Introduction: From Factory
Floor to Executive Suite:
The Emergence of Strategic
Six Sigma as a Business and
Six Sigma, the highly statistical quality improvement technique born in the manufacturing hays of Motorola in the mid-1980s, is often used at an operational level inside companies today to help them cut costs, improve processes, and reduce business cycle times. Its value in this regard is well understood by business leaders today, and has been the topic of numerous business books and articles in recent years.
Less well known, however, is the potential of Six Sigma to serve as a means to help companies formulate and deploy their business strategies, and bring about broad-gauge transformational change—to serve, in other words, as a high-order leadership approach, philosophy, and change methodology. Strategic Six Sigma principles and practices can, for example, be used to help companies:
>• Formulate, integrate, and execute new (or existing) business strategies and missions
>• Deal with constantly changing (and increasingly complex) customer requirements
>• Accelerate a company's globalization (and global integration) efforts
>• Facilitate mergers and acquisitions (Dow's merger with Union Carbide, for example)
>• Ensure effective implementation of e-business ventures with their associated strategies and infrastructure
>• Drive revenue growth
>• Accelerate innovation
>• Improve marketing channels
>• Enhance and condense the corporate learning cycle— the time it takes to translate market intelligence and competitive data into new business practices
>• Win the customer care war
>• Drive systemic and sustainable culture change
>• Improve financial and corporate reporting
>• Manage and mitigate business risk
• A VEHICLE FOR DEPLOYING CORPORATE STRATEGIES
A growing number of companies today are beginning to realize the full, strategic implications of Six Sigma, especially as an engine to accelerate corporate strategy and organizational transformation. Former General Electric (GE) CEO Jack Welch, for example, says that Six Sigma has forever "changed the DNA" of how GE operates. Before his first retirement as Honeywell's larger-than-life CEO, Larry Bossidy used to tell Honeywell employees and shareholders alike that Six Sigma was the key to Honeywell realizing annual 6 percent gains in
productivity "forever." At Citibank, meanwhile, Six Sigma was recently implemented to accelerate the bank's customer care approaches around the world. Du Pont and Dow Chemical are both using it to propel sustainable growth, and to position themselves in an industry notorious for both static product prices and thin operating margins. Even hotel chains, like Starwood Hotels and Resorts, are employing it to overhaul their corporate culture, create blissful customer service experiences for travelers, and to radically alter the nature of their hospitality services. (See the sidebar, "What Is Sigma?")
The potential of Strategic Six Sigma to serve such transformational purposes (and others) has profound implications for today's CEOs and their top leadership teams. A recent story in Fortune noted that one of the biggest causes of business failures today is the inability of companies to effectively execute their strategies. Because Six Sigma methodology, at its core, relies on the use of factual data, statistical measurement techniques, and robust feedback mechanisms to drive decision making, it's able to unify top leadership teams behind a common language (and a set of data points), making strategic planning and execution more efficient and successful. Because it aligns a company's people and processes behind commonly agreed-to goals, it helps companies achieve entirely new levels of profitability and corporate performance
WHAT IS SIGMA?
In the world of Six Sigma companies, the term sigma has come to signify how well a business process, product, or service is meeting the requirements of the marketplace. Six Sigma has come to mean failing to meet a customer requirement only 3.4 times out of a million opportunities.
in less time than traditional strategy implementation does. And because Strategic Six Sigma increases a company's focus, speed, and organizational resilience, it helps organizations respond quickly to changing market conditions, move in new business directions, and improve customer responsiveness, thus enhancing customer relationships, while increasing shareholder value. (See the sidebar, "Six Sigma in Brief: A Catalyst for Change at the Transformational and Operational Levels of an Organization.")
SIX SIGMA IN BRIEF: A CATALYST FOR CHANGE AT
THE TRANSFORMATIONAL AND OPERATIONAL
LEVELS OF AN ORGANIZATION
Figure I.I Six Sigma business improvement.
