In a previous post we introduced the second core principle of the XSCALE framework for Agile Organisations – Simple design, and described how an Agile Organization achieves eXponential return in the most efficient manner possible, so that our time, effort and money is invested in the product or service features that will deliver the best possible rate of return and the best customer outcomes.
To understand how we can measure the rate of return on an investment, we borrow from the method of throughput accounting, a management accounting approach where they use the concept of “throughput” to measure the value of increased sales.
In this context, throughput is considered to be the net value of sales minus any variable costs. Therefore, if an increase in sales revenue can be generated through adding a lower amount of variable cost the net effect is positive for the business.
So, how does an Agile Organisation prioritize design to continuously optimise throughput?
Just as cost accounting only considers the total costs, and therefore can overlook the positive impact of increased cost, for an organization to continuously adapt teams to products to markets the usual Agile metrics tell only half the story.
The Theory of Constraints (Eliyahu M. Goldratt) suggests that every system has a small number of critical “constraints”, that is “anything that limits a system from achieving higher performance versus its goal”, and at least one constraint which serves as a “bottleneck”.
Any improvements outside these constraints, and specifically which do not address the bottleneck, will have minimal or no improvement in throughput.
Critically, before we can identify and then improve constraints, we need to be able to accurately measure “throughput” in a way which enables us to make the right decisions.
This video from Peter Merel (XSCALE Alliance CTO) shows how to combine standard Agile metrics with McClure’s Pirate Metrics and Goldratt’s Throughput Accounting to continuously prioritize the business bottleneck.
- Autonomous Teams
- Triple Loop Learning
- Ecosystems Thinking