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Systems Thinking Approaches
to Organizational Design
Business Technology
@martinaziz
What we’ve learned
“Real stories” – Stephen Regoczei
Systems Thinking TO
Meetup
Organizational JourneyPart 1
Punctuated Equilibrium.
A multi-year journey of discovery and transformation and emerging maturity.
The Journey
Punctuation Points
At Equilibrium
Managed Projects
Some consistent
process
Heroics
Inconsistent
Outcomes
Scrum
Consistent
Outcomes
Teams & Tribes
Want:
Consistent Economics
Continuously Fit for
Purpose
Scrum
All Teams
No projects
No managers Large J-Curve
System Level Management:
Metrics
Visualization
Pull Systems
Limiting System WIP Series of smaller Js
2016 ->2014-2015< - 2013
Equilibrium
Time
These Systems Thinking approaches to organizational design attempt to
shift the agenda from tactical success to long term business robustness.
Much of this is driven from the ability to sense, respond and continuously improve. The
following maturity model plots this organizational capability.
Organizational
Maturity
Emerging
Chaotic/Adhoc
Defined
Managed
Quantitatively
Managed
Optimizing5
4
3
2
1
No consistency of process or
outcome
Luck/Individual heroics
Chaos
Consistency of process
Heroic management
Consistency of outcome
Consistency of economics
Model-driven improvement
Sense & respond
Continually “fit for purpose”
Resilient
Fragile
Robust
Anti-fragile **
Maturity Level *
“Built to Last”
Understress
Follow procedure
& improve
Panic & Regress
* Copyright Lean Kanban Inc.
** Anti-fragile. System that improves with change/stress.
Finding out about the systemPart 2
One metric we use extensively is the Cumulative Flow Diagram (CFD)Metrics
7
6
5
4
3
2
1
1 2 3 4 5 6 7 8 9
Average time customer waits
Average work in
the process
Time (days)
WorkItems
5 to 7 Months
Releasable Features
Release CFDA Release
B Release
C Release
D Release
All of the Above
Which release matches this CFD best?Pea
Pods
Sprints are predictably 
delivered every 2 weeks but 
not exploitable
Unconstrained demand arrives
or is revealed during a long batch.
Demand that 
will experience 
a long lead 
time
Shifting focus. Pauses
Waits. 
Pea
Pods
Looking at common features of the system
Batch has high 
transaction costs. 
(causal loops)
Soup
Kitchens
Soup Kitchens vs Country Clubs - Effects of Overburdening.
Constrained vs Unconstrainted demand
0
50
100
150
200
0
100
200
300
400
500
600
Service 1
Restricted demand
Service 2
Unrestricted demand
Demand
expired.
Soup
Kitchens
Overburdening - Little’s Law
Throughput
Work in
Process
Lead Time
Little’s Law
Lead Time = Work in Process ÷ Throughput
Flow
Efficiency
Flow Efficiency
Wait Wait Wait WaitWork Work Work Work
Flow Efficiency =
work
work + wait
x 100%
< 2% common < 15% frequent < 40% good + rare
Industry Range
Flow Unraveling our flow yarn.
For this service, our
customers
only ask for 4 things:
1. Resolve System
Availability
2. Maintain
Applications
3. Requests for
Information
4. Enhancement /
Make some
change
Demand Flow routing is
complex.
NxN route combinations
Multiple work specializations
Combinations of constrained /
unconstrained demand
Work is almost always pushed
Lets do something about itPart 3
The
System
Identifying the prime suspects
Variability
1. Divergent Market
2. Emergent Information
over time
3. Execution Variability
Demand vs Capacity
Satisfy demand, without
overburdening the system.
Flow
Routing flow optimized for
service delivery vs function
& specialization
Fixed “determinist” plans suffer from sources of change and unknowable
information about our environment.
The most common causes:
Variability
Divergent Market
The market need has
changed during the time
lag between idea and
delivery.
Emergent Information
Discovery
Critical information about
what you need to deliver is
discovered during the act of
delivery.
Execution Variability
The complexity
encountered during
delivery can’t be pre
determined.
Making Roadmaps & Plans resilient to emergence.Variability
Road Maps & Project Plans
Assumes:
• Path to success remains fixed
• Limits opportunities to leverage
new information
• Limits success to limited options.
Iterative Targets *
• An ongoing process
• Attempts to keep targets small maintaining
focus and momentum
• Replaces deadlines with cadences of
inspection
• Built around experimentation.
The Current
Condition
Target
Condition
• An interim goal that is
hard to achieve but
reasonable to
undertake.
