Using Lean Six Sigma to Lower IT Costs

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Using Lean Six Sigma to Lower IT Costs
February 3rd, 2009
Steven H. Jones Lean Six Sigma Master Black
Belt Quality Continuous Improvement Siemens
Information Services
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Siemens IT Solutions Services
Who are we and what do we do?
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About Siemens IT Solutions and Services

• Siemens IT Solutions and Services is an
  international leader providing IT solutions and
  services. They cover the entire IT service chain
  from single source service provision, to
  consulting to system integration, to managing IT
  infrastructures. Additionally, Siemens IT
  Solutions and Services extends offerings of
  Siemens sectors to include software developments
  and IT solutions. Siemens IT Solutions and
  Services adds measurable value for its customers
  and employs 43,000 and posted 7.5 billion in
  fiscal year 2007 sales. Siemens AG (NYSE SI)
  is a global powerhouse in electronics and
  electrical engineering, and operates in industry,
  energy and healthcare sectors. For over 160
  years, Siemens has built a reputation for
  leading-edge innovation, high quality products,
  services and solutions. With nearly 400,000
  employees in 190 countries, Siemens reported
  worldwide sales of 96.6 billion in fiscal 2007.
  Siemens reported 19.8 billion in U.S. sales and
  employs approximately 70,000 people throughout
  all 50 states and Puerto Rico.

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Quality Continuous Improvement

• Siemens IT Solutions Services Competency
  Center
• Lean Six Sigma
• ITIL
• PM_at_Siemens
• ISO Certifications
• 9001
• 20000

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• 2003 (4 FTEs)
• Developed QCI Team/Concept
• Lean Six Sigma Implemented
• Monthly PMO knowledge sharing

• 2004 (6 FTEs)
• Added ITIL practice and began Service Desk
  assessments
• Awarded a Tier 1 Ohio State Quality Award
• Adopted Quality Gate concept
• Lean Six Sigma project results
• 990,000 in Hard Dollar Savings
• 845,000 in Soft Dollar Savings

• 2005 (6 FTEs)
• Assigned (4) Regional Directors to help drive
  QCI programs in field
• Focused ITIL alignment of Incident, Problem
  Change Management
• Developed Siemens Stats course teaching
  managers statistical tools
• Clients began requesting Lean Six Sigma support
• Developed PMO Accreditation program rating PMO
  standards best practices
• Proof of Quality practice w/Lean Six Sigma drove
  9,000,000 in new business
• Lean Six Sigma deployed in NOC to improve
  operations performance
• Four projects drove 4,500,000 in Hard Soft
  savings

• 2006 (8 FTEs)
• Lean Six Sigma grew cost reduction to revenue
  generation focus
• Siemens AG Quality Gate Maturity Check rated QCI
  3.25 out of 5
• (3.0 corporate goal)
• Won the itSMF (ITIL) Project of the Year
• Won the Innovation at Work Award for Developing
  Siemens Stats
• Lean Six Sigma Activity drove 7,000,000 in new
  business revenue
• Lean Six Sigma Project results
• 4.6M in Hard Soft savings 146K in Customer
  Savings

• 2007 (10 FTEs)
• Siemens AG Quality Management assessed SIS
  maturity level 3.0 out of 4
• (2nd highest scoring Siemens Operating Co)
• SIS CEO awarded QCI for creating a quality
  continuous improvement culture
• Added Customer Experience Practice implemented
  Net Promoter Score
• Lean Six Sigma Activity drove 12,000,000 in new
  business revenue
• Lean Six Sigma Project results
• 5.1M Hard Soft savings 2,500,000 Customer
  Savings

• 2008 (11 FTEs)
• 12 Lean Events
• 4M Hard 2M in Customer LSS savings
• ISO 9001 20000 certified
• Expanded PMO Accreditation to cover all services
  
• Deployed Customer Loyalty Best Practices
• Extend training to 1000 employees

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Why are we here?

