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Using Lean Six Sigma to Lower IT CostsUsing Lean Six Sigma to Lower IT Costs

Steven H. Jones

Lean Six Sigma Master Black Belt

Quality & Continuous Improvement

Siemens Information Services

February 3rd, 2009

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Siemens IT Solutions & ServicesSiemens IT Solutions & ServicesWho are we and what do we do?

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May 2006 Steven H. Jones, Siemens IT Solutions & Services

About Siemens IT Solutions and ServicesSiemens 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@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 FTE’s)• 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... It’s all about the money”

Roger MyersSylvania 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

Service Suppor

t

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_Stream_Mapping

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Value Stream Exercise

Identify your area(s) of greatest focus within your organization.

____________________________________________________

____________________________________________________

____________________________________________________

____________________________________________________

____________________________________________________

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.

____________________________________________________

____________________________________________________

____________________________________________________

____________________________________________________

____________________________________________________

Why is the greatest area?

____________________________________________________

____________________________________________________

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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.

Activity Based Costing and Margins

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The Profit & Loss Statement (P&L)

The P&L 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 P&L 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 P&L we will use from a fictional SIS account known as Precise & Simpel.

For this exercise, we will assume all costs remain constant each month.

The P&L 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 P&L 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 P&L 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 (P&L)The P&L has 6 primary components:

1. Area of Business

The vertical silo or cost center

conducted for the account

2. Business Segment

The horizontal line item where expenses

are assigned across Areas of Business

3. Revenues or Sales

The total amount of revenue assigned to

each Area of Business

4. COGS

Cost of Goods Sold is the expense

assigned to each Area of Business

activity to produce the contracted

service.

5. GM*

Gross Profit Margin is the difference

between the Total Revenues and COGS

for each Area of Business

6. GM Percentage*

Gross Profit Margin Percentage is the

percent of Gross Profit in Total

Revenues

The P&L has 6 primary components:

1. Area of Business

The vertical silo or cost center

conducted for the account

2. Business Segment

The horizontal line item where expenses

are assigned across Areas of Business

3. Revenues or Sales

The total amount of revenue assigned to

each Area of Business

4. COGS

Cost of Goods Sold is the expense

assigned to each Area of Business

activity to produce the contracted

service.

5. GM*

Gross Profit Margin is the difference

between the Total Revenues and COGS

for each Area of Business

6. 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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1. 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.

2. By looking at the “GM%” by

silo we can see the desktop

silo has the lowest GM%

3. The Desktop silo also has

the largest percentage of

revenue.

4. Therefore, raising the

Desktop GM% will have the

greatest overall affect on the

accounts GM%

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5. 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

5. 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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6. 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.

7. Develop an Activity Based Cost

per unit

–Calculate average cost per

Service Request (unit)

–Total COGS/Total SR’s

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

6. 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.

7. Develop an Activity Based Cost

per unit

–Calculate average cost per

Service Request (unit)

–Total COGS/Total SR’s

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 ProcessContinuous Improvement Process

Variation

ImproveImprovePrioritizationPrioritization ImplementImplementInputsInputs ScreeningScreening ReportReport

End User Surveys

Trends

No

Post-Project Evaluation

Project Management

Problem Management

RCARecom.

Customer Experience

(NPS Scores)

Service Request

Reporting Process

Validation

CI?

Yes

Tool SupportTraining

Etc.

Define scope

Prioritization

Initial Review

No

Yes

Draft Implementation

Charter

Measure

Transition to Towers

Define

Project?

AnalyzeCheck

(Verify Progress/Validate Results)

Portfolio Status

KPI Dashboard

CommunicateResults

Client Recommend

ations

Financial Metrics

Assignment and Launch

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Service Support Value Stream

$$$$

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IT Services Project Portfolio Dash Board: FinancialsData Center Financial Performance Improvement Portfolio

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X1 = Case By Account

Y1 = Cost Per Server Y2 = Cost Per Incident $126

X4 = By Priority/Severity

X3 = By OfferingX2 = Server/

Node by Account

XYX $124

RNS = $37 High Severity

Medium Severity

X = Top Node$217

Precise & Simpel $209

Back Up and Recovery = $19

Low SeverityABC $83

2nd Shift = $39

1st Shift = $42

X6 = By shift

3rd Shift = $65

X = Second Node $188

X = Third Node$156

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IT Services Project Portfolio Dash Board: Financials