• Multiple TCs are
expected to reach
Vision
• Do not define future
TCs until the current
one is reached.
• The sought
out condition
that represents
success
• Appears
unachievable,
particularly in
one step.
• Feels
overwhelming
Vision
* “Improvement KATA”
Keeping deliveries small allow for increased exploitation of new information
and opportunities to obtain earlier and more frequent value.Variability
Day 1 Day 365
Opportunity
for value
Opportunity
for value
Opportunity
for value
Opportunity
for value
Opportunity
for value
Opportunity
for value
Exploit
market
information
Exploit
market
information
Exploit
market
information
Exploit
market
information
Exploit
market
information
Organizing around value streams orients an organization into
aligning it’s actions around:
• Seeing the customer needs expressed as services (i.e. streams of
value) delivered to the customer
• Optimizing the value delivery to fit the Customer’s Purpose
Flow
Considerations:
• Value stream end points are
always a customer
• Customer end points can be
internal customers; however
many times parts of the flow
can be confused as
customers
• Value Streams vary in
complexity
• Complex value streams
usually requires people and
teams that also support other
value streams
• If you can express the Value
Stream as a service, you can
optimize it’s delivery of value.
Organization
Team
Team
Team
Team
Team
Team
Team
Team
Value
Value
Value
Customer
Customer
Customer
Techniques to design and launch value streams optimized for
value delivery.
Flow
Lean Kanban Process “STATIK” has 8 steps:
1. Understand what makes the service “fit
for purpose”
2. Understand sources of dissatisfaction
regarding current delivery
3. Analyze sources of and nature of
demand
4. Analyze current delivery capability
5. Model the service delivery workflow
6. Identify & define classes of service
7. Design the system – Visualize, Design,
Establish Policies
8. Socialize design & negotiate
implementation
“I need this.” “I have it! Thanks!”
Service 
Delivery
Design and Operate
Our existing delivery patterns optimized flow of work through
team. But doesn’t fully optimize for the customer.Flow
Sense 
& Promise
Push
Stories
Scrum 
Team
Scrum 
Team
Scrum 
Team
Story
Accumulation
FeaturesIdeas
Kanban
Team
Customers
Delivery
Customers
Doing
White spaces between teams 
sources of greatest delays.
Stories hard to recognize by 
customers or actors on the left end 
of the flow.
Unconstrained demand
Early Commitment 
without 
connection to 
capability
For each Value Stream, demand is always expected to outstrip supply. The
VS needs to be designed to limit the flow of work to that which maximizes
positive business outcomes and minimizes economic risk.
Sense
Pull
Features
Features
Do Next
Ideas
CustomersDelivery
Customers
Features
Do
Features
Good Constrained delivery
pipeline
Upstream Downstream
Progress Customer
Recognizable
Delivery Improvements
aligned to optimize for
value delivery
Demand
vs
Capacity
Work is pulled into delivery pipe
automatically as capacity
becomes available. Push is
avoided to prevent
overburdening.
Value Streams may have shared teams across multiple VS’.
The balance between dedicated and shared teams will be
emergent as the value streams are optimized over time. Teams do
not need to be “Agile” though they may choose to be over time.
Customers
Demand
vs
Capacity
Customers
Customers
CustomersDelivery
CustomersDelivery
CustomersDelivery
Team
Team
Team
Team
Team
Value Stream 1
Value Stream 2
Value Stream 3
T
e
a
m
Team
Team
Team
Value streams are not all of equal value. Resources for VS’ are
part of a zero-sum pool of resources. Allocation of resources
a strategic decision at value stream level (not by initiative)
Customers
Demand
vs
Capacity
Customers
Customers
CustomersDelivery
CustomersDelivery
CustomersDelivery
CustomersDelivery
The organization needs
mechanisms to adjust
allocations over time.
Each value stream
constrains work pulled
based on their available
capacity
Value Stream 1
Value Stream 2
Value Stream 3
Techniques to establish positive business outcomes while
balancing demand and capacity .
Demand
vs
Capacity
Service Fidelity
Not all types of demand are equal
in priority. Understand cost of
delay. Classes of Service can be
used to separate this.
Queue Management
Understanding business tolerances
to waits, managing to limits,
determining quantities of queues,
their location, and their nature (e.g.
shared or dedicated).
Liquidity
The degree to which you can respond to
changes in the demand with the current
supply while balancing specialization.
System Management
Roles to actively determine
how the system needs to be
designed and changed to meet
business needs.
Pull System
Work is pulled in by teams through
established policy. Teams stop
pulling when capacity is at
established limit.
