Lean Management Significance in the IT Business - Essay Example

TABLE OF CONTENTS SECTION TITLE PAGE 1 Introduction 3 2 Context: Averatec Contact Center 5 2.1 Company Description 5 2.2 Main products and services of the company 5 2.3 Order Qualifier and Order Winners 6 3 Averatec Contact Center processes 7 3.1 Process Flow Chart 8 3.2 SIPOC Diagram 9 4 Literature review: lean management 10 4.1 Introduction 10 4.2 Elimination of wastes 10 4.3 Six Sigma 11 4.4 Just in Time (JIT) 12 4.5 Total Quality Management (TQM) 12 4.6 Continuous Improvement (Kaizen) 14 4.7 5 S 15 4.8 The future of lean management 15 5 Implementation of lean management within Contact Center 16 5.1 Elimination of wastes 16 5.2 5S 18 5.3 Continuous Improvement (CI) 19 5.4 Six Sigma 19 6 Conclusion 21 References 23 Introduction Lean Management is a comprehensive program system to align strategic plans with daily improvement targets to meet customer’s demand with quality and to be prepared for future challenges (Jackson and Jones 1996). According to (Petschnig 2009), objective of lean management is to be an efficient, effective and customer focused organization with least cost and zero wastes. Customer satisfaction plays vital role in developing and retaining new markets in any business and one good method to gauge it is getting feedback on different aspects from the customers. Major businesses employ customer contact center concepts since these solutions provide businesses with flexible and strong infrastructure to interact with their customers and effectively manage ongoing projects (Schultz 2003). Based on these feedbacks, improvements in products and business strategies, development of new products, increase in customer satisfaction and loyalty, and exploration of new markets is sought to devise swift response to global competitive markets. In the recent past, number of companies has invested considerably in managing and maintaining contact center to get a competitive advantage by analyzing customer experience and company performance; however, due to recent economic downturn companies are finding it difficult to manage the contact centers due to increased operating expenses. As lean principle has effectively been applied in manufacturing sector, in a similar way this concept is equally well applicable to service industry. In doing so, Hines et al. (2004) cautioned that organizations may miss strategic aspect of value creation while focusing merely on cost reduction and lean tools while applying lean principles. To reduce the operating costs associated with contact centers, lean management approach would help in creating a greater value demand while reducing the failure demand (Marr and Parry 2004). IT businesses recognize that customers lean to support companies providing better services within a given price range. In this report, company realized that its competitive position in the market is no longer secured. Therefore, a shift to lean management was attempted to reduce wastes and costs and increase revenue. This report is an attempt to study significance of adopting and applying lean management concepts to Contact Center Industry using academic rigor while focusing on Averatec Contact Center and how it can effectively be applied to achieve zero defects with increased customer satisfaction. Context : Averatec Contact Center 2.1 Company Description Averatec, established in 1984, is a company offering a broad range of computer products including desktop PCs, Laptops, and Servers, networking, storage and peripheral accessories. IT services including infrastructure technology, consultation and business process development are few other services offered by the company which is engaged in number of project in these areas. Company supports its entire operations with total 6000 employees and one design, development and manufacturing facility, and more than hundred service centers located across the globe. Company designs, develops, manufactures, sells and support a broad range of computers, software and related peripherals in its three business segments categorized as Enterprise, Public and Consumer. Enterprise and public solutions include servers and related peripherals while consumers are targeted with desktop PC, laptops and related hand held devices. 2.2 Main products and services From many years, Averatec is engaged in delivering a range of computers from PC and laptops to huge servers to its clients all over the world. Company had benefitted and maintained a competitive advantage in market due to its make to order model strategy and a range of inventory managed at selling point while reduced its supply chain. But this advantage has become temporary since competitors have employed similar logistics methods with a range of competing products making customized PC delivery irrelevant which sliced a considerable market share from the company. In order to regain its market share, company decided to focus on customer satisfaction and adopted measures like layoffs and outsourcing. To focus on customer satisfaction and interact with existing and potential customers company employed a contact center; however, in PC industry with razor thin profit margin, answers customer calls may exceed profits made on that sale thus questioning contact center expenditures. Thus with the introduction of customer contact center, not only the company expenditures increased but also number of dissatisfied customers increased. One major reason was long waiting times, dropped calls and more than 50% call transfers. In an attempt to reduce costs and eliminates wastes, and align the contact center solution with the strategic objectives of the company, Averatec decided to apply lean management concepts in its contact center. 