Read an Excerpt
An Executive Overview of Six Sigma
A Powerful Strategy _for Sustained SuccessTHE MOST CHALLENGING question confronting business leaders and managers in the new millennium is not "How do we succeed?" It's: "How do we stay successful?" Business today offers the spectacle of a succession of companies, leaders, products, and even industries getting their "15 minutes of fame" and then fading away. Even corporate powerhouses-the IBMs, Fords, Apples, Kodaks, and many others-go through dramatic cycles of near-death and rebirth. It's like riding the wheel of fortune as consumer tastes, technologies, financial conditions, and competitive playing fields change ever-more-quickly. In this high-risk environment, the clamor for ideas on how to get the edge, stop the wheel (while on top, of course), or anticipate the next change gets louder and louder. Hot new answers are almost as common as hot new companies. Six Sigma can seem like another "hot new answer." But looking closer, you'll find there is a significant difference: Six Sigma is not a business fad tied to a single method or strategy, but rather a flexible system for improved business leadership and performance. It builds on many of the most important management ideas and best practices of the past century, creating a new formula for 21st-century business success. It's not about theory, it's about action. Evidence of the power of the Six Sigma Way is already visible in the huge gains tallied by some very high-profile companies and some not-so-high-profile ones, which we'll examine in a moment. Just as important, though, is the role Six Sigma plays in building new structures and practices to support sustained success. The goal of The Six Sigma Way is to enable you to understand what Six Sigma is (both a simple and a complex question), why it's probably the best answer to improved business performance in years, and how to put it to work in the unique environment of your organization. In our mission to demystify Six Sigma for the executive and professional, we hope to show you that it's just as much about a passion for serving customers and a drive for great new ideas as it is about statistics and number-crunching; that the value of Six Sigma applies just as much to marketing, service, human resources, finance, and sales as it does to manufacturing and engineering. In the end we hope to give you a clearer picture of how Six Sigma-the system-can dramatically raise your odds for staying successful, even as you watch other companies ride one wave of good times only to wipe out on the next. (Our first and last surfing analogy!)
Six Sigma has forever changed GE. Everyone-from the Six Sigma zealots emerging from their Black Belt tours, to the engineers, the auditors, and the scientists, to the senior leadership that will take this Company into the new millennium-is a true believer in Six Sigma, the way this Company now works." -GE Chairman John F. Welch1 When a high-profile corporate leader* starts using words like "unbalanced" or "lunatics" in connection with the future of the company-you might expect a plunge in the company's share price. At General Electric, however, that passion and drive behind Six Sigma have produced some very positive results. The hard numbers behind GE's Six Sigma initiative tell just part of the story. From an initial year or so of break-even efforts, the payoff has accelerated: $750 million by the end of 1998, a forecasted _$1.5 billion by the end of 1999, and expectations of more billions down the road. Some Wall Street analysts have predicted $5 billion in gains from the effort, early in the decade. GE's operating margins-for decades in the 10 percent range-continue to hit new records quarter after quarter. The numbers are now consistently above 15 percent, and even higher in some periods. GE leaders cite this margin expansion as the most visible evidence of the financial contribution made by Six Sigma. Improvements from Services to Manufacturing The financial "big picture," though, is just a reflection of the many individual successes GE has achieved through its Six Sigma initiative. For example:
- A Six Sigma team at GE's Lighting unit repaired problems in its billing to one of its top customers-Wal-Mart-cutting invoice defects and disputes by 98 percent, speeding payment, and creating better productivity for both companies.
- A group led by a staff attorney-a Six Sigma team leader-at one of GE Capital's service businesses streamlined the contract review process, leading to faster completion of deals-in other words, more responsive service to customers-and annual savings of $1 million.
- GE's Power Systems group addressed a major irritant with its utility company customers, simply by developing a better understanding of their requirements and improving the documentation provided along with new power equipment. The result: Utilities can respond more effectively to their regulatory agencies, and both the utilities and GE have saved hundreds of thousands of dollars a year.
- The Medical Systems business-GEMS-used Six Sigma design techniques to create a breakthrough in medical scanning technology. Patients can now get a full-body scan in half a minute, versus three minutes or more with previous technology. Hospitals can increase their usage of the equipment and achieve a lower cost per scan, as well.
- GE Capital Mortgage analyzed the processes at one of its top performing branches and-expanding these "best practices" across its other 42 branches-improved the rate of a caller reaching a "live" GE person from 76 to 99 percent. Beyond the much greater convenience and responsiveness to customers, the improved process is translating into millions of dollars in new business.
