Shareholder value is
the dumbest idea in the world. Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers and your products….Jack Welch 2009
There is a lot more to that quote, so read the article. The key message I want to call out is that customers and the value you bring to them drive shareholder value.
That’s all the Corporate Finance 101 I’ve got in me so let’s move on.
It’s not rocket science that by focusing on your customers first and foremost and delivering value in a consistent, high-quality manner is good business.
If you’ve been playing along at home, you will know today we are going to look at the Kanban Value of Customer Focus.
The Kanban Method has several foundational principles used for when implementing Kanban, outlined in two portions:
- Change Management
- Service Delivery
Today I want to focus on the Service Delivery side.
During service delivery is where you must understand and focus on your customers’ needs and expectations.
A good Kanban board maps out from the point a team commits to doing work to the point work is completed and delivered to the customer – the value part. But there are a few more steps in the process.
In our discussions on Collaboration and Balance, we looked at how WIP Limits focused the team on solving issues holding up work on the board. To get the best outcomes it is while resolving these blockers, by using tools like the 5 steps for eliminating constraints, that the team needs to be focused on the customer.
The real magic is that resolving blockers, constraints and adhering to WIP Limits the team actually increases the rate of delivery to customers and improves the quality at the same time.
I haven’t discussed the concept of policies within Kanban yet, another part of the Kanban magic.
Policies are the “rules” that govern how the board works – such as defining when a work item can enter or leave a process stage, and the Definition of Done. These policies need to be explicit and visible for all to see. The team can then work to evolve and tune the policies as they find ways to improve customer and business outcomes. The best policies are built by and agreed to by the team. Policies are never set in stone, as the team learns by experimenting the policies evolve.
Kanban offers several great metrics to help you keep an eye on the value delivered to your customers. These metrics allow you to also forecast accurately as to when services will be provided to your customer. Sample metrics are:
- Lead Time
- Customer Lead Time
- Delivery Rate
- Little’s Law
- Cost of Delay
- Time in Process
These metrics are best looked at with actual historical data and mostly just require you to track three dates – Date the Work was Committed, Date the Work was Accepted and the Date the Work was Delivered. If you’ve got some cost data, you are ready to roll. I’ll explore a three here “Cost of Delay”, “Customer Lead Time”, and “Time in Process”.
Cost of Delay – A pretty simple metric the difference between the benefit delivered by a work item without delay vs the benefit if the work was delayed. This, along with lead times, helps you determine what work to be pulled into the kanban system.
Customer Lead Time – This is the time a customer waits for a work item to make its way through the system.
Time in Process – The total time that a work item remains in a stage within the kanban system. This can be used to identify inefficiencies in a system.
By using these three metrics you can drive efficiencies. Predict with a high level of accuracy how long it will take for a certain type of work to move through the system. At the same time be able to make crucial business decisions about which items should take precedence when moving through the system.
For example, if you get an “urgent” request from a customer demanding delivery on X date using the data from the metrics you can with a high degree of certainty say Yes or No to meeting their expectations, before you commit to the work.
The end result allows you to consistently deliver on customer expectations with a far higher certainty than with many other operational management systems.
Finally to really see if your Kanban system is focused on the customer here are a couple of “litmus” tests for you to try.
Has customer interface changed?
This means that the processes you are using to defer commitment and determine what work is sequenced are focused on maximising the flow of value to the customer. Focusing on metrics such as cost of delay and customer lead time can help you maximising this flow.
Has the customer contract changed?
Are you measuring the outcomes of your Kanban process in terms of your customers’ expectation? Whether it is with formal SLAs or just customer expectations you should be looking to your metrics for the results. Are you using probabilistic forecasting to ensure that you as maximising the value you can deliver?
All of this sounds easy, but its not and often takes months of iteration and experimentation by the team to really start to see profound improvements in the value delivered to the customer.