Six Sigma
There are many business management strategies in the world today. Business management strategy has been around in one form or another for over a thousand years. The book The Art of War was written by Sun Tzu sometime in the 6th century. Sun Tzu was a Chinese general and strategist that wrote this book based on his experiences during the War of States. This book was mainly written as strategy and tactics for the military leaders. However, a lot of the overall concepts can and have been drafted or incorporated into the business management world. The overall point of the book is to teach you how to be aware of your own strengths and weaknesses along with your competitors. “There are business books applying its lessons to “office politics” and corporate strategy. Many Japanese companies make the book required reading for their key executives. The book is also popular among Western business management, who have turned to it for inspiration and advice on how to succeed in competitive business situations.” (Wikipedia, 2010) This is regarded as one of the first written instances of a business management strategy to date. There have been many breakthroughs in the formulation of business management strategies since the days of Sun Tzu. Today we have many different strategies that include Porters Five Forces, Value Chain and Six Sigma. Today’s business management strategies have a more complex make up than the simple observation of forces demonstrated in The Art of War. The point of this paper is to inform the reader about one of the more recently formulated and popular business management strategies. This strategy I’m referring to is called Six Sigma.
This paper is divided up into three different sections. The first section will be a discussion of the history of Six Sigma. Second the discussion will switch over to what exactly Six Sigma is and what it does for businesses that use it. Third I will show the pros and cons of adopting such a business strategy into an existing system and what type of companies have adopted Six Sigma over the course of its life.
History of Six Sigma
The inception of Six Sigma began in the late 1970s, when a Motorola factory that produces televisions was taken over by a Japanese firm. The Japanese firm then promptly set about making drastic changes to the operation and manufacturing of the factory. Under the management of the Japanese firm, the factory soon started producing televisions with a defect rating 1/20th of what it was while under Motorola control. This led Motorola to change the way they look at quality control. In 1981 Bob Galvin became Motorola’s CEO. His first act of business as the CEO was to issue a challenge to Motorola that required them to improve performance tenfold over a five year period.
In 1984 Mikel Harry joined Motorola and worked with Bill Smith. Bill Smith is considered “the father of Six Sigma” (Thomsett) while Mikel Harry is referred to as the “godfather” (Thomsett) and is still considered the leading authority on Six Sigma. In 1985 Bill Smith wrote a report that caught the eye of Bob Galvin. The report showed in detail how well a product did over its lifespan based on how much rework was done during the production process. With the information from the report analyzed Galvin started a long term based quality control program call “The Six Sigma Quality Program”. This corporate program established Six Sigma as the goal for production procedures and the way to get 3.4 defects per million opportunities (DPMO), which is the standard for measuring using Six Sigma. Since then Six Sigma has spread to other companies that are continually striving to improve. The reason for Six Sigma’s popularity didn’t come around until 1995 when General Electric’s Jack Welch made it the focus of his business strategy. Jack Welch was not the only one to lend a helping hand to the newly found strategy. “There were many people, but the most prominent among them are Unisys Corp in 1988 and Asea Brown Boveri in 1993. In fact, Asea Brown Boveri gave Six Sigma its final finishing touch by putting emphasis on customer satisfaction.” (Assistant)
What is Six Sigma?
Before 1987 Six Sigma was only used in statistics. Each standard deviation away from the mean encompasses a certain amount of data. The first standard deviation away, either plus or minus, is 34.1% of all data. So within 1 standard deviation 68.2 percent of data is kept. In statistics Six Sigma means roughly six standard deviations away from the mean, which encompasses 99.99% of data. (Graph 1) This, however, is not the same as 100 percent. It means that within 506,800,000 units of data 1 unit will be outside the confidence interval of six sigma.
Originally Six Sigma was used as a problem-solving technique and ended up morphing into a sophisticated quality control philosophy that has become the standard for today. “The term “Sigma” is often used as a scale for levels of “goodness” or quality. Using this scale, “Six Sigma” equates to 3.4 defects per one million opportunities (DPMO). Therefore, Six Sigma started as a defect reduction effort in manufacturing and was then applied to other business processes for the same purpose.” (Motorola) Six Sigma has come a long way over the past twenty years and has under gone many changes and tweaks to bring it to where it is today. When the first version of Six Sigma was implemented there were only four stages. The four stages are Define, Measure, Analyze and Control. This was modeled closely after the Deming Cycle, which was named after Dr. W. Edwards Deming. Often just referred to as PDCA (Plan, Do, Check, Act), “PDCA was made popular by Dr. W. Edwards Deming, who is considered by many to be the father of modern quality control;…” (Wikipedia) Later, the stages were transformed and two different processes where created. They are referred to by their respective acronyms DMAIC and DMADV.
