Six Sigma in Service and Transaction Companies

Introduction to Six Sigma for Service and Transaction Companies
Summary
Six Sigma is a method of improving the efficiency and effectiveness of business activities. By applying Six Sigma methods within a business, companies aim to improve productivity, reduce the cost of operations and enhance quality of service.

Recent Growth
Six Sigma has become increasingly used by companies over the last 10 years, particularly as a result of its highly publicised success at General Electric. GE’s strong association with Six Sigma, at a time when Jack Welch received so much media coverage running up to his retirement, has helped to transform Six Sigma from an esoteric technical discipline into a globally recognised management methodology.
Due to Welch’s high profile as a business role model, many companies and executives have studied his strategies, methods and business books to discover the secrets behind his achievements. Welch took GE from a market capitalisation of $12 billion in 1981 to over $300 billion in 2001. Between 1995 and 2001, he put Six Sigma on the global business map by making it the biggest corporate initiative in GE’s history.

Origination
Six Sigma was developed by Mikel Harry at Motorola in the late 80s, but has methodological roots stemming back to Joseph Juran, W. Edwards Deming and the principles of Zero Defects and Total Quality Management. Over several years that followed the initiation of its efforts, Motorola achieved a 200 fold improvement in production quality from 4 Sigma to about 5.5 Sigma and saved a reported $2.2 billion in the process. Another early adopter of Six Sigma was Texas Instruments, but it was only when Allied Signal implemented the methods in the early 90s that it became more than just a system to measure production quality. At Allied Signal they not only set Six Sigma as the quality target, but an entire system of leadership and support systems began to form around the statistical problem solving tools developed by Motorola.

WHAT IS SIX SIGMA?
In short, Six Sigma is a management methodology, which encompasses both a measurement scale and a rich methodology, and is primarily used for business process reengineering.

In Technical Terms
Sigma ( s) is a character from the Greek alphabet which is used in statistics to define standard deviation – the distribution or spread of occurrences around the mean in a set of process data. The objective of Six Sigma Quality is to reduce process output variation so that plus or minus six standard deviations lie between the mean and the nearest specification limit. As the process sigma value increases from zero to six, the variation of the process around the mean value decreases. With a high enough value of process sigma, the process approaches zero variation and is known as “zero defects”.
A centred Six Sigma process has a normal distribution where mean equals target, with specifications placed 6 standard deviations to either side of the mean. At this point, the portions of the distribution that are beyond the specifications contain 0.002 parts per million of the data (0.001 on each side). Research has shown that most manufacturing processes experience a shift over time of 1.5 standard deviations plus or minus of the mean so that the mean no longer equals the target. This is an acceptable level of variation. When this happens in a Six Sigma process, a larger portion of the distribution now extends beyond the previous specification limits: 3.4 parts per million.

The Measurement Scale
In measuring process performance, Six Sigma is a scale that compares the output of a process to defined customer requirements. On the scale, 6 Sigma equates in percentage terms to 99.9997% accuracy, or to 3.4 defects per million opportunities to make a defect. Six Sigma is particularly powerful when measuring the performance of processes with a high volume of outputs. It is an especially robust means of measuring process capability and performance because it enables the comparison and benchmarking of the performance of any business process against another and, more importantly, against industry standards. Hence it has become a universally recognised standard of quality.
For many businesses, 98% or 99% accuracy in performance would delight their customers, but in others such performance would be woefully inadequate and could even breach regulatory requirements. Hence a more appropriate measurement scale is required. A good example is the airline industry, where it would be inconceivable that only 99% of flights landed safely. In contrast, most airline baggage handling processes are generally performing at about 3 Sigma (93% accuracy) – a typical performance level across industry in general.
A critical aspect to understand is that when measuring and analysing process output in Sigma, even an improvement of one Sigma means a quantum leap forward in quality. The further up the scale we move, the harder it is to attain the standards set. For example, to move from 3.0 to 4.0 Sigma requires an 11 times improvement in performance, from 4.0 to 5.0 Sigma requires 27 times and from 5.0 to 6.0 Sigma represents a further 69 fold improvement. An improvement from 3.0 Sigma (an average standard) to the goal of 6.0 Sigma (near perfection) would require a 20,000 fold improvement in process performance.