The best Six Sigma projects begin not inside the business but outside it, focused on answering the question-how can we make the customer more competitive? What is critical to the customer's success?_._._._One thing we have discovered with certainty is that anything we do that makes the customer more successful inevitably results in a financial return for us. Motorola-and Some Six Sigma History Today, the very existence and success of electronics leader Motorola is tied to Six Sigma. It's the company that invented the concepts that have evolved into this comprehensive management system. And while GE has used Six Sigma to strengthen an already thriving company, for Motorola it was an answer to the question: How do we stay in business? In the 1980s and early 1990s, Motorola was one of many U.S. and European corporations whose lunch (along with all other meals and snacks) was being eaten by Japanese competitors. Motorola's top leaders conceded that the quality of its products was awful. They were, to quote one Motorola Six Sigma veteran, "In a world of hurt." Like many companies at the time, Motorola didn't have one "quality" program, it had several. But in 1987, a new approach came out of Motorola's Communications Sector-at the time headed by George Fisher, later top exec at Kodak. The innovative improvement concept was called "Six Sigma." What Six Sigma offered Motorola-though it involves much more today-was a simple, consistent way to track and compare performance to customer requirements (the Sigma measure) and an ambitious target of practically-perfect quality (the Six Sigma goal). As it spread throughout the company-with the strong support of chairman Bob Galvin-Six Sigma gave Motorola extra "muscle" to drive what at the time seemed like impossible improvement goals: An initial target in the early 1980s of ten times improvement (noted as 10X, and pronounced "ten-ex") over five years, was dwarfed by a goal of 10X improvement every two years-or 100X in four years. While the objective of "Six Sigma" was important, much more attention was paid to the rate of improvement in processes and products. Motorola's "turnaround" has been just as remarkable over the long term as GE's results in just a few years. Only two years after launching Six Sigma, Motorola was honored with the Malcolm Baldrige National Quality Award. The company's total employment has risen from 71,000 employees in 1980 to over 130,000 today. Meanwhile, in the decade between Six Sigma's beginning in 1987 and 1997, achievements have included the following:
- Five-fold growth in sales, with profits climbing nearly 20 percent per year
- Cumulative savings based on Six Sigma efforts pegged at $14 _billion
- Motorola stock price gains compounded to an annual rate of 21.3 percent.
Developing New Products
A telecommunication products company used Six Sigma Design techniques to enable greater flexibility and faster turnaround at a key manufacturing facility. At the plant, several specialized products are built on a single production line. Since each customer's order may require different circuit boards, the need to avoid retooling was critical. Working through alignment of customer needs, product design, and process specifications, retooling was dramatically reduced. The plant was also able to institute parallel processing so that if one area of the line wasn't functioning, work-in-process could be easily rerouted without adding to cycle time. Under the new plant design, customer orders are transmitted electronically, where "virtual design" applied to speed quick response. Altogether, these innovative changes improved overall cycle time from days to hours, as well as improving productivity and resource management. Sending the Message Faster and Cheaper
Customers of a telecommunications service company were dismayed over the handling of their orders. Every request-for a few minutes of satellite time to a long-term, dedicated up-link-passed through several levels of legal and technical review before being approved. The process not only upset customers, but wasted resources and money. A Six Sigma team measured and analyzed the problem. While proposed solutions were counter to the "tried and true" way of doing things, the team was able to sway opinions from solid data and knowledge of customer needs. After 6 months of effort the process was streamlined and $1 million in savings was tallied. Providing a Prompt Answer
A credit financing center used a Six Sigma team approach to analyze and improve call center operations. The focus was on two objectives: (1) reducing average call answer time; and (2) increasing the percentage of customer issues and questions resolved in the initial call. The team "centralized and simplified" the call answering system, cutting average times from 54 seconds to 14 seconds. "First Call Resolution" jumped from 63 percent to 83 percent. Thinking outside the Box
The spare parts marketing and logistics group for an aerospace manufacturing company was looking for ways to take costs and time out of their service to customers. One major cost element was parts packaging: Bulk parts shipments from manufacturing plants were unpacked, placed on warehouse shelves, then picked and repackaged for shipment to customers. By focusing the process design on customer needs and value-adding activities, the spare parts packaging operation was moved from the warehouse to the plants. Packaging material cost savings alone were cut by half-a-million dollars per year. The change also contributed to major improvements in on-time-delivery, which have jumped from less than 80% to over 95% in about three years. The Benefits of Six Sigma
These stories by themselves may be appealing, but if your company is doing okay-as GE was in 1995, when Jack Welch launched their effort-why should you consider a Six Sigma initiative? What's prompting so many businesses, prominent and modest, to invest in this funny-sounding business approach? Drawing from these success stories and those of other companies-and by looking behind the raw dollars-we can define several benefits that are attracting companies to the Six Sigma Way. Six Sigma:
- Generates sustained success. John Chambers, CEO of Cisco Systems, the networking equipment powerhouse that's been one of the fastest-growing companies of the past decade, recently commented on the tenuous hold many companies have on their success: "There is the realization that you can be out of business in three years."7 The only way to continue double-digit growth and retain a hold on shifting markets is to constantly innovate and remake the organization. Six Sigma creates the skills and culture for constant revival-what we'll describe in the next chapter as a "closed-loop system."
