1. The IT Portfolio as a Form of Waste
Dave Nicolette
Email davenicolette@gmail.com
Twitter @davenicolette
Web www.davenicolette.net/agile/

2. A Definition of Lean Thinking
A way of thinking that enables organizations to
“specify value, line up value­creating actions in
the best sequence, conduct these activities without
interruption whenever someone requests them, and
perform them more and more effectively.”
Womack & Jones
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

3. Lean Values
specify value Customer defines “value”
line up value­creating Map the Value Stream
actions in the best
sequence
conduct these activities Maintain continuous flow
without interruption
whenever someone Customer pull
requests them
perform them more Practice continuous
and more effectively
improvement
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

4. Premise
The existence of an IT portfolio separate
from the overarching enterprise portfolio
limits the organization's ability to
implement and benefit from a lean model.
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

5. When There are Two Portfolios...
specify value Who defines value?
line up value­creating Where is the value stream?
actions in the best Which value stream?
sequence
conduct these activities How is flow affected by the
without interruption interaction between 2 orgs?
whenever someone Where is the “handle” for a
requests them customer to pull value?
perform them more Is everyone aiming for the
and more effectively
same target?
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

6. But wait...
...who says multiple organizations
within an enterprise can't operate
from the same overarching plan?
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

7. In theory, they can, but...
"In theory, theory and practice are
the same. In practice, they are not."
Lawrence Peter “Yogi” Berra, philosopher
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

8. Conway's Law
“...organizations which design systems ...
are constrained to produce designs which
are copies of the communication structures
of these organizations.”
Melvin Conway, 1968
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

9. A Story
Once upon a
time, a company
needed to open
a port on a
router...
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

10. Conventional IT Planning
To calculate the laminar (non­turbulent) flow of liquid
through a straight length of pipe: Source
FR = (Pi (R^4) (P ­ Po))/(8 N L)
Pump
where
FR is the volumetric flow rate of the liquid (e.g., gal/sec),
Pi = 3.14159...,
R is the radius of the pipe or tube,
Po is the fluid pressure at one end of L,
P is the fluid pressure at the other end of L,
N is the fluid's viscosity,
L is the length of the pipe or tube.
The above ignores friction. For laminar flow, friction f is
64
f =
R
For turbulent flow, the friction calculation is worse. Outflow
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

11. Conventional Results
Hmm...I wonder Source
why the work Pump
isn't flowing.
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

12. What's In The Pipe?
Rough internal surface creating high friction
Organizational structural impediments & controls
Corrosion build­up
Old habits of mind and entrenched procedures
Turbulence
Lack of trust & transparency leading to formal checks & rework
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

13. How Can Separate Planning Lead to Waste?
Structure
Separation
Duplication
Logistics
Alignment
Resource allocation
Process
Solution delivery
IT operations & support
Culture
Values
Priorities
Financial planning & tracking
Annual budget cycle
Related costs tracked separately
Separate cost areas mixed together
Technical challenges
Building the right thing
Building the thing right
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

14. The Three M's
muda = non­useful
無駄 (activity not directed toward value delivery)
In Lean Manufacturing
● overproduction
● waiting
In IT work
● unnecessary features
● transportation
● gold plating
● inventory
● delays
● wasted motion
● hand­offs
● overprocessing
● after­the­fact QC
● defects & rework
● interim work artifacts
● meetings
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

15. The Three M's
斑 mura = unevenness, inconsistency
In Lean Manufacturing
● uneven flow
● delay
● inconsistent output
In IT work
● stopping & starting
● multitasking, context switching
● service requests, hand­offs
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

16. The Three M's
無理 muri = unreasonable
In Lean Manufacturing
● overburden (e.g., overloaded forklift)
● unreasonableness
● absurdity
In IT work
● Iron Triangle madness
● Routine expectation of overtime
● Belief in magic (planning & tracking)
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