In Business Terms
Six Sigma is a business method for improving quality by removing defects and their causes in business process activities. Critically, it concentrates on those outputs which are important to customers. The method uses a range of statistical tools to measure business processes and is centred on continuous improvement. Conceptually, the Sigma level of a process or product is where its customer-driven specifications intersect with its distribution. The Six Sigma drive for defect reduction, process improvement and customer satisfaction is based on the "statistical thinking" paradigm:
Everything is a process.
All processes have inherent variation.
Data analysis is used to understand the variation and drive process improvement decisions.
The Management Methodology
The real power and benefit to be extracted from Six Sigma is in the management methods, rather than purely in applying it as a measurement scale for understanding quality. Centred on a disciplined problem solving and process optimisation methodology, Six Sigma has evolved into a powerful business philosophy and instrument for driving business and cultural change. In short, this method relies on the application and deployment of good management practice and business tools in a structured manner. Whilst many of the tools are statistical and complex in nature, it is very rare that they are needed in the hands of operational managers. It is actually a very simple approach to business improvement – hence its usefulness – and Six Sigma need only ever be as complex as each individual wants to make it.

The most common Project Management methods used in Six Sigma are DMAIC and DMADV. These are outlined below:





Terminology and Approach
Within a company, Six Sigma is normally executed by professionals known as Green Belts (part time), Black Belts (full time) or Master Black Belts (full time coaches) - terms created by Motorola. Each level has increasingly greater mastery of the skill set. Roles and responsibilities also grow from each level to the next, with Black Belts generally in project and team leadership roles and Master Black Belts often in mentoring or management roles. The infrastructure needed to support the Six Sigma environment varies. Some companies organise their trained Black Belts into a central Six Sigma group for deployment around the businesses whilst others decentralise trained Black Belts into the functional areas of the business, where they take responsibility for improving that function and gain in specialist knowledge. Ultimately, companies seek to grow the skill set from within and promote their Black Belts into leadership roles where Six Sigma becomes an inherent approach to business management.

Considerations
There is no doubt that the application of Six Sigma methods and tools can be of significant benefit to any business that uses them. Companies currently implementing Six Sigma include JP Morgan Chase, Sun Microsystems, American Express, Lloyds TSB and Egg. However institutionalising Six Sigma into the fabric of a corporate culture can require significant investment in training and infrastructure. A more interesting question, therefore, is whether to use this methodology in a highly focused and limited manner in specific areas of the business or whether to commit to a wholesale strategic corporate initiative?

Most consultants and advisers who specialise in Six Sigma would no doubt point to GE as the best practice example – the benchmark against which all other exponents of Six Sigma should be judged. In advising their clients to follow suit, they also open up the route to a whole world of additional elements that will extend the consultants’ scope of work, but not always to the benefit of the client company. It is important to understand that the manner in which GE implemented Six Sigma and, one could argue, the reasons for doing so, were intrinsically linked to a specific corporate culture and more importantly, a unique CEO. Other companies would do well to think twice before trying to replicate such an approach to deploying Six Sigma. Welch did it the Jack Welch way. That worked for GE. There are few similar leaders who can boast such strong individual influence and ability to galvanise their entire workforce, across multiple businesses, national borders and cultures, in the same way that Welch was able to do at GE.

An alternative approach
The first step is to understand and agree the key business goals and objectives. If we are going to use Six Sigma within our business, we must understand what we are going to use it for. Once we know this information, we can develop an appropriate plan of action. If companies are focused on investing wisely as well as hoping for big returns, they should assess what is genuinely required and what is a waste of investment. A good example of this is the well trodden path of compulsory mass Quality training – also known as “Sheep Dipping”.