Policies
Transparent and agreed
policies across the system.
Managing the flow of work vs
directing people.
Liquidity effects the degree to which you can respond to changes in the
demand with the current supply while balancing specialization.Demand
vs
Capacity
Achieving optimal liquidity is a balancing act between
organizing for a known need and developing capacities to
respond to changing needs.
Business
Investment
Liquidity
High
Low
Low High
Cross Functional
Associates
Cross Functional
Teams
Constrained
pull
systems
Specialists
Specialty Teams
Slow
Response
to Change
Respond
and/or
Exploit
Change
Considerations such as Due Dates, Emergencies and other aspects of what
makes something successful needs to be part of a Value Stream’s capability.
This is achieved by understanding the Cost of Delay profile of requested
work and slotting it to the right Class of Service.
Service
Fidelity
Classes of Service
Expedite - “Security Breach”
Fixed Date - “Stadium on time for Olympics”
Standard – “Regular delivery from Amazon”
Significant impact to the organization. High amount
of resources are sourced from multiple areas to
delivery as soon as possible. Degrade other services
to support this. Should not be used often.
To be delivered by a fixed delivery date given
sufficient advanced lead time given.
The regular delivery method leveraging the allotted
capacity that the organization has provided for this
service.
Cost of Delay Profiles
Time
Impact
of
Delay
Time
Impact
of
Delay
Impact
of
Delay
Time
Resources
Antifragile: Things That
Gain from Disorder
Nassim Nicholas Taleb
Kanban from the Inside
Mike Burrows
The Principles of Product
Development Flow
Donald G. Reinersten
Actionable Agile Metrics
for Predictability
Daniel S. Vacanti
Focused Objective Tools
& Resources
focusedobjective.com
Troy Magennis
Okaloa – Flow Lab
www.okaloa.com
Patrick Steyaert Business Technology
@martinaziz
Appendix… one last thing
Decentralized Control.
Signals moving up and down a hierarchy delay responses. Autonomy of
decision making needs to be linked with the speed tolerance of the
decision.
Flow
Slow to Change
Quick to Change
Moderate Change
CEO
Executive
Sr. Management
Middle Management
Sr. Associates
Associates
Location of Decision
Overall Mission
Divisional Missions & Strategy
Value Stream Identification
Value Stream Allocation
Value Stream Management
Value Stream Population (Features, Tactics, Initiatives)
Execution Improvements
Team Organization
Decision Examples
Execution
Often referred to as “servant leadership” this approach of achieving
successful decentralized control relies on leadership at all levels through:
Alignment -> Establishment conditions for good decision making.
Empowerment -> Providing sufficient space to make adaptive decisions.
Transparency -> Providing feedback loops throughout the organization.
Flow
CEO
Executive
Sr. Management
Middle Management
Sr. Associates
Associates
Alignment
Alignment
Alignment
Empowerment
Empowerment
Empowerment
Transparency
Transparency
Transparency

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Systems Thinking Approaches to Organizational Design

  • 1. Systems Thinking Approaches to Organizational Design Business Technology @martinaziz What we’ve learned “Real stories” – Stephen Regoczei Systems Thinking TO Meetup
  • 3. Punctuated Equilibrium. A multi-year journey of discovery and transformation and emerging maturity. The Journey Punctuation Points At Equilibrium Managed Projects Some consistent process Heroics Inconsistent Outcomes Scrum Consistent Outcomes Teams & Tribes Want: Consistent Economics Continuously Fit for Purpose Scrum All Teams No projects No managers Large J-Curve System Level Management: Metrics Visualization Pull Systems Limiting System WIP Series of smaller Js 2016 ->2014-2015< - 2013 Equilibrium Time
  • 4. These Systems Thinking approaches to organizational design attempt to shift the agenda from tactical success to long term business robustness. Much of this is driven from the ability to sense, respond and continuously improve. The following maturity model plots this organizational capability. Organizational Maturity Emerging Chaotic/Adhoc Defined Managed Quantitatively Managed Optimizing5 4 3 2 1 No consistency of process or outcome Luck/Individual heroics Chaos Consistency of process Heroic management Consistency of outcome Consistency of economics Model-driven improvement Sense & respond Continually “fit for purpose” Resilient Fragile Robust Anti-fragile ** Maturity Level * “Built to Last” Understress Follow procedure & improve Panic & Regress * Copyright Lean Kanban Inc. ** Anti-fragile. System that improves with change/stress.
