Embedding Quality in the IRS - A Journey from Quality Fundamentals to World Class Quality...

Las Vegas, NevadaJune, 2006

GLOBAL SIX SIGMA CONFERENCE

Embedding Quality in the IRSA Journey from Quality Fundamentals to World Class Quality Improvement Capability

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The purpose of this briefing is to describe the IRS journey from the quality fundamentals of Embedded Quality (EQ) and to then deploy Lean Six Sigma

Follow the IRS’ Stealth Sigma journey from first building the fundamentals of quality to deploying a full Six Sigma capability

See how the IRS reoriented itself to deploy common, customer-facing measures and true ‘line of sight’ accountability

Learn how the ‘success breeds success’ model overcame strong cultural barriers

Gain insight into how the IRS leveraged its strengths to ensure Six Sigma success and sustainability

See the IRS’ vision for deploying Six Sigma to drive operational excellence into the future

This presentation will…

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Embedding Quality in the IRS

Background – IRS Wage & Investment Division

Embedding Quality In Wage & Investment

Lean Six Sigma in Wage & Investment

4

In 1998 RRA 98 was passed, mandating the IRS to modernize and improve customer service in an organization with poor measures and accountability systems

“The modernization I have proposed will require drastic changes…”

“Fundamental change will require comprehensive systematic and sustained approach…..over a period of years…”

“How do we manage an agency tasked with collecting money?.....Develop measures of case quality and inventory, get someone to rate how well you are doing on a sample of work which takes into account how well you have treated the customers.”

“We have to have something to measure the performance in an organization of 100,000 people.”

“I have no confidence in the Internal Revenue Service of this country…Let me tell you what I think is wrong. A good system rewards good behavior and punishes bad behavior, and yours does exactly the opposite.”

“There has got to be improved feedback systems to hold people accountable….there is something wrong at the heart of the IRS….”

“It makes it very difficult to have effective oversight if we can’t trust the figures”

“We don’t want to judge (only the) productivity of a unit but…what else are you going to do?”

Comments by the U.S. Senate Oversight Committee Prior to RRA 98

Responses by IRS Commissioner Rossotti to Address the Problem

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A primary transformation task was to reorganize the IRS from a region-based to a customer-segment based organizational structure

Customer Assistance,

Relationships and Education (CARE)

Customer Assistance,

Relationships and Education (CARE)

Customer Accounts Services

(CAS)

Customer Accounts Services

(CAS)ComplianceCompliance

Pre-File Filing Post-File

New IRS Organization

IRS Commissioner

IRS Commissioner

Small Business/ Self-

Employed

Small Business/ Self-

Employed

Large/Medium Sized

Businesses

Large/Medium Sized

Businesses

Tax Exempt/ Government

Entities

Tax Exempt/ Government

Entities

W&I Commissioner

W&I Commissioner

Wage & Investment

Wage & Investment

Original IRS Organization

Regional organizations and districts duplicated similar structure multiple times

Focus on enforcement and not on customer service

Decentralized command and control

Centralized leadership organized by customer segment and activities within filing value stream

Focus is squarely on the customer

[Geographically Based] [Customer Segmented]

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The Wage & Investment division services individual U.S. taxpayers and delivers a broad mission across several related services

Mission: To provide Wage and Investment customers top quality service by helping them understand and comply with applicable tax laws and to protect the public interest by applying the tax law with integrity and fairness to all.

Vision: To make taxes easier through continuous innovations in taxpayer service and compliance programs.

