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Better, faster, leaner: strategic finance comes to software

December 13th, 2019

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When companies look to become more efficient, one of the first things they do is look for waste—elements of the production process that add little value despite taking up precious time and resources. However, with careful implementation, businesses can achieve greater efficiency by investing in what works well.

For example, take the contrast between push and pull processes in manufacturing. Most manufacturing firms operate using a “push” model; they make a certain amount of product and store it in a warehouse until it can be sold. In contrast, other companies operate a “pull” model; they only produce products after having received an order. In pull manufacturing, no product stays sitting in a warehouse and products move through production with little delay, reducing the amount of waste in the process.

This “pull” manufacturing model is one of the ways that companies become lean—in other words, identify areas that don’t produce value, cut that waste and thereby increase labor and process efficiency. However, going lean puts enormous pressure on companies and requires special attention paid to supply chain management and labor.

Tom Stone, DBA ’18 and assistant teaching professor of business at Penn State Abington, wanted to take the lessons learned from lean manufacturing and apply it to the software industry.

“When I worked with software developers at Siemens, we started integrating lean with agile,” Stone explains. Agility, a close cousin of lean, involves making processes more iterative, and therefore more flexible. By breaking the process into small, iterative pieces, developers can make changes to the product without damaging or undoing months of other productive work. “We wanted to do it because it would ultimately improve efficiency by making outflow—the number of software functions available at the end of the production process—predictable.”

While you can count the physical output of a process like manufacturing, this is harder to do with software development. Stone measured the outflow through the time and production of “stories,” small components of software that will later be combined into a final function that a customer uses.

During his time in the Fox School’s Executive Doctorate in Business Administration (DBA) program, Stone decided to focus his research on the benefits of efficiency training. Specifically, Stone wanted to see if the process of software development could be improved by providing efficiency training to developers based on lean and agile techniques. This strategic investment into the labor force would take two forms: long-term coaching or a one-time training event.

When dealing with lean and agile processes, Stone emphasizes that what is at stake isn’t having knowledge, but keeping it. “Knowledge erodes over time,” Stone explains, “and with the knowledge goes the efficiency. Coaching keeps it from eroding.”

His findings were impressive. Workers who went through coaching saw a 37.1% net improvement in the amount of time needed to complete stories. One-time training saw a staggering 58.7% net improvement. Labor costs also fell, thanks to the trainings.

Stone’s paper on the topic, titled “The ROI of Investments in Lean Agile Software Development Training,” won the Best Paper Award at the 2019 Engaged Management Scholarship (EMS) Conference in Antwerp, Belgium, this past September. This is the second year in a row that a Fox DBA alumnus won this award, which is sponsored by Business Horizons, an academic journal from Indiana University. In 2018, Ofra Bazel-Shoham, DBA ’17, won for her paper which discussed how gender-diverse boards affect companies’ decisionmaking

Measuring the efficiency of the labor that goes into software development is a difficult task. Stone hopes that his research will help close the gap between software production processes and financial metrics. By pioneering this measure of productivity and thus proving the power of efficiency training, Stone wants to help others learn how to quantify, recognize and reward the value of lean.

“Software development is an increasingly critical industry,” Stone emphasizes. “Learning from manufacturing about how to measure productivity in this industry can have an enormous operational and financial impact.”

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