Six Sigma slashes IT costs by millions

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What is your outsourcing strategy?

We outsource about 70% of our IT spend. We have four global vendors that we use: HCL Technologies out of Delhi for infrastructure and networking; and on the applications side we use three global preferred vendors, which are KPIT Cummins Infosystems, Tata Consulting Services (TCS) and iGate. Probably 95% of our application outsourcing is done with these three partners. When we approached outsourcing, we did a full labor strategy. We said: What work is it that we do that provides a strategic advantage to Cummins? Then we divided our work into two categories: either it does or it doesn’t. Programming is not a strategic, competitive advantage. But we feel that project management, design, business analysis and leadership are. Those are the things we’d like to keep. We are outsourcing virtually all of our programming, testing and support because the outsourcing partners are very good at that. They’re better than we are. So I can buy that capability. We do have external partners who do project management for us, but that’s usually so we can flex our capacity or in a new technology area where we don’t have capability.

What is your annual IT budget?

Roughly $300 million. It’s grown every year, and it will continue to grow because of the growth of the company. We were a $5 billion company six years ago. We were $10 billion last year, and this year we’re going to be about $12 billion. It’s going to continue to grow. Our expectation is that the IT budget will grow along with that because there is a lot of investment that we need to make. More than 50% of our sales are international now. If the growth had been primarily within locations where we already had offices, the network would be there and the cost would be incremental for capacity. But we’re adding a lot of new locations, and we’re expanding in India and China.

What type of network do you have?

We have 33,000 users at 515 sites in 35 countries. We have an all IP-based network. The primary WAN technology is MPLS, with the exception of a few sites in developing countries that use VPN across the public Internet to connect to the WAN. Our applications are everything you can imagine: e-mail, manufacturing systems, order-management systems, accounting, finance, HR, instant messaging. We have limited video applications. We don’t have voice over the network. Globally the cost numbers didn’t make sense. Oracle is our primary ERP package. We’re standardized on Cisco for the networking hardware. We use Microsoft Office. We use Windows XP on our PCs. We have some Windows servers, but the hardware is primarily Sun on the back end.

When you were promoted to CIO two years ago, your primary goal was to drive standard processes, architecture and applications across Cummins. What progress have you made?

It’s an uphill battle at Cummins, but we’ve gotten a fair amount of traction. When I came into the role, there was very little that was common. Today, we have a single instance of Oracle Financials. We’ll finish rolling out Oracle HR globally in about a year. In the manufacturing space, most of the work is done at the business units. We’ve moved from being more plant-based to being more business-unit based. It’s more common and standard, not necessarily across Cummins but at least within business units.