Best PracticeBy Mel Duval | Posted 2007-06-12 Email Print
From its embrace of ITIL, its clever balance between centralized and decentralized IT, and its rigorous management training, General Electric's tech team follows best practices. It's won a number of IT awards. And it's helped GE grow into a $163 billion b#1: Powering Six Sigma With I.T.">
Best Practice #1: Powering Six Sigma With I.T. A number of books have been written about the management philosophy and style of former GE chieftain Jack Welch. For many years an avowed skeptic when it came to the quality improvement programs that were hot in the 1980s, Welch had viewed them as too long on slogans and too short on results.
Then one day, Welch heard his longtime friend Lawrence Bossidy boast about the gains he was getting from a quality program, Six Sigma, at AlliedSignal, where he was CEO in the early 1990s. Bossidy had gotten the program from its creator, Motorola, and had plenty of benefits to show in terms of reduced costs, productivity gains and more profitable operations. Welch had Bossidy make a presentation to GE's executive management in June 1995, and the rest is history.
Perhaps less well known than how he came to believe in it was Welch's decision to lodge the prime responsibility and accountability for deploying the company's gargantuan Six Sigma quality improvement campaign under newly appointed CIO Reiner in 1996, when the program was less than a year old. Welch shrewdly reasoned that Six Sigma and I.T. should be made to work hand-in-glove, with the technology often providing people with the tools to replace several previously manual steps or tasks with a few strokes on a keyboard.
"Six Sigma is a five-step process," stated Reiner in an article in Baseline's sister publication CIO Insight in 2002.
Six Sigma uses a standard set of steps such as defining goals for improving a process to meet customer demands, measuring the current process and gathering information for future comparison. Teams then use those results to determine how a process can be improved or optimized, and once implemented, new designs are continuously measured to ensure goals are being achieved.
"Six Sigma," Reiner said, "gives you the tools you need to keep improving."
At its heart, Six Sigma is a system of practices designed to systematically eliminate defects, which are defined as units that are not members of the intended population. It could be related to a process, such as a mortgage approval that takes six hours to complete instead of two hours. Or it could be a defect related to manufacturing, such as a brake pad that wears out after six months of regular use instead of the intended two years.
The widely accepted definition of a Six Sigma process is one that produces no more than 3.4 defective parts per million opportunities. Using the brake pad example, for every million brake pads produced, only 3.4 may be defective to achieve Six Sigma quality.
Under Welch and Reiner's leadership, Six Sigma has become embedded into the GE culture. Since its introduction in 1996, more than 500,000 projects have been completed using Six Sigma, and more than 100,000 employees have achieved various levels of "belts." A Six Sigma black belt, for example, is awarded to an employee who has been fully trained in all aspects of the process and who can, in turn, lead a Six Sigma project. Master black belts are awarded to those who can teach Six Sigma and mentor black belts.
In 1997, GE credited its Six Sigma efforts with generating $300 million in additional operating income. By 1999, it had climbed to as much as $2 billion a year. Some analysts, such as Jennifer Murphy of Morgan Stanley, estimate the annual benefit to GE from Six Sigma today to be greater than $6.6 billion, while GE's own estimate runs as high as $10 billion.
The original Six Sigma program fostered by Welch more than a decade ago has since been expanded to include the principles of lean manufacturing, pioneered by Toyota Motor. Lean manufacturing places an emphasis on eliminating wasted effort and materials. But the corporate mantra of Six Sigma especially as its rubber hits the road in GE's I.T. function remains much the same.
Today, GE's renamed Lean Six Sigma strategy is applied within I.T. for everything from reducing network downtime to improving help-desk service. This ability to take the best of various quality and process improvement strategies has been one of GE's strengths, says George Eckes, CEO of Eckes & Associates, a firm in Superior, Colo., that trains companies on the use of Six Sigma. "In the early days, Six Sigma was used as a tactical tool to systematically go out and remove defects," adds Eckes, who has trained GE workers since 1996. "But GE allowed the process to evolve so it not only became a defect removal tool, it became a process improvement enabler."
But the real benefit, and the greatest impact on corporate performance, say GE CIOs, comes when Lean Six Sigma is used by the I.T. department to assist business units in achieving their corporate goals.
"Lean Six Sigma involves speeding up the cycle time by reducing the work involved," says Hank Zupnick, CIO of the GE Real Estate unit. "We use black belts in Lean Six Sigma to help determine how to shorten the steps in our processes. A lot of times, you do that by applying technology."
