How Lean is your Cloud? Part 2

In the first part we discussed lessons that IT can learn from a hundred years of manufacturing best practices and the possible role of cloud computing in that endeavor. We now continue with what may very well be the area that IT can learn most from manufacturing: Costing.

Costing. Many feel that the billions that the industry invested in ERP systems can be justified by the improved planning capabilities that such a global perspective gives. Reality however is that the benefits of ERP – if any – come more from improved financial visibility. By being able to compare costs, prices and efficiencies per country, the overall portfolio could be optimized. And although most ERP systems have added a supply chain planning solution over the past years, their cost analysis and financial functionality is often both more advanced and more widely implemented.

Full, loaded, integral products cost. In manufacturing understanding the cost of a product is both an art and a science. Using a variety of tools and methods direct and indirect cost elements are allocated to cost carriers (products). In fact, most manufacturing innovations are first screened against their impact on product cost, before their implementation is even considered. The two main allocation methods are a roll up based on the Bill of Materials (BOM) and an activity based allocation using intermediate pools of costs. IT cost and especially infrastructure cost traditionally were fixed and allocated in an overhead way. With CMDB’s (configuration management databases) becoming more widely implemented , organizations can start to allocate specific technical cost directly to the business service they support. And also the pay as you go model of cloud computing makes that easier. As a result many an IT department is starting their own financial and cost analysis function or department. Something which is also required as cloud computing renders make or buy decisions more granular and more frequent.

Global sourcing and spot markets. It will be clear that under the above market conditions, smart sourcing becomes a key competitive differentiator. Static long term contracts and multi-year commitments are replaced by spot markets, hedging and pricing based on average daily price. Also in Cloud computing we already see the first examples of this, again with Amazon leading the pack by introducing spot pricing for its EC2 elastic cloud offering.

Just in Time. At first sight Just in Time manufacturing seems to be at odds with a focus on product cost. Making large quantities to stock (just in case) seems more efficient than producing each item when and only when required (just in time). The revolutionary idea of lean manufacturing was that if it is more efficient to make hundred of the same in a row, the conclusion should not be to make batches of a hundred, but to change and tweak the system until a batch size of one could be produced as efficient as a batch of hundred.

Single Minute Exchange of Die. SMED, sometimes jokingly referred to as “single minute exchange or die”, is the practice where the whole factory team works together to change over the manufacturing process from one type of product to another, within a minute. Imagine a formula one team getting ready to exchange tires, including a guy with a whistle and endless rehearsals and you get an idea how serious this practice is taken in lean factories. To most of us this may feel outrages and expensive. But in fact this singular focus on achieving together what everyone agreed is important (in this case make to order and meeting real and not forecasted customer demand) and makes SMED relevant in a cloud context. In the past, each IT department or discipline (network, databases, applications, development, etc.) - could focus on meeting their own SLA’s, but all together they often were delivering an overall customer experience that was less than desirable. Case in point, also with cloud computing is that improvements cannot come from only technology (cloud in this case), it has to be grounded in mentality and processes.

Total Quality. Before lean manufacturing introduced the concept of zero defects, the consensus of the industry was that there was something like “optimal quality”. The idea behind that was that if one in X-thousand products failed, it was cheaper to repair those few then to improve manufacturing quality even further. It will be clear that Just in Time and zero inventories had no tolerance for that idea. If even a single component fails, the whole delivery to the end customer will get delayed severely. As a result manufacturing started measuring defects in PPM (Parts per million) instead of percentages or promille’s. Basically the idea was that manufacturing something first time right in the end always is cheaper than having to repair it later on, as all these unplanned repair activities are essentially waste that adds no value. Also in IT the idea of “first time right” is gaining traction and cloud computing, with its large scale, is accelerating this even further. With a million users the impact of an error or (security) flaw is much higher and does warrants a larger focus on quality. Interestingly this focus on zero defects also further another lean concept, namely excluding any functions that the user sees no value in , as these do increase complexity and the chances of errors, but not the value.