Source: IRS, 2006

– 133.8M Individual tax returns processed

– 51.1M Business returns processed

– 100M Refunds issued totaling $218B

– 59.1M Calls answered

– 22.3M Web services provided

– 7.2M Walk-ins serviced at Field Assistance Centers

– 546K Cases examined for tax compliance

– 2.1M Cases investigated through W&I’s Automated Underreporter process

Yearly Operational Statistics Organizational Size

– 53,130 employees during peak season

– 26,373 permanent

– 26,757 seasonal/other

– 8 Processing & Account Centers

– 25 Toll-Free Sites

– 400 Walk-In Offices

– $2.6B operating budget for FY 2006

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8

BaselineStrateg

y

Org Design & Effectiveness

Performance Management

Strategic Planning

Organization Design

Process Analysis

Embedded Quality

‘Line of Sight’ Accountability

PH

AS

EP

HA

SE

Lean Operations

Six Sigma

Learning & Improving Organization

Lean Six Sigma

Organization

OU

TC

OM

EO

UT

CO

ME

CA

PA

BIL

ITY

CA

PA

BIL

ITY

Current Situation Revealed

Environment Assessed

Strengths, Weaknesses, Opportunities & Threats Identified

Direction Set

Vision and Mission Communicated

Goals Established

Operational Plans Developed

Realignment from Region-based to Customer Service-based Org Structure

Effectiveness Assessed

Improvement Opportunities Prioritized

Results Tracked, Measured and Rewarded

Leaders and Staff Held Accountable

Competencies Aligned to Requirements

Waste and errors eliminated

Operational metrics improved – overall performance improved

Efficiency infused in culture

Lean Six Sigma capability established

STRATEGIC PLAN DEPLOYMENT

EFFICIENCY GAINS

AD HOC SIX SIGMA PROJECTS

The Road to IRS Performance Modernization

Baseline Analysis

Performance ModernizationPerformance

ModernizationRRA 98Congressional

Mandate to Improve

RRA 98Congressional

Mandate to Improve

1998 2001 2006 and beyond…

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In 2001, IRS faced pressure from stakeholders to improve quality, but faced three key inhibitors

Measures Not Aligned with Customer or

Business

Measure only procedural adherence (procedures often not Critical To Quality)

Scored by Pass/Fail – defect detail is lost

Measures don’t represent what’s important to the Customer, Business & Employee

Front-line employees and managers are not evaluated and managed to the issues that matter to the customers and the organization

No clear line of sight from organizational leadership through each level of management to the front lines

Inspection focused vs. improvement focused

Management not engaged in driving improvement

Various quality organizations view quality differently

Measures have been stagnant or declining

Weak Front-Line Connection to Organizational Performance

Under-Performing Improvement Efforts

Key Inhibitors to Quality Improvement

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The treatment for these inhibitors centered on establishing three ‘Quality Fundamentals’ to ‘Embed Quality’ in the IRS

Global Common Measures

100% Line of Sight Accountability

Strategic Improvement &

Planning

The ‘Quality Fundamentals’ of Embedded

Quality

• Measures focus on what is important to the customer, the business, and the employee

• Measures are the same across like products

• Everyone from Front-Line Employees to the W&I Commissioner are accountable to the new measures through performance evaluations & managerial commitments

• W&I Commissioner develops strategic vision

• Leaders propose projects according to strategic objectives

• Resources deployed to high-priority projects

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Global Common Measures begin with establishing new customer facing measures that were cited by the Customers as critical

Toll-free Customers Indicated What Matters Most to Them…

7.44

6.96

5.33

4.44

3.35

2.89

2.35

2.13

1.66

1.00

0 1 2 3 4 5 6 7 8 9 10

Time Spent on Issue

Time to Complete Call

Completeness of Information

Ease of Understanding Information

Responsiveness of Employees

Listening to Your Concerns

Professionalism of Employees

Fairness of Treatment

Courtesy of Employees

Attitude of Employees

Low Impact High Impact

LEVERAGE

Timeliness

Accuracy

Professionalism

…This Is Mirrored in the New Measures

Timeliness – Measures the timeliness of the actions controllable by the employees in the execution of their transaction

Customer Accuracy - Measure of the accuracy of the transaction, measuring if the customer received the correct answer and the correct resolution

Non-customer impact measures are tracked that can affect Customer Accuracy:

– Regulatory Accuracy – Measures adherence to regulations and statues; a fatal flaw in this measure will cause a fail in Customer Accuracy

– Procedural Accuracy – Measures

adherence to internal service procedures ; a fatal flaw in this measure will cause a fail in Customer Accuracy

Professionalism – Measures the employee’s treatment of the taxpayer and positive representation of the service

Voice of the Customer

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EQ system reports aggregate data upward throughout the business as well as a drill-down capability for ‘Line of Sight Accountability’

Results + Benefits

Aligns the organization with core mission and vision

Evaluates full organizational performance

Managerial and employees have shared goals and priorities

A common quality “language

Provide data to drill down to source

Provide data to drill down to source

Overall Business Perf.

Report

Overall Business Perf.

Report

Operations Performance

Reports

Operations Performance

Reports

Performance Reporting Process

Employee performance linked to critical

business elements

Employee performance linked to critical

business elements

Reports communicate critical business

information through all Levels of organization

Employee Performance

Report

Employee Performance

Report

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Quality improvements noted in TIGTA (Treasury Inspector General for Tax Administration) and GAO (Government Accountability Office) reports demonstrate the success of EQ…

TIGTA, December 21, 2005: "The EQBI is an innovative approach to quality control for face-to-face interactions between assistors and taxpayers. No other federal government agencies we contacted have developed a comprehensive quality measurement system that measures face-to-face assistance like the one the IRS is implementing.“

2005 Annual Report for the IRS Oversight Board (presidential appointees): "During this period the IRS’ performance has improved for many important business functions. For example, the quality of telephone service has gotten markedly better, helping taxpayers to understand and comply with an extremely complex tax code.”

