How to run your enterprise like a lean, mean, startup machine

Lean principles enable enterprises to keep pace

Agile and lean innovation requires a change in perspective, one that sometimes challenges the mind-set of old school managers who, for decades, have attempted to predict the future with big, upfront annual or multi-year business plans.

Instead of attempting to predict the future, agile and lean innovation embraces uncertainty, shifting the concept of planning to one of adaptive steering – making continual adjustments to the business in response to inevitable change. Successfully steering toward innovation requires identifying an emerging demand for a new product or service and then figuring out how to capture an engaged customer base.

What does 'lean' really mean for enterprise today?

Developed by Eric Ries in 2011, the 'lean startup' methodology is a way of launching and developing a business or product as efficiently as possible to reduce the risk of failure. A lean organisation understands customer value and focuses its key processes to continuously increase that value.

This inevitably becomes harder as companies grow, but the fundamental principles of lean startup methodology can be applied to enterprises of all sizes to ensure they remain competitive and ahead of the curve in today's demanding and ever-changing marketplace. The ultimate goal is to provide perfect value to the customer through a perfect value creation process that has zero waste.

How to apply lean principles in an enterprise

Entrepreneurship is management: The lean startup methodology encourages management to think of the 'startup as an institution'. In an enterprise, to react fast in the product development lifecycle as required under the lean methodology, requires bottom-up empowered lines of communication and collaboration – meaning a business should adopt an agile mind-set.

Lean startup principles state that "a new kind of management specifically geared to its context" is necessary. To do this in a larger organisation, senior management must also be willing to give up control to allow the individual teams to feel empowered in the development process, therefore improving speed and efficiency.

This requires senior management be confident and self-aware enough to be able to relax the reins of command-and-control below while still operating in one above.

Validated learning: This is centred on creating the best value for prospective customers as well as how to best grow. Validated learning requires that each step in the development process is measured to determine its effectiveness or validity. Each subsequent step is adjusted based on the learnings from the previous test.

As a result, the agile backlog becomes prioritised by learning and risk, allowing management to determine if the product is feasible before committing to it. Understanding the intersection of feasibility and effectiveness increases the likelihood of delivering a product that has maximum value and reduces risk of failure.

Innovation accounting: With individual teams having more autonomy and control (per the first principle), a revamped process on reporting – beneficial to both senior management and individual teams – becomes critical.

The lean startup methodology encourages the use of metrics in the reporting progress, setting milestones and establishing a process for how work should be prioritised. The metrics used should help you make these decisions and give you guidance. A/B testing is one way to ensure the metrics being used are actionable as it confirms or disproves a specific hypothesis.

Build-Measure-Learn: This feedback loop is the primary way of executing in environments of uncertainty. The goal of this feedback loop is to turn assumptions, risks, and unknowns into knowledge. Knowledge guides teams and companies to progress effectively through uncertain environments, and this leads to a more stable path to innovation. For this reason, the key measure of success is the cycle time of learning – how quickly a hunch is validated or invalidated, as detailed in the first principle.

It's important to understand how the organisation increases its probability of creating knowledge through the steps. We think the Build-Measure-Learn loop is missing a critical step: Frame. Running Frame-Build-Measure-Learn loops increases the probability of generating knowledge from each iteration.

There are two aspects to this new Frame step: framing the problem and framing the experiment. Framing the problem means you must first set context for your work – set informed boundaries around what your experiment is meant to uncover or solve. Framing the experiment requires you to detail how you will run your experiment. Adding this extra component ensures you maximise learning and takeaways from this loop.

We can't slow down the faster boom and bust cycles of business and technology or gaze into our crystal ball to predict what the future will bring. However, implementing lean principles offers the best chance to keep pace and compete in today's complex, uber-competitive technology marketplace – and the greatest shot at becoming the disruptor instead of the disrupted.