• What is the best use of Lean Six Sigma in
  corporations today?
• How do we differentiate from past Quality
  initiatives like TQM, PDCA and others?
• What will it take to make our Lean Six Sigma
  initiatives successful?
• Answer Move Lean Six Sigma from an Engineering
  Methodology to a Business Practice
• Lean Six Sigma... Its all about the money
• Roger Myers Sylvania Director Lean Six
  Sigma

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Lean Six Sigma as a Business Methodology

• Common Belief
• Lean Six Sigma is only successful through
  headcount reduction
• The Problem
• This belief negatively affects Lean Six Sigma
  project benefits
• It limits the acceptance and support of Lean Six
  Sigma 
• A Better Solution
• Align Lean Six Sigma programs with your
  Corporate Strategy
• Drive projects that align with corporate
  strategy 
• Position your practice as a strategic partner to
  the CEO
• The Future
• Lean Six Sigma deployment should create business
  value
• Lean Six Sigma will create opportunities for
  growth
• Lean Six Sigma will help develop and achieve
  corporate strategies

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IT Management Value Stream

• Value Stream Mapping is a Lean technique used to
  analyze the flow of materials and information
  currently required to bring a product or service
  to a consumer.
• Wikipedia http//en.wikipedia.org/wiki/Value_Stre
  am_Mapping

Service Support
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Value Stream Exercise

• Identify your area(s) of greatest focus within
  your organization.
• __________________________________________________
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• Why is this your greatest area?
• __________________________________________________
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Service Support Value Stream
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Value Stream Exercise

• Identify your area(s) of greatest cost within
  your organization.
• __________________________________________________
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• __________________________________________________
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• __________________________________________________
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• __________________________________________________
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• Why is the greatest area?
• __________________________________________________
  __
• __________________________________________________
  __

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Activity Based Costing and Margins

• Activity-Based Costing (ABC)
• Cost model that identifies activities and assigns
  costs of each activity to all products and
  services according to each actual consumption.
• The International Federation of Accountants
  proposed International Good Practice Guidance in
  2008 and it is widely expected to become a
  standard accounting practice
• Benefit of ABC
• Establish the true cost of its services
• Identifies unprofitable services
• Improves pricing quotes forecasts
• Once the real cost is derived, this can be
  divided by the real revenue to determine your
  actual margin per service.

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The Profit Loss Statement (PL)

• The PL is the core financial statement for
  managing operational accounting.
• It is the basic document used to track the
  profits and losses of a business operation.
• The primary output of the PL is the amount and
  percentage of profit (GM or GP) the operation is
  generating.
• The GM Metric is one of the primary metrics for
  evaluating the success of an account.
• Here is a sample PL we will use from a fictional
  SIS account known as Precise Simpel.
• For this exercise, we will assume all costs
  remain constant each month.

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The Profit Loss Statement (PL)

• The PL has 6 primary components
• Area of Business
• The vertical silo or cost center conducted for
  the account
• Business Segment
• The horizontal line item where expenses are
  assigned across Areas of Business
• Revenues or Sales
• The total amount of revenue assigned to each Area
  of Business
• COGS
• Cost of Goods Sold is the expense assigned to
  each Area of Business activity to produce the
  contracted service.
• GM
• Gross Profit Margin is the difference between the
  Total Revenues and COGS for each Area of Business
• GM Percentage
• Gross Profit Margin Percentage is the percent of
  Gross Profit in Total Revenues

GM is a major target area for management bonuses.
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The Profit Loss Statement (PL)

• Total GM/GP Percentage
• Most accounts desire to run at a 25 minimum. If
  the account is under that target, increasing that
  number will be of the highest priority
• We see that Precise Simpel is under that
  Target, so we need to examine further to see root
  cause.
• By looking at the GM by silo we can see the
  desktop silo has the lowest GM
• The Desktop silo also has the largest percentage
  of revenue.
• Therefore, raising the Desktop GM will have the
  greatest overall affect on the accounts GM

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The Profit Loss Statement (PL)

