Monday, August 10, 2009

Excess Capacity

The characteristic feature about IT that makes it different from other types of industries is that there is very little potential for storing or maintaining an inventory of the services being provided. In manufacturing, for example, the manufactured product can be stored in a warehouse and sold later. However, in IT that is usually not possible. Of course, in the case of a manufactured application like say Windows Vista, the boxes of Vista could be stored in a warehouse but due to the short lifespan of software products, this could only be done for so long before the app is obsolete and incapable of being sold. Furthermore, as the software apps can’t be recycled (like steel pipes for example) the stored quantities that aren’t sold are a complete loss. And in the case of non-product services the resources (people, tools, apps, computers) are simply sitting idle if not used to full capacity. The loss in this case is instantaneous and unrecoverable.

Now a certain amount of buffer capacity is necessary so that in the event of some problem or spike in customer requirements, things are still under control and manageable. However, a disturbing trend that I have seen very often is that a lot of capacity is kept as a buffer to compensate for poor management of IT. The efficient and consequently competitive and profitable IT organizations manage their capacity so that they are only taking on the amount of resources and capabilities that deliver value and no more. How can this be accomplished?

To fine tune the resources so that just what is needed is being delivered requires a number of factors to be in place. The first and most important is the correct analysis and understanding of customer demand cycles. This is where the demand management process is of great value.

An ongoing formal relationship with the customer utilizing Service Level Management is also crucial to establish the correct point of contact with the customer in order to fully understand requirements and to implement continuous improvement measures.
Financial management is important in keeping track of the expenses with respect to the planned budget. This monetary bookkeeping can greatly assist with keeping track of customer demand patterns.

At the center of it all, of course, is the capacity management process which plans for and monitors service capacity. However, this process cannot function adequately without correct inputs from the aforementioned processes and other sources.

It is possible to fine-tune and optimize capacity delivery to the customer but only after a proper planned effort is made with other processes in place that provide the relevant information. Organizations seeking to be competitive must make the effort to optimize their delivery or else they will be overtaken by competitors that make this effort.

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