2.3 Order Qualifier and Order Winners Professor Terry Hill at London Business School first introduced the terms “order qualifier” and “order winners” which referred to how internal capabilities add competitive advantage to an organization for securing success in market by improving interaction between operations and marketing (eNotes 2011). Professor Terry Hill emphasized that operational department should strive to ensure order qualifying and order winning criteria provided by marketing so that product can secure market share. Order Qualifiers Averatec is a well-known brand name. Products are less expensive relative to competitors. Shipment of products is quick. Order Winners Products offered by Averatec are based on latest technology and are reliable. Products are user friendly. Products can be customized and tailored according to the customer requirements. Averatec offers free of cost after sales services. Service centers are located across country and are easily accessible. Averatec provides 2 years warranty on its all products. Averatec Contact Center Processes 3.1 Operational Processes The processes for interacting with customers at the contact center can be further subdivided into number of sub-processes discussed below:- When a customer makes a call either the line would be engaged or call would be answered by an automated answer call after internal call switch by the switching software. After the customer has opted a selection relevant to his/her query from automated answer call, he/she would then be transferred to available representative by call management software, where representative gathers customer information and feed it into the system and looks for any history or available record of the customer who has made the query call or else a new record is created if the caller data is not available in the records. After assessing the caller’s query, a resolution for escalation decision is made; however, if the query is beyond the ability of the representative then call is transferred to next level support through call management software. If the next level support has the information regarding query available in the database or FAQ documents then resolution information is delivered; however, if no such information is available with the next level support than a call back is committed and entered in the system along with caller information. Further staff gathers information regarding resolution of query from system documentation and database or concerned department as appropriate, then caller is called back and the resolution information is delivered. 3.2 Process Flow Chart Next page contains a comprehensive view of the process flow at the contact center 3.3 SIPOC Diagram SIPOC (Supplier, Input, Process, Output and Customer) method can easily be employed to get a better understanding of the above stated processes:- Supplier Input Process Output Customer Caller Call Engaged Call Call Dropped Caller Caller Call Answer Call Call Active Representative Representative Caller Database Query Resolution Query Resolved Caller Query Database/FAQs Representative Query Resolved Call Close Procedure Closed Call Caller Representative Unresolved Query Call Transfer Transferred Call Next Level Support Next Level Support Query Database/FAQs Gathering Resolution Information Query Resolved Caller Concerned Department Next Level Support Unresolved Query Call Back Call Back Caller Database Record Caller Next Level Support Query Resolved Call Close Procedure Closed Call Caller Literature Review 4.1 Introduction This section of the report would attempt to explore the main concepts of lean management in aspect of literature and application in a system. Each organization view lean management from a different aspect focusing on its needs; therefore, definitions vary as the approach is customized to each organization but the core concepts remains prevalent in its all features. Wikipedia (2011) defined lean management as an approach to achieve zero wastes and reduced costs. According to Howleg (2007), lean is a way to maximize customer value from customer’s perspective with fewer resources while minimizing the wastes. 4.2 Elimination of wastes Undoubtedly, the most significant part of lean management is to achieve zero wastes. Conner (2006) defined every activity as waste that does not add value to the product and service from customer’s perspective. Taiichi Ohno, who joined Toyota in 1943 and is regarded as the father of Toyota Production System, now referred to as lean manufacturing to achieve customer satisfaction and loyalty and increase company performance with full potential (Smith and Hawkins 2004). Taiichi Ohno defined and categorized wastes into seven categories as (Wisner 2008):- Over production – is producing components / part more than the requirements of the customer. Delay / Waiting Time – is the time not being used. Transportation – unnecessary movements and handling of parts is also a waste since certain cost is associated with component handling as well. Motion – workers moving around the plant is also a waste which can be eliminated by improving the plant layout. Inventory – Piling up huge inventories also adds cost and is a waste. Inappropriate processes – inefficient processes due to wrong choice of equipment or even due to incorrect interpretation of customer requirements is also a waste. Defects – are the simplest form of wastes when a product or part does not meet specifications. These wastes discussed above when identified by applying following five basic lean management principles (Ahlstrom 2004):- Identify Value – from the customer’s perspective Map the Value Stream – identify all steps in value