  • 5. Finding out about the systemPart 2
  • 6. One metric we use extensively is the Cumulative Flow Diagram (CFD)Metrics 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 9 Average time customer waits Average work in the process Time (days) WorkItems
  • 7. 5 to 7 Months Releasable Features Release CFDA Release B Release C Release D Release All of the Above Which release matches this CFD best?Pea Pods
  • 9. Soup Kitchens Soup Kitchens vs Country Clubs - Effects of Overburdening. Constrained vs Unconstrainted demand 0 50 100 150 200 0 100 200 300 400 500 600 Service 1 Restricted demand Service 2 Unrestricted demand Demand expired.
  • 10. Soup Kitchens Overburdening - Little’s Law Throughput Work in Process Lead Time Little’s Law Lead Time = Work in Process ÷ Throughput
  • 11. Flow Efficiency Flow Efficiency Wait Wait Wait WaitWork Work Work Work Flow Efficiency = work work + wait x 100% < 2% common < 15% frequent < 40% good + rare Industry Range
  • 12. Flow Unraveling our flow yarn. For this service, our customers only ask for 4 things: 1. Resolve System Availability 2. Maintain Applications 3. Requests for Information 4. Enhancement / Make some change Demand Flow routing is complex. NxN route combinations Multiple work specializations Combinations of constrained / unconstrained demand Work is almost always pushed
  • 13. Lets do something about itPart 3
  • 14. The System Identifying the prime suspects Variability 1. Divergent Market 2. Emergent Information over time 3. Execution Variability Demand vs Capacity Satisfy demand, without overburdening the system. Flow Routing flow optimized for service delivery vs function & specialization
  • 15. Fixed “determinist” plans suffer from sources of change and unknowable information about our environment. The most common causes: Variability Divergent Market The market need has changed during the time lag between idea and delivery. Emergent Information Discovery Critical information about what you need to deliver is discovered during the act of delivery. Execution Variability The complexity encountered during delivery can’t be pre determined.
  • 16. Making Roadmaps & Plans resilient to emergence.Variability Road Maps & Project Plans Assumes: • Path to success remains fixed • Limits opportunities to leverage new information • Limits success to limited options. Iterative Targets * • An ongoing process • Attempts to keep targets small maintaining focus and momentum • Replaces deadlines with cadences of inspection • Built around experimentation. The Current Condition Target Condition • An interim goal that is hard to achieve but reasonable to undertake. • Multiple TCs are expected to reach Vision • Do not define future TCs until the current one is reached. • The sought out condition that represents success • Appears unachievable, particularly in one step. • Feels overwhelming Vision * “Improvement KATA”
  • 17. Keeping deliveries small allow for increased exploitation of new information and opportunities to obtain earlier and more frequent value.Variability Day 1 Day 365 Opportunity for value Opportunity for value Opportunity for value Opportunity for value Opportunity for value Opportunity for value Exploit market information Exploit market information Exploit market information Exploit market information Exploit market information
  • 18. Organizing around value streams orients an organization into aligning it’s actions around: • Seeing the customer needs expressed as services (i.e. streams of value) delivered to the customer • Optimizing the value delivery to fit the Customer’s Purpose Flow Considerations: • Value stream end points are always a customer • Customer end points can be internal customers; however many times parts of the flow can be confused as customers • Value Streams vary in complexity • Complex value streams usually requires people and teams that also support other value streams • If you can express the Value Stream as a service, you can optimize it’s delivery of value. Organization Team Team Team Team Team Team Team Team Value Value Value Customer Customer Customer
  • 19. Techniques to design and launch value streams optimized for value delivery. Flow Lean Kanban Process “STATIK” has 8 steps: 1. Understand what makes the service “fit for purpose” 2. Understand sources of dissatisfaction regarding current delivery 3. Analyze sources of and nature of demand 4. Analyze current delivery capability 5. Model the service delivery workflow 6. Identify & define classes of service 7. Design the system – Visualize, Design, Establish Policies 8. Socialize design & negotiate implementation “I need this.” “I have it! Thanks!” Service  Delivery Design and Operate
  • 20. Our existing delivery patterns optimized flow of work through team. But doesn’t fully optimize for the customer.Flow Sense  & Promise Push Stories Scrum  Team Scrum  Team Scrum  Team Story Accumulation FeaturesIdeas Kanban Team Customers Delivery Customers Doing White spaces between teams  sources of greatest delays. Stories hard to recognize by  customers or actors on the left end  of the flow. Unconstrained demand Early Commitment  without  connection to  capability
  • 21. For each Value Stream, demand is always expected to outstrip supply. The VS needs to be designed to limit the flow of work to that which maximizes positive business outcomes and minimizes economic risk. Sense Pull Features Features Do Next Ideas CustomersDelivery Customers Features Do Features Good Constrained delivery pipeline Upstream Downstream Progress Customer Recognizable Delivery Improvements aligned to optimize for value delivery Demand vs Capacity Work is pulled into delivery pipe automatically as capacity becomes available. Push is avoided to prevent overburdening.