Maximize Value, Minimize Waste. Even if the above analogies between Lean manufacturing and IT may seem far fetched to you, one thing you may find useful regardless is using the Lean IT mantra of “Maximizing Value” (only do what adds value to the end customer) and “Minimizing Waste” (eliminating steps that do not add value) to guide your decisions. Just take any idea or proposal and evaluate it against these two simple criteria: does the service in question add significant value in the eyes of your end customer? Or, does it minimize waste by eliminating steps that do not add value relevant to your customers. These two very simple criteria can also prove very useful in streamlining your cloud computing efforts.

Now is the time for organizations to start evaluating how cloud computing can help them transform their traditional IT factories into a modern IT Supply Chain. With the Cloud Academy initiative we are trying to support these efforts. On the one hand by furthering knowledge about basic cloud building blocks and cloud security, but also by discussing possible management approaches to cloud computing in the Cloud Academy discussion group on Linked-In. Regardless of whether you are looking to start your journey to cloud computing with Software as a Service, Platform as a Service or Infrastructure as a Service. May your cloud be a lean one!

How Lean is your Cloud?

Delivering IT services can be in many ways be compared to manufacturing processes, and over the years the concept of an “IT factory” has become a popular way of explaining best practices in IT operations. In this tradition Cloud Computing can be seen as the logical next step, converting the traditional IT factory into a modern IT Supply Chain (see also the recent whitepaper by Sam Somashekar).

The ambition to model IT after manufacturing is understandable. The enormous efficiency improvements gained from innovations in manufacturing management have enabled the economic growth and prosperity of the past decades. With the economy moving further from Atoms to Bits - from tangible products to information services - it makes sense to investigate whether these management innovations can have similar effects on IT. Of course not instead of existing service management best practices, these will remain valid. But as additional source of inspiration.

An additional reason for using such manufacturing analogies is that they provide an easier way to explain the rationale behind major IT investments to non-IT trained audiences, such as the executives needing to sign off these investments. Using the widely accepted best practice of Lean Manufacturing as main analogy we try and investigate the possible relevance of Cloud Computing in that context.

Mass production. Today’s cloud computing offerings all leverage the concept that mass produced is almost always cheaper than custom made. The proverbial Ford Model-T was all about using standardization to drive cost down - any color as long as it is black! Today’s cloud computing offers mass produced standardized services to millions of users, and as a result monthly cost per user can be relatively low.

Mass Customization. But soon consumers no longer accepted only black cars and in Japan Toyota perfected lean manufacturing to be able to offer choice at cost comparable to mass production. Instead of an assembly line dedicated to one make and model, all kinds of different cars ran on the same production line. Thanks to virtualization IT is likewise abandoning “One server per app” and is running multiple applications in varying combinations on a flexible cloud infrastructure. In a comparable way, multiple customers are using the same Software as a Service application in very different ways. In this case the concept of multi-tenancy makes such premium flexibility at the cost of mass production possible.

Mass Standardization in product design. The secret behind mass customization in manufacturing is massive standardization of the underlying components and platforms. In the consumer electronics industry the average manufacturers’ portfolio of television sets went from ten different models - with an average shelf life of two years - to hundreds of different models with major product renewals occurring every 6 months. Product development lead times needed to be slashed from years to months. And smart manufacturers moved from every TV having its own custom designed printed circuit boards to using the same board across most of its models. Agile development and component reuse are the IT incarnations of this trend.

Assemble to Order in product delivery. Before industrialization most products were “made to order” by craftsman. Post World War II, with demand high and supply low, the market went to products “made to stock”. As the market changed from a sellers to a buyer’s market, customers demanded differentiated products at low prices and with short lead times. To be able to meet these higher demands manufacturers perfected an assemble to order supply chain. Where final products were rapidly assembled from low cost often purchased standard components. IT went through as similar transition, moving from tailor-made software via standard packages to a service orient architecture, where end user services in theory can be assembled to order. In a cloud computing context this means sourcing low cost component services and flexibly assembling these either in house or using a platform as a service.

