Xerox Corp. (XRX ) thought it was doing a smart thing when it consolidated 36 administrative centers into 3 back in 1999. The copy king would be able to reap millions in cost savings. But the move came just as Xerox was also reorganizing its sales division. The simultaneous upheaval in two key units unleashed chaos across the company's billing system. Customers received invoices quoting prices they had never agreed to -- or detailing equipment they had never ordered. Worse, the mistakes took months to sort out, prompting some longtime customers to defect. The so-called document company had failed miserably at its own documentation.
Five years later, Xerox can see the bright side of that fiasco. After struggling to fix the problem itself, it hired General Electric Capital (GE ) to handle its billing. GE brought more than order to the process: It showed Xerox a whole new way to diagnose and fix its problems. If the company could omit steps from its design, manufacturing, and servicing processes, as well as fine-tune those that remained, it would be able to deliver better printers and copiers to customers far faster and at lower cost. "GE made progress with [our operations] much more quickly than we could," says Ursula M. Burns, president of Xerox Business Group Operations. Today, GE continues to handle Xerox' billing.
What did GE have that Xerox didn't? For one, years of experience in applying Six Sigma, the data-driven technique for eliminating defects in any business process. But GE had moved beyond Six Sigma to apply so-called lean manufacturing tools made famous by Toyota Motor Corp. (TM ) in the 1980s. The combination -- known as Lean Six Sigma -- has taken root across Corporate America in the past two years. Companies are using the techniques to analyze and improve tasks ranging from simple processes such as customer credit checks to complex product-design challenges. "Companies are starting to realize this is becoming a very competitive weapon," says Deborah Nightingale, engineering systems director of Massachusetts Institute of Technology's lean aerospace initiative.
Xerox kicked into high gear in late 2002 with training for top execs, including CEO Anne M. Mulcahy, who has spearheaded the effort. The company has since launched about 250 projects, both for itself and its customers. "We've gone at it with a vengeance," says Mulcahy. And the results are already rolling in: Xerox claims a $6 million return in 2003 on a $14 million investment in Lean Six Sigma. It expects an even bigger payoff this year.
KARATE BELTS. Every million counts. Facing a downturn in office-equipment outlays, tougher rivals, an accounting scandal, and management turnover, Xerox saw sales drop to $15.7 billion in 2003. That was down 1% from the year before and 20% off its peak of $19.4 billion in 1998. Profits, though, are on the rise. Net income was $366 million in 2003, up nearly 50% over the year earlier. "They seem to have turned the corner," says Richard Stice, an equity analyst at Standard & Poor's (like BusinessWeek, a division of The McGraw-Hill Companies (MHP )).
One of the strengths of Lean Six Sigma is that it blankets the company. Previous quality initiatives may have addressed a particular factory operation or only a part of it. The point is not to automate complicated processes, but to "lean out" existing processes by removing unnecessary steps and then fix those that remain.
Sounds easy, but Mulcahy admits it can be a slog. Learning the dozens of analytical methods involved in Lean Six Sigma takes weeks of training. Figuring out what steps to trim or replace chews up time, too. But the hardest task is getting employees to accept that how they've always done things may not be the best way. "A lot of the work is soft, not hard," says Burns. But consultants say Xerox is succeeding because the CEO has made the program a priority. The head of the effort reports directly to Mulcahy, who herself is training to reach the yellow-belt level in the karate-like Lean Six Sigma regimen.
One of the "soft" challenges is tearing down walls to get different divisions to work together. This is never easy in a complex, big organization. Yet at Xerox, teams from supply, manufacturing, and research and development pulled it off to resolve a problem with a $500,000 printing press introduced last year. Customers quickly found that the fuser roll (which uses heat and pressure to bond toner to paper) was wearing out sooner than expected. The Xerox team used Lean Six Sigma tools to zero in on the cause in just one month. The oil on the roller was fouling up the works. "Not only had the chemical structure of the oil changed, but we didn't have enough of the oil that did work well," says John R. Laing, senior vice-president for Xerox' supplies-delivery unit. The team worked with the oilmaker, which changed the chemistry, saving Xerox $2 million and keeping its customers happy.
Ultimately, Xerox' efforts are focused on getting new products to customers faster, which has meant taking steps out of the design process. Typically, a high-end, $200,000 machine that can print 100 pages a minute takes three to five cycles of design, building, and testing before it reaches the customer. Taking just one of those cycles out of the process can shave up to a year off the time to market. For its new DocuTech print-on-demand machines launched in January, for example, Xerox used software to simulate an early design stage, saving the time and expense of building a prototype.
These days, Xerox has gotten so good at applying Lean Six Sigma that, like GE before, it's helping out its customers. In one case, the mail volume at a customer's document-management unit had grown out of control. Xerox moved in, streamlined the mailroom -- with changes as simple as removing furniture -- to use half the amount of space, and saved the company $180,000 in the process. From failing to fix its own operations to improving those of others is a big leap. Says Laing: "We've moved from being consciously incompetent to consciously competent." Now, Mulcahy is pushing Xerox to become unconsciously competent -- the point where the tools are so ingrained that no one even thinks about them anymore.
By Faith Arner in Rochester, N.Y., with Adam Aston in New York