- Sets a performance goal for everyone. In a company of any size-let alone a multibillion-dollar global corporation-getting everyone working in the same direction and focusing on a common goal is pretty tough. Each function, business unit, and individual has different objectives and targets. What everyone has in common, though, is the delivery of products, services, or information to customers (inside or outside the company). Six Sigma uses that common business framework-the process and the customer-to create a consistent goal: Six Sigma performance, or a level of performance that's about as close to perfect as most people can imagine. Anyone who understands their customers' requirements (and who shouldn't?) can assess their performance against the Six Sigma goal of 99.9997 percent "perfect"-a standard so high that it makes most businesses' previous views of "excellent" performance look pretty weak. Figure 1.1 contrasts the number of problems that would be found with a goal of 99 percent quality versus a goal of Six Sigma performance (99.9997 percent). The difference is pretty startling.
- Enhances value to customers. When GE began its Six Sigma effort, executives admitted that the quality of the company's products was not what it should be. Though its quality was perhaps better than that of its competitors, Jack Welch stated that "We want to make our quality so special, so valuable to our customers, so important to their success that our products become their only real value choice."8 With tighter competition in every industry, delivering just "good" or "defect-free" products and service won't guarantee success. The focus on customers at the heart of Six Sigma means learning what value means to customers (and prospective customers) and planning how to deliver it to them profitably.
- Accelerates the rate of improvement. Motorola's goal of "100X improvement in four years" set an example for ambitious, driven organizations to emulate. With information technology setting the pace by doubling its performance to cost ratio every 18 months, the customer expectation for improvement gets ever more demanding. The competitor who improves the fastest is likely to win the race. By borrowing tools and ideas from many disciplines, Six Sigma helps a company not only improve performance, but improve improvement.
- Promotes learning and "cross-pollination." The 1990s saw the birth of the "Learning Organization," a concept that appeals to many but seems hard to put into action. AlliedSignal leaders have commented that "everyone talks about learning, but few succeed in weaving it into the fabric of everyday life for so many employees."9 Six Sigma is an approach that can increase and accelerate the development and sharing of new ideas throughout an organization. Even in a company as diverse as GE, the value of Six Sigma as a learning tool is seen as critical. Skilled people with expertise in processes and how to manage and improve them can be shifted from, say, GE Plastics to GE Capital, not only with a shorter learning curve but actually bringing with them better ideas and the ability to apply them more quickly. Ideas can be shared and performance compared more readily. GE's vice president for Six Sigma, Piet van Abeelen, has noted that in the past, a manager in one part of the organization could discount input from a counterpart in another area: "_'Your ideas won't work, because I'm different.'_" Van Abeelen says Six Sigma eliminates those defenses: "Well, cry me a river. The commonalities are what matter. If you make the metrics the same, we can talk."10
- Executes strategic change. Introducing new products, launching new ventures, entering new markets, acquiring new organizations-what were once occasional business activities are now daily events in many companies. Better understanding of your company's processes and procedures will give you a greater ability to carry out both the minor adjustments and the major shifts that 21st-century business success will demand.
Like most great inventions, Six Sigma is not "all new." While some themes of Six Sigma arise out of fairly recent breakthroughs in management thinking, others have their foundation in common sense. Before you dismiss that origin as no big deal, we'd remind you of a saying we picked up once while working in Europe: "Common sense is the least common of the senses." From a "tools" perspective, Six Sigma is a pretty vast universe. Figure 1.2 summarizes many-but by no means all-of the most important Six Sigma methods. The more we have learned over the years about the Six Sigma system, the more we have come to see it as a way to link together-and even to implement-many otherwise disconnected ideas, trends, and tools in business today. Some of the "hot topics" that have direct application or can complement a Six Sigma initiative include:
- e-Commerce and Services
- Enterprise Resource Planning
- Lean manufacturing
- Customer Relationship Management systems
- Strategic business partnerships
- Knowledge management
- Activity-based management
- The "process-centered organization"
- Just-in-time inventory/production
We'll close out this introductory look at Six Sigma by distilling the critical elements of this leadership system into six "themes." These principles-supported by the many Six Sigma tools and methods we'll be presenting throughout this book-will give you a preview of how we'll help you make Six Sigma work for your business. Theme One: Genuine Focus on the Customer
During the big Total Quality push of the 1980s and 1990s, dozens of companies wrote policies and mission statements vowing to "meet or exceed customer expectations and requirements." Unfortunately, however, few businesses tried very hard to improve their understanding of customers' requirements or expectations. Even when they did, customer data-gathering typically was a one-time or short-lived initiative that ignored the dynamic nature of customer needs. (How many of your customers want the same stuff today as five years ago? Two years ago? Last month?) In Six Sigma, customer focus becomes the top priority. For example, the measures of Six Sigma performance begin with the customer. Six Sigma improvements are defined by their impact on customer satisfaction and value. We'll look at why and how your business can define customer requirements, measure performance against them, and stay on top of new developments and unmet needs. Theme Two: Data- and Fact-Driven Management
Six Sigma takes the concept of "management by fact" to a new, more powerful level. Despite the attention paid in recent years to measures, improved information systems, knowledge management, etc., it should come as no shock to you to hear that many business decisions are still being based on opinions and assumptions. Six Sigma discipline begins by clarifying what measures are key to gauging business performance; then it applies data and analysis so as to build an understanding of key variables and optimize results. At a more down-to-earth level, Six Sigma helps managers answer two essential questions to support fact-driven decisions and solutions:
