The IT Portfolio as a Form of Waste




                     Dave Nicolette
                     Email  davenicolette@gmai...
A Definition of Lean Thinking



          A way of thinking that enables organizations to
          “specify value, line ...
Lean Values
        specify value                          Customer defines “value”

        line up value­creating       ...
Premise




             The existence of an IT portfolio separate
             from the overarching enterprise portfolio
...
When There are Two Portfolios...
    specify value                         Who defines value?

    line up value­creating ...
But wait...



            ...who says multiple organizations 
            within an enterprise can't operate 
           ...
In theory, they can, but...




           "In theory, theory and practice are 
           the same. In practice, they are...
Conway's Law




        “...organizations which design systems ... 
        are constrained to produce designs which 
   ...
A Story

                                             Once upon a
                                             time, a com...
Conventional IT Planning

   To calculate the laminar (non­turbulent) flow of liquid 
   through a straight length of pipe...
Conventional Results


          Hmm...I wonder                             Source

          why the work                ...
What's In The Pipe?




         Rough internal surface creating high friction
           Organizational structural impedi...
How Can Separate Planning Lead to Waste?
                                      Structure
                                 ...
The Three M's
                           muda = non­useful
        無駄                 (activity not directed toward value ...
The Three M's

        斑          mura = unevenness, inconsistency


        In Lean Manufacturing
        ● uneven flow

...
The Three M's

     無理                    muri = unreasonable


        In Lean Manufacturing
        ● overburden (e.g., ...
How Does a Separate Portfolio Lead to
                  Waste?
           Redundant strategic planning activities 
       ...
Muda in IT Portfolio Management
                    The purpose of IT porfolio management (ITPM) 
                    is t...
Formalizing the Muda
         Of CIOs polled, “41% of their companies do not have central 
         oversight of the IT bu...
How Does a Separate Annual IT Budget
              Lead to Waste?
        Loss of focus on value 
           muda – motion...
IT Planning Separate from Business Planning
                        high



                                              ...
Comprehensive Business Strategic Planning
                         high




                                  Partner     ...
Comprehensive Business Strategic Planning
                         high



                                 Maybe do inter...
Comprehensive Business Strategic Planning
                         high



                                 Shouldn't be a...
A Similar Business Planning Model
                high


                       Lower priority, but 
                     ...
How Does a Separate Annual IT Budget
              Lead to Waste?
  Conflicting purposes: Target­setting, forecasting, res...
How Does a Separate Annual IT Budget
              Lead to Waste?
  Conflicting purposes: Target­setting, forecasting, res...
Borealis
  The budget was used for:                    We achieved the same through:

  High­level financial & tax plannin...
StatoilHydro

                                                                      ● front­loaded
        Traditional bud...
How Does the Internal IT Services
                Model Lead to Waste?
        Increasing coordination / alignment overhea...
How Does the Internal IT Services
               Model Lead to Waste?
        Colleagues in lines of business are not “cus...
How Does the Internal IT Services
               Model Lead to Waste?
  Dissatisfaction with quality of service leads to “...
How Does the Internal IT Services
               Model Lead to Waste?

   “Requirements” are never well aligned with busin...
Real Options


            The Three Rules of Real Options
            1. Options have value.
            2. Options expir...
How Does Mixing Technical
          Infrastructure Support and Business
          Application Support Lead to Waste?
  Inf...
How Does Mixing Technical
          Infrastructure Support and Business
          Application Support Lead to Waste?
  Inc...
Computers Used to Be Mysterious to
         Business People




                                       

The IT Portfolio ...
Not Any More




                                            

The IT Portfolio as a Form of Waste                  Copyri...
Org Structure Evolution I: Ad Hoc

           The Business                   The IT Department



                   LOB 1...
Org Structure Evolution II:
                              Separate with Alignment
           The Business                 ...
Org Structure Evolution III: Unified Strategic
       Planning, Separate Organizations
            The Business           ...
Org Structure Evolution IV: All Business Functions
     Together, Enterprise IT Centrally Managed
            The Business...
Enabler: Standards


           XML – Industry­standard schema for common 
           business documents & transactions
  ...
Enabler: Service-Oriented Architecture


           Standard (within the company) interface 
           between business a...
Why Has SOA Not Taken Off (Yet)?