Six Sigma is a high-performance, data-driven approach to analyzing the root causes of business problems and solving them. It ties the outputs of a business directly to marketplace requirements. (See Figure I.I) At the strategic, or transformational, level, the goal of Six Sigma is to align an organization keenly to its marketplace and deliver real improvements (and dollars) to the bottom line. Strategic Six Sigma approaches provide a framework that potentially can be used to bring about large-scale integration of a company's strategies, processes, culture, and customers to achieve and sustain breakaway business results.
At the operational or process level, Six Sigma's goal is to move business product or service attributes within the zone of customer specifications and to dramatically shrink process variation—the cause of defects that negatively affect customers. (See Figure 1.2) It provides specific tools and approaches (process analysis, statistical analysis, lean techniques, root-cause methods, etc.) that can be used to reduce defects and dramatically improve processes to increase customer satisfaction and drive down costs as a result. (See Figure 1.2)
Figure 1.2 Six Sigma reduces variation in business processes. An objective of Six Sigma is to reduce variation and move product or service outputs permanently inside customer requirements (curve A to B).
• STRATEGIC SIX SIGMA GENERATES RESULTS ACROSS MANY INDICATORS
In companies where Strategic Six Sigma has been implemented (Dow, Caterpillar, Raytheon, Bombardier, Lockheed Martin, etc.), it has radically and quickly improved business performance across a wide family of performance indicators—in everything from return on assets (an inter-
nal business indicator) to customer satisfaction and timely order fulfillment (external performance metrics.)
Just what's driving the transmutation of Six Sigma from process improvement technique into an accelerator of business strategy and implementation, and a tool of organizational transformation? To answer that question, one needs only to look at the rapidly changing nature of today's business environment and the multiple drivers and pressures that are exerting themselves on the daily operations of companies. Today, for example, companies are under more pressure than ever to:
>• Develop, implement, and often rapidly revise their business strategy
>• Attract, service, and retain customers (often by anticipating their needs before they do)
> Globalize business operations
>• Accelerate innovation and research and development (R&D)
>• Redesign their sales and marketing channels rapidly
>. Manage business risk
>• Develop and introduce new products and services faster and more efficiently
>• Build national and global brands
>• Develop and implement effective supply chains
>• Implement transformational change
A recent survey of corporate CEOs commissioned by the Foundation for the Malcolm Baldrige National Quality Award confirms this.1 The study identified a number of significant trends that are exerting a transformational influence on the nature of global business today. All of them have profound implications for the productivity and profitability
of companies worldwide. For example, of the more than 300 CEOs who answered the survey:
>• Ninety-four percent cited globalization as a major trend impacting the life and livelihood of companies today. Yet, only 18 percent of respondents rated major U.S. companies as excellent in dealing with this trend.
>• Eighty-eight percent of survey respondents said that improving knowledge management was critical to their business operations. Yet, only 23 percent rated major U.S. companies as excellent in this category.
>• Seventy nine percent of CEOs polled in the survey rated cost and cycle time reduction as a major need and trend in their companies today. Yet, only 31 percent indicated that U.S. companies, in their view, do an excellent job at these activities.
Still other major trends and issues identified by respondents as critical to business operations today included:1
>• Improving global supply chains (78 percent)
>• Manufacturing at multiple locations in many countries (76 percent)
>• Developing new employee relationships based on performance (69 percent)
>• Improving the execution of strategic plans (68 percent)
>• Developing more appropriate strategic plans (64 percent)
>• Ensuring effective measurement and analysis of organizational processes (60 percent)
Any company's performance, of course, is closely related to corporate leadership—and to specific leadership competencies. Thus, another interesting cluster of findings to emerge from the Baldrige survey pointed to the fact that in many cases today, business leaders view themselves as lacking certain key competencies, and in need of upgrading others. Over half of the CEOs in the Baldrige survey, for example, believe that they (and their peers) need to improve their skills in the following areas "a great deal."1
>• The ability to think globally—72 percent
>• The ability to execute strategies successfully—66 percent
>• Flexibility in a changing world—63 percent
>• The ability to develop appropriate strategies—60 percent
>. The ability to rapidly redefine their business—54 percent
>• Understanding new technologies—52 percent
>• The ability to work well with different stakeholders—
>• Creating learning organizations—49 percent1
What's the common thread running throughout all these survey findings?