1. What data/information do I really need?
2. How do we use that data/information to maximum benefit? Theme Three: Process Focus, Management, and Improvement
In Six Sigma, processes are where the action is. Whether designing products and services, measuring performance, improving efficiency and customer satisfaction-or even running the business-Six Sigma positions the process as the key vehicle of success. One of the most remarkable breakthroughs in Six Sigma efforts to-date has been convincing leaders and managers-particularly in the service-based functions and industries-that mastering processes is not just a necessary evil but actually a way to build competitive advantage in delivering value to customers. There are many more people to convince-with huge dollar opportunities tied up in those activities. Theme Four: Proactive Management
Most simply, being "proactive" signifies acting in advance of events-the opposite of being "reactive." In the real world, though, proactive management means making habits out of what are, too often, neglected business practices: defining ambitious goals and reviewing them frequently; setting clear priorities; focusing on problem prevention versus firefighting; questioning why we do things instead of blindly defending them as "how we do things here." Being truly proactive, far from being boring or overly analytical, is actually a starting point for creativity and effective change. Reactively bouncing from crisis to crisis makes you very busy-giving a false impression that you're on top of things. In reality, it's a sign of a manager or an organization that's lost control. Six Sigma, as we'll see, encompasses tools and practices that replace reactive habits with a dynamic, responsive, proactive style of management. Considering today's slim-margin-for-error competitive environment, being proactive is (as the airline commercial said) "the only way to fly." Theme Five: Boundaryless Collaboration
"Boundarylessness" is one of Jack Welch's mantras for business success. Years before launching Six Sigma, GE's chairman was working to break down barriers and improve teamwork, up, down, and across organizational lines. The opportunities available through improved collaboration within companies and with their vendors and customers are huge. Billions of dollars are left on the table (or on the floor) every day, because of disconnects and outright competition between groups that should be working for a common cause: providing value to customers. As noted above, Six Sigma expands opportunities for collaboration as people learn how their roles fit into the "big picture" and can recognize and measure the interdependence of activities in all parts of a process. Boundaryless collaboration in Six Sigma does not mean selfless sacrifice, but it does require an understanding of both the real needs of end users and of the flow of work through a process or a supply chain. Moreover, it demands an attitude that is committed to using customer and process knowledge to benefit all parties. Thus, the Six Sigma system can create an environment and management structures that support true teamwork. Theme Six: Drive for Perfection; Tolerance for Failure
This last theme may seem contradictory. How can you be driven to achieve perfection and yet also tolerate failure? In essence, though, the two ideas are complementary. No company will get anywhere close to Six Sigma without launching new ideas and approaches-which always involve some risk. If people who see a possible path to better service, lower costs, new capabilities, etc. (i.e. ways to be closer-to-perfect) are too afraid of the consequences of mistakes, they'll never try. The result: stagnation, putrefaction, death. (Pretty grim, eh?) Fortunately, the techniques we'll review for improving performance include a significant dose of risk management (if you're gonna fail, make it a safe failure). The bottom line, though, is that any company that makes Six Sigma its goal will have to constantly push to be ever-more-perfect (since the customer's definition of "perfect" will always be changing) while being willing to accept-and manage-occasional setbacks. Where You Stand
We would be surprised if you weren't saying to yourself right about now: "We're already doing some of those things." But remember, we've already noted that much of Six Sigma is not brand-new. What is new is its ability to bring together all these themes into a coherent management process. As you review this introduction and guide to the Six Sigma way, we encourage you to take stock of what you are already doing that supports the themes or tools of Six Sigma-and keep doing them. Meanwhile, be honest about your business's strengths and weaknesses. One thing we've noticed about Six Sigma is that results come much faster when an organization is willing to admit to its shortcomings, learn from them, and start setting priorities to correct them. Businesses or managers who puff out their chests and claim to have all the answers are invariably the ones in greatest danger; they stop learning, fall behind, and end up having to scramble to catch up-if it isn't too late.