             My hypothesis...
             Separate strategic planning for business & IT...
What Can Help SOA Work?

             My view...
             Unify strategic planning. When enterprise capabilities 
    ...
More Enablers


                               Virtualization technologies


                               Cloud services...
Credits

          Shrugging man: http://solong925.web.officelive.com/images/shrugging
          %20man.jpg

          For...
Credits
          Michelangelo book: http://elitechoice.org/2008/10/11/the­most­beautiful­book­
          for­michelangelo...
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It portfolio as waste - Dave Nicolette

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It portfolio as waste - Dave Nicolette

  1. 1. The IT Portfolio as a Form of Waste Dave Nicolette Email  davenicolette@gmail.com Twitter  @davenicolette   Web  www.davenicolette.net/agile/  
  2. 2. A Definition of Lean Thinking A way of thinking that enables organizations to “specify value, line up value­creating actions in  the best sequence, conduct these activities without interruption whenever someone requests them, and perform them more and more effectively.” Womack & Jones     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  3. 3. Lean Values specify value Customer defines “value” line up value­creating   Map the Value Stream actions in the best  sequence conduct these activities  Maintain continuous flow without interruption  whenever someone     Customer pull requests them perform them more  Practice continuous   and more effectively    improvement The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  4. 4. Premise The existence of an IT portfolio separate from the overarching enterprise portfolio limits the organization's ability to implement and benefit from a lean model.      The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  5. 5. When There are Two Portfolios... specify value Who defines value? line up value­creating   Where is the value stream?  actions in the best Which value stream? sequence conduct these activities  How is flow affected by the without interruption  interaction between 2 orgs? whenever someone     Where is the “handle” for a requests them customer to pull value? perform them more  Is everyone aiming for the and more effectively      same target? The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  6. 6. But wait... ...who says multiple organizations  within an enterprise can't operate  from the same overarching plan?     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  7. 7. In theory, they can, but... "In theory, theory and practice are  the same. In practice, they are not." Lawrence Peter “Yogi” Berra, philosopher     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  8. 8. Conway's Law “...organizations which design systems ...  are constrained to produce designs which  are copies of the communication structures  of these organizations.” Melvin Conway, 1968     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  9. 9. A Story Once upon a time, a company needed to open a port on a router...     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  10. 10. Conventional IT Planning To calculate the laminar (non­turbulent) flow of liquid  through a straight length of pipe: Source FR = (Pi (R^4) (P ­ Po))/(8 N L) Pump where  FR is the volumetric flow rate of the liquid (e.g., gal/sec), Pi = 3.14159...,  R is the radius of the pipe or tube,  Po is the fluid pressure at one end of L,  P is the fluid pressure at the other end of L,  N is the fluid's viscosity,  L is the length of the pipe or tube. The above ignores friction. For laminar flow, friction f is 64 f =  R For turbulent flow, the friction calculation is worse. Outflow     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  11. 11. Conventional Results Hmm...I wonder Source why the work Pump isn't flowing.     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  12. 12. What's In The Pipe? Rough internal surface creating high friction Organizational structural impediments & controls Corrosion build­up Old habits of mind and entrenched procedures Turbulence Lack of trust & transparency leading to formal checks & rework     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  13. 13. How Can Separate Planning Lead to Waste? Structure Separation Duplication Logistics Alignment Resource allocation Process Solution delivery IT operations & support Culture Values Priorities Financial planning & tracking Annual budget cycle Related costs tracked separately Separate cost areas mixed together Technical challenges Building the right thing     Building the thing right The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  14. 