Six Sigma Raises Productivity to the Effective Limit 241.0

The productivity surge in American business from 1980 through 2000 was driven by innovations like Six Sigma.

Motorola first innovated on Six Sigma in the late 1980s as a method to manage process variations for quality improvement in manufacturing that, linked with business strategy, ultimately yielded improved productivity in the whole business.

In the 1990s. GE used it as a core strategy to help deliver the sterling financial results during the Jack Welch years.

Note: By 1995, with browsers on the Web, the Internet improved internal coordination and allowed flatter organizations ushering newer sources of productivity improvement – a subject for future SYNTHESiST post.

Convergence of insights. In the early 1990s, Six Sigma came about as a convergence of two insights.

First, the insight came about that instead of manufacturing, by the 1990s, continuous improvement efforts like classical industrial engineering had reduced direct manufacturing costs to less than 40% of aggregate costs at the consumer level. Business processes, rather than technical one, had become the richer field for productivity improvements.

Second, the other insight is that improvements in quality built in at the level of design, instead of during manufacturing through inspection and rework, had the potential to make better quality for free. This insight overturned the classic thinking that to have high quality always means higher cost.

Evolution of quality management. Six Sigma formed an important step in the evolution of quality management from its roots in the industrial revolution when quality was defined as meeting specifications.

During that era, attaining high quality was generally accepted to mean increasing the cost of the product.

It was much later when Crosby had the insight that quality can be free if production produces products right the first time and avoids the added cost – that does not add value – of inspection and repair.

Sidebar: Japanese Total Quality Control (TQC). The Japanese developed their own Total Quality Control approaches from Deming and from the experimental design approaches of Genichi Taguchi. TQC intertwines with JIT approaches to create continuous productivity improvement,

Concurrent engineering from Japan, that starts quality management from design, was the foundation of laser design thinking that builds quality from design while compressing the development process time of the 2000s.

Six Sigma in the 1990s. Improvement in business processes became more relevant as they comprised most of the costs and, being service-like in nature, they have been impervious to improvement having no unit of product by which to measure efficiencies.

Still, to have relevance beyond costs, Six Sigma used quality as the key dimension of customer satisfaction strategy to focus management efforts in the improvement process.

Quality improvement as process variability management. Sigma is the symbol for standard deviation, a unit measure of variability around the average process performance.

The total performance itself is 100% below the bell curve that describes normal distribution as shown in the diagram below.

Source: Wikipedia

The mathematician Carl Friedrich Gauss first described this normal distribution that around the mean or average performance,
One (1) standard deviation captures 34.13% of what Is measured;
Two (2) standard deviations capture the next 13.06%; and
Three (3) standard deviations capture the next 2.14%.

These three standard deviation together represent one side of the distribution curve 49.83% so that two sides had six standard deviations capturing 99.64 of what is being measured.

Thus, the six sigma program is designed to make sure all performance measured is within 99.64% of its acceptable limits as view from customer perception and not just from internal engineering standards or expectations.

Sources of value for the GE Six Sigma as productivity program. Six sigma takes its value from three sources.

First, the Six Sigma approach improves quality through a team-based approach to design efficient and effective business processes and to reduce variability in the actual performance of the process.

Second, it takes the perspective of customer satisfaction as measure of quality changes the process by which Six Sigma as a business level quality improvement program is implemented. Customer satisfaction focuses the strategy. Improved customer satisfaction resulted in improved financial performance.

Finally, in classical management, the internal organization used to be organized by function as dictation by the specialization of knowhow. Thus, the functional organization appears as vertical silos and, thus, with internal communications that flows mainly up or down these silos.

Processes that satisfy the customer often flow across these vertical silos in sequence. Thus, any hiccups in the process execution results in delayed response as silo members often had to ask authorization from the superiors up in the respective silos.

In assigning primacy to process than to functional silos, the delivery of customer satisfaction is promoted.

Six Sigma at GE. GE developed an eight-element approach to process management that linked quality improvement to business strategy:

1. Creation and agreement of strategic business objectives.
2. Creation of core, key sub- and enabling processes.
3. Identification of process owner.
4. Creation and validation of the key measures of effectiveness and efficiency for each process (also known as measurement “dashboards”).
5. Collection of data on agreed dashboards.
6. Creation of project selection criteria.
7. Using the project selection criteria for project selection.
8. Continual management of the processes to achieve strategic objectives of the organization.

GE Workout. Eventually, after working on the eight elements above, GE developed a team-based methodology called the Workout shown in the diagram from Rath and Strong.

With the Workout process, business process improvement becomes institutionalized throughout the GE organization.

Workout also had other benefits to GE including improved coordination focused on the process, management training, and consequently, morale-building.

Finally, with GE’s success, Six Sigma became a benchmark approach to improving quality and customer satisfaction for the leading companies of the world.