17. How Does a Separate Portfolio Lead to
Waste?
Redundant strategic planning activities
muda – overproduction, duplication, rework
Align enterprise and IT portfolios, track alignment, and
keep them aligned
muda – motion, rework
Promotes artificial division between “technical” and
“business” personnel & operations
mura – supplier/consumer relationship prevents
seamless collaboration
muda – waiting, motion, transportation, overproduction,
defects, rework
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

18. Muda in IT Portfolio Management
The purpose of IT porfolio management (ITPM)
is to balance:
● risk
● technology
● payback period
● capital allocation
● distribution
Four­pronged approach to ITPM:
● IT portfolio management (which projects)
● IT investment management
● IT performance management
● IT due diligence
From “IT Portfolio Management: A Banker's Perspective on IT,”
Bert Kersten & Chris Verhoef, Cutter IT Journal, Vol. 16, No. 4, pp. 27­33.
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

19. Formalizing the Muda
Of CIOs polled, “41% of their companies do not have central
oversight of the IT budget, which is critical to ITPM.”
ITPM Maturity Model is proposed. It is all about “alignment”
between the IT organization and the rest of the enterprise.
Separate organizations are assumed.
From “Best Practices in IT Portfolio Management,” Mark Jeffrey,
MIT Sloan Management Review, Spring 2004.
VP of program management at DHL Americas said (in 2003)
DHL Americas currently has 20 percent more projects in its
portfolio than it can support. "We won’t probably start half of
those," he says.
Separate organizations are assumed.
From “Portfolio Management Done Right,” Todd Datz, CIO
Magazine, May 1, 2003.
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

20. How Does a Separate Annual IT Budget
Lead to Waste?
Loss of focus on value
muda – motion: IT must play budgetary games instead
of focusing on enterprise strategic goals; fixed budget
imposes both a floor and a ceiling on spending, with neither
based on real progress.
Emphasis on “estimation”
muda – motion, transportation: Tracking performance to
budget leads to an emphasis on “estimation,” a
non­value­add activity.
Limits responsiveness to change
muda – motion, rework: Promotes central control with long
approval processes for any changes.
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

21. IT Planning Separate from Business Planning
high
Fund Selectively
Funding Priority
(difficult to execute)
Value to the business
Fund Selectively
Do Not Fund
(low priority)
low Risk high
Based on “Best Practices in IT Portfolio Management,”
Mark Jeffrey, MIT Sloan Management Review, Spring 2004.
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

22. Comprehensive Business Strategic Planning
high
Partner Differentiating
Market differentiating
Who cares? Parity
low Mission Critical high
Based on Niel Nickolaisen's Simple Little Model, available at
www.incrementor.com/agilenyc/media/.../niel_nickolaisen_102108.pdf
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

23. Comprehensive Business Strategic Planning
high
Maybe do internally, Create & differentiate
maybe find a partner
Market differentiating
Mimic, simplify, keep
Who cares? up with Joneses
low Mission Critical high
Based on Niel Nickolaisen's Simple Little Model, available at
www.incrementor.com/agilenyc/media/.../niel_nickolaisen_102108.pdf
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

24. Comprehensive Business Strategic Planning
high
Shouldn't be anything Unique might be good
new for us
Market differentiating
Who cares? Unique is probably bad
low Mission Critical high
Based on Niel Nickolaisen's Simple Little Model, available at
www.incrementor.com/agilenyc/media/.../niel_nickolaisen_102108.pdf
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

25. A Similar Business Planning Model
high
Lower priority, but
don't forget about it Better do this first
(it will become urgent)
Importance
Must do this, but don't
Who cares?
over­invest in it
low Urgency high
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

26. How Does a Separate Annual IT Budget
Lead to Waste?
Conflicting purposes: Target­setting, forecasting, resource alloc.
muda – motion, overproduction, defects, rework: The attempt to
manage three different issues with the same numbers leads
to several forms of waste.
mura – Constant number­crunching and requests for new
estimates pulls people into meetings and interrupts
continuous flow.
muri – Using the budget numbers inappropriately results in
burdening people with useless work (“absurdity”), while
still requiring them to perform their regular work.
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