GAO, April 2006:

– “IRS improved it’s filing season performance in important areas that affect large numbers of taxpayers. This continues a trend of improvement since at least 2002.”

– “Taxpayer assistance has improved in the two most commonly used services – toll-free phones and the Internet Web site.”

• Accuracy rate for telephone answers to tax law and account issues is 90%, which was originally considered a stretch goal for 2010

• Efficiencies have led to reduced resource requirements and call center consolidation opportunities

• Length of time taxpayers are on hold awaiting telephone assistance has decreased from 235 to 182 seconds

• Percentage of abandoned telephone calls has decreased from 11.5 to 8.9 percent

• Operator availability has dropped to, on average, 4-5%, approaching world-class levels

– “Representatives of the taxpayer industry corroborated IRS’s view that the filing season is going smoothly.”…with this quality foundation in place, we were poised to launch a full Lean Six Sigma capability

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Implementing Embedded Quality will make W&I more capable of strategic improvement through Lean Six Sigma implementation

Improved, Standardized And Customer Centric Measures

Each Level Of The Organization Aligned With And Linked To The New Measures

Quality Infrastructure Optimized And Focused On Improvement

Embe

dded

Qua

lity

& S

trat

egic

Pla

nnin

g

Quality Transformation Capabilities & Outcomes

Improvement Aligned with

Strategy

Improvement efforts coordinated with strategic vision, and top-level buy in for process improvement

Capability Outcome

Organization deploys Lean Six Sigma as the means to realize objectives defined in the Strategic Plan

New staff dedicated to improving the organization at the enterprise and site level

By assessing everyone’s performance on the same measures, 100% Accountability is achieved

Common measures enables everyone to speak the same quality ‘language’

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Deployment work streams will progress along a specific timeline that ensures full program stand-up by the end of FY 2006

Oct Nov Dec Jan Feb Mar Apr Jun JulMay Aug Sep

Pro

gra

m

De

sig

nL

SS

S

taff

ing

LS

SO

D

es

ign

Pro

jec

t E

xe

cu

tio

n

Develop & Approve Position Descriptions and hiring guidelines

Develop & Approve Position Descriptions and hiring guidelines

Exec Strategic Planning

Exec Strategic Planning

LSSO Stand Up & Governance

LSSO Stand Up & Governance

LSSO Strategy and Organizational DesignLSSO Strategy and

Organizational Design

Process Mapping and Performance BaselineProcess Mapping and Performance Baseline

Build Proj Pipeline & Selection Criteria

Build Proj Pipeline & Selection Criteria

Additional customization of Project Tracking ApplicationAdditional customization of Project Tracking Application

Develop & Approve LSS Organizational Design

Develop & Approve LSS Organizational Design Recruit and Hire LSS CandidatesRecruit and Hire LSS Candidates

Develop TrainingDevelop Training Deliver TrainingDeliver Training

LSS Projects (Coaching & Mentoring)LSS Projects (Coaching & Mentoring)

Integrate LSS with Modernization Council

Integrate LSS with Modernization Council

Showcase Projects

Showcase Projects

Train-the-TrainerTrain-the-Trainer

LSS Resource CPE StrategyLSS Resource CPE Strategy

Develop LSS Program Metrics, and applicable W&I Strategic Metrics

Develop LSS Program Metrics, and applicable W&I Strategic Metrics

ENVISION DEFINE DESIGN DEVELOPDEPLOY & CONTROL

Develop LSS organizational placement and reporting structure

Develop LSS organizational placement and reporting structure

Create LSS job postingsCreate LSS job postings

Develop LSS project prioritization mechanism

Develop LSS project prioritization mechanism

Develop Tools and Methods Develop Tools and Methods

Identify LSS software reqs & selected vendors

Identify LSS software reqs & selected vendors

Identify key W&I metrics for process improvement

Identify key W&I metrics for process improvement

Implement Project Performance Tracking SolutionImplement Project Performance Tracking Solution

Develop LSSO Web PortalDevelop LSSO Web Portal

Develop Organizational LSS Communication PlanDevelop Organizational

LSS Communication Plan

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Stealth Sigma

4% drop in deposit error rate in a Submission Processing Center

Although implemented recently, LSS has followed a “Stealth Sigma” path over several years to achieve gradual cultural acceptance