stream and eliminate steps that do not add value Create Flow – sequence all the steps in coherence in the value stream mapping. Establish Pull – allow customer to pull value from upstream activity. Seek Perfection – repeat the process to achieve perfection and identify wastes. When wastes have been identified then these can be eliminated using following principles (Thomas et al. 2002):- Muda – Identify the waste Process Focus – Establish efficient processes by involving entire organization, Genchi-Genbutsu – Collect facts and data for analysis Kaizen – Continuous and incremental improvements. Mutual Respect – Develop mutual respect and good relationships between management and employee Eliminating wastes help in not only adding value from customer’s perspective but also improves organizational efficiency and reduces overall cost since entire organization is involved in this process. End result in employee motivation, increased production capability and improved quality. To achieve this, Taiichi Ohno recommended to undertake small incremental but continuous improvements rather attempting to bring large changes in the organization to seek improvements (Nicholas 2001). 4.3 Six Sigma Six Sigma analyzes the quantitative data to improve the process outputs by identifying and eliminating the root causes of defects and minimizing the variability in the processes (Hartung 2010). It involves creating special teams under black belts, who have expertise in statistical methods, following sequential DMAIC approach to achieve cost reduction and profit increase targets (Arnheiter 2005). Six Sigma is highly disciplined methodology and requires selecting projects most significant to company’s strategic objectives and is equally applicable to all sectors including government, private, research, nonprofit, health care and manufacturing. Although Six Sigma adopts a more structured and sequential approach, it depends upon the quality and reliability of the quantitative data. This dependency of the approach on quantitative data makes it slight difficult to apply in service industry. Joseph Juran (Pickrell 2005) described Six Sigma as “a basic version of quality improvement”. On the other hand, (Thomas 2008) is of the view that six sigma is the most effective tool that can be applied in many areas by prioritizing financial targets and customer satisfaction. 4.4 Just in Time Just in Time is a production strategy pioneered by Toyota which endeavors to improve business ROI by adopting a pulling items approach where parts are produced as and when required contrary to conventional approach of batch production resulting in huge inventories (Hutchins 1999). By reducing the inventories, cost associated with maintaining and monitoring these inventories can be reduced or eliminated altogether. This approach is based on signals or more precisely Kanbans between two different process points, which trigger the production process as the part requirement is initiated (Miller et al. 2010). Kanbans can range from formal written processes to visual signals. This approach mainly strives to achieve continuous improvement by employee involvement while focusing on ROI, efficiency and quality. This approach poses risks to entire process as in absence of any inventory the product requirement is still to be met even in case of any system failure. However, Just in Time cannot effectively be applied without other key components of lean management or else it may produce results that are not desired (Chikán et al. 1991). 4.5 Total Quality Management (TQM) Total Quality Management, an integrated part of lean philosophy, is a systematic and consistent approach aiming to achieve continuous improvement of product and process by capitalizing on involvement of everyone associated with the company from employees to customer themselves. TQM primarily focuses on customer satisfaction in order to meet or exceed customer expectations and requirements. Analyzing the three words of TQM, we have Total – Everyone associated with the company is involved. Quality – Customer expectations and requirements are met or exceeded Management – Manner of controlling and executing Demirbag et al. (2006) defined TQM as “A holistic management philosophy aimed at continuous improvement in all functions of an organization to deliver services in line with customer’s needs or requirements under the leadership of top-management”. Another definition of TQM is “..….as a continuously evolving management system consisting of values, methodologies and tolls, the aim of which is to increase external and internal customer satisfaction with reduced amount of resources (Hellsten and Klefsjo 2000)”. Underlying concept of TQM philosophy is Plan-Do-Check-Act cycle defined by Shewart and modified by Deming and is based on following four core principles:- Delight the customer – customer satisfaction whether internal or external is real and must be met or exceeded. Management by facts – All work is process measurement. People based Management – All people including employees and even customer associated with the company are part of the quality improvement sought. Continuous improvement – it involves establishing customer requirements, meeting them, measuring them and acting for further improvements. Hunt (1991) defined TQM as a journey towards improvement and not a destination. Saraph et al. (1989) defined eight critical success factors for implementing TQM in service industry as top management leadership, role of quality department, training, product design, supplier quality management, process management, quality data reposting, and employee relations. Although it might seem that lean and TAM differ in their definition, in fact both approaches are similar in approach. Ultimate aim of both techniques is to achieve customer satisfaction by elimination wastes and reducing costs with in organizational resources. 