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Posted on Thursday, September 22, 2005

Six Sigma for the rest of us



by Andrew Spanyi and Marvin Wurtzel

Within large corporations, Six Sigma's popularity as a means of improving quality and reducing costs continues to increase. However, the same can't be said of small and medium-sized organizations, which, as a rule, have been less enthusiastic about adopting Six Sigma. Many have scaled back and believe they can neither afford the luxury of a complicated Six Sigma program nor justify the outlay required to train a Master Black Belt.

Nevertheless, smaller companies should consider that business process principles underlying the Six Sigma approach, as well as some of the program's specific tools, offer an effective means for significantly improving their performance levels. Consider some of the more important principles and tools that smaller businesses can utilize without launching a major initiative.


Six Sigma refresher

As you likely know, Motorola developed Six Sigma during the 1980s. It was subsequently adopted by leading corporations such as GE, Sun Microsystems, AlliedSignal and Bank of America.

Six Sigma offers a structured method to improve performance. Its methodology is based on established statistical process control techniques, data analysis methods and systematic training of all personnel involved in the activity or process targeted by the program. Six Sigma is a well-structured, data-driven methodology for eliminating defects, waste or quality problems in manufacturing, service delivery, management and other business activities.

The Greek letter s is also a mathematical symbol that represents a measure of variation, the distribution around the mean of any process or procedure. The term "six sigma" defines an optimum measurement of quality: 3.4 defects per million events. If an organization can reduce its product's average deviation, then less of it will be faulty and cost savings result. In other words, do it right the first time by progressively monitoring and eliminating mistakes.

Ideally, Six Sigma is based on customer knowledge and accurate performance measures of the core processes that fulfill those requirements. Understanding what the customer considers "critical to quality" is a cornerstone of any successful Six Sigma initiative. The link between Six Sigma and business process thinking often determines the span and depth of performance improvements. Both incremental business process improvement and Six Sigma are intended to develop focused solutions to eliminate root causes of business performance problems without radically changing existing processes or organizational structure.



The Six Sigma approach incorporates five critical processes: define, measure, analyze, improve and control. An organization identifies a problem area, measures it, identifies its root cause, and then fixes and controls it.

Define. This step is concerned with defining project goals and boundaries, and identifying issues that must be addressed to achieve an improved sigma level (i.e., defect rate).

Measure. During this step, information about the current situation is gathered in order to obtain baseline data on current process performance and identify problem areas.

Analyze. This step focuses on identifying root causes of quality problems and confirming those causes with appropriate data analysis tools.

Improve. During this step, solutions are implemented to address the root causes of problems identified during the analysis phase.

Control. Here, the previous improvement phase is evaluated and monitored.



Advantages for smaller companies

Why should small and medium-sized businesses seriously consider Six Sigma tools as a means to improve quality? Because the business process model underlying Six Sigma represents a major opportunity for cost savings. Smaller enterprises typically have ad hoc business processes. Error rates often hover in the 20- to 30-percent range, and opportunities for performance improvement are proportionately high. Moreover, because of its manageable size and relatively few entrenched "silos", a smaller business environment is generally more conducive to new business process thinking than a large corporate setting.

Small to medium-sized businesses that have successfully implemented Six Sigma usually began by identifying core business processes--those that deliver value to customers. These tend to be cross-functional in nature. Keep in mind that there's a difference between a department and a process. Crucial to any improvement effort is the understanding that work must pass through various departments in order to produce value for the customer. After identifying core processes, an organization must identify the scope of improvement needed to ensure the processes consistently deliver strategic commitments.

Because many small to medium-sized enterprises operate their business processes at the 2 to 3 sigma level, an improvement of even 1 sigma represents a huge step in improving customer satisfaction and reducing costs. Through a better understanding of their core processes, smaller businesses can make significant improvements rapidly. For example, if a business with an order fulfillment process operating at 3 sigma (or 66,000 defects per million opportunities) could improve performance to the 4 sigma level (or 6,210 defects per million opportunities), it would realize about a 10X gain in performance. And if each error cost as little as $10 to fix, the resulting cost savings would be in the range of $600,000.

