Leading Lean Software
Development
Results Are Not the Point

Introduction
Framing
Weathering the Perfect Storm1
Sweden’s Handelsbanken has placed a large sum of money in an account at the Riksbank in a bid to help
the central bank safeguard the financial system. —Stockholm, June 17, 2009 (Reuters)
Svenska Handelsbanken is one of the top 25 banks in Europe. It was not just the only bank that survived the Swedishbanking crisis in the 1990s without asking for government support—it has also done very well in the 2008/2009 crisis.
Handelsbanken did not have to raise capital or ask for government support and its shares have been the best performing
European bank stock by a wide margin. Despite its large size Handelsbanken has, in many ways, acted as a shock
absorber, not a shock amplifier, to the financial system.2

In 1970, Svenska Handelsbanken was 100 years old and deeply troubled. It was trying mightily tobecome the largest bank in Sweden, and costs had gotten out of control. To make a bad situation worse, asmall provincial bank in northern Sweden was eating into its market share. When the Handelsbanken
management team abruptly resigned, its board decided to recruit the head of the upstart competitor as1
2

Information in this section is from Wallander 1999. “Budgeting—An Unnecessary Evil.”Jacket text for Kroner 2009. Svenska Handelsbanken: A Blueprint for Better Banking

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Handelsbanken’s new managing director. Dr. Jan Wallander was a professional economist turned banker
who had his own ideas about how to run a bank.
The first thing Wallander did was to make it clear that growth is not the point; profitability is whatmatters. He insisted that everyone in the bank stop trying to bring in as much revenue as possible and start
focusing on generating profitable revenue instead. To accomplish this goal, he had information systems
publish a few key metrics for each branch immediately after the end of each month, numbers such as thecost-to-income ratio (the inverse of profitability) and income per employee (productivity). Then he gave
branch managers the freedom to manage their affairs locally. They could decide which products to sell,
how much money to spend, how many employees to hire, and so on. Wallander felt that central control
got in the way of the people closest to customers, slowed down their reaction time, and stifled theircreativity. So decision-making authority devolved to branch managers; staff groups were dramaticallyreduced in number and size, and those that remained had to sell their services to the branches.
Each month branch managers could see how they stood relative to their peers on the key measures.
Wallander believed that this kind of competition among branches provided a continuing challenge thatdrove each branch to constantly improve the things that really mattered. To keep this competition
friendly, there were no bonuses based on the relative internal standings. Instead, Wallander established
one of the earliest profit-sharing programs in Sweden, with payouts to a pension fund based on the overallprofitability of the company relative to its external competitors.
The bank’s goal was to be more profitable than comparable banks. From 1972 onward,Handelsbanken has been more profitable than the mean of all of its competitors, and generally it has been
the most profitable bank in Sweden, although occasionally it was in second or third place. Shortly after
Wallander took over, two Swedish banks merged to form a bank much larger than Handelsbanken; it took
23 years for Handelsbanken to grow back into the largest bank in Sweden—this time without explicitlytrying.
The results of Wallander’s approach were both immediate and long-lasting. Svenska Handelsbanken
is among the most cost-efficient banks in the world. Moody ranks its financial strength among the top tenEuropean banks, something that comes in handy during the periodic financial crises that plague thebanking industry. It has continued to grow, expanding to other Nordic countries as well as the UK.
Frequently ranked as a top place to work, Handelsbanken has the most satisfied customers, the lowest
employee turnover, and the highest investor return of any Swedish bank.
Jan Wallander understood that the most effective, responsive organization is one where small unit
leaders make local decisions. He devised an organizational structure, governance approach, and culturethat reliably engaged the creativity and dedication of knowledge workers at hundreds of local branches.
Four decades later, his vision is credited with helping Handelsbanken weather one of the worst financial
storms in a century.
The Leadership Frame of Great Companies
What does Handelsbanken have in common with Nucor Steel, SAS Institute, W. L. Gore, Southwest
Airlines, Semco, and Toyota? Each of these companies has developed a culture of high involvement, eachthrives in an industry of high change, and each has sustained best-in-industry performance over time. Andeach company credits its unique culture for its success. Interestingly, the cultures of these companies are
not all that unique; in fact, they are remarkably similar. Consider these descriptions of company culture,
direct from each company’s Web site:
Nucor Steel3

Our Culture:
Safety First
Eliminating Hierarchy
3

www.nucor.com/story/chapter3/.