4.6 Continuous Improvement (Kaizen) Basic principle of Kaizen is to introduce small improvements for a better change. Kaizen is focused on eliminating wastes that do not add value to the product. The ultimate aim is to improve the company’s financial standing (Leseure 2010). A systematic approach is to reduce variations in the production cycle to smooth work flow, thus changing the push production approach to pull approach. The main elements of Kaizen are team work, personal discipline, improved morale, quality circles, improvement suggestions, automation, small group activities and total productive maintenance. There are multiple advantages of implementing kaizen principle, both in quantitative and qualitative terms. Results based on kaizen are in measureable form and justify consumption of time, money and effort. Problems are identified and resolved at the originating level. Utilization of space, quality of product, and communications across all levels of organization are improved. Processes are optimized to add value to the product and non-value processes are eliminated (Panneerselvam 2006). In qualitative terms, employee retention, employee involvement and high morale are achieved. Also shorter traveled distances, improved plant layout, fewer safety incidents and reduced inventories are few qualitative benefits if kaizen. Implementation of kaizen is based on PDCA cycle by Shewart and Demmings (Panneerselvam 2006). It involves following steps in given sequential order:- Document a problem Identify waste Plan counter measures Do a reality check, if this would work Implement the plant Measure results of the standardization Compare the measurements against the requirements identified Innovate to meet requirements and increase productivity Make new changes Measure and verify results of new changes Standardize the new, improved operations Continue cycle to improve processes 4.7 5 S 5S represent five basic principles of housekeeping work place by implementing visual controls and information system. It is a short for sort, set in order, shine, standardize and sustain (Moulding 2010). Seiri – Sort : All unrequired tools and equipment are removed and only those needed are kept. Seiton – Set in Order : Everything is in its place and is accessible and reachable when required. Seiso – Shine : Keeping things and area clean after the work is performed. Seiketsu – Standardize : Application of methods and techniques for consistent identification and cleaning of equipment and area. Shitsuke – Sustain : Commitment to adhere the standards and processes for continually improvement. Hiroyuki Hirano developed 5S within his production system where he identified a series of steps each based on its predecessor. 5S defines a visual order that forms the foundation of excellence in any production system. Adopting this approach gets efficient and effective task completion; however, ignoring it may still get job completed but would be hard to justify. It is important to involve everyone in the organization in achieving 5S since no one is observer (Moulding 2010). This would not only help in better organizing, cleaning, developing and sustaining the work environment but also would increase the cooperation among employees building better teams equipped with problem solving skills. 4.8 The future of lean management Lean transformation requires time, resources and people committed to shift from conventional production system to a more efficient and effective one. However, organizations expect a swift change and improvement when adopting the lean philosophy. But the essence fads off as goals are not met relative to expectations. Since majority of companies are adopting this approach which has established parity among the competitor, management in organization has started to wonder what would be next. Therefore, companies are considering to sought ways to respond to existing challenges in the market (Wickens 1993). Actually, essence of the lean management lies not on the adoption of the philosophy rather effective application of the lean concepts relative to the organizational and environmental factors. This may entail addition, deletion and customization of all or few lean tools as all may not be applicable to respond rapidly changing complex and dynamic markets (Womack and Jones 1996). Managers find it difficult to apply lean philosophy in services due to dependability of this approach on quantitative data which had yielded successful results in manufacturing. Also critical performance factors and metrics in services are more subjective and intangible than manufacturing where key performance indicators are more clear, discrete and tangible (Sarkar 2009). Therefore, creating suitable metrics and KPIs and their effective communication for better understanding from staff to higher management is critical to not only eliminating demotivation among employees but also to ceasing the “fading of lean management” perception. In today’s rapidly changing market and business environment, managers have to think beyond the traditional techniques employed in lean implementation as the desire for more innovative and effective techniques builds up to achieve a competitive advantage in the market (Rogers 2011). Therefore, should be employed such that to focus company’s strategic objectives rather than focusing shop floor only. Implementation of lean management within Contact Center Following section of the report critically reviews the application of lean concepts relevant to contact center, 5.1 Elimination