Ben Neumann: Views From The Trenches

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December 14, 2006

Six Sigma or the Jack Welch Way of Kicking Butt

Ok, I've posted my thoughts on service, quality and what a lack thereof can do to an organization here on my blog several times over the past year and a half. For the record, I AM A QUALITY ADVOCATE! So are the majority of the people who work for me and/or with me. I am, and always have been, fully committed to found, fund, and run only quality companies and release only quality products that provide a true benefit and value to the people using them. I hate that sometimes I have to face an unhappy customer, yet the fact that we at Globat at times do fall short of customer's as well as our own expectations does not change my mindset about quality at all. I will keep leading the charge to change a status quo and iron out any issues that may come up. I am a big Six Sigma enthusiast and am behind the principles and the tremendous benefits this methodology can bring to virtually any organization.

Jack, Six Sigma and Billions of Dollars.Motorola created Six Sigma as we know it today, while former GE Chairman Jack Welch made the term a US business household name. It was in the early 1990's, only 2 years after Motorola became one of the first companies to receive the Malcolm Baldrige National Quality Award for its development and pursuit of Six Sigma quality, that Jack Welch, then Chairman and CEO of General Electric, began to get interested in Six Sigma. In fact, before Six Sigma, Welch had not considered himself a true quality enthusiast. He felt the earlier quality programs were too heavy on slogans and light on results. In 1995, after GE Corporate Executive Council meeting Welch conducted a cost-benefit analysis on Six Sigma implementation. The analysis showed that if GE, then running at around three to four sigma quality level, were to raise its quality to Six Sigma, the cost saving opportunity was somewhere between $7 billion and $10 billion. This amounted to a huge number and stood for approximately 10 to 15 percent of GE's sales.

It All Starts With Commitment.
In January 1996, Welch announced the launch of Six Sigma at GE. At that time, he called Six Sigma the most ambitious undertaking the company had ever taken on. He stated: "Quality can truly change GE from one of the great companies to absolutely the greatest company in world business." Needless to say that when GE does something, it does it all the way. Welch said to GE's Corporate Executives: "Everyone in this room must lead the quality charge. There can be no spectators on this. What took Motorola ten years, we must do in five - not through shortcuts, but in learning from others". From that moment, Jack Welch became the global promoter of Six Sigma.

There are two important contributions from GE's way of implementation to the evolution of Six Sigma. First, Welch demonstrated the great paradigm of leadership. Second, Welch backed the Six Sigma program up with a strong rewards system to show his commitment to it. GE changed its incentive compensation plan for the entire company so that 60 percent of the bonus was based on financials and 40 percent on Six Sigma results. The new system successfully attracted GE employees' attentions to Six Sigma. Moreover, Six Sigma training had become a prerequisite for advancement up GE's corporate ladder. Welch insisted that no one would be considered for a management job without at least a Green Belt training by the end of 1998.

Oh, Now, What is Six Sigma?
Simply put, Six Sigma is an applied methodology for improving business and organizational performance, originally developed by Motorola, by eliminating defects. It addresses widely accepted principles and helps tremendously to make "business better". For all of you who are thoroughly familiar with Six Sigma I ask patience while I try to get everybody else to get up to speed on it. For everyone who would like to find out more about it, please read on.

You can safely say that Six Sigma, in it's core, is a methodology for minimizing mistakes and maximizing value. Every mistake an organization or person makes ultimately has a cost - a lost customer, the need to do a certain task over again, a part that has to be replaced, time or material wasted, efficiency lost, or productivity squandered (sounds familiar?). In fact, waste and mistakes cost many organizations as much as 20 to 30 percent of their revenue (Globat is definitely no different in that respect)! I think that's a disturbing number. Imagine throwing 20 to 30 percent of your money away in the garbage every time you cash a check. It may sound ludicrous, but that' s what many organizations do. All businesses, organizations, and individuals have room to improve. No operation is run so tightly that another ounce of inefficiency and waste can't be squeezed out. By their nature, organizations tend to become messy as they grow. Processes, technology, systems, and procedures - the ways of doing business - become cluttered with bottlenecks, meaning work piles up in one part of the organization while other parts sit idle with nothing to do. Work is often performed incorrectly, or the outcome is flawed in some way. When this happens, you scrap products and services and have to do the work over again: You consume additional resources to correct a problem before it's delivered to the customer, or the customer asks later for a "redo", a new product or a more satisfactory service. Sometimes, flaws and defects aren't the problem, but a product or service simply takes too long to produce and deliver (dare I say we face that with certain product releases and upgrades many times). Think about the problems a business bank would have if it processed letter of credits absolutely perfectly, but did so 6 times slower than the competition. That's a perfect disaster.

Defining Six Sigma was once a quality-improvement methodology, but now it's a general-purpose approach to minimizing mistakes and maximizing value. How many products can we produce, how many services can we deliver, and how many transactions can we complete to an expected level of quality in the least possible amount of time at the lowest possible cost? Six Sigma takes effort and discipline and requires you to go through the pain of change. But eventually that pain is transformed into improved performance, happier customers, lower costs, less complaints, better reputation, with that and more success.

Six Sigma performance, by definition, is the statistical term for a process that produces fewer than 3.4 defects or errors per million opportunities. Picture that in the grand scheme of building and running a business, any business. Hence, very few companies can actually achieve Six Sigma or even Five Sigma performance (fewer than 233 defects per million opportunities) in their final products, because there are so many critical processes, process activities, people, machines, and materials that have to interact along a chain of causation and span of time; good luck trying to get them all to work in line! Yet, it is the actual process of improvement to achieve Six Sigma performance that gradually evokes the change in an organization.

Six Sigma has two main key methodologies, DMAIC and DMADV. DMAIC is used to improve an existing business process. DMADV is used to create new product designs or process designs in such a way that it results in a more predictable, mature and defect free performance.

DMAIC methodology consists of the following five steps:
1. "D"efine the process improvement goals that are consistent with customer demands and enterprise strategy.

2. "M"easure the current process and collect relevant data for future comparison.

3. "A"nalyze to verify relationship and causality of factors. Determine what the relationship is, and attempt to ensure that all factors have been considered.

4. "I"mprove or optimize the process based upon the analysis using techniques like Design of Experiments.

5. "C"ontrol to ensure that any variances are corrected before they result in defects. Set up pilot runs to establish process capability, transition to production and thereafter continuously measure the process and institute control mechanisms.

DMADV methodology consists of the following five steps:

1. "D"efine the goals of the design activity that are consistent with customer demands and enterprise strategy.

2. "M"easure and identify CTQs (critical to qualities), product capabilities, production process capability, and risk assessments.

3. "A"nalyze to develop and design alternatives, create high-level design and evaluate design capability to select the best design.

4. "D"esign details, optimize the design, and plan for design verification. This phase may require simulations.

5. "V"erify the design, set up pilot runs, implement production process and handover to process owners.

As you can see, the core of the Six Sigma methodology is a data-driven, systematic approach to problem solving, with a focus on customer impact. Statistical tools and analysis are often very useful in the process. However, it is a mistake to view the core of the Six Sigma methodology as pure statistics; an acceptable Six Sigma project can be started with only very basic tools (such as simple Visio diagrams to visualize a process). There simply is no excuse for not attempting to make things better - for everybody's sake! All we, and everybody who believes in the same principles, have to do is go for it. Just remember that a journey of a thousand miles starts with the first step!

Posted by Ben at December 14, 2006 11:12 AM

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