  • 22. Value Streams may have shared teams across multiple VS’. The balance between dedicated and shared teams will be emergent as the value streams are optimized over time. Teams do not need to be “Agile” though they may choose to be over time. Customers Demand vs Capacity Customers Customers CustomersDelivery CustomersDelivery CustomersDelivery Team Team Team Team Team Value Stream 1 Value Stream 2 Value Stream 3 T e a m Team Team Team
  • 23. Value streams are not all of equal value. Resources for VS’ are part of a zero-sum pool of resources. Allocation of resources a strategic decision at value stream level (not by initiative) Customers Demand vs Capacity Customers Customers CustomersDelivery CustomersDelivery CustomersDelivery CustomersDelivery The organization needs mechanisms to adjust allocations over time. Each value stream constrains work pulled based on their available capacity Value Stream 1 Value Stream 2 Value Stream 3
  • 24. Techniques to establish positive business outcomes while balancing demand and capacity . Demand vs Capacity Service Fidelity Not all types of demand are equal in priority. Understand cost of delay. Classes of Service can be used to separate this. Queue Management Understanding business tolerances to waits, managing to limits, determining quantities of queues, their location, and their nature (e.g. shared or dedicated). Liquidity The degree to which you can respond to changes in the demand with the current supply while balancing specialization. System Management Roles to actively determine how the system needs to be designed and changed to meet business needs. Pull System Work is pulled in by teams through established policy. Teams stop pulling when capacity is at established limit. Policies Transparent and agreed policies across the system. Managing the flow of work vs directing people.
  • 25. Liquidity effects the degree to which you can respond to changes in the demand with the current supply while balancing specialization.Demand vs Capacity Achieving optimal liquidity is a balancing act between organizing for a known need and developing capacities to respond to changing needs. Business Investment Liquidity High Low Low High Cross Functional Associates Cross Functional Teams Constrained pull systems Specialists Specialty Teams Slow Response to Change Respond and/or Exploit Change
  • 26. Considerations such as Due Dates, Emergencies and other aspects of what makes something successful needs to be part of a Value Stream’s capability. This is achieved by understanding the Cost of Delay profile of requested work and slotting it to the right Class of Service. Service Fidelity Classes of Service Expedite - “Security Breach” Fixed Date - “Stadium on time for Olympics” Standard – “Regular delivery from Amazon” Significant impact to the organization. High amount of resources are sourced from multiple areas to delivery as soon as possible. Degrade other services to support this. Should not be used often. To be delivered by a fixed delivery date given sufficient advanced lead time given. The regular delivery method leveraging the allotted capacity that the organization has provided for this service. Cost of Delay Profiles Time Impact of Delay Time Impact of Delay Impact of Delay Time
  • 27. Resources Antifragile: Things That Gain from Disorder Nassim Nicholas Taleb Kanban from the Inside Mike Burrows The Principles of Product Development Flow Donald G. Reinersten Actionable Agile Metrics for Predictability Daniel S. Vacanti Focused Objective Tools & Resources focusedobjective.com Troy Magennis Okaloa – Flow Lab www.okaloa.com Patrick Steyaert Business Technology @martinaziz
  • 29. Decentralized Control. Signals moving up and down a hierarchy delay responses. Autonomy of decision making needs to be linked with the speed tolerance of the decision. Flow Slow to Change Quick to Change Moderate Change CEO Executive Sr. Management Middle Management Sr. Associates Associates Location of Decision Overall Mission Divisional Missions & Strategy Value Stream Identification Value Stream Allocation Value Stream Management Value Stream Population (Features, Tactics, Initiatives) Execution Improvements Team Organization Decision Examples Execution
  • 30. Often referred to as “servant leadership” this approach of achieving successful decentralized control relies on leadership at all levels through: Alignment -> Establishment conditions for good decision making. Empowerment -> Providing sufficient space to make adaptive decisions. Transparency -> Providing feedback loops throughout the organization. Flow CEO Executive Sr. Management Middle Management Sr. Associates Associates Alignment Alignment Alignment Empowerment Empowerment Empowerment Transparency Transparency Transparency