Lean IT, Lean Business: A new perspective to IT cost optimization
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Lean IT, Lean Business: A new perspective to IT cost optimization. In this document, I'm trying to explore the opportunities of applying best practices of IT Service Management and Lean Principles in the Cost Optimization domain.
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Lean IT, Lean Business: A new perspective to IT cost optimization
- 1. Lean IT, Lean Business A Different Perspec5ve To IT Cost Op5miza5on Imad Almurib
- 2. IT cost 3.3% of revenues, 4.4% of Opex* Business process optimization Information optimization Business model optimization IT value IT value ITO360 The Tradi5onal Approach to IT Cost Op5miza5on revolved mainly around reducing IT Opex using standard procurement nego5a5ons What: IT Opex Reduc5on How: Procurement Nego5a5on Best case results: less than 1% of total opex Saving Source: Gartner
- 3. For Cost Op5miza5on to be effec5ve it has to be embedded in IT Strategy.
- 4. For Real Cost Saving, the focus should move from using Procurement prac5ces to More innova5ve approaches IT has a unique advantage of enabling business cost saving and business transforma5on.
- 5. IT has a unique advantage of enabling business cost saving and business transforma5on. Each “Level” of Cost Op5miza5on should be performed in several rounds. Round 1: Reduce Service Unit Cost : Supply Domain Round 2: Reduce Service Volume : Demand Domain
- 6. • Cost Saving Impact Analysis • IT Asset-‐type Budge5ng • Vendor Management Prac5ces A Deeper Dive Into the Tools and Prerequisites • VSM (Value Stream Mapping) Analysis • VSM-‐based Service Based Cos5ng • Enterprise Risk Management • Voice of the Customer • IT Service-‐Based Cos5ng • Project Por`olio Management • Paaerns of Business Ac5vi5es (PBA) • IT Pla`orm Budge5ng • Run/Grow/Transform Budge5ng • IT Service Por`olio Management IT Procurement Cost Saving IT Opera5on Cost Savings IT-‐Enabled Business Cost Savings IT-‐Enabled Business Transforma5on
- 7. Cost Saving Impact Analysis: A tool to pick up the right cost saving ini5a5ve. Opportunity Financial Benefit Time Org. Risk Tech. Risk Investment -‐Renego5ate Vendor Rate Cards -‐ TEM (Telecom Expense Management) -‐Op5mize Storage & Back-‐up -‐Normalize demand -‐Reduce Project Scope -‐Real-‐Time Business Service Cost Repor5ng & Tracking -‐IT-‐enabled Business Value Stream op5miza5on. Business Digi5za5on -‐Lean Transforma5on Low Low Low Low Opportuni5es are chosen from different Cost Op5miza5on Levels and Rounds as examples. Low Moderate Moderate Low Low Moderate Low Low Moderate Moderate Moderate Low Moderate Low Low Moderate Low Hi Low Low Moderate Hi Hi Hi Hi Moderate Moderate Hi Low Moderate Hi Low Low Low Hi Low Hi Moderate Low Hi Low
- 8. IT Spending % Opera5onal Expenses 4.4% 4.4% IT Spending % of Revenue 3.5% 3.5% IT Spending per Employee $13,197 $13,584 IT Employees % of Total Employees 5.3%* 5.3%* Run 65% Grow 20% Transform 15% Contractors 20% In-‐House 80% IT Capex 28% IT Opex 72% Hardware 17% Sokware 21% Personnel 41% Outsourcing 21% Apps. Dev. 19% Apps .Sup. 16% Data Center 22% End User 11% Data Network 9% Service Desk 7% Voice Network 6% IT Mgmt. 6% Fin. & Admin. 4% IT Pla`orm Budge5ng Prac5ce is a step deeper than the standard IT GL-‐based, asset budge5ng.
- 9. Por=olio Model Support business func5ons that primarily impact the boaom line. Grow top-‐line revenues and enhance the reason why customers choose to buy its products or services enterprises that are lacking appropriate infrastructure and compliance are likely to have an unacceptable degree of risk These investments represent "good risk" for the enterprise and ensure that it stays ahead of the compe55on How much revenue that investments can deliver? Rate of return? Time to return? Hard-‐dollar cost savings, sok-‐dollar produc5vity and cost avoidance in the financial analysis of benefits Calculated risk approach to determine the business damage from not making that investment The degree to which success could create compe55ve advantage. Governance Por`olio Management is a Strategic Control Domain Prac5ce that helps reduce Volumes of Demand and deal with more objec5vity with budget requests and alloca5ons
- 10. Paaerns of Business Ac5vi5es and their analysis is covered in ITIL Service Strategy Life Cycle. PBA, allow several cost op5miza5on ini5a5ves Paaers of Business Ac5vi5es Op5mize DR assets/services Normalize Demand Exploit opportuni5es for cloud IaaS where demand varies (Sandbox, Dev & Test, low DR) -‐Reduce number of services within service catalog
- 11. CMDB Components EAR : Enterprise Architecture Registry Reference Services Departmental Services Departments -‐ Seat No’s Divisions One Many Value Stream Ver5cals All infrastructure and other components suppor5ng EAR record Costs maintained at this level Availability, RPO & RTO at this level Enterprise Applica5on Registry Entries here aggregate components from CMDB e.g. “Messaging” or “Storage” Costs allocated at this level as well The defini5on of a service that can be used across mul5ple departments Addi5onal costs allocated at this level Uses Reference services to define the full list of services for each department Addi5onal costs allocated at this level Value Streams are categorised as “Core” and “Non-‐Core” (to the business) As such, a department’s service cos5ng por`olio can be grouped either by the 14 VSVs -‐ or -‐ grouped by “Core” and “Non-‐Core” Dimensions Measures By gathering all service costs at the level of Departmental Service (Catalogue), we will be able to provide all the detail at departmental level but also summarize service cos5ng at divisional level or at Value-‐Stream Level Service-‐Based Cos5ng enables IT Show back and IT charge back that can change business spending behavior. More importantly, Service-‐Based cos5ng enable Value-‐Stream-‐Based cos5ng which can help transform the business.
- 12. IT Service Catalog IT Financial Management IT Service-‐Based Cos5ng Value Stream Mapping of Business Services Real Time Value Stream Cos5ng IT-‐Enabled Business Value Stream Op5miza5on Lean Business Transforma5on Lean Prac5ce ITSM Prac5ce The Combina5on of IT Service Management Prac5ces and Lean Principles give birth to a new breed of Cost Op5miza5on and Business Transforma5on.
- 13. Summary There is a clear line and significant difference between cost op5miza5on and cost reduc5on. To cross that line, the organiza5on must adopt a new way of thinking outside the conven5onal wisdom. While, IT-‐Enabled Business Cost Saving and IT-‐Enabled Business Transforma5on could Save millions of Dollars, expect this saving to come with its own IT investment. Imad Almurib