Six Sigma slashes IT costs by millions

Cummins, an engine manufacturer in Columbus, Ind., is firing on all cylinders as it hits $12 billion in revenues this year. The company attributes much of its recent success to Six Sigma, a quality management technique that involves applying statistical tools to measure, analyze and fix problems. Network World National Correspondent Carolyn Duffy Marsan interviewed Cummins CIO Gail Farnsley to learn more.

How have you applied Six Sigma techniques across the IT department?

We are in the process of training all of our IT people to be Six Sigma green belts. To be a green belt means you have to successfully complete three projects. Each takes roughly six months. Realistically, it’s probably 25% of your time for six months.

By 2010, our expectation is that all IT people will be green belt certified. If they’re not, they can’t get promoted and they can’t change jobs. At this point, almost everybody has been trained except for people who started in the last year. Most of them are working on their first or second project. I’m working on my third project as a green belt. The argument I got from people is: I don’t have time to do Six Sigma projects in addition to my regular job. I figured one way to solve that problem is if I do three projects. It’s hard for them to say they don’t have time if I can gut it out. We’ve encouraged people to look at their jobs and figure out how to use Six Sigma to do the work they are already doing.

The reason we require all of our IT people to be trained in Six Sigma and to be Six Sigma green belts is that when we went to an outsourcing model, we stopped doing programming and technical training. In our three-week Six Sigma curriculum, you also get business analysis training. If you think about what IT people do in our model, they are project leads and business analysts. Six Sigma is about leading projects, doing analysis and process improvement.

Is every IT initiative at Cummins a Six Sigma project?

No. It’s not that every IT project is a Six Sigma project, but with everything we do we use the Six Sigma tools. The idea of a Six Sigma project is that it’s something you can do in six months and [that you don’t know the answer to ahead of time]. There’s a lot of IT stuff you can’t do in six months. But that doesn’t mean you can’t do multiple pieces of it as Six Sigma projects. We use Six Sigma for requirements gathering or to reduce the cost of support. Increasing the usage of a Web site is a common Six Sigma project.

So Six Sigma is how you communicate in the Cummins’ IT department?

Yes. That’s what’s important. The project itself is whatever is in your work plan. By doing [a project] through Six Sigma, you’ve got measures, control plans and a common language. Six Sigma is the way we speak and the tools we use. Everybody around the company knows how to use a cause and effect matrix. The tool we use to determine what software capital we’re going to spend is a cause and effect matrix. It would take me a lot longer to get that process done if everybody in the room didn’t already know what that was and how to use it.

How does Six Sigma help with cost cutting?

Pick any application you are supporting, and I guarantee that you can apply Six Sigma to it and reduce the number of tickets and reduce your storage. We’ve applied Six Sigma to hundreds — probably thousands — of cost-cutting projects around the company in the last six or seven years.

Can you give some examples of successful Six Sigma projects in the IT department?

Putting in standard PCs around the globe. That was by far one of the biggest successes, and we saved $20 million over three years. We did a number of projects around our outsourcing partners. When I came into this role in 2002, we were spending a couple million dollars a year with our partner in India. Now we’re spending $40 million. We did a Six Sigma project to determine what projects we would outsource first. Then we did a Six Sigma project to see how we could increase it by 10%. We looked at how much money we were spending with our global contractors versus local or regional contractors. We were probably only spending 40% to 50% with our globals. Now that’s up at 95%. That was huge savings. We did another Six Sigma project on how to increase the offshore percentage of our contracting. We did another one when our customer satisfaction scores with our global suppliers weren’t very good. Those are some examples of Six Sigma projects that were closely tied to big improvements.

Most companies view Six Sigma as a quality management technique for manufacturing. Why should other CIOs apply Six Sigma to IT?

In the infrastructure and in any place that you are doing transactional work or support, you have a ton of data. You can use Six Sigma to reduce costs and improve quality. The easiest projects to do are the cost-reduction projects. Look at where you are spending the bulk of your money. For us, it was resources. So our first projects out of the box were on outsourcing. We’ve done Six Sigma projects around our planning process. Now we track how many projects come through and review when they’re supposed to. We are delivering more projects on time.

What do you view as the most promising new information technology on the horizon for Cummins?

Social networking. There’s a real opportunity there to take us to the next level of collaboration. We use Lotus Notes, but I hear everybody talking about drowning in e-mail. I think there’s a paradigm shift coming, and as IT people we need to figure out how to help that along with wikis, blogs and things like Facebook and MySpace.

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Always a minority, women are becoming more scarce in corporate IT departments. What are you doing to attract and retain women in the Cummins’ IT department?