27. How Does a Separate Annual IT Budget
Lead to Waste?
Conflicting purposes: Target­setting, forecasting, resource alloc.
Targets must be ambitious, forecasts realistic; they cannot be
the same number.
Mixing targets, forecasts, and resource allocation creates gaming.
Bjarte Bogsnes, Implementing Beyond Budgeting
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

28. Borealis
The budget was used for: We achieved the same through:
High­level financial & tax planning Quarterly rolling financial forecasts
Target­setting Targets on the balanced scorecard
Controlling fixed costs Trend reporting
Cost targets where and when
needed
Activity approach
Prioritizing & allocating investment Small projects – trend reporting
and project resources Medium projects – varying hurdle
rates
Major strategic projects – case by
case, budget was never a tool
Delegation of authority
Existing mandates
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

29. StatoilHydro
● front­loaded
Traditional budgeting: ● ambitious
Same number, ● relative if possible
conflicting purposes target
target
● action­based
● expected outcome – early warning
forecast
● financial & non­financial
forecast
● limited detail
resource
allocation
resource
allocation
● no preallocation
● projects – decision gates & criteria
● operations – relative KPIs
● monitoring
Based on Implementing Beyond Budgeting, Bjarte Bogsnes
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

30. How Does the Internal IT Services
Model Lead to Waste?
Increasing coordination / alignment overhead
muda – motion, transportation, overproduction, waiting, inventory,
defects, rework:
As IT assets become more and more tightly integrated
with business operations, the cost of coordinating activities
between business and IT groups becomes untenable.
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

31. How Does the Internal IT Services
Model Lead to Waste?
Colleagues in lines of business are not “customers” of IT
mura – Customers cannot get results at the time they need
results (“pull”). They must wait for project approval and
scheduling.
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

32. How Does the Internal IT Services
Model Lead to Waste?
Dissatisfaction with quality of service leads to “shadow IT”
muda – defects, rework, duplication: Redundant staff
muri – Additional burden on business units
mura – Integration of departmental solutions with central
enterprise IT assets is uncoordinated with IT planning.
Dissatisfaction with turnaround time leads to shelved initiatives
Lost value: Opportunity cost of initiatives that are never
undertaken
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

33. How Does the Internal IT Services
Model Lead to Waste?
“Requirements” are never well aligned with business needs
muda – motion, transportation, defects, rework, duplication:
All communication & collaboration crosses administrative
boundaries.
muri – Additional burden on all personnel to coordinate
their understanding of requirements
mura – Uneven rate of delivery of features.
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

34. Real Options
The Three Rules of Real Options
1. Options have value.
2. Options expire.
3. Never commit early unless you know why.
After Chris Matts & Olav Maassen, “Real Options Underlie Agile Practices,”
InfoQ, June 8, 2007: http://www.infoq.com/articles/real­options­enhance­agility
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

35. How Does Mixing Technical
Infrastructure Support and Business
Application Support Lead to Waste?
Infrastructure improvements must be justified on the basis of ROI
muda – motion: Effort expended on meaningless justification
muri – Cost center activities have no ROI by definition (“absurdity”)
mura – Uneven rate of infrastructure maintenance & upgrades.
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

36. How Does Mixing Technical
Infrastructure Support and Business
Application Support Lead to Waste?
Incompatible working cultures & professional priorities
muri – recruitment, retention, & performance assessments match
neither the deep technical specialist nor the business solution
specialist.
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

37. Computers Used to Be Mysterious to
Business People
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

38. Not Any More
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

39. Org Structure Evolution I: Ad Hoc
The Business The IT Department
LOB 1
LOB 2
LOB 3
LOB 4
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