14. The Three M's muda = non­useful 無駄 (activity not directed toward value delivery) In Lean Manufacturing ● overproduction ● waiting In IT work ● unnecessary features ● transportation ● gold plating ● inventory ● delays ● wasted motion ● hand­offs ● overprocessing ● after­the­fact QC ● defects & rework ● interim work artifacts ● meetings     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  15. 15. The Three M's 斑 mura = unevenness, inconsistency In Lean Manufacturing ● uneven flow ● delay ● inconsistent output In IT work ● stopping & starting ● multitasking, context switching ● service requests, hand­offs     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  16. 16. The Three M's 無理 muri = unreasonable In Lean Manufacturing ● overburden (e.g., overloaded forklift) ● unreasonableness ● absurdity In IT work ● Iron Triangle madness ● Routine expectation of overtime ● Belief in magic (planning & tracking)     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  17. 17. How Does a Separate Portfolio Lead to Waste? Redundant strategic planning activities  muda – overproduction, duplication, rework Align enterprise and IT portfolios, track alignment, and  keep them aligned muda – motion, rework Promotes artificial division between “technical” and  “business” personnel & operations mura – supplier/consumer relationship prevents  seamless collaboration muda – waiting, motion, transportation, overproduction,  defects, rework     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  18. 18. Muda in IT Portfolio Management The purpose of IT porfolio management (ITPM)  is to balance: ● risk ● technology ● payback period ● capital allocation ● distribution Four­pronged approach to ITPM: ● IT portfolio management (which projects) ● IT investment management ● IT performance management ● IT due diligence From “IT Portfolio Management: A Banker's Perspective on IT,”     Bert Kersten & Chris Verhoef, Cutter IT Journal, Vol. 16, No. 4, pp. 27­33. The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  19. 19. Formalizing the Muda Of CIOs polled, “41% of their companies do not have central  oversight of the IT budget, which is critical to ITPM.” ITPM Maturity Model is proposed. It is all about “alignment”  between the IT organization and the rest of the enterprise.  Separate organizations are assumed. From “Best Practices in IT Portfolio Management,” Mark Jeffrey,  MIT Sloan Management Review, Spring 2004. VP of program management at DHL Americas said (in 2003)  DHL Americas currently has 20 percent more projects in its  portfolio than it can support. "We won’t probably start half of  those," he says. Separate organizations are assumed. From “Portfolio Management Done Right,” Todd Datz, CIO    Magazine, May 1, 2003.   The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  20. 20. How Does a Separate Annual IT Budget Lead to Waste? Loss of focus on value  muda – motion: IT must play budgetary games instead  of focusing on enterprise strategic goals; fixed budget  imposes both a floor and a ceiling on spending, with neither  based on real progress. Emphasis on “estimation” muda – motion, transportation: Tracking performance to  budget leads to an emphasis on “estimation,” a  non­value­add activity. Limits responsiveness to change muda – motion, rework: Promotes central control with long approval processes for any changes.     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  21. 21. IT Planning Separate from Business Planning high Fund Selectively Funding Priority (difficult to execute) Value to the business Fund Selectively Do Not Fund (low priority) low Risk high Based on “Best Practices in IT Portfolio Management,”    Mark Jeffrey, MIT Sloan Management Review, Spring 2004.   The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  22. 22. Comprehensive Business Strategic Planning high Partner Differentiating Market differentiating Who cares? Parity low Mission Critical high Based on Niel Nickolaisen's Simple Little Model, available at   www.incrementor.com/agilenyc/media/.../niel_nickolaisen_102108.pdf   The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  23. 23. Comprehensive Business Strategic Planning high Maybe do internally,  Create & differentiate maybe find a partner Market differentiating Mimic, simplify, keep  Who cares? up with Joneses low Mission Critical high Based on Niel Nickolaisen's Simple Little Model, available at   www.incrementor.com/agilenyc/media/.../niel_nickolaisen_102108.pdf   The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  24. 24. Comprehensive Business Strategic Planning high Shouldn't be anything  Unique might be good new for us Market differentiating Who cares? Unique is probably bad low Mission Critical high Based on Niel Nickolaisen's Simple Little Model, available at   www.incrementor.com/agilenyc/media/.../niel_nickolaisen_102108.pdf   The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  25. 25. A Similar Business Planning Model high Lower priority, but  don't forget about it Better do this first (it will become urgent) Importance Must do this, but don't  Who cares? over­invest in it low Urgency high     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  26. 