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Instance One has determined that their standard Kanban statuses are:
Backlog > Ready for Design > Design in Progress > Selected/Committed > In Progress > Testing in Progress > Done (not linear, btw)
Instance Two has determined that their standard Kanban statuses are:
Backlog > Design > Selected/Committed > In Progress > Testing > Done
Do both instances need to use the same status names? In this use case Instance One is the governing instance and Instance Two will follow their practice. For example:
Yes, you can do this. You can even vary it by Jira project if you want. However, we don't recommend that because it becomes an administrative burden to keep things in synch.
In Align's configuration for integration with Jira, there's a spot where you can define how Jira states map to Align states (and vice versa.) Align has a specific set of states for each work object (story, feature, capability -- if used --, and epic) and these states can't be changed. That way, there can be a consistent report of the state of work across the enterprise.
You can create what are known as Development Value Streams to support your Instance One and Instance Two scenarios above, and you can then map how each of those custom states maps to Align's standard states.
This article by my colleague @Kent Baxley explains state mapping in even more detail. https://community.atlassian.com/t5/Jira-Align-articles/How-to-Configure-State-Mappings-between-Jira-Software-and-Jira/ba-p/1253519