of wastes Although contact center had a standardized process, it does not mean that the process was free of any wastes associated with it like call transfer, call waiting time, excessive steps in handling a call and etc. A contact center can apply kaizen and other related lean approaches to eliminate wastes provided it is provided with the right software for the type of call handling. These wastes included:- Call Wait Time. Data revealed that average number of transfers (to different agents and help systems) and average wait time during a service call were greater than the business norms. One of the emphases of the lean management is the continuous flow. No value is added when the work is in waiting as it represents excess inventory. In the same manner a phone call is exposed to this type of waste. Whenever there is a silence in the call, no value is added rather resources and costs are being engaged. This type of waste can be handled by eliminating pauses, long silences and dead air in the call, and by standardizing call start, pause and stops. Another waste was call transferring time. When a representative was unable to handle a particular issue, he then transfers the call to the next level support through call management software. It happens that transferring the call may take time if the all representatives at the next level support are busy, the software would then put the call on waiting, another type of call wait time waste. It was also observed that software would drop the call if the call waiting time is greater than certain time period. Also due to problems in software hardware interface, most call usually dropped during the call transferring. Over production. There were more than one manuals, FAQs guides and inbuilt help in software to guide the representatives in handling a particular issue. Thus often representative had to consult a number of resources to resolve an issue with the customer. This ultimately resulted in long waiting times and long calls engaging the representative and the phone lines. Inappropriate process steps. To determine the efficiency of the process, it is critical to determine if a particular step is important to the customer or not. For example, many times it happened that during logging in data of customer, they were asked for an email address. But majority of customers either did not have the email address or were unwilling to give one, which means that this step was not important to the customer and should have been eliminated. Also measures were taken to improve the efficiency of the necessary steps, for which each statement was examined critically to find a more appropriate way to effectively and efficiently communicate the required information. Contact Center team looked for sentences, words and phrases that can be rearranged to more clearly communicate. For example, one question was “Have you ever had a Brand X computer before or will this be your first?” which was later changed to “Is this your first Brand X computer?” This resulted in 50% reduction in word count and 27% reduction in time for communicating. Defects. Another principle of lean management is to make process free of defects. Depending upon type of call, there are number of disclosures were required to be read to the customer. Of these disclosures, few were law requirements while others were industry best practices required by company for representatives to follow. In order to design a call flow, all the disclosures either based on law or industry practices were standardized. Motion. Unnecessary movement in doing a particular job also costs time and resources. Another important aspect of lean management is stopping the line when a problem is detected which allows teams to immediately correct the problem and take counter measures for future prevention. In a modern call center, a line is a hundreds of representatives sitting on a floor and handling the calls, which makes it almost impossible to stop the line, limiting the management’s ability to track the quality of each call. For this purpose, new software solutions provide the visibility into each movement of the representative by tracking the key strokes and timings between each key stroke. Thus the motion study was carried out to effectively gauge a standard call handling time. 5.2 5S During implementation of lean, it was noted that seating layout for the representatives was such that it hindered smooth movement between places. The desktops were congested and space between rows was too less. Also wires and cables were all lying on the floor which restricted the movement and posed threat to personnel safety. For this, all the stuff was sorted out and only required stuff was selected to be placed in the working area. The layout was redefined and standardized on all the floor of the call center enabling floor managers to access any representative in case of requirements. Also all necessary cables and connections were secured and path were made free of any obstacle. Desktop layout for placing PC, keyboard and headset were also standardized. 