• Within the Desktop silo we see wages as the
  largest portion.
• Logically reducing wages will align the GM
  faster than any other area.
• However, Overtime must always be targeted first.
• In this case there is 30k per month spent in OT.
• Business Case one
• Reduce Desk Side Overtime Expenses
• By eliminating the 30k per month expense will
  save 360k per year

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The Profit Loss Statement (PL)

• Wages are the largest part of the Desktop silo.
• After OT is eliminated, base wages may be reduced
  by cutting Task Time.
• Base wage reduction, taxes and benefits drop
  proportionately.
• Develop an Activity Based Cost per unit
• Calculate average cost per Service Request (unit)
• Total COGS/Total SRs Closed
• Business Case two
• Reduce Desk Side Average Cost per SR
• Reducing the Average cost per SR 5 saves 37.5k
  per month 450k per year

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Margin/Cost Recovery Exercise

• Example Reduce PC support costs
• PC Support Pareto Shows Reimages as most
  expensive repair
• PC Reimage MTTR 4.2 hours
• Labor rate 17 per hour
• Fully burdened labor rate 21
• Labor cost of a reimage 88.20
• 4.2 x 21
• Price customer pays 47.50
• Margin/Cost Recovery -40.70 or -46.15
• 47.50/88.20
• Desired Margin 25
• Margin/Cost Recovery Goal -59.6
• (47.5-25)/88.20-1
• Process Improvement Time Target 1.69 hours
• (47.5-25)/21

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Continuous Improvement Process
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Service Support Value Stream























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IT Services Project Portfolio Dash Board
Financials
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IT Services Project Portfolio Dash Board
Financials
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IT Services Project Portfolio Dash Board Metrics

• Remove defects
• Remove variation
• Improve customer experience

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IT Services Project Portfolio Dash Board Metrics
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IT Services Project Portfolio Dash Board Metrics
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Project Portfolio Prioritization from VOC

• Kano Model uses customer product attribute
  ratings as follows
• Must Have
• Nice to Have
• One-dimensional
• Indifferent
• Completed survey are used to plot feature
  location on the map.
• Todays Excitement will be Basic tomorrow.

http//www.c2c-solutions.com/tutorial.htm
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Project Portfolio Prioritization from VOC
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Project Catalog / Translation Opportunities
Service Desk
Data Center
Desk Side
Business Processes

• Increase 1st Call Resolution
• Reduce MTTR
• Reduce response time
• Reduce routing time
• Reduce routing errors
• Increase SLA compliance
• Reduce Average Handle Time ASA, Talk time, Wrap
  time

• Increase 1st contact resolution
• Improve server backup success rates
• Reduce patch deployment cycle time
• Reduce false monitoring alerts
• Improve triage accuracy
• Reduce batch processing failures

• Reduce re-visits
• Optimize consignment parts processes
• Reduce hardware deployment cycle time
• Reduce network build time
• Reduce asset refresh cycle time

• Improve employee retention
• Improve forecast efficiency
• Reduce bid process cycle time
• Reduce manual journal entries
• Optimize reporting
• Reduce project cycle time
• Reduce RCA cycle time

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Questions?
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Speaker Bio
Steven H. Jones is a certified Lean Six Sigma
Black Belt and Project Management Professional.
He received his Black belt Certification from the
George Group in 2004 while employed at the Xerox
Corporation. His career started at 3M, an early
adopter of the Lean Six Sigma in 1988. Steven has
delivered quality and continuous improvement
projects in Telecommunications and IT since 1993.
He has executed Lean Six Sigma projects
domestically and internationally for clients such
as BP Canada, Convergys, Intercontinental Hotels,
and Microsoft generating over 100M in financial
benefit. He is currently a Lean Six Sigma Master
Black Belt with Siemens IT Solutions and
Services Quality Continuous Improvement team. 
He is member of the International Society of Six
Sigma Professionals, the American Society for
Quality and the Project Management Institute. 
Steven earned his B.A. in Communications from The
University of Cincinnati and an Executive MBA at
Xavier University of Ohio.  He can be reached at
steven_jones_at_siemens.com.