Data Center Financial Performance Improvement Portfolio

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X1 = Case By _________

Y1 = Cost Per _______ Y2 = Cost Per Incident $____


X3 = By OfferingX2 = Server/

Node by Account

_________

_________ High Severity

Medium Severity

__________________

_________

Low Severity_________

2nd Shift = $___

1st Shift = $___

X6 = By shift

3rd Shift = $___

_________

_________ __________

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IT Services Project Portfolio Dash Board: Metrics

Service Desk SLA/KPI Categories SLA/KPI Expected% to

Target Achieved Data Range# of

Missed Service Desk IT Forms Response Time SLA 95% within 15 mins 0 0 Service Desk Email Response Time SLA 90% within 4 hours 100.85% 90.76% 563 52 Service Desk Voicemail Response Time SLA 90% within 60 mins 101.59% 91.43% 35 3 Service Desk Fax Response Time SLA 90% within 4 hours 111.11% 100.00% 4 0 Service Desk First Call Resolution Rate SLA 60.00% 95.83% 86.25% 800 110 Service Desk Gross Resolution Rate SLA 80.00% 117.64% 94.11% 1273 75 Service Desk Non Service Requests Resolved Tickets Number KPI within 60 mins 160.04% 96.03% 151 6 Service Desk Service Request Resolution Class A SLA 80% within 60 mins 123.14% 98.51% 403 6 Service Desk Service Request Resolution Class B SLA 80% within 1 business day 125.00% 100.00% 359 0

Service Desk Service Request Resolution Class C SLA80% within 2 business

days 125.00% 100.00% 3 0

Service Desk Service Request Resolution Class D SLA80% within 3 business

days 120.37% 96.30% 27 1 Service Desk Service Requests Resolution Rate SLA 80% within 60 mins 117.39% 93.91% 345 21 Service Desk Routing Time not within Scope of Service Desk Support SLA 95%within 5 mins 94.05% 89.35% 845 90 Service Desk Routing Time within scope of Service Desk Support SLA 90% within 15 mins 101.59% 91.43% 105 9 Service Desk Routing Quality Downstream Support SLA 90.00% 101.89% 91.70% 916 76 Service Desk All Incoming Tickets Resolution Time SLA 80.00% 117.08% 93.66% 1830 116

5/28

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5/6/08

5/2/08

5/1/

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8000

7000

6000

5000

4000

3000

2000

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Min

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_X=214

UCL=900

LCL=-472

1

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Time to Respond by Day

• Remove defects

• Remove variation

• Improve customer experience

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IT Services Project Portfolio Dash Board: MetricsData Center Service Performance Metrics Portfolio 1

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Medium Severity 2nd Shift

SAP

Low SeverityDepartment 3

Y3 = Time to Resolution

X2 = By Server/Node

Back Up and Recovery

X6 = By shiftX1 = By

Departement

3rd Shift

High SeverityTop Department 1st Shift

Department 2

X3 = By OfferingX4 = By Priority/

Severity

X = Top Ten Nodes

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IT Services Project Portfolio Dash Board: MetricsData Center Service Performance Metrics Portfolio 1

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Medium Severity 2nd Shift

__________

Low Severity__________

Y3 = Time to Resolution

X2 = By Server/Node

__________

X6 = By shiftX1 = By

Departement

3rd Shift

High Severity__________ 1st Shift

__________

X3 = By OfferingX4 = By Priority/

Severity

__________

__________

__________ __________

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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.

Today’s Excitement will be Basic tomorrow.

http://www.c2c-solutions.com/tutorial.htm

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Project Portfolio Prioritization from VOC

IT Services Customer Experience Performance

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Medium Severity4.3

Back Up and Recovery = 3.2

SAP = 2.9


Y5 = Customer Experience Score = 4.65

X3 = By OfferingX1 = By Account

Bottom Department

2.81st Shift = 3.9

X6 = By shift

2nd to Last2.95

3rd to Last3.0

Low Severity4.8

2nd Shift = 4.3

High Severity 3.9

3rd Shift = 4.7

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Project Catalog / Translation Opportunities

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

Service Desk 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

Data Center Reduce re-visits Optimize consignment

parts processes Reduce hardware

deployment cycle time Reduce network build

time Reduce asset refresh

cycle time

Desk Side 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

Business Processes

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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 [email protected].

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