"There are some good synergies between quality operations and I.T.," says Jeffrey Balagna, CIO and customer technology officer at Carlson Cos., and a former general manager of operations and CIO at GE's Medical Systems' Americas division. "Quality operations put an intense demand on information technology or a demand for information, both in understanding the problem and when you go to remediate quality issues."
At GE Energy Financial Services, a business unit headquartered in the leafy city of Stamford, Conn., business unit CIO Sigal Zarmi points to a 20-foot-long whiteboard to demonstrate exactly how I.T. and Lean Six Sigma work together to achieve business goals.
The entire length of the whiteboard is covered in yellow, orange, pink and purple sticky notes. Each color of note is used to describe work involved in a particular process, the people or organization involved in performing the work, and associated metrics, such as time spent performing the work, wait times for documents or computer processing to be completed, and the so-called "Big Y's" measurements in percentages of how well a process is meeting its goal, usually in relation to the customer's expectations.
The notes are the result of a Lean Six Sigma project undertaken eight months ago to streamline the unit's processes for closing debt financing deals. GE Energy Financial Services, which finances oil, gas and electrical projects as well as alternative energies such as wind power, will invest about $8 billion in project financing this year.
Much of the initial work, according to Zarmi, involves mapping out each step of the business process, from originating a loan through to structuring payments and eventual closing of the deal, and identifying where and how work is performed. The role of the technology team in this process, Zarmi says, is to first contribute to understanding how work is performed, such as which applications are involved and which computer systems are utilized. The next job is to help understand where the roadblocks or wait times are encountered. "You have to stabilize and understand the process before you can begin the work of automating or digitizing it," she says.
Once the mapping is completed, the technology team is expected to offer suggestions on how to streamline or automate work the "lean" part of the equation and eliminate defects or errors the Six Sigma piece.
In the debt financing project, the Lean Six Sigma team determined that a large amount of time was spent waiting for documents associated with a deal to be shuttled between departments, employees or the GE loan processing Center of Excellence in Norwalk, Conn. GE established the center to act as a service bureau for handling the more complicated aspects of approving financing, such as setting interest rates based on credit ratings and structuring loan payments. Some of the delays and wait times associated with the project were a hangover from a merger of debt financing units in 2004 that created GE Energy Financial Services.
A key solution was to extend the use of a document management system called the Deal Room to all users within Energy Financial Services. The Deal Room serves as a central repository for documents associated with a financing deal. Zarmi says it was created using proprietary technology, incorporating a commercial version of the Google search engine as the primary means to search for documents across multiple databases and file server systems.
As a result of improvements and the wider use of the Deal Room by all units within Energy Financial Services, the unit reduced cycle time for financing approvals by more than 20%. The exact time required to approve deals can vary greatly depending on the size and complexity of the financing. A $75 million investment in the world's largest solar power plant, for example, which went live in Portugal this March, involved numerous private companies and government agencies.
"A GE CIO is first and foremost a business leader," Zarmi says. "They are constantly thinking about the business processes, the business strategies and the business vision, and how they are going to contribute to the growth of the company."
These days, GE is also combining the rigor of Six Sigma's process improvement methodology with the Information Technology Infrastructure Library standards to further improve its I.T. processes. ITIL is a framework designed to promote best practices in I.T. service management, from adopting a common vocabulary for discussing quality of service to establishing performance metrics.
"ITIL defines the 'what' of service management, and Six Sigma defines the 'how' of quality improvement," writes Molly Bott, a GE I.T. Solutions enterprise consultant, in a GE white paper titled "Combining ITIL and Six Sigma to Improve Information Technology Service Management at General Electric." Bott co-authored the paper with I.T. consultant Malcolm Fry.
GE IT Solutions' Enterprise Planning & Strategy Consulting Group was assigned to spearhead the improvement of I.T. service practices internally, with the goal of bringing its I.T. operations to full ITIL compatibility with the help of Six Sigma. When the project was completed, the results included:
Reduced costs resulting from less potential downtime and adverse effects of system, network and application failures.
Better decision-making due to greater access to information throughout the organization and companywide use of information outputs from devices such as cross-functional I.T. service dashboards.
Improved I.T. service levels resulting from operational efficiencies and an I.T. service management process loop for measuring and controlling service performance.