26. How Does a Separate Annual IT Budget Lead to Waste? Conflicting purposes: Target­setting, forecasting, resource alloc.  muda – motion, overproduction, defects, rework: The attempt to manage three different issues with the same numbers leads to several forms of waste. mura – Constant number­crunching and requests for new  estimates pulls people into meetings and interrupts  continuous flow. muri – Using the budget numbers inappropriately results in  burdening people with useless work (“absurdity”), while still requiring them to perform their regular work.     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  27. 27. How Does a Separate Annual IT Budget Lead to Waste? Conflicting purposes: Target­setting, forecasting, resource alloc.  Targets must be ambitious, forecasts realistic; they cannot be the same number. Mixing targets, forecasts, and resource allocation creates gaming. Bjarte Bogsnes, Implementing Beyond Budgeting     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  28. 28. Borealis The budget was used for: We achieved the same through: High­level financial & tax planning Quarterly rolling financial forecasts Target­setting Targets on the balanced scorecard Controlling fixed costs Trend reporting Cost targets where and when needed Activity approach Prioritizing & allocating investment Small projects – trend reporting and project resources Medium projects – varying hurdle rates Major strategic projects – case by case, budget was never a tool Delegation of authority     Existing mandates The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  29. 29. StatoilHydro ● front­loaded Traditional budgeting: ● ambitious Same number,  ● relative if possible conflicting purposes target target ● action­based ● expected outcome – early warning forecast ● financial & non­financial forecast ● limited detail resource allocation resource allocation ● no preallocation ● projects – decision gates & criteria ● operations – relative KPIs ● monitoring   Based on Implementing Beyond Budgeting, Bjarte Bogsnes   The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  30. 30. How Does the Internal IT Services Model Lead to Waste? Increasing coordination / alignment overhead  muda – motion, transportation, overproduction, waiting, inventory,  defects, rework:  As IT assets become more and more tightly integrated with business operations, the cost of coordinating activities between business and IT groups becomes untenable.     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  31. 31. How Does the Internal IT Services Model Lead to Waste? Colleagues in lines of business are not “customers” of IT mura – Customers cannot get results at the time they need results (“pull”). They must wait for project approval and scheduling.     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  32. 32. How Does the Internal IT Services Model Lead to Waste? Dissatisfaction with quality of service leads to “shadow IT” muda – defects, rework, duplication: Redundant staff muri – Additional burden on business units mura – Integration of departmental solutions with central enterprise IT assets is uncoordinated with IT planning. Dissatisfaction with turnaround time leads to shelved initiatives Lost value: Opportunity cost of initiatives that are never  undertaken     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  33. 33. How Does the Internal IT Services Model Lead to Waste? “Requirements” are never well aligned with business needs muda – motion, transportation, defects, rework, duplication:  All communication & collaboration crosses administrative boundaries. muri – Additional burden on all personnel to coordinate their understanding of requirements mura – Uneven rate of delivery of features.     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  34. 34. Real Options The Three Rules of Real Options 1. Options have value. 2. Options expire. 3. Never commit early unless you know why. After Chris Matts & Olav Maassen, “Real Options Underlie Agile Practices,”    InfoQ, June 8, 2007: http://www.infoq.com/articles/real­options­enhance­agility   The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  35. 35. How Does Mixing Technical Infrastructure Support and Business Application Support Lead to Waste? Infrastructure improvements must be justified on the basis of ROI muda – motion: Effort expended on meaningless justification muri – Cost center activities have no ROI by definition (“absurdity”) mura – Uneven rate of infrastructure maintenance & upgrades.     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  36. 36. How Does Mixing Technical Infrastructure Support and Business Application Support Lead to Waste? Incompatible working cultures & professional priorities muri – recruitment, retention, & performance assessments match neither the deep technical specialist nor the business solution specialist.     