The DMAIC is used improving existing business processes or projects that improve them. DMAIC stands for the processes Define, Measure, Analyze, Improve and Control. The DMADV is used for creating new process designs or products. The DMADV stands for the processes Define, Measure, Analyze, Design and Verify. Even though the first three processes in these methodologies are the same, they are not referring to the same things. DMADV is considered the DFSS or Design for Six Sigma. The DFSS is “a separate and emerging business-process management methodology related to traditional Six Sigma.” (Wikipedia, Design for Six Sigma – Wikipedia, the Free Encyclopedia) Here are the steps in both DMAIC and DMADV and you can see that both are completely different in the approach of the same points of similar methodologies. With these two methodologies almost all corporations, small business and global leaders, can utilize the Six Sigma business management strategy.
DMAIC[1]
DMADV[2]
At a broader view we can see the different levels of professionals that work with Six Sigma. There are several different levels of knowledge and implementation in the Six Sigma world and almost all of these are referred to as different colored belts such as in Karate. The belts have four different ranks they are the Green Belt, Yellow Belt, Black Belt and Master Black Belt. There is another rank that is not referred to as a belt and this rank is called Champion. The rank order from lowest to highest is the Yellow Belt, Green Belt, Black Belt, Master Black Belt and then Champion.
The Yellow Belt is acquired by going through a training course and then passing an online test. The test and training are both provided by Motorola, but that is not the only place to get them. If the belt system was compared to a military hierarchy then the Yellow Belts would be the grunts or soldiers. They make up the vast majority of the Six Sigma hierarchy and are assembled to make teams to work on projects. Yellow Belts are not allowed to run their own projects but instead must work under a Green Belt or higher. The Green Belts are next in the hierarchy and would be the equivalent of a Sargent in the military. In order to become a Green Belt you must complete a sizable project that uses the DMAIC (Define, Measure, Analyze, Improve and Control) methodology. Unlike the Yellow Belts, the Green Belts are allowed to undertake their own projects and must do so while maintaining their current work load as well. While the projects are not revolutionary they often have something to do with something the Green Belt is familiar with or is currently working on such as improving a technique or streamlining a process their department uses. The Green Belts are usually coached and mentored by Black Belts. The next level in the Six Sigma discipline is the Black Belt. Traditionally when you think of Black Belts in something it is taken to mean that they are the masters of whatever their belt is in. This is not the case with Six Sigma. Black Belts are not the top of Six Sigma, they are actually only about at an intermediate level within the Six Sigma discipline. Black Belts have to demonstrate an in-depth technical knowledge base on how to achieve Six Sigma goals and objectives. They are also able, at this level, to recommend new Green Belts. The difference in the scope of a Black Belts projects and a Green Belts projects are vast. While stated previously that a Green Belts project will usually encompass only their department or something relative to them while the Black Belts project can influence and facilitate a change in the whole facility. The Black Belt would be the equivalent of an Officer in the military. Last in the Six Sigma discipline is the Master Black Belt. Master Black Belts are the masterminds of Six Sigma. They often develop and test Six Sigma training that is given along with maintaining the quality and level of Six Sigma within the company. A Mater Black Belt would be a General in the military. Below is a quick glance of who would hold a belt position and what their focus would be. (LTD)
The last ranking is not in the Six Sigma Belt hierarchy. This rank is Champion. A Champion is different than the Belt type of Six Sigma discipline. A Champions role is mainly that “they remove roadblocks” (Carnell and Shank) and “need to be in a position to defuse any issues that may arise between a Black Belt and another person in the organization, particularly if the issue is with someone with a higher formal position in the company.” (Carnell and Shank) From this description it is safe to say that Champions play more of a middle man role between those who work with Six Sigma such as the different Six Sigma Belt disciplines and those of the rest of the company that do not. This allows the Champion to take care of any leg work without alternating the Master Black Belt or Black Belt’s time and attention from projects and also keeps them focused.
Now that we’ve established what exactly Six Sigma is we can start on what Six Sigma does for companies that choose to implement it into their business strategy. What Six Sigma is known for is having more value for defect prevention over defect detection. Six Sigma gets the higher management to take a good long look at the processes that they use in the running of their company. Then they identify all areas that could be improved or cut out to make the process more streamlined and have fewer places where something could go wrong. You can look at it like a butcher looking at a piece of meat he just got off the meat wagon. He is going to be looking for fat on the meat and trying to take as much off as he can so that the lean meat can be cut, packaged and sold. You can choose not to cut the fat from your meat and sell more that way, but eventually your customers are going to get tired of all the fat on the meat. This is what happens to companies so to speak. Six Sigma helps them streamline processes and combat defects in their products while saving them money in the long run and making the business more profitable overall. We discussed earlier Jack Welch’s part in helping Six Sigma become what it is today by adopting it early on. He didn’t adopt Six Sigma out of the kindness in his heart. He had high hopes of quality reform within General Electric and has been quoted as saying Six Sigma is “the biggest opportunity for growth, increased profitability, and individual employee satisfaction in the history of our company.” (Slater) From 1996 to 1998 General Electric raked in the benefits of implementing Six Sigma. They had an unprecedented eleven percent increase in revenue, thirteen percent increase in profit, a fourteen percent increase in earnings per share and a seventeen percent increase in operating margins. These are just a few of the different increases that happen when a company adopts the Six Sigma business strategy successfully.