What is really good about Six Sigma?
Transforms business and employee awareness of the customer andthe customer’s expectations. This in turn drives a radical change in the entire customer / supplier relationship. Six Sigma transforms every business into a service organisation focused on profitably exceeding customer expectations.
Drives operational and administrative process improvement, leading to cost savings, service enhancement, increased productivity, enhanced margins, improved profitability and shareholder value.
Instils a deeper and more transparent understanding of business processes and operations.
Is highly successful in improving sales and sales force effectiveness.
Exposes the management at all levels to powerful methods and tools that improve awareness and the ability of operational managers.
Enables companies to make improvements and derive productivity savings from areas of operations that would normally appear unlikely.
Instils a non-bureaucratic yet disciplined project management method across the company. The application of the DMAIC (Define, Measure, Analyse, Improve & Control) method raises the bar for project management standards and saves wasted time, effort and cost on poorly run or needless projects.
Is particularly effective in conducting operational due diligence work.
Provides a strong focus and approach for acquisition integration, especially when used as the basis for the 100 Day short term integration plan.
Provides a vehicle for management and leadership development training.

What are some of the pitfalls in implementing Six Sigma?

The belief that you have to implement everything related to Six Sigma. Be selective.
The tendency to implement compulsory mass training as an initiative in itself.
The emergence, in big companies, of a self-perpetuating academic function that ostensibly supports the initiative without delivering direct financial benefits.
Increased reporting activities and bureaucracy when over-measurement starts to set in.
A lack of distinction between true financial savings and statistically derived, theoretical productivity savings achieved through process improvement. Beware the currency of “Sigma Dollars!”
Benefits
There are many benefits from applying Six Sigma, but the most important results are the significant financial returns that stem from the elimination of rework, duplication, non value-added activity and defects across business operations. Many participating companies report financial returns in the hundreds of millions of dollars. Globally, Six Sigma has been credited with saving billions of dollars for major companies over the past ten years. These companies also report major changes in the underlying culture of their companies. This cultural change away from assumption based thinking to a more rigorous, empirical and data-driven approach to decision making is changing the way companies are able to understand, review and improve their businesses.

“Overall, Six Sigma is changing the fundamental culture of the company and the way we develop people...Six Sigma gives us the tool we need for generic management training since it applies as much in a customer service center as it does in a manufacturing environment.”
Jack Welch in his recent autobiography ‘Jack’


Overview
Venturehaus is a niche management consultancy, focused specifically on the operational aspects of business for Service and Transaction companies. We work with Blue Chip Companies and Private Equity Investors.

Service
Venturehaus provides a complete end-to-end service for our clients, from operations strategy development and programme management to the implementation of improvements and change in their companies. We cover a spectrum from sales to service delivery. We help companies to grow their top line, increase operational efficiency, reduce their operating cost base and significantly improve their margins and profitability.

Approach
The Venturehaus approach to business improvement is focused purely on those elements of the business which influence operating profit. Our value proposition is simple – we target those areas of the business that have a direct impact on operating margins, improving profitability for our clients.


Six Sigma
Our approach to operational improvement is inherently driven by Six Sigma methods and tools. Six Sigma is recognised across all industries as the leading methodology for optimising profitability through accelerated Business Process Improvement. In addition to our operational experience as business managers with leading global companies, the Venturehaus team has extensive experience of managing and implementing Six Sigma in the Service and Transaction industry.

Venturehaus provides a complete service for the deployment and ongoing management of Six Sigma. This includes Six Sigma Deployment Strategy and Implementation Planning; a Methodology specifically designed for Service and Transaction companies; Material Customisation; Executive and Champion Training & Coaching; Black / Green Belt Training & Coaching; Business Baselining and Detailed Process Mapping; Operational Reviews and Project Selection; Implementation Programme Management; Change Management and Business Process Management.