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Granting Trust and Freedom
Giving All Workers a Stake in the Company
Turning Everyone into a Decision Maker
Inspiring a Work Ethic
4SAS Institute

If you treat employees as if they make a difference to the company, they will make a difference to the company. That has
been the employee-focused philosophy behind SAS’ corporate culture since our founding in 1976. At the heart of thisunique business model is a simple idea: satisfied employees create satisfied customers.
“We’ve worked hard to create a corporate culture that is based on trust between our employees and the company,”
explains SAS President and CEO Jim Goodnight, “a culture that rewards innovation, encourages employees to try newthings and yet doesn’t penalize them for taking chances, and a culture that cares about employees’ personal andprofessional growth.”
W. L. Gore & Associates

5

How we work at Gore sets us apart. Since Bill Gore founded the company in 1958, Gore has been a team-based, flat
lattice organization that fosters personal initiative. There are no traditional organizational charts, no chains of command,
nor predetermined channels of communication.
Instead, we communicate directly with each other and are accountable to fellow members of our multi-disciplined teams.
We encourage hands-on innovation, involving those closest to a project in decision making. Teams organize aroundopportunities and leaders emerge.
6Southwest Airlines

The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense ofwarmth, friendliness, individual pride, and Company Spirit.
We are committed to provide our Employees a stable work environment with equal opportunity for learning andpersonal growth. Creativity and innovation are encouraged for improving the effectiveness of Southwest Airlines. Above
all, Employees will be provided the same concern, respect, and caring attitude within the organization that they areexpected to share externally with every Southwest Customer.

Southwest Airlines is famous for its remarkable management philosophy: employees first, customers
second, shareholders a distant third. When we look at other truly successful companies, we notice thatthey have a similar philosophy. In these companies, front-line people are highly valued, are expected tomake local decisions, and are effectively engaged in delivering superior customer outcomes. As a result,the companies gain two significant advantages: (1) Workers routinely dedicate their intelligence andcreativity to help the company be successful, and (2) the company is adaptive; it can detect and quickly
respond to changing market conditions and opportunities.
The purpose of this book is to explore how we might adapt the way these great companies frame therole of leadership to organizations involved in developing software-intensive systems.

FramesDeep frames pervade TPS that fundamentally alter how the system is understood and therefore
how to proceed with implementation. If managers and program leaders fail to understand theframeworks underlying TPS, they miss the point and therefore fail to achieve the expected results.74567

www.sas.com/jobs/corporate/index.html.
www.gore.com/en_xx/aboutus/culture/index.html.
www.southwest.com/about_swa/mission.html.
We thank Michael Ballé, Godefroy Beauvallet, Art Smalley, and Durward Sobek for their paper “The Thinking ProductionSystem” (Ballé et al. 2006), which inspired the theme of this book. This quote is from that paper. TPS is an abbreviation for
the Toyota Production System, and also the Thinking People System.