In addition, smaller businesses often rely on management methods that are more spontaneous than controlled. These companies could benefit from Six Sigma's structured, data-driven methodology for eliminating defects, waste or quality problems of which the cause is unknown.


Getting started

First, identify your organization's key business processes that deliver value directly to the customer. Don't confuse them with the support processes (e.g., human resources, budgeting or facilities that are required to run the operation). Most companies have between five and eight core customer- and/or mission-

critical business processes such as order fulfillment new product development. Map these processes at a midlevel and measure the current process results. Detailed process flows, like those you'd find at the work-instruction level, aren't necessary here. Instead, outline the major handoffs between functional organizations of the business. Next, identify the most important issues or "disconnects" between the customer and the company perspective, and involve the leadership team in prioritizing them.

You must next decide on the required scope of improvement and whether to perform process improvement or process redesign. A comparison of the two choices is illustrated. Process improvement usually fixes a segment of a larger process, whereas process redesign involves building a new process to replace an old one. Initially, small to medium-sized businesses should begin by performing process improvement using basic Six Sigma methodology and then measure the results and quantify the savings.

Although these steps appear straightforward, they're far from effortless. In fact, the following are just some of the elements needed for success:

Visible management commitment

Keen sense of urgency

Clear definition of customer requirements

Shared understanding of core processes and key customers

Honesty in measuring current performance

Discipline in prioritizing the critical few improvement projects

Communicating success stories and proving that the approach works

Rewarding and recognizing the performers

Institutionalizing the approach


These factors can sometimes be challenging for smaller businesses whose leadership is susceptible to ever-changing priorities. Yet the potential rewards are significant. As reengineering expert Michael Hammer has argued, Six Sigma's power is optimized when applied to "inside the box" problems that don't challenge the existing process's structure. Accordingly, it can be argued that, compared to large corporations, smaller businesses are even more likely to benefit from applying Six Sigma methods because many of their problems are execution-oriented and difficult to find. In contrast, larger companies must often address fundamental problems in the design of the business process or organizational structure.


Dispelling the myths

Smaller businesses shouldn't be deterred by the some of the myths surrounding Six Sigma.

One of these is the necessity for Black Belts and Green Belts. Although this is required for large corporations, it isn't necessarily for smaller businesses. Six Sigma tools aren't altogether new; they build on well-known total quality management techniques from the 1980s and statistical process control tools from the 1930s and 1940s.

It's also not necessarily true that everyone must have weeks of Six Sigma training before implementation. If the program is properly structured and delivered, smaller businesses can take advantage of just-in-time practices when applying Six Sigma.

Another common misconception is that setting big goals might prevent the program's success. Smaller businesses are well-equipped to place their Six Sigma efforts clearly within a business process framework, allowing them to contribute to achieving aggressive goals.

Although it's true that solving problems takes time, applying Six Sigma doesn't take more time than small to medium-sized businesses can afford. After all, if you don't have time to figure out how to perform a process correctly the first time, how will you find time to do it over and over again?

The greatest intangible benefit that can result from applying these practices is senior management's increased comfort with, and application of, business process thinking. Leaders will be prompted to ask and answer the following questions:

Which core business processes are instrumental in achieving strategic targets?

What degree of improvement is needed with respect to these critical business processes?

To what extent does the current organizational design support or impede the performance of these critical business processes?

To what extent do current corporate policies support or impede the performance of these critical business processes?

To what extent do current reward systems support or impede the performance of these critical business processes?

The current business environment demands an even greater dedication to product and service quality. Combining Six Sigma and business process thinking offers smaller businesses an opportunity to shake off complacency and continue to compete in an increasingly quality-oriented marketplace. With a successfully implemented Six Sigma initiative, small and medium-sized businesses can expect to improve service excellence and realize significant cost savings.

 
 

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