BlogDriving Business Strategy with IT Cost Optimization Part 5: Minimizing Waste with Lean Management

Driving Business Strategy with IT Cost Optimization Part 5: Minimizing Waste with Lean Management

juli 19, 2018, Uitgaven

Every experienced IT professional has experienced the pains of unplanned budget cuts. The costs of a new project or of maintaining a legacy system become more expensive than anticipated, and something needs to go on the chopping block. Even when cuts are introduced during the budget planning process, diminished financial resources make IT’s job more difficult.

As we’ve discussed in previous blogs (part four here) in this series on IT cost optimization, the proliferation of cloud services is leading organizations to shift from the traditional centralized IT model to a decentralized and autonomous model of technology management. One consequence of this transformation is that disruption caused by budgetary problems is even more problematic. To avoid these problems, this week we will discuss the fourth principle:

IT organizations need to help cost center managers determine the right level of technology investments, by providing them insight and effective consultation to help them understand all factors that affect costs.

The Challenges of Opex Rising

The proliferation of Cloud Service Providers (CSPs) has accelerated the phenomena of “shadow IT” or “stealth IT” operations. This is when client organizations establish and fund their own technology systems from external service providers, such as CSPs, without coordinating with the organization’s IT experts. Without utilizing experts who ensure they are designing and acquiring the most appropriate and cost-effective solutions, organizations can create unforeseen problems down the line.

Although cloud services eliminate the overhead of capital expenditures (Capex) associated with one-time system setup, the growth of recurring fees for accessing hosted systems can inadvertently cripple the operations expenditure (Opex) part of the budget. Unfortunately, too many organizations are now trying to mitigate these challenges because they failed to plan properly. Organizations can find themselves in a precarious position when they realize they are completely dependent on a CSP to house all of their proprietary data and provide the critical software systems needed to run and grow their business. They realize that even without unplanned budget cuts, they face ever-growing operational costs and inevitable CSP rate increases and do not have sufficient budget to support their business requirements.

In the Gartner publication “Prepare Now for the Impact of Cloud on Opex/Capex,” Jim McGittigan and Sanil Solanki explain that the adoption of cloud services is incrementally transforming the traditional Opex/Capex budget breakdown of 75/25 to a long-term estimation of 90/10. They warn that organizations may be faced with challenges from the CFO to reverse this situation. The CFO, who represents the needs of the investors, must impose cost pressures in response to the lower gross margins and higher cost of doing business that result from higher operational expenses.

Doing It The Right Way

Each publication of this blog series has introduced the skills required to solve the new problems facing IT experts and their clients. We’ve talked about how success in modern IT requires developing business acumen, how IT must provide real-time analytics and increased transparency to clients, and how IT must partner with Finance to achieve effective capacity management.

This blog discusses how IT consultants can avoid the budgetary issues caused by cloud services by applying the concepts of Lean Management to help their organizations establish a long-term and sustainable operating framework based on continuous improvement. By systematically seeking to achieve small changes, IT consultants can sustainably improve the efficiency and quality of technology services.

How to Apply Lean Management as an IT Framework

IT consultants can help prevent an unplanned mandate to reduce operational expenses. This becomes especially critical when the systems and data are maintained by CSPs, since conventional methods of discontinuing maintenance agreements, curtailing expansion, and in worst case scenarios relying on layoffs, are no longer viable options. Instead, IT experts can help clients continually apply the Lean framework to reduce waste within the specific realm of technology.

To begin incremental changes, IT can pilot migration projects to Cloud Service Providers, and then progressively expand the scope of services and users via staged milestones. The success of each milestone should be predicated on the lessons learned from the previous milestone.

People often restrict the application of Lean principles to manufacturing. Indeed, manufacturers have realized tremendous success by applying the principles of Lean. As IT organizations transform into technology brokers, they too will realize value by applying these principles. The table below provides a few examples of how to apply the eight principles of Lean waste to a typical ICT (Information & Communications Technology) operating environment. Lean divides waste into the following eight categories:

  1. Transportation: Is there unnecessary (non-value-added) movement of parts, materials, or information between processes?
  2. Inventory: Do you have any raw materials, works-in-progress (WIP), or finished goods that are not having value added to them?
  3. Movement: How much do you move materials, people, equipment, and goods within a processing step?
  4. Extra Processing: How much extra work is performed beyond the standard required by the customer?
  5. Waiting: Are people or parts, systems or facilities idle — waiting for a work cycle to be completed?
  6. Overproduction: Are you producing sooner, faster, or in greater quantities than the customer is demanding?
  7. Defects: Does the process result in anything that the customer would deem unacceptable?
  8. Skills: Delegating to inadequately trained resources or underutilizing higher skilled resources
Waste Category Applying Waste To Technology Expense Management
Transportation Processing paper invoices versus using electronic files that require no manual intervention and can be obtained directly from carriers or CSP?
Inventory Do you maintain excessive subscriptions or features to CSP applications because you are not tracking login activities?
Extra Processing Are manual audits and intervention required because you have not fully automated the activation and deactivation of CSP services based on changes to Human Resource (HR) system?
Waiting Are you waiting until after the employee is hired to activate the CSP service because you don’t have standard profiles for each type of employee’s information technology services?
Overproduction Are you overpaying for infrastructure services by not tracking utilization of each user and service in near real time?
Defects Incorrect or Late payments or Disputes ending in Loss
Skills Are expensive IT SMEs getting involved in resolving tactical escalations when they would be better utilized architecting the solutions based on thorough investigation of solution options?

Transforming from a traditional IT service organization to a consultative-based organization is a substantial paradigm shift and requires a different operating culture. By adopting Lean principles and consulting with IT experts before instituting new systems, organizations can avoid the budgetary and security problems that result from insufficient planning.

Our series continues with part 6: Cost Optimization Should be an Operating Strategy.