I thought I’d start out the New Year by reexamining what it means to be Lean when it comes to IT. Although the roughest waters of the recent recession are behind us, spending is not expected to make a strong comeback in 2010. As we continue to think about reducing operating costs, and “doing more with less”, it is critical to think about Lean as a key initiative for IT.
There are many experts on Lean manufacturing, TQM, Kaizen, 6-sigma and all that when it applies to the manufacturing world. But in my opinion, when you boil it down for IT, the four guiding pillars are:
1. Eliminate Waste. Trim the fat. Reduce cost. Focus on the highest value activities. To be clear, this is not a race to the bottom of low cost IT. This is about focusing on value, and eliminating that which is truly adds no value. We need to create a culture within IT where everyone is continuously seeking to improve efficiency.
My experience is that there is still a lot of “fat” in IT. Servers run at an average of less than 10% utilization. Storage can be anywhere from 25% to tapped out. Data center facilities are often grossly underutilized. And very few IT organizations have a process to identify services that are no longer in use or highly valued. IT could increase the Return on Assets of servers by 5x-6x pretty easily. Through storage virtualization and deduplication, IT could get 4x or more out of existing storage. Nearly every Apptio customer that has done a deep cost analysis has found unknown opportunities for quick cost efficiency gains. The low hanging fruit is there.
2. Focus on the Customer. This is about creating processes to understand what the customer values and how IT can most efficiently and cost-effectively deliver that value. In this case, the customer is an internal customer such as a line of business. The trick is to understand the measure of value that the user puts on IT Services, not IT’s measure of technology performance or quality. Business users talk about “cost per transaction, ecommerce customer profitability, worker productivity, collaboration tools uptime, cost to deliver,” etc.
Focus on delivering value to the customer and creating processes for discussing how value is delivered. Many people are talking about this in terms of Transparency—cost transparency, value transparency, and performance transparency. The process for interaction is how the focus on customer value is maintained and IT becomes aligned to business needs.
3. Implement a Methodology for Constant Improvement. Toyota has Lean and TQM, GE has 6-Sigma. Markets were created around software focused on measuring cost and quality, aligning resources, empowering workers and measuring team performance. IT needs data-driven processes and systems for intelligently and continuously reducing waste and increasing value. Lean IT will only meet its potential if there is a deep understanding of cost drivers, value chain and quality metrics, and a grass-roots empowerment to act on that data.
4. Establish Financial Agility. For Toyota, a key component of Lean is “Just in Time” or flow. Toyota, of course, is more focused on supply chain and inventory, but the net outcome is that “the factory” can adjust to business needs quickly in order to meet the changing needs of the customer. A Lean IT department will be able to react to business fluctuations—reduce spending in down cycles, quickly ramp in up cycles and roll out new services quickly, as needed.
This requires a deep understanding of the cost structure, how those costs relate to business services, and how those services are susceptible to business fluctuations. A lean, proactive IT department should plan for normal business cycle variance. I.e., “What if business is down 10% this year, how is that going to affect IT, and how can IT react? What if business grows by 10% over plan? What services will be impacted the most, or not at all? What is my per cent variable spend vs. fixed spend, and what should it be to be able to react?”
Understanding these business cycle variances allows a company to achieve financial agility. There’s also agile development—on which others have written reams—and agile processes. IT leaders should create teams, processes and development methodologies that will enable IT to make quick shifts or improvements to service, or roll out new services in a timeframe that optimizes value for the organization.
...I'll continue this thread with 'How do we Get There' in Part 2 of this Post, next week...