40. Org Structure Evolution II:
Separate with Alignment
The Business The IT Department
App Team
LOB 1
for LOB 1
and Infrastructure Support
Enterprise Architecture
App Team
LOB 2
for LOB 2
App Team
LOB 3
for LOB 3
App Team
LOB 4
for LOB 4
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

41. Org Structure Evolution III: Unified Strategic
Planning, Separate Organizations
The Business The IT Department
App Team
LOB 1
for LOB 1
and Infrastructure Support
Enterprise Architecture
App Team
LOB 2
Planning
for LOB 2
App Team
LOB 3
for LOB 3
App Team
LOB 4
for LOB 4
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

42. Org Structure Evolution IV: All Business Functions
Together, Enterprise IT Centrally Managed
The Business The IT Department
App Team
LOB 1
for LOB 1
and Infrastructure Support
Enterprise Architecture
App Team
LOB 2
Planning
for LOB 2
App Team
LOB 3
for LOB 3
App Team
LOB 4
for LOB 4
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

43. Enabler: Standards
XML – Industry­standard schema for common
business documents & transactions
TCP/IP, HTTP, SOAP, WebServices, REST
SQL
Reference architectures for common
categories of applications and right­sized
technical infrastructures
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

44. Enabler: Service-Oriented Architecture
Standard (within the company) interface
between business apps & IT infrastructure
Enables central governance, economies of
scale, shared IT assets
Enables business flexibility & control, single­
piece pull of application features
... but hasn't worked well to date.
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

45. Why Has SOA Not Taken Off (Yet)?
My hypothesis...
Separate strategic planning for business & IT ...
1 infrastructure initiatives usually proposed by IT & “sold”
upstream, not derived from strategic capabilities
planning.
SOA build­out has typically been conceived as a very
2 large scale initiative spanning several years and multiple
annual budget requests.
Enterprise Architects tend to be perfectionists. They
3 design SOA infrastructures that represent their vision of
the perfect environment, rather than taking requirements
from the application teams that need the infrastructure.
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

46. What Can Help SOA Work?
My view...
Unify strategic planning. When enterprise capabilities
1 planning calls for SOA support, that need will become
apparent through enterprise strategic planning.
Take an incremental approach to the build­out. Assess
2 results at periodic decision gates based on clear criteria.
When it is time to stop, stop.
Let the capabilities of the SOA environment be driven
3 directly by the needs of the applications that are to be
deployed on it. Don't let Perfect get in the way of Good
Enough.
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

47. More Enablers
Virtualization technologies
Cloud services
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

48. Credits
Shrugging man: http://solong925.web.officelive.com/images/shrugging
%20man.jpg
Formula for calculating the laminar flow rate of a liquid through a straight length
of pipe: From “Ask Dr. Math” at
http://mathforum.org/library/drmath/view/56326.html
Water drop image:
http://falconsscience.files.wordpress.com/2008/12/water_drop.png
Confused man: http://nittygriddy.com/wp­content/uploads/2010/03/confused­
man.jpg
Rusty pipe: http://watersecretsblog.com/archives/rpipe.jpg
Handsaw: http://www.windandsolarnow.com/images/handsaw.jpg
Executive in a meeting: http://www.themag.org/business­meeting.jpg
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette

49. Credits
Michelangelo book: http://elitechoice.org/2008/10/11/the­most­beautiful­book­
for­michelangelo­admirers/
Couple looking up:
http://farm4.static.flickr.com/3151/2698013284_aa6c77de25.jpg
Armed people looking up:
http://www.austinchronicle.com/binary/eea0/arts_review2­1.jpg
Storyteller: http://www.memeticians.com/2008/02/06/storyteller.jpg
IBM 701 photo: http://www.palosverdes.com/lasthurrah/ibm701.html
Photo of Tom Miller of Saginaw Future:
http://www.mlive.com/businessreview/tricities/index.ssf/2008/06/personal_techn
ology_transforms.html
Cloud: http://www.clker.com/clipart­2808.html
The IT Portfolio as a Form of Waste Copyright (c) 2010 Dave Nicolette