5.3 Continuous Improvement (CI) It was noted that contact center lacked the spirit of continuous improvement because it seemed that processes had become stagnant and unchallenged, resisting any change (Fischer 2006). Suggestion schemes and quality circles are two mechanisms that would allow continuous improvement. Creating feedback groups at the operational level would allow staff to participate in activities that form basis for improvements that are continuous, realistic and relevant to the contact center scenario. Regular consultation, information dissemination sessions and quality circles involving all employees would increase the probability of the success of any improvement made (Yeung et al. 2006). This is a classic approach of lean management and yield good results. In fact, there are people on the floor with better and innovative ideas for improvement which managers think it’s only their job to do. Robert Townsend of Avis cars coined a phrase “Ask the people – they know where the wheels are squeaking”. Another reason was that many improvements made were poorly measured because of more subjective and intangible metrics and KPIs. Therefore, more clear and quantitative metrics like Support Cost per call, Waiting Time per call, Number of calls transferred, Time to Call Back, Service Time to Query Resolution and Customer Satisfaction index were created and all levels of the contact centers were involved to get a better understanding of the metrics as to how performance would be measured. This more measureable approach allows organizations to judge the success and improvements more accurately (Sarkar 2008). 5.4 Si x Sigma Applying Six Sigma model to contact center is critical since there are no physical deliverables that can be measured against specified tolerances as in a manufacturing environment. Still taking a rigorous approach to six sigma in contact center is vital to improving customer satisfaction and reducing support cost to maintain a competitive advantage in the market. According to (Hartung 2010), main imperative for contact centers has always been to reduce average service call time and number of transfers, maximize productivity and encourage use of automated self-services to reduce support cost. One core concept of Six Sigma is to identify and analyze defects and recommend methods for improvement until these defects fall in an acceptable range. However, this is faced by two main obstacles. First, rather than relying on standard processes, contact centers rely mainly in the initiative of the representative to tackle the customer by himself. Second, it is difficult to examine the entire processes involved (Adams et al. 2003). This can be explained by magnitude of repetitive questions and information collection when a call is transferred from one representative to next higher level support increasing the customer frustration. Another prime aspect of contact center is difficulty in reducing the variability since every time a call is made; the caller and the representative on both ends of line would be different and would behave differently under different circumstances. However, focusing on common call types and outcome of those calls would allow reducing variability in the system more efficiently. For example, if a customer is told the exact and accurate price of any product, it is likely that 100% times the customer is not going to call back. Another barrier is huge volume of data and number measures taken without determining if the measures are correct and have made correct use of data. Greater customer satisfaction at contact center can be achieved by focusing on performance improvement. Ventana Research recommends an approach based on three steps: Understand, Optimize and Align. Six Sigma is fundamentally about process change with more relevant measure that is why these changes seem a daunting task for most of organizations (Arnheiter 2005). Considering these, company decided to apply six sigma DMAIC project approach to reduce support costs. The bottom line was to improve customer experience and new account growth, and reduce waiting times and service times. For this very purpose, company assigned a team leader with overall responsibility and identified key team members with a goal to reduce support calls and increase new account growth. First of all key performance indicators or metrics were defined against which measurements were made. Then in measure phase, six sigma tools like input output analysis, cause and effect matrix and measurement system analysis were conducted to measure the variability in the existing system. In analyze phase, fishbone diagram, process capability, mutli-vari charts and ANOVA were employed to analyze the data measurements conducted in the earlier phase. Based on these analyses, recommendation were made to reduce call service and waiting times, number of transfers and support cost. Conclusion Although it is difficult to grab the essence of lean management in services due to more subjective and intangible metrics and KPIs, it is equally effective in contact center industry as in manufacturing. The core purpose of lean implementation should not be only cost reduction and redundancies, but may be used to explore more benefits. The changes made to improve the process and existing system may present the company with challenges as not everyone in the organization would be receptive to the changes since usually organization feel comfortable with traditional processes considering these unchallenged. Thus involvement of employees, effective communication of the lean philosophy, acceptance of change for improvement, strong leadership and management commitment is critical to achieve successful results. The main focus remain cutting cost and improving customer satisfaction which would ultimately benefit the organization and would support directly to improve its new account growth. In this report a comprehensive study into lean management philosophy was conducted. Then a comprehensive analysis of existing process and system in Averatec Contact center was carried out. Based on this information, major inefficiencies in the system were identified along with the lean methodologies that were discussed to see their effect to achieve desired results when applied in the existing scenario. 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