Lean IT, Lean Business: A new perspective to IT cost optimization

Lean IT, Lean Business

A Different Perspec5ve To IT Cost Op5miza5on

Imad Almurib

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

For Cost Op5miza5on to be effec5ve it has to be embedded in IT Strategy.

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.

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

• 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 Poròlio Management • Paaerns of Business Ac5vi5es (PBA)

• IT Plaòrm Budge5ng • Run/Grow/Transform Budge5ng • IT Service Poròlio Management

IT Procurement Cost Saving

IT Opera5on Cost Savings

IT-‐Enabled Business Cost Savings

IT-‐Enabled Business Transforma5on

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

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.

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

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

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.

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.

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

Lean IT, Lean Business: A new perspective to IT cost optimization

Business

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