TimeTime2001 2002 2003 2004 2005 2006

100 FTE saved and redeployed in a service center through

elimination of steps

Productivity gains between 10% to 30% consolidated Compliance

programs

11% reduction in quality defects for Fresno Accounts calls Improvement of Toll-Free Quality

to over 90%

Cultural Indifference for

LSS

Eager Support to deploy LSS

SAMPLE PROJECTS LEVERAGING LSS

SAMPLE PROJECTS LEVERAGING LSS

Tax Law Accounts calls for one site increases accuracy to over

95%

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A primary step in LSS deployment has been the establishment of a Lean Six Sigma Office that will drive the LSS program capability

Lean Six Sigma Office (LSSO)LSSO Building Blocks The LSSO manages the

project portfolio, prioritizes resources,

and tracks their progress / success

The Master Black Belt and Black Belts train staff to replicate Six

Sigma capability across the

organization

The LSSO maintains a ‘Project Library’ to enable

innovation transfer across the organization

The LSSO provides Black Belts with up-to-

date tools and access to new, proven

methodologies that can be applied in their

environment

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Internal and external Black Belt candidates follow a unique progression for training and indoctrination

Sourcing Candidates

Training

The Lean Six Sigma Progression ModelThe Lean Six Sigma Progression Model

Internal Black Belt Candidate

Mentorship

W&I established specific position descriptions & standards for candidates

Mentor helps train candidates on LSS skills and IRS culture &

process

External Black Belt Candidate

Challenge: LSS Skills

Challenge: IRS Culture

Transition to Fully Capable IRS Black Belt

Black Belt has the technical skills and environmental understanding to be successful

working projects in the IRS

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By leveraging multiple experience subject matter experts, the LSSO will deploy Black Belts simultaneously across multiple projects

The W&I Lean Six Sigma Resource Deployment Design

Dir AMDir AM

Dir JOCDir

JOCDir SPDir SP

Dir F&PC

Dir F&PC

Dir R&CDir

R&C

Master Black Belt

Director Compliance

Director ComplianceDirector CAREDirector CAREDirector CASDirector CAS

Dir Med/Pubs

Dir Med/Pubs

Dir SPEC

Dir SPEC

Dir FADir FA

Black Belts

W&I Commissioner’s

Office

W&I Commissioner’s

Office

+

Wage & Investment will execute LSS projects using a leveraged resource model:

• The W&I Leadership team represents each directorate by selecting high-value projects and providing full-time dedicated team resources to execute the project

• Each team resource is trained as a LSS Green Belt, providing them with the necessary knowledge to be a fully contributing team member

• The LSSO provides team leadership and LSS expertise

• Each W&I Black Belt will work on two simultaneous projects each

Lean Six Sigma Projects

Resource Deployment Strategy & FinanceStrategy & Finance

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W&I has integrated the overall LSS deployment process into its standing ‘Modernization’ business model

ImpactLow High

High

Low

Eff

ort

Directors prioritize submissions

Project Title:

Sponsor:

Project Type: Cross-BOD DMAIC Lean Enterprise Local Lean Project

Project Status: Proposed Approved Active On Hold Rejected

Problem Statement:

Team Member 0% 1/1/2006 12/31/2006 0.00

Team Member 0% 1/1/2006 12/31/2006 0.00

Total FTE (Person Years) 1.15

Lean Six Sigma Project Investment Proposal

Division DMAIC

Dave Medeck

Improve Efficiency of Submission Processing Operations

While modernization draws Submission Processing (SP) sites down, E-file usage has not met expectations, increasing the burden on the remaining SP centers during filing seasons, increasing the risk of not meeting Program Completion Date (PCD). This in turn has a direct result in deposit timeliness, resulting in a potential annual loss of $25M in interest, and refund timeliness, resulting in a potential loss of $36M in annual penalties. By improving peak SP return cycle time by 5 days, we can

eliminate this risk.

W&I Operations identify problems and submit a project proposal

Directors submit projects to the LSSO for Enterprise prioritization

The Modernization Council approves projects for resource assignments

Key Success Factors

External Customer

Internal Customer

Key Success Factors

External Customer

Internal Customer

Core Process

Variability

Core Process

VariabilityGapGap LSS

Projects

LSS Projects

SpeedSpeed

AccuracyAccuracy

CostCost

D

Tollgates

M A I C

Mod Council Approval… …Leads to LSSO Resource Assignments

The project is tollgated through the W&I Modernization Council

Project selection process is monitored for improvement

CAS DirectorTop Operations Needs

1) __________2) __________3) __________4) __________5) __________

CAS DirectorTop Operations Needs

1) __________2) __________3) __________4) __________5) __________

CARE DirectorTop Operations Needs

1) __________2) __________3) __________4) __________5) __________

CARE DirectorTop Operations Needs

1) __________2) __________3) __________4) __________5) __________Compliance Director