I am not sure we do anything specific to attract and retain women any more than we do any other talented employee. As a company we offer excellent benefits and have part-time options. We have a company daycare center in Columbus and have arrangements in other locations to help support working parents. Our technology allows employees to work flexibly — on-site or at other locations.

We do have a good number of women in IT, and half of my leadership team is women. So in so much as it is helpful for people to have good role models and mentors to look up to, then I think that helps attract and retain women. Cummins has a Women’s Affinity Group for all women, and I am one of the co-sponsors. We also support the Women & Hi Tech group in Indianapolis and have started a local Columbus-based group to help support and mentor women and girls in technology. This involves women from both our IT and engineering organizations. Another factor is that the bulk of our work is business analysis and project management, and that is more attractive to women than programming.

Why is CIO a good job for a woman?

Part of me wants to say it isn’t a good job for a woman or for anyone who wants to spend a lot of time with their family. I have a quote on my wall that was in CIO Magazine a year or so ago: CIOs make lousy parents because they are never home; they make great grandparents because they can afford to retire early. So from a work/life balance, I think there are a lot of jobs that are better suited. On the other hand, the job is changing a lot and in ways that I think make the role well suited to women. As I talk to women in other companies and to college women, I hear them talking about not being interested in technology for technology’s sake. As the CIO role becomes more about being a business partner and developing people and less about the technology, then I think the role becomes more attractive to women. It has always been a huge challenge to attract women to the operations and technical side of IT. In general they tend to be more interested in the applications and analytical side. So as the CIO role evolves to stress those skills more then I think even more women will be interested. But CIO continues to be one of the C-level roles that has the highest burnout factor. I know so many people that are “former CIOs.” So one hope that I have for the future is that we can figure out how to get the role into better balance with the life side of work/life balance. That would be a huge advantage for both women and men CIOs. But I am not sure I have personally figured that one out yet.

How is IT organized at Cummins?

We’re organized in what is called a federated or hybrid model. We’re not completely centralized; we’re not completely decentralized. I have 11 direct reports. Two of them are hard line in my budget, and the other nine report in to their business unit presidents with a dotted line to me. The business units are responsible for their applications. The business unit IT leaders are on the staff of the business unit presidents. We have a shared services group, which handles IT operations and networking. They do all the clients: the PCs, Palm devices and cell phones. They do telecom. They do printers. They manage all the servers, data centers and networks. They manage our e-mail environment and all of the applications that are standard. The shared services group is between 300 and 400 people. We have a director for IT shared services, who reports to me and the executive director of shared services for the company, which includes human resources, finance and IT. The two that report directly to me includes architecture and standards, which also does information security. This is a small team — maybe 20 people — of very senior people who are focused on the processes that are executed across the IT function globally. The other direct report handles what we call Corporate IT, which is the applications that support HR, finance, legal and communications. I report to our CFO and chief of staff. She has finance, legal, communications, IT and the Cummins Foundation. Overall in IT, we have about 800 employees and around 1,800 contractors

What is your outsourcing strategy?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.

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

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.

Another piece is how we do our IT work. We’ve made a lot of progress in the last few years in terms of our IT project management processes. Any IT project going on anywhere in the globe follows our process. We’ve also defined a number of processes around IT planning. When I first came into this role six years ago, it was a struggle to know how much we were spending on IT. We thought we knew, but every time I turned around I’d find new money being spent somewhere in someone’s budget that wasn’t rolled up as IT. Now, we have a monthly report for IT where we can look across the company and see how much we’ve spent and how many contractors we have.

In the operations area, we’ve standardized on PCs. We have three models of PC around the world. We’ve gone to standard servers, and we’re consolidating data centers. We have four global data centers, and we used to have 50. The next step is about applications. The key there is that if we’re not going to talk about common business practices, we don’t need to be talking about common applications.

What is the most strategic investment you are making in IT this year?

We’re doing a lot of emphasis around customer care. How do we make sure the customer has the best experience when they come in for a service event? It’s traditional CRM, but it’s focused more on a service event than a sales event. We’re looking at how we use these technical tools to take care of our customers better because we sell products like engines and generators that require a lot of service. We have some really old stuff out there, and often the person that’s coming to us for service did not buy it from us. They call us up, and we’ve never heard of them before. Now if they have a Cummins engine or a Cummins generator, and they can give us the codes off of it, we can tell them the complete service history. In terms of the technologies, we’re talking about the Web and lots of middleware. The other piece is figuring out how we can use dashboarding and intelligence to get the pieces of data we need out of old systems.