Pros and Cons of Six Sigma and Who Uses It
After Jack Welch made his thoughts about Six Sigma public, it wasn’t long before other companies followed in his footsteps. It wasn’t really the fact that they thought Six Sigma was revolutionary, well not entirely. A lot had to do with the fact that GE at the time was seventh on the list of Fortune 500 for the year 2006 with revenue of $157,153,000,000 and profits of $16,353,000. Well with anything that is created and not tested publicly under different circumstances there are going to be problems. With the sudden influx of companies switching to Six Sigma there was a rush of data about the program and how it holds up while working with different types of companies and their already laid business strategies. There became an outcry “58 large companies that have announced Six Sigma programs, 91 percent have trailed the S&P 500 since, according to an analysis by Charles Holland of consulting firm Qualpro (which espouses a competing quality-improvement process).” (Morris)
One of the problems with Six Sigma is that the main focus is internal. There are no external focuses in any Six Sigma practice. If you remember from page 4 Six Sigma is a quality control process. Six Sigma is all about reforming and streamlining current processes to make them more efficient. Now let’s say that a company that already has a product out that is the main source of their revenue. They want to Six Sigma the process so they can produce it more effectively and cut costs. Rome wasn’t built in a day and neither was Six Sigma. By the time Six Sigma is in place and working as intended 3 to 4 years have passed. This means that they have spent the last 3 to 4 years fixing processes for a product that could essentially be out dated and losing ground on the market. But since the company was so focused on obtaining Six Sigma they haven’t come up with any new products to replace the declining one. This is where companies get into trouble by relying on Six Sigma for instant revenue. “An inward-looking culture can leave firms vulnerable in a business world that is changing at a breakneck pace – whether it’s Craigslist stealing classified ads from local newspapers or VoIP threatening to make phone calls virtually free.” (Morris)
Another issue that was briefly mentioned is that Six Sigma is just a ramped up version of quality control. Some companies don’t necessarily need 3.4 defects per million opportunities because their products are not that important or costly. The defects per million opportunities are very important to say hospital equipment or parachutes, but if you turn it around and look at pencil makers or people who produce sheets of paper then you see that while 3.4 defects per million opportunities is awesome for the amount of volume they are producing it’s not exactly bank breaking. When companies realized this they started adopting their own versions of Six Sigma and that’s where we get the 1.5 Six Sigma shift.
The third issue I’ll be going over was a result of what Six Sigma’s ideals are based on. They are based on everything being on a normal distribution bell curve. The graph showed on the 3rd page shows what is called a normal distribution or a normal bell curve. The curve below is the non-normal distribution that some companies run under.
The Six Sigma rules and regulations do not make it clear what should happen or what the company should do if their distribution is not a normal bell curve. Now that some of the complaints and criticisms are done I can explain the good points of Six Sigma. Just because of the criticisms of Six Sigma for a few instances does not mean that it is not an amazing strategy for companies that do not have the issues stated previously. If a company has a normal distribution and can maintain focus on the every changing outside world then there isn’t any reason why Six Sigma would not work for you.
Conclusion
Six Sigma is considered a revolutionary tool that built on an old business strategy. There are many companies that have integrated it into their business strategy and have seen amazing results. Even though Six Sigma is all about quality control there are a few instances in which companies should not use it as it could cause more trouble than its worth. Six Sigma is one of the latest and widely known business strategies of the 20th century.
Bibliography
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Bruce, Greg. Six Sigma for managers. New York: Magraw-Hill Professional, 2002.
Carnell, Mike and Scot Shank. The Champion’s Role in Successful Six Sigma Deployments. 26 February 2010. 17 March 2010
Cavanagh, Roland R., Robert P. Neuman and Peter S. Pande. What is Design for Six Sigma. New York: McGraw-Hill Professional, 2005.
LTD, SQT Training. Black Belt, Six Sigma, SQT training course, DMAIC. 2009. 17 March 2010
Morris, Betsy. “Fortune Senior Writer.” Fortune 500 (2006).
Motorola. “What_is_SixSigma.pdf.” n.d. Motorola. 15 March 2010
Slater, Robert. Jack Welch and the GE Way. New York: McGraw-Hill, 1999.
Thomsett, Michael C. Getting Started in Six Sigma. Hoboken, NJ: John Wiley & Sons, INC, 2005.
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[1] From Six Sigma for Managers (Bruce)
[2] From What is Design for Six Sigma(Cavanagh, Neuman and Pande)
[3] Taken from www.sqt.ie