counted counts.
—Albert Einstein Controlling cost has always been high on the CIO’s agenda, but after the high-tech bubble burst in 2001, the resulting crisis of confidence in IT caused many organizations to begin holding IT accountable to more rig- orous cost-cutting measures. To many chief financial officers, running a “Lean” IT budget implies weight loss—reducing costs and resources as a primary objective.
Lean practitioners clearly understand that a primary focus on cost reduction, rather than value creation, is hazardous. Leading with a cost focus can cause an organization to continue doing the wrong things more efficiently. Worse yet, across-the-board mandated cuts may inflict irrepa- rable injury to the long-term performance and health of the organization, losing valuable knowledge.
Shigeo Shingo said, “The four goals of improvement must be to make
things easier, better, faster, and cheaper.”15 Note the sequence of this list;
Lean focuses on adding value and eliminating waste through simplifi- cation, quality improvement, and lead time reduction; cost reduction is a natural outcome. According to Gartner, “One of the biggest mistakes companies make with Lean is focusing too heavily on driving cost out of the business. If you approach Lean with that attitude, you’re bound to fail. Building a huge data center may give you great economies of scale, for
example, but it may also reduce agility and flexibility.”16
Nevertheless, there is often a relentless emphasis on IT cost reduction, especially during economic downturns. While many organizations (and their shareholders) focus primarily on financial measures, this can lead to short-term thinking at the expense of long-term value. For example, when an employee wastes 10 hours each week performing non-value-
added work, and this activity is suddenly eliminated, that employee can then focus his or her skill, experience, and creativity on adding value else- where. But since this does not lead to a reduction in salary expense, or any direct impact to the financial statements, this improvement often goes
unrecognized, or is characterized as a soft savings. The same argument
can be made for a kaizen that reduces floor space or the need for existing equipment, creating the potential that these assets can be redeployed to add more value elsewhere.
Few people will argue that these improvements don’t create value, but when it comes to prioritizing improvements, there is nevertheless a strong bias toward hard cost reduction—those improvements that go right to the bottom line. This creates a predisposition toward short-term improvements that have quantifiable cost reduction or avoidance, but many strategically significant improvements are long term and not easily measured (consider improvements to flow, quality, and customer satisfaction). To mitigate this bias, organizations may use hard- and soft-value categories when assessing the impact of kaizen activities, so whether or not there is a direct financial impact, they are acknowledging overall value contributed.
To ensure sound decisions are made for the health of the overall enter- prise, IT professionals must help the business clearly discern and measure the true value of each IT service, and its contribution to customer value.
the iMPortanCe of the Lean ManageMent systeM
In the end, a successful Lean transformation requires the aligned, cooper- ative behavior of executives, management, and individuals. This is enabled by strategy deployment, and supported by communications, knowledge management, collaboration, and performance measurement systems that focus on value creation. Good decisions and effective, aligned action require simple, understandable, and actionable information.
A Lean management system communicates quality information throughout the organization, accompanied by the steady cadence of leader standard work. By decentralizing problem solving and decision making, and encouraging everyone to take responsibility for Lean performance, an organization cultivates a sustaining Lean culture.
endnotes
1. David Mann, Creating a Lean culture: Tools to sustain Lean conversions (New York: Productivity Press, 2005), vi.
2. Bill Gates, keynote speech, Microsoft’s Second Annual CEO Summit, 1998. 3. Peter Senge, The fifth discipline, rev. ed. (New York: Doubleday, 2006), 270.
4 As the Economy Contracts, the Digital Universe Expands, EMC White Paper, May 2009.
5. David Mann, Creating a Lean culture: Tools to sustain Lean conversions (New York: Productivity Press, 2005), 11.
6. Steven J. Spear, Chasing the rabbit (New York: McGraw-Hill, 2009), 24–25.
7. Gwendolyn Galsworth, Visual workplace, visual thinking (Portland, OR: Visual-Lean Enterprise Press, 2005).
8. Eckerson, Performance dashboards, 18.
9. Wayne Eckerson, Performance dashboards: Measuring, monitoring and managing your business (New York: John Wiley, 2006).
10. Senge, The fifth discipline, 218.
11. Peter Hines, Daniel Jones, Richard Lamming, Paul Cousins, and Nick Rich, Value stream management: Strategy and excellence in the supply chain (Upper Saddle River, NJ: Financial Times Prentice Hall, 2000); James P. Womack, Daniel T. Jones, and Daniel Roos, The machine that changed the world (New York: HarperCollins, 1990); and James P. Womack and Daniel T. Jones, Lean thinking (New York: Free Press, 1996), 16–26.
12. Hines et al., Value stream management, 116.
13. Brian Maskell and Bruce Baggaley, Practical Lean accounting (New York: Productivity Press, 2004), 2.
14. Jean E. Cunningham, Orest Fiume, and Emily Adams. Real numbers: Management accounting in a Lean organization. (Durham, NC: Managing Times Press, 2003), 92. 15. Alan Robinson, Modern approaches to manufacturing improvement: The Shingo sys-
tem (New York: Productivity Press, 1990), 97.
16. Leon Erlanger, “Smart enterprise insights: Going Lean,” www.smartenterprisemag. com/showArticle.jhtml?articleID=217701405&pgno=3.