Design for Manufacturing. An approach where R&D designed products and then threw these over the fence for Manufacturing to figure out how to produce them was no longer feasible in modern manufacturing. Products need to be designed with manufacturing in mind. In most modern manufacturing organization R&D and production work very closely together, throughout the whole product life cycle. In a similar fashion we already see that product developers at today’s cloud providers are much more involved with “how it will run”, than traditional developers. With automatic provisioning and scaling up and down of applications becoming standard practice, “design for operations” will be a required discipline for all developers going forward.

Deliver double the features, at halve the cost, every 12 months. Seems outrages? In consumer electronics this may even be understating the market dynamics. Designing and manufacturing products that by the time they reach the market will sell for half of today’s price is no picnic. IT will need to prepare for similar market dynamics. To some extend hardware and basic services like bandwidth and hosting are already keeping up with this rapid cost reduction. But IT needs to prepare for their “Premium Services” to meet these requirements too. The impact of the cloud is here that - with bandwidth making both distance and time-zones irrelevant - competition can come from everywhere.

From Manufacturing Requirements Planning (MRP) to Supply Chain Management (SCM). The main difference between traditional MRP and SCM was that MRP tried to plan the organizations own manufacturing activities, while supply chain planning took into account the activities of the extended enterprise and at the same time acknowledged that not all parameters were under the control of the planner. If the ship transporting cars from Kobe to Rotterdam left on the 12th then production needed to be planned around that. Just like one cannot manage the weather, one can merely predict it and plan around it. Same with Cloud Computing, many of the components required for the final customer experience are no longer under our (direct) control, but we remain responsible for the final result and need to plan around obstacles.

Synchro Kanban. A result of the above is also that trying to micro manage that macro environment is not a good idea. Micro managing would be a futile as having trained butterflies take off from the coast of Japan to prevent a hurricane in Central America. Instead one can better take an approach where the internal management capabilities of the individual subsystems are leveraged. Toyota’s Synchro Kanban approach is a good example. Having a macro level plan that looked factory to factory and country to country level, while each factory was responsible for meeting its commitments using its own capabilities and flexibility. They did so using really simple low tech systems such as Kanbans or dual bins. The perceived centralization of cloud computing has the danger of inviting megalomaniac global planning attempts, but in my view the idea need to be Keep it Stupidly Simple (KISS) just like with synchro kanban.

Continuous Incremental Improvement. It is tempting to assume that such high requirements also require a wholesale approach to innovation. Starting over by building a new factory instead of trying to improve the old factory. With the exemption of some base components in most industries the incremental approach of trying to improve an already working factory has proven much more effective than trying to get a brand new factory to work. With Service Oriented architectures that realization is reaching IT, not building yet another new factory next to our current mainframe, unix, and windows manufacturing plants of the past.

Dedicated new factories In manufacturing there is one clear exception to the above, factories for new base components such as chips or LCD screens are replaced completely when moving to the next generation of product. Also here a possible lesson for cloud computing, for base services, like CPU capacity, storage but also search and mail, it may make sense to plan for an ability to regularly switch vendors (factories) going forward. Locking in to a particular vendor also locks in to that vendors generation of technology and thus to its related no longer competitive cost model.

To be continued….in part 2

Introducing the Cloud Academy: as cloud is not a sprint but more a marathon

More and more people are realizing that Cloud Computing may be a hype, but for sure it is not an invention.  The components that make up or enable the cloud are not new. We have had fairly broad networks for 10 years, have used virtualization for 20 years and were sharing of computing capacity (time sharing) even before I started my working life. As CA’s Ajei Gopal recently said, Cloud Computing is much more a “practical innovation”.   Practical innovation combines existing technology into a compelling new product. Best example of a “practical Innovation” is probably the iPod that combined existing and readily available technology like a portable hard disk, a compact headset and MP3 compression in a new type of walkman.