• IMPROVING PERFORMANCE IS A UNIVERSAL BUSINESS PRIORITY
First, all of them have implications for a company's ability to compete effectively in an increasingly brutal business environment. They suggest that companies (and their leaders) today need to focus on improving business performance
both at a process level (the level of actual, everyday work) and at a much higher organizational level as well—the level of strategy development, planning, and deployment.
Second, the findings suggest that companies today are in need of a strong strategic framework and language, not only to help them define their vision and articulate their mission, but also to define, measure, analyze, and improve their performance whether the specific goal is to build market share, enhance customer loyalty, accelerate the R&D process, or improve shareholder value.
Six Sigma principles and approaches—and especially those that are applied in a systematic and strategic way as we describe in this book—can have a tremendous impact both on a company's bottom-line business performance and on its potential for true, top-line business growth. Why? Because the statistically rigorous and robust approaches to business improvement that Six Sigma principles embody provide companies with a common vehicle and language with which to frame business goals, align people and processes, focus organizational energy, and drive results. Six Sigma tools and concepts provide a means to optimally align all of an organization's components—from leaders, culture, and mission and strategy on the one hand, to structure, management practices, systems, work climate, and employee skill sets and behaviors on the other—to help a company achieve breakthrough levels of business performance. These variables, as change consultant and author W. Warner Burke puts it, represent the full range of "transformational and transactional" drivers at work in any organization today, and therefore constitute the full productive potential of any business enterprise.
We refer to companies that effectively employ Strategic Six Sigma as market-smart. That's because they typically share a number of crucial characteristics: a well-developed
(yet constantly revisited) business strategy; a laserlike focus on customers; and a strong internal climate of alignment to support strategic business goals.
Because Strategic Six Sigma practices are necessarily built on a foundation of knowledgeable and committed leaders, beginning with the CEO and cascading down throughout all levels of the organization, we have titled this book, Strategic Six Sigma: Best Practices from the Executive Suite. Within its pages, we've attempted to capture key insights, anecdotes, wisdom, and stories gathered from interviews conducted with many of today's most successful business executives-people who've both discovered and leveraged the benefits of Strategic Six Sigma thinking and best practices inside their own organizations.
In Strategic Six Sigma: Best Practices from the Executive Suite, our goal is to outline the key elements of Strategic Six Sigma leadership in companies today, and to provide readers with the guideposts necessary to apply these same practices and approaches in their own companies. To that end, the book is divided into three sections.
Part 1 (Introduction, Chapters 1 and 2) focuses on why every company today needs to become a market-smart company if it is to survive in the marketplace, build customer loyalty, and provide high-quality products and services to customers. We look at the tyranny of environmental forces at work in the business environment today that are compelling companies of all kinds (and in all industries) to develop increasingly robust approaches to ensuring high performance, and how market-smart companies do this through effective implementation of Strategic Six Sigma within their businesses. We also delve in-depth into the compelling strategic mega-applications of Strategic Six Sigma that are emerging as part of leadership practice in market-smart companies today.
Part 2 (Chapters 3 through 9) profiles many of today's most market-smart companies (e.g., GE, Dow Chemical, Raytheon, Caterpillar, Lockheed Martin, Bombardier) that are now using Strategic Six Sigma for the kinds of transformational purposes described earlier. It also provides readers with a roadmap that any company can use to effectively implement Strategic Six Sigma methods (and leadership approaches).
