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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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
Quality & Continuous Improvement
Siemens IT Solutions & Services Competency Center: Lean Six Sigma ITIL PM@Siemens
ISO Certifications 9001 20000
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May 2006 Steven H. Jones, Siemens IT Solutions & Services
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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
Value Stream Exercise
Identify your area(s) of greatest focus within your organization.
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
Why is this your greatest area?
____________________________________________________
____________________________________________________
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May 2006 Steven H. Jones, Siemens IT Solutions & Services
Service Support Value Stream
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May 2006 Steven H. Jones, Siemens IT Solutions & Services
Value Stream Exercise
Identify your area(s) of greatest cost within your organization.
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
Why is the greatest area?
____________________________________________________
____________________________________________________
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May 2006 Steven H. Jones, Siemens IT Solutions & Services
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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
The Profit & Loss Statement (P&L)
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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
The Profit & Loss Statement (P&L)
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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
The Profit & Loss Statement (P&L)
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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
Service Support Value Stream
$$$$
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$$ $$
$$
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May 2006 Steven H. Jones, Siemens IT Solutions & Services
IT Services Project Portfolio Dash Board: FinancialsData Center Financial Performance Improvement Portfolio
Dat
a C
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Dat
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pera
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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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
IT Services Project Portfolio Dash Board: Financials
Data Center Financial Performance Improvement Portfolio
Dat
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Dat
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X1 = Case By _________
Y1 = Cost Per _______ Y2 = Cost Per Incident $____
X4 = By Priority/Severity
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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
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
/08
5/22
/08
5/20
/08
5/16
/08
5/14
/08
5/12
/08
5/8/08
5/6/08
5/2/08
5/1/
08
8000
7000
6000
5000
4000
3000
2000
1000
0
Min
ute
s
_X=214
UCL=900
LCL=-472
1
1
1
1
1
1
11
1
1
1
1
111
1
1
Time to Respond by Day
• Remove defects
• Remove variation
• Improve customer experience
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May 2006 Steven H. Jones, Siemens IT Solutions & Services
IT Services Project Portfolio Dash Board: MetricsData Center Service Performance Metrics Portfolio 1
Dat
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Dat
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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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
IT Services Project Portfolio Dash Board: MetricsData Center Service Performance Metrics Portfolio 1
Da
ta C
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r O
pe
ratio
nsD
ata
Cen
ter
Op
era
tions
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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
Project Portfolio Prioritization from VOC
IT Services Customer Experience Performance
Dat
a C
ent
er O
pera
tion
sD
ata
Ce
nter
Ope
ratio
ns
Medium Severity4.3
Back Up and Recovery = 3.2
SAP = 2.9
X4 = By Priority/Severity
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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
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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May 2006 Steven H. Jones, Siemens IT Solutions & Services
Questions?
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May 2006 Steven H. Jones, Siemens IT Solutions & Services
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