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When coauthor Tom isn’t thinking about software development, he pursues his passion, which is
photography. He captures stunning scenic views and creates dynamic photo journals of conferences.
When you look at his photographs, you see the world through his eyes; he has carefully framed eachphotograph to guide your attention to the subject and purpose of the image, whether it is an engaged
conversation, a sweeping view of a spectacular sunrise, or a tightly framed view of an incongruous detail.
The first thing Tom does when he creates a photograph is to decide on the perspective and framing thatwill lead to an effective composition. Sometimes he creates a frame with his hands to help him
concentrate both on how the elements inside the photograph flow together and on which things to leaveout of the frame because they would detract from the subject. Only after Tom has framed a picture does
he consider the details of focus, depth of field, exposure, improving the lighting, and so on. In the end,
each of Tom’s photographs tells a story about the subject from his chosen perspective.
According to cognitive scientists, we all interpret our surroundings through frames—mental
constructs that shape our perspective of the world. Frames are sets of beliefs about what elements to pay
attention to and how these elements interact with each other. Frames place significant limits on ourperspective; we can see only what our frames tell us is meaningful, and we usually ignore what lies
outside the boundaries. Most of us are unaware of the way our background and experience shape the way
we frame our decisions and actions; only a few of us consciously adjust our frames as if we were
photographers. In fact, we seldom even think about the direction in which we are pointing our cameras.
Everyone shapes his or her view of the world through framing, and people with different backgrounds
are likely to see their surroundings through vastly different frames. By themselves, frames are notinherently good or bad; they just are. However, evidence has shown that certain frames are more likely
than others to lead to long-term business success. For example, as we will see later, Southwest Airlines
frames its business in a strikingly different manner from most other airlines. And over its almost 40-year
life span, Southwest has been more successful than airlines employing different frames, including airlinesthat have copied many of Southwest’s practices. Similarly, Toyota frames its business differently from theBig Three automakers in Detroit, and although most automakers have adopted lean practices, theirthinking frames have not really changed. Like Southwest, Toyota is a major player in the automotive
business, and not coincidentally, Toyota, Southwest Airlines, and Svenska Handelsbanken all see theworld through similar frames.
Whatever frame you use limits the questions you think to ask, the decision alternatives you consider,and the consequences you anticipate from those decisions. Sometimes you may be surprised and perhaps
disappointed when things don’t work out as expected. It is possible that the execution of the decision was
at fault, or that events conspired to change the results. But it is more likely that your frame of reference,
your thinking system, is the culprit. If you are not seeing the results you expect from your current
direction, consider moving to a different place, re-aim your camera, and look at the problem through adifferent frame.

Framing the System Development ProcessThis book is divided into six chapters. Each chapter contains four frames, so over the course of thebook we will look through 24 different frames to get a good picture of how a lean development process
should work. Taken as a whole, the 24 frames present a coherent leadership framework for systemdevelopment. We conclude each chapter with a portrait of the leader who is responsible for creating focusthrough its four frames. (See Figure I-1.)

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The Norm ofReciprocity

Leaders at all Levels

Figure I-1
The big picture

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Chapter 1, Systems Thinking, starts, appropriately enough, by focusing on customers. It examines thenature of customer demand, distinguishing between value demand and failure demand. It investigates how
our work systems can predictably and effectively anticipate and deal with demand, and how our policiesoften interfere and create waste. The chapter concludes with a portrait of a leader who creates a vision of
how to delight customers.
Chapter 2, Technical Excellence, covers the basics of excellent software development—lowdependency architecture, a test-driven development process, an evolutionary development approach, andthe importance of deep expertise among developers. The highlighted leader in this chapter is thecompetency leader.
Chapter 3, Reliable Delivery, starts by finding the biggest constraint in the system and learning how
to manage the risk posed by that constraint. It discusses workflow and schedule, and the essential
contribution of feedback. The highlighted leader is the product champion—the same leader we met in
Chapter 1, but this time in the role of leading implementation.
Chapter 4, Relentless Improvement, discusses the essential characteristic of any lean organization:
constant, ongoing, never-be-satisfied improvement. It shows how improvement works, suggests sometools, and features the manager as mentor of improvement.
Chapter 5, Great People, starts with the assumption that great results come from great people, so theessential question is how to create great people. It starts with the basic tenet that people treat others theway they are treated, then walks through the four Ps: Purpose, Passion, Persistence, and Pride. The
chapter highlights the front-line leader, who has the most influence on the way people think about theirwork.
Chapter 6, Aligned Leaders, discusses and gives examples of developing alignment on the leadershipteam. It has several lists of ideas for your leadership team to ponder as you turn theory into practice.

Chapter Bibliography
Ballé, Michael, Godefroy Beauvallet, Art Smalley, and Durward K. Sobek, May 2006. “The Thinking ProductionSystem.” Reflections: The SoL Journal, Vol 7 No 2, pp 1-12 .
Kroner, Niels. 2009. Svenska Handelsbanken: A Blueprint for Better Banking. Hampshire, UK: Harriman House.
Wallander, Jan. 1999. “Budgeting—An Unnecessary Evil.” Scandinavian Journal of Management, Vol 15 No 4, pp.
405–21.

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