It never ceases to amaze business experts how many companies just dive in to start developing strategies and creating plans without any real rhyme or reason. Of course, you probably haven’t heard too much about companies like these—because they’re typically not very successful.
On the other hand, when you examine the business models and practices of the most prominent, fastest-growing companies in the Fortune 500, you’ll see a consistent adherence to a common set of criteria for measuring, analyzing, and improving overall quality. These days, these levels of success can be tied directly to the principles of Six Sigma.
What is Six Sigma?
Six Sigma is not a secret corporate society or a fancy marketing slogan. It’s a highly disciplined set of business principles intended to guide companies toward constant improvement in product quality and customer satisfaction.
With the globalization of business and faster access to information, product and services, the “old ways” of doing business just don’t apply. Today, customers conduct business differently-and companies need to react quickly. Exceeding expectations is rapidly becoming hard-wired into entire corporate cultures.
“Sigma” is a statistical term for measuring how far a given product varies from perfection (driving towards six standard deviations between the mean and the nearest specification limit). If you can measure the defects in a process, you can strategically move to eliminate them. The goal: as close to zero defects as possible.
Six Sigma can be approached on three levels:
Metrics. A quantifiable measurement, such as 3.4 Defects Per Million Opportunities (the level at which Six Sigma is achieved), let you take into account product and process complexity. At the very least, consider at least three opportunities for a physical part or component: one each for form, fit and function.
One key metric group is CTQs (Critical to Quality), the key measurable product or process characteristics whose performance standards or specification limits must be met to satisfy customers. They align product design and improvement efforts with customer expectations and requirements.
Methodology. This typically involves using process roadmaps and problem-solving tools. The Six Sigma DMADV process (Define, Measure, Analyze, Design, Verify) is intended to help you develop new processes and products of Six Sigma quality. The Six Sigma DMAIC process (Define, Measure, Analyze, Improve, Control) helps you improve existing processes through incremental improvements.
Philosophy. By reducing variation in your business, you’ll make more data-driven, customer-focused decisions.
How serious are managers at leading companies about Six Sigma? One sign is the martial arts terminology used to describe leading practitioners, who can officially rise to the rank of Six Sigma green belt or black belt in the corporate world.
Using the Balanced Scorecard Approach for Six Sigma Success
One approach recommended by Six Sigma professionals is the use a Balanced Scorecard to select project metrics, making sure they meet both business and customer needs. This process includes measuring both financial and non-financial metrics, as well as “lagging” and “leading” measures across four criteria:
Financial: What financial objectives must be accomplished for project success?
Customer: What customer objectives will be met by working on this project?
Internal Processes: Which processes must be improved to achieve customer objectives?
Employee Learning/Growth: How must the team learn and innovate to achieve project goals?
Lagging measures are measured at an event’s end, while leading measures are taken beforehand to help you meet process/product objectives.
According to Praveen Gupta, author of Six Sigma Business Scorecard, linking balanced scorecard(s) with Six Sigma gives organizations a means for fusing strategic intent with tactical operational deployment. “(The) balanced scorecard has been developed as a strategic management system that has had difficulty in being operationalized,” he says. “Six Sigma is a more operational-driven methodology that focuses on execution more than strategy.” Still, it’s possible to tap into the best of both worlds, suggests Gupta. “Combining strategic intent through balanced scorecard and an execution methodology via Six Sigma would make sense and allow users to benefit from the strengths of both approaches.”
Following are a few example entries from a typical four-column scorecard, which lists the perspective, objective, metric and status of a goal (Red, Yellow or Green):
10 Deals >$50M by Q4
Brand Seen as Partner
Survey Scores >0.8 by Q4
Product Range Refreshed
Launch window <45 days
Survey Scores >80%
Once projects and initiatives have been determined, you can use a project scorecard or dashboard to continually measure performance and alignment with strategic business objectives.
Your goal (in a nutshell): “fix the reds”.
Six Sigma Success Story: GE
GE consistently ranks among industry leaders in Six Sigma experience and success. An early adopter of the philosophy, GE launched its initial Six Sigma efforts in 1995. In its 1996 Annual Report, the company stated: “It has been estimated that less than Six Sigma quality, i.e., the three-to-four Sigma levels that are average for most U.S. companies, can cost a company as much as 10-15% of its revenues. For GE, that would mean $8-12 billion.”
At the January 1996 gathering of GE’s top managers, CEO Jack Welch called the program “the biggest opportunity for growth, increased profitability, and individual employee satisfaction in the history of our company.” Within four years, he continued, “we want to be not just better in quality, but a company 10,000 times better than its competitors.”
Welch made quality the job of every GE employee: senior bonuses and promotions at all levels would be tied to Six Sigma performance and certification. Welch described it as “changing the DNA of the company.”
Welch’s profit-impact predictions turned out to be particularly insightful, as indicated by the following statistics on the financial impact of Six Sigma implementation at GE from 1996 to 1998 (courtesy of www.1000ventures.com):
- Revenues have risen to $100 billion, up 11%
- Earnings have increased to $9.3 billion, up 13%
- Earnings per share have grown to $2.80, up 14%
- Operating margin has risen to a record 16.7%
- Working capital turns have risen sharply to 9.2%, up from 1997’s record of 7.4
Welch recognized that the program was not just for engineers and technical minds. He found it can be used in a variety of situations in which a company’s best and brightest are engaged in this quality program, such as:
- Plant managers, who can use Six Sigma to reduce waste, improve product consistency, solve equipment problems or create capacity.
- Human resources managers, who can use it to reduce the cycle time for hiring employees.
- Regional sales managers, who can use it to improve forecast reliability, pricing strategies or pricing variation.
Welch and his management team discovered that virtually anyone—from executive to administrative or janitorial staff—can use Six Sigma to better understand their customers’ needs and tailor their service offerings to customers’ needs.
Welch did admit, though, that he wasn’t able think of a way in which Six Sigma could be successfully used by lawyers, because they make a living off variance—the very thing Six Sigma is designed to eliminate.
Adhering to Six Sigma—a common set of criteria for measuring, analyzing, and improving overall quality—can help your company continually monitor and elevate its performance in meeting and exceeding customer expectations.
For more information about deploying Six Sigma strategies for measuring, analyzing, and improving performance, contact us today!