The thing with “practical Innovations” is that it is not about having the best idea; it is not even about having the idea first. It is all about FLAWLESS EXECUTION. Over the last couple o weeks we saw a few insightful article appear. For example in “Don’t Rush to Cloud Computing”  by Art Wittmann in Network Computing and “Five points to make when your CEO cries cloud” by Chris Murphy in Informationweek. The morale of these basically is that despite the hype and the (peer) pressure “ready-fire-aim” is not a good strategy for cloud computing.

And this is exactly the reason why we started an initiative called “the Cloud Academy” (http://www.thecloudacademy.com/).
The aim of the academy is to offer IT and BT (business technology) professionals an opportunity to exchange ideas, discuss the pro and cons and brainstorm about execution strategies for their complex environments. What the academy is not is a school or course where a “teacher” explains how it should be done, but to facilitate the discussion we do provide a short primer “Shedding light on Cloud Computing” to all attendees. 

 

To start we picked four areas to explore: 1) Security First!, discussing security and governance concerns, as this seems the dominant topic in most initial cloud discussions, 2) The changing role of IT management, what will be the core task of IT (if any) once we no longer are busy trying to keep an assorted bunch of infrastructure in the basement running 3) My first Cloud: about building a private cloud, as most companies are starting there to get their feet wet. And 4) Assuring Cloud Performance, about warranting your customer’s and users experience in a cloud environment. This last one is interesting because – even though many organizations seem to perceive the cloud mainly a something they will consume - reality is that if you’re a bank, a travel agent, a media company or even a government, you likely will be delivering a large part of your customers services over the cloud.

All four session are technology agnostics and touch upon different aspects of cloud computing such as Iaas, PaaS and SaaS. But we also have one technology specific session: Mainframe goes Cloud, why 20 years of virtualization and massive scalability give this platform a head start.

As the Cloud Academy is all about peer to peer communication and exchanging ideas we are running these in our local facilities and where possible in local language, initially  throughout Europe (remember: ready-aim-fire) with the Netherlands and France already underway.  But to kick things of we invited Craig Symons Vice President and Principal Analyst of Forrester Research to give his perspective on how Cloud Computing may change the role of IT. Join us on March 3rd for this complementary webcast.

PS For more discussion and news updates please join the Cloud Academy group at LinkedIn

The Cooperative Enterprise Cloud – Easy as a whistling song

For anyone still doubting whether the Cloud indeed will change everything, the below video is really something to watch. It tells the story of how UK headquartered Logicalis group partnered with Cisco, Netapp and CA to deliver their Cooperative Enterprise Cloud Service. After being the first vendor to deploy Cisco new Unified Computing System in the UK it took the approach one step further and developed it “as a service”.

Don’t let the name BOCS, which stands for “Bespoke On-Site Cloud Service” put you off. Because it seems to deliver everything one could want from a cloud. It runs indoor - nice and secure - during normal conditions, but can scale seamlessly to include additional capacity when needed. And best of all, customers do not have to go out and buy several tyes of software and hardware and piece it all together, that has already been done. Seems too good to be true? Well the video is an animation and the offering is available as contracted service from Q2 of this year, but it sure seems worth the wait.





Now why is this so different, why does it change everything? First of all, this is not traditional outsourcing - where every change is to be regretted as conditions are cemented into concrete. Neither is it “traditional cloud” where even the biggest customer is a mere number and the vendor is typically only reachable via email. This is cloud at a human scale: seemingly promising the benefits of scale and elasticity, but at the same time addressing the potential drawbacks that more and more organizations are starting to realize.

And unlike previous internet innovations, cloud does not seem to be about cutting out the middleman, but about making the IT supply chain as a whole more efficient and effective through intelligent brokering. Welcome your feedback.

BTW in case you’re wondering what technology CA provided to the mix in areas like automation, provisioning, monitoring and energy metering , I am sure Logicalis will be happy to tell you, but reality is that for its customers , it does not matter. And it should not matter. Just like Salesforce makes a point of not discussing what databases it uses and like the specification sheet of a Rolls Royce under horsepower simply says "enough".