Author Tells How to Put IT Costs on a Diet With Lean Six Sigma

by Elizabeth Ferrarini

By combining two different service quality methodologies, Xerox Corporation realized more than $150 million in economic profit during 2004. Dave Rowlands, the vice president for quality at Xerox, says that a good chunk of this profit came from reducing IT costs in areas such as application development and network infrastructure. Rowland’s recent book — What is Lean Six Sigma?— explains how the marriage of the two service quality methodologies can help midsize to large organizations cut costs in most operational areas, while improving service to either internal or external customers, or both.

Rowlands recently took time to talk about the concepts in his book, and to provide plenty of examples of how Xerox used Lean Six Sigma to cut IT costs. Here’s what this 14-year veteran of Xerox had to say:

N: Can you provide a quick overview of the key differences between Lean and Six Sigma and what do you get when you combine them?

DR: Six Sigma focuses on reducing variations, capturing the voice of the customer, and reducing the cost of delivering customer requirements. On the other hand, “Lean” is a methodology that came out of manufacturing. It focuses on creating value flow to the customer and not creating any type of cost associated with non-value add. The combination of the two can result in making work better (using Six Sigma) and making work faster (using Lean principles). This quality improvement method provides you with tools to identify quality problems and to eliminate waste in your work area.

N: Did Xerox develop the concept of Lean Six Sigma?

DR: We’re one of the early adopters of putting both concepts together. In the early 1990s, we started using Lean in our manufacturing operations. We got very good at producing things better at less cost. As 2000 approached, I talked to our quality team about doing both Lean and Six Sigma. At first, the team was hesitant about the move for two reasons: few companies were doing it, and no one had a good understanding of how the two methodologies could work together.

N: Are there any differences in the way you apply Lean Six Sigma to IT initiatives than to sales or marketing areas?

DR: No. You use the same methodology for IT as you would for other areas. For IT, a lot of the voice of the customer area focused — at least for us — on internal customers, the people who use these systems within the company.

N: Can you talk about the specific IT areas in which you’ve applied Lean Six Sigma?

DR: We’ve used it to reduce infrastructure costs resulting from our outsourcing agreement with EDS. Specifically, we’ve looked at how we could get a higher level of Help Desk service at a lower cost and with faster turnaround. We applied it to storage by examining how we could reduce the amount of storage required and the number of servers. We also looked at how we could do a better job of predicting when to consolidate servers, and purging and archiving what we do.

The basic Lean Six Sigma tools enable you to collect data, and then structure that data so you can make rational decisions. To this end, you’ll be able to either elevate your level of service or reduce your cost for the same level of service.

When it came to applications development, we looked at how we could get faster adoption rates for the things we developed, how we could test things more efficiently, and how we could predict earlier in the process when something was going to reach maturity.

N: Looking at infrastructure areas, can you discuss some specific projects to which you applied Lean Six Sigma successfully to reduce costs?

DR: One project consisted of looking at the infrastructure cost per telephone and the level of service our sales group in Canada was providing to customers. Our research showed that we were paying a certain price for all of these internal phone and voicemail systems. By mapping out the different source of phone services and the cost for each, we were able to devise a new model for telephone service for our sales force. We migrated these folks onto a consolidated plan that provided a remote voice mail link which could loop back to the main Xerox phone system. So we offered them the benefits of a cellphone at the reduced cost of a standard, high-volume plan. At the same time, we got rid of the unnecessary telephone infrastructure and the support.

As the applications development projects get larger, the business requirements documents get more complex, and the variation in our estimates of how many errors there are gets even larger. As a result, we get worse at predicting when a project will be released and the level of maturity. We use Lean Six Sigma to study the correlations between the size of the project and the estimation for what it will take us to finish it.

We’ve also used Lean Six Sigma to study the role throughput yield of developers. Yield is the one-stop process of looking for defects. Role throughput looks at how many of the steps in a multi-step process you can get through without defects. It’s a good indicator of how much rework and how much cost is involved. For example, poor role throughput yield means there is a lot of hidden waste in rework and inspection. In turn, you’ll have poor predictability of release.

N: What improvements have you made in application development as a result of your Lean Six Sigma findings?

DR: We changed the way we set up large projects teams to avoid unnecessary manpower costs. For example, we found that you’ll get better cycle time if you use more developers on a project. However, the marginal yield — the amount of additional testing needed — drops off dramatically with just three developers. So, we now assign three or four developers to a sub-section of a project.

N: Can you give me an example of a non-IT area in which you successfully used Lean Six Sigma?

DR: Another example was our spare parts usage throughout our 14 different service districts. We looked at the usage of parts for identical pieces of equipment. We had a 200 percent variation from best to worse. For example, the best in the country could create a level of service with half the parts budget of the worse in the country. Mapping helped us to find out the differences in the process and move everyone to the best. Then we looked at how we automate these into our ERP system.

N: What kinds of analytical tools or software packages do you use to carry out your Lean Six Sigma analysis?

DR: We use a lot of basic analytical tools such as process maps, and praetors. When it comes to the next step of understanding the real differences between different processes, we use statistical tools, such as hypothesis testing. Minitab is an industry standard for doing control charts and hypothesis testing. Our approach is to get results by using the simplest tools possible.

N: Are you doing a lot of Lean Six Sigma projects with your external customers?

DR: We’ve taken the approach that we aren’t trying to sell you copiers; we want to provide you with document management solutions for problems you have and find opportunities for you. We might talk to a customer about doing a workflow assessment in their office. In this case, we’ll use Lean Six Sigma to find ways to reduce the time it takes them to do work, to improve the quality of work, or to reduce the cost, all at the same time. For example, we used Lean Six Sigma to study a large bank with 3,000 copiers and printers located in various offices. Just by understanding who was using the information, how they were printing their information, and what their costs were, we cut their number of machines to 400 and cut their costs by one third, while continually improving the quality of service.

N: How has Lean Six Sigma initiatives contributed to Xerox’s bottom line?

DR: The ultimate measure we use is called economic process. It’s a net operating profit after tax and after cost of capital. It directly benefits our shareholders. If you generate economic profit, you’re generating bottom profit for the shareholders. It helps us to decide which projects to go after. You can do a cost-saving project, revenue producing project, or an inventory reduction project.

Internally, we’ve generated more than $150 million in economic profit during 2004. These are reductions in our operational costs and driving our revenue.

Elizabeth M. Ferrarini is an IT consultant from Boston, Massachusetts.

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