There Is A Silver Bullet – Really!

Last month in The Biggest Dirty Little Secret in IT I highlighted a disturbing phenomenon – that in highly data-driven organizations that have large IT departments, as they get larger they become less efficient.  In short, diseconomies of scale begin to creep in which slow down processes and drive up costs. The article went on to identify the root cause as a high degree of manual IT processes which don’t scale well. The question I will address in this article is what can we do to tackle the problem, and what is it worth?

The silver bullet solution is not technology; automated systems like a Data Integration Hub do play a role, but technology alone is not sufficient. What is needed is a more holistic management system that brings together the right combination of customer focus, waste elimination, quality processes, staff empowerment, end-to-end optimization, and institutionalizing a culture of continuously improving and innovating.  In short, the silver bullet is Lean.

Other major process frameworks such as ITIL, COBIT, and CMMI can help, but as Charles T. Betz points out in a seminal paper on the topic[1];

“IT remains in a chronic crisis of poor image and performance. Currently, they [the frameworks] unfortunately are obscuring end to end IT value and encouraging IT transformation initiatives less focused on a holistic system of value, and more focused on strengthening silo walls.”

James Womack, Founder of the Lean Enterprise Institute, helped steer us in the right direction at an IndustryWeek conference on April 5, 2011 when he said:

“Value flows horizontally, yet organizations are organized vertically.”

The silver bullet therefore is a management system that focuses on delivering value, which means focusing on end-to-end cross-functional IT processes. Six Sigma is better at driving inefficiency out of end-to-end processes than the frameworks mentioned above, but it requires a high degree of sophistication (highly skilled Black Belts) and is therefore not as empowering as Lean. Maybe that’s why many organizations borrow from both methods to create a Lean Six-Sigma program.  In any event, IMHO, the Lean Management System is the silver bullet.

Now that we know what the solution is – what is it worth?  In other words, if an organization that is experiencing diseconomies of scale applies lean consistently and methodically for a period of time (it can take years to fully turn around a large organization and change the culture), what should they expect as the outcome.  Is all the hard work worth it?

If we use the data from my last month’s article, the difference between economies of scale for the top 50% of data-driven organizations compared to the bottom half is a 20% efficiency differential. To make this more concrete, let’s look at a specific example. The largest US Bank by assets (last time I looked) was JP Morgan Chase. Their revenue last year was about $90B, so if their IT budget is consistent with the Forrester’s study, it would be 7.3% of revenue or $6.57B.  But if they applied Lean rigorously and squeezed out the waste, their IT budget should be about 6.5% of revenue or $4.85B for a net saving of $900 million!  That’s a LOT of money.  It sure sounds to me like lean is worth it.

[1] Charles T. Betz, ITIL®, COBIT®, and CMMI®: Ongoing Confusion of Process and Function, BPTrends, October 2011

This entry was posted in Banking & Capital Markets, Business Impact / Benefits, CIO, Data Integration, Data Integration Platform, Enterprise Data Management, Integration Competency Centers and tagged , , . Bookmark the permalink.

2 Responses to There Is A Silver Bullet – Really!

  1. Jamie Wymer says:

    Hear! Hear!

    And LEAN does not require years to train your staff or execessive fees to be spent on belt certifications. What I have always disliked about Six Sigma is the overload of meetings / parlimentary procedures and by the time a six sigma project gets implemented the business conditions have changed and the cost of all the meetings in regards to labor fees ate up half the benefits of the project. A good reference point to consider is Motorola invented Six Sigma and in around 2003 were on the verge of bankruptcy. Toyota invented LEAN, revolutionized the auto industry and continues to maintain leadership.

    I have yet to have a meeting with IT organizations where any of the incumbent leadership start a conversation with here is our end-to-end value stream for technology dependent process (“x,y or z”) and where we see the challenges / opportunities to eliminate non-performing spend and ask how do our solutions address this. Typically we are engaged about a single point in a value stream that may be only 20% of the overall value stream cost and delivery hurdle for the organization.

    The 20% overall cost of IT operations savings doesn’t even factor in what a rapid response IT organization yields in regards to overall market share and profitability performance.

    IT is process manufacturing where the product that is produced is data. Granted software applications deliver automation of customer interaction activities but the biggest cost is in turning that transaction data into actions which protect or generate additional profit. When managed as process manufacturing with LEAN principles and critical assessment of asset utilization for investment performance (OEE in manfacturing), IT operations can be dramatically transformed into a competitive advantage for organizations.

    Like many firms that haven’t made the decision to adopt a holistic managment approach with an understanding of what is “value-add” and “non value-add” and defining value streams to optimize for cost and differentiated customer experience, they are forced into inefficient “reactionary” decision making based upon an immediate and isolated need that only creates a deeper future agility challenge and ultimately delivers less than expected investment outcomes that damage IT’s reputation for value delivery.

    IT operations are a gold mine of efficiency waiting to happen. I am always taken-a-back somewhat that enterprise architects don’t understand LEAN and don’t utilize it in setting direction for their infrastructure and software choices. This often leads to a belief that innovation will come from buying “inexpensive” open source solutions to lower operations costs while failing to ever optimize the actual delivery process which is where the higher and eminently more sustainable quality of product and OPEX improvement opportunity exists.

    Work is much more fun and manageable when you are driving your future based upon control of the input variables and repeatable execution practices versus reacting to the squeaky wheel. When you are leading, you oil the wheel before it ever has time to squeak.


  2. John Schmidt says:

    It’s not often than a comment is more powerful than the original blog – but this is one. Well said! One of the problems with six-sigma is that, because of its intense training demands, it creates an elitist group. As a result it creates barriers for adoption. Lean on the other hand is based on simple techniques with understandable principles that creates a culture of enablement, empowerment and engagement. We need to have everyone involved to solve the integration challenges, and Lean provides the management system to do it.

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