequality creates antifragility
Utopian societies are fragile
 Communism & anarchy
 E.g. Anti-utopian novels such as Brave New World, The Beach

Kanban & Resilience, Robustness &
Antifragility

Capability
OptionalityAdaptability
Agility
Survivability
Out-maneuvered
Unfit for purpose
Kanban enables Antifragility
Antifragility

The Kanban Method
General Practices
1. Visualize (with a kanban board 看板)
2. Limit work-in-progress (with kanban かんばん)
3. Manage flow
4. Make policies explicit
5. Implement feedback loops
6. Improve collaboratively, evolve experimentally
(using models & the scientific method)

Strategy
Review
Risk
Review
Monthly
Service
Delivery
Review
Bi-WeeklyQuarterly
Kanban
Meeting
Daily
Operations
Review
Monthly
Replenishment &
Commitment
Meeting
Weekly
Delivery
Planning
Meeting
Per delivery cadence
change change
change
change
change
change
change change
change
info
info
info
info
info
info
info
info
info
change info
Kanban Cadences

Change
Requests
3
1
Prod.
Defects
Maintenance
Usability
Improvement
2
1
Kanban helps with “einheit” (unity & alignment)
Teams
F
E
Engin-
eering
Ready
G
D
GY
PB
DE
MN
2
P1
AB
Ongoing
Analysis Testing
Done Verification Acceptance
3 3
Ongoing
Development
Done
3
Joe
Peter
Steven
Joann
David
Rhonda
Brian
Ashok

Kanban enables resilience, robustness & antifragility
Resilience
 Thin-tailed lead time distributions – predictable
 Einheit – unity & alignment
Robustness
 Explicit policies
 Capacity allocation
 Classes of service
 Greater optionality
Antifragility
 Kanban cadences provide feedback loops at tactical, operational
and strategic levels

Thank you!

About
David Anderson is an innovator in
management of 21st Century
businesses that employ creative
people who “think for a living” . He
leads a training, consulting,
publishing and event planning
business dedicated to developing,
promoting and implementing new
management thinking & methods…
He has 30+ years experience in the high technology industry
starting with computer games in the early 1980’s. He has
led software organizations delivering superior productivity
and quality using innovative methods at large companies such
as Sprint and Motorola.
David defined Enterprise Services Planning and originated
Kanban Method an adaptive approach to improved service
delivery. His latest book, published in June 2012, is, Lessons
in Agile Management – On the Road to Kanban.
David is Chairman & CEO of Lean Kanban Inc., a business
operating globally, dedicated to providing quality training &
events to bring Kanban and Enterprise Services Planning to
businesses who employ those who must “think for a living.”

This presentation was inspired by the work of Nassim Taleb on Fragility,
Resilience, Robustness & Antifragility in Risk Management and by his 5-day
Real World Risk class in New York City, February 2016. None of the content of
this talk is taken directly from Taleb nor is it meant to represent (or
misrepresent) his work in shape or fashion.
Cover images courtesy of John Menzies PLC, the Scotsman newspaper and the
BBC.
Lead time distribution courtesy Andreas Bartel
Volatility & Turbulence data courtesy of Digite, Raymond Keating / CME Group,
Andreas Bartel
Acknowledgements

Appendices

Books

2010 – Kanban “blue book”

2012 Lessons in Agile Management
The heavily under-rated book
that underpins the Kanban
Coaching Masterclass and most
of the theory behind the
Kanban Method

2014 Kanban from the Inside

Player Stats

Buster Posey
San Francisco Giants
Salary $17.3M
Ryan Howard
Philadelphia Phillies
Salary $25M
Salvador Perez
Kansas City Royals
Salary $1.85M
Average OBP 0.318
Fairly Robust 0.350 – 0.400
Left skewed (no upside)
Average OBP 0.277
Fragile mostly 0.250 – 0.300
Left skewed (many 0’fers)
Average OBP 0.280
Very Robust above 0.250
Right skewed (some hot days)

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