How to Shrink Your Waste with Lean IT

IT is currently undergoing a transformation reminiscent of manufacturing in the 1970s and 1980s. It’s called Lean IT, which applies the lean manufacturing principles developed by the Japanese, perfected by Toyota and leveraged by greats like General Electric and Motorola with the same end goal: cost reduction by elimination of waste.

Waste doesn’t necessarily mean reducing scrap metal. It can also mean eliminating the waste of your IT resources, such as purging low-value applications, consolidating multiple data centers, standardizing server platforms, increasing utilization from existing infrastructure and applying best practices to manual processes in order to make our human capital most efficient.

The lean concept requires strategic thinking and smart ideas, but some hurdles come with the territory. One of the biggest challenges in implementing a lean methodology into IT is offsetting skepticism. Fears that Lean IT will suppress creativity and its exaggerated rigidity are common criticisms among its skeptics. But the result is actually the exact opposite: Lean IT organizations are able to focus more of their resources on new projects that advance the business goals.  These tend to be the leading-edge, innovative projects that attract the top IT talent. 

Why Is the Idea of Lean IT So Important Today?

Several key industries like financial services, healthcare, travel and online retail are driven by IT. Its products and services are driving revenue, similar to how manufacturing did for the large automobile and technology companies of the 1970s. IT has become a significant part of the business budget, with enterprises having spent more than $3.1 trillion on IT alone in 2007. IT applications require massive investments in infrastructure, storage, software, labor, facilities and more. Combined with the economic downturn and subsequent heightened scrutiny on spending, the justification for value and a return on investment are at an apex for IT organizations. Such scrutiny is with good reason: manufacturing, supply and marketing have traditionally been under the microscope to prove their worth, and businesses should approach IT the same way.

The lean manufacturing methodology can be seen as a loosely connected set of potentially competing principles - all whose end goal is cost reduction and an increase in efficiency by elimination of waste. These same principles can be applied to IT in a considerable capacity, though there are six very clear steps that need to be taken to obtain Lean IT operations:

Step #1: Understand the Unit Cost Drivers of IT Products and Services

The first step is foundational: Gain a deep understanding of the allocated costs of the elements that comprise a service or product. I call these the unit cost drivers. The elements are all of the servers, network, storage, software, labor, facilities and anything else that contributes to the total cost of a service or delivered IT product. These costs are usually captured today in the general ledger for IT, Excel spreadsheets, virtual machine allocation reports and other management systems. They must be captured and modeled in a way that accurately allocates the shared costs to various services, such as desktop services, e-mail, trading applications, online portals, ERP and all IT services.

By understanding your unit costs in this way, you can begin to recognize the drivers to increasing IT costs, how your services compare to software as a service (SAAS) models or industry standards, and how your IT resources are being deployed with respect to how much value they are providing to the business.

For example, by understanding unit costs, you can determine the overhead of running an e-mail service per employee (as Google does) and thus, understand how much it costs IT to bring on new employees into the business unit. Additionally, infrastructure unit costs can be compared to determine best practices (that is, Windows blade server versus rack server, UNIX rack server versus virtualized servers), with all allocated support and facilities costs included. And, by knowing the fully-loaded cost of an IT service, IT product managers responsible for such services can run their business using such metrics--and have a baseline for managing to Lean.