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