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  37. 37. Computers Used to Be Mysterious to Business People     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  38. 38. Not Any More     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  39. 39. Org Structure Evolution I: Ad Hoc The Business The IT Department LOB 1 LOB 2 LOB 3 LOB 4     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  40. 40. Org Structure Evolution II: Separate with Alignment The Business The IT Department App Team LOB 1 for LOB 1 and Infrastructure Support Enterprise Architecture App Team LOB 2 for LOB 2 App Team LOB 3 for LOB 3 App Team LOB 4 for LOB 4     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  41. 41. Org Structure Evolution III: Unified Strategic Planning, Separate Organizations The Business The IT Department App Team LOB 1 for LOB 1 and Infrastructure Support Enterprise Architecture App Team LOB 2 Planning for LOB 2 App Team LOB 3 for LOB 3 App Team LOB 4 for LOB 4     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  42. 42. Org Structure Evolution IV: All Business Functions Together, Enterprise IT Centrally Managed The Business The IT Department App Team LOB 1 for LOB 1 and Infrastructure Support Enterprise Architecture App Team LOB 2 Planning for LOB 2 App Team LOB 3 for LOB 3 App Team LOB 4 for LOB 4     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  43. 43. Enabler: Standards XML – Industry­standard schema for common  business documents & transactions TCP/IP, HTTP, SOAP, WebServices, REST SQL Reference architectures for common  categories of applications and right­sized  technical infrastructures     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  44. 44. Enabler: Service-Oriented Architecture Standard (within the company) interface  between business apps & IT infrastructure Enables central governance, economies of  scale, shared IT assets Enables business flexibility & control, single­ piece pull of application features ... but hasn't worked well to date.     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  45. 45. Why Has SOA Not Taken Off (Yet)? My hypothesis... Separate strategic planning for business & IT ...  1 infrastructure initiatives usually proposed by IT & “sold”  upstream, not derived from strategic capabilities  planning. SOA build­out has typically been conceived as a very  2 large scale initiative spanning several years and multiple  annual budget requests. Enterprise Architects tend to be perfectionists. They  3 design SOA infrastructures that represent their vision of  the perfect environment, rather than taking requirements  from the application teams that need the infrastructure.       The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  46. 46. What Can Help SOA Work? My view... Unify strategic planning. When enterprise capabilities  1 planning calls for SOA support, that need will become  apparent through enterprise strategic planning. Take an incremental approach to the build­out. Assess  2 results at periodic decision gates based on clear criteria.  When it is time to stop, stop. Let the capabilities of the SOA environment be driven  3 directly by the needs of the applications that are to be  deployed on it. Don't let Perfect get in the way of Good  Enough.       The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  47. 47. More Enablers Virtualization technologies Cloud services     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  48. 48. Credits Shrugging man: http://solong925.web.officelive.com/images/shrugging %20man.jpg Formula for calculating the laminar flow rate of a liquid through a straight length  of pipe: From “Ask Dr. Math” at  http://mathforum.org/library/drmath/view/56326.html Water drop image:  http://falconsscience.files.wordpress.com/2008/12/water_drop.png Confused man: http://nittygriddy.com/wp­content/uploads/2010/03/confused­ man.jpg Rusty pipe: http://watersecretsblog.com/archives/rpipe.jpg Handsaw: http://www.windandsolarnow.com/images/handsaw.jpg Executive in a meeting: http://www.themag.org/business­meeting.jpg     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette
  49. 49. Credits Michelangelo book: http://elitechoice.org/2008/10/11/the­most­beautiful­book­ for­michelangelo­admirers/ Couple looking up:  http://farm4.static.flickr.com/3151/2698013284_aa6c77de25.jpg Armed people looking up:  http://www.austinchronicle.com/binary/eea0/arts_review2­1.jpg Storyteller: http://www.memeticians.com/2008/02/06/storyteller.jpg IBM 701 photo: http://www.palosverdes.com/lasthurrah/ibm701.html Photo of Tom Miller of Saginaw Future:  http://www.mlive.com/businessreview/tricities/index.ssf/2008/06/personal_techn ology_transforms.html Cloud: http://www.clker.com/clipart­2808.html     The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

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