Top Operations Needs1) __________2) __________3) __________4) __________5) __________

Compliance DirectorTop Operations Needs

1) __________2) __________3) __________4) __________5) __________

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Potential project opportunities within W&I consist of both Lean and Six Sigma projects – both impacting our strategic objectives

Streamlining returns processing at Submission Processing Centers

Reducing waste in walk-in center processes

IRS Strategic ObjectivePotential Lean Opportunities

Potential Six Sigma Opportunities

Improve Taxpayer Service

Improve Taxpayer Service

Enhance Enforcement of Tax Law

Enhance Enforcement of Tax Law

Modernize the IRS through People, Processes, and

Technology

Modernize the IRS through People, Processes, and

Technology

Improving telephone response quality

Reducing defects in forms and publications

Reduce lag time before detecting fraud

Improving cycle time for the release of Liens

Reducing erroneous tax assessments

Improving the selection process for Exam case audits

Automating non customer-focused activities to improve response time

Streamline the Amended return process

Eliminate barriers that impede employment opportunities for employees and applicants

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Customer/Market Focus

Leadership Commitment

Strategic AlignmentTechnology /

Infrastructure

Process Management

As part of our implementation, we are performing a self-assessment of our organizational progress to determine key needs/areas of focus

Legend

0 = Center = Poor

3 = Half way between center and outer ring = Average

5 = Outer Ring = World Class

Wage & Investment Lean Six Sigma Assessment Chart

A “spider chart” summarizes the relative rankings of key deployment

considerations

A “spider chart” summarizes the relative rankings of key deployment

considerations

ILLUSTRATIVEILLUSTRATIVE

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3

4

5

6

2

Looking to the future, expansion will be based on proven results; resources are added when results are proven

Previous StatePrevious State Capability Building Phase

Capability Building Phase

Program Expansion Phase

Program Expansion Phase Steady State PhaseSteady State Phase

Proven Impact = Expanded Black Belt DeploymentProven Impact = Expanded Black Belt Deployment

W&I CommissionerW&I Commissioner

Director, CARE

Director, CARE

Director, CAS

Director, CAS

Director, Compliance


Director, Strategy & Finance


Director, Business Systems Planning


CARE Operations

CARE Operations

CAS Operations

CAS Operations

Compliance Operations



Director, CARE

Director, CARE

Director, CAS

Director, CAS







Master Black Belt, LSSO


CARE Operations

CARE Operations

CAS Operations

CAS Operations



Strategic Deployment

Strategic Deployment


Director, CARE

Director, CARE

Director, CAS

Director, CAS









CARE Operations

CARE Operations

CAS Operations

CAS Operations




Director, CARE

Director, CARE

Director, CAS

Director, CAS









CARE Operations

CARE Operations

CAS Operations

CAS Operations


Compliance OperationsOperational

DeploymentOperational Deployment

Functional DeploymentFunctional

Deployment

WE ARE HEREWE ARE HERE

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BaselineStrategy

Org Design & Effectiveness

Performance Management

Strategic Planning

Organization Design

Process Analysis

Embedded Quality

‘Line of Sight’Accountability

PH

AS

EP

HA

SE

Lean Operations

Six Sigma

Learning & Improving Organization

Lean Six Sigma Organization

CA

PA

BIL

ITY

CA

PA

BIL

ITY

The Road to IRS Performance ModernizationThe Road to IRS Performance ModernizationPerformance

ModernizationPerformance

ModernizationRRA 98Congressional

Mandate to Improve

RRA 98Congressional

Mandate to Improve

1998 2001 2006 and beyond…

In conclusion, the Quality Transformation in the IRS is a real success story in improved customer service

“I have no confidence in the Internal Revenue Service of this country…Let me tell you what I think is wrong. A good system rewards good behavior and punishes bad behavior, and yours does exactly the opposite.”

“There has got to be improved feedback systems to hold people accountable….there is something wrong at the heart of the IRS….”

“It makes it very difficult to have effective oversight if we can’t trust the figures”

“We don’t want to judge (only the) productivity of a unit but…what else are you going to do?”

The Challenge… …The Answer

Strategic improvement driven by senior executives through a Lean Six Sigma program

Results-focused leadership reinforces the right behaviors

Embedded Quality links employees directly to outcomes, ensuring accountability

Global common measures standardize how we measure processes

Business metrics aligned to timeliness, accuracy, and professionalism

Embedding Quality in the IRS - A Journey from Quality Fundamentals to World Class Quality...

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Transcript of Embedding Quality in the IRS - A Journey from Quality Fundamentals to World Class Quality...