How is this done? How does a company take the principles of Six Sigma and introduce them into the executive suite? Into a company's strategic planning processes? Basically, it's accomplished when a company's CEO and senior leadership team follow seven critical steps. Simply put, they must:
1. Develop a committed team of leaders to support Six
2. Integrate Strategic Six Sigma thinking and best prac
tices into the company's strategy planning and
3. Ensure that the company is both passionate and con
sistent about being in touch with customers.
4. Create a business process framework to sustain Strate
gic Six Sigma for the long term.
5. Develop quantifiable measures—then demand tangi
ble results from people.
6. Develop incentives/create accountability/reward per
7. Be committed to having full-time and well-trained Six
Sigma Leaders in place to sustain initiatives over time.
As noted, effective implementation of Strategic Six Sigma initiatives requires strong leadership resolve and organizational intent. It also requires that organizations
nurture strong groups of leaders at all levels to drive Strategic Six Sigma efforts forward. This hegs the question, of course, "Just what kinds of skills do the leaders of my company need to possess to be credible and competent catalysts for implementation of Strategic Six Sigma within the organization?"
Part 3 of Strategic Six Sigma: Best Practices from the Executive Suite (Chapters 10 and 11) thus delves into the details of how best to develop leaders with strong Strategic Six Sigma expertise, including both technical skills, and critical people and change management skills. As we outline, executives acquire such skills through intensive training and action learning programs; programs that also help them to clarify their goals, quantify business objectives, leverage knowledge of customers and the marketplace, and build the infrastructure of people and systems to drive fundamental and lasting change in their organizations. This section of the book also examines the future of Strategic Six Sigma, and how to sustain initiatives by building commitment (not just driving compliance with) Six Sigma thinking and methods. (See the sidebar, "Six Sigma Measurement: At What Sigma Do Your Processes Operate?")
SIX SIGMA MEASUREMENTS AT WHAT SIGMA
DO YOUR PROCESSES OPERATE?
Six Sigma Value DPMO * Percent Defect-Free
2 308,537 69.20%
3 66,807 93.32%
4 6,210 99.38%
5 233 99.98%
6 3.4 99.99966%
*DPMO: defects per million opportunities.
Strategic Six Sigma: Best Practices from the Executive Suite isn't just about improving business process performance. It's about fundamentally transforming the nature of relationships companies have externally with customers, suppliers, shareholders, analysts, and in some cases, competitors. It's also about transforming the relationships companies have internally—with their own employees on whose shoulders the success of Strategic Six Sigma ultimately rests. Our goal in this book is to help you and your company develop the ability to see and structure your business from your customer's perspective; to develop an outside-in perspective to business transactions and to meet customer and marketplace requirements. The days when companies could afford to be lumbering behemoths, inattentive to marketplace requirements, and insensitive to customer needs, have long since passed. So, too, have the days when companies could afford to think of their products or their customers as mere commodities. In the age of "e"—e-transactions, e-marketplaces, e-alliances, and e-business—everything is about speed, communication, customization, and perfection. It's about responding to customer pull, not simply pushing products onto a marketplace you think you own. Companies today have got to get their customer and marketplace stuff right because the customer is in the driver's seat. And meeting customer needs and requirements is what business is all about—today more than ever.
We hope you'll find Strategic Six Sigma: Best Practices from the Executive Suite to be a useful book in helping create awareness of and expertise in the use of Strategic Six Sigma principles and practices in your organization. Each chapter is written in a lively, narrative style, interweaving anecdotes and quotations from CEOs, senior executives, change leaders, front-line Six Sigma Black Belts, project managers, process owners, and others. The book is also laced with pull-
quotes, strategically placed chapter sidebars that delve into specific points in more detail, and other materials to provide visual variety to the text.
The seven principles of Strategic Six Sigma we write about here have been rigorously field-tested through years of experience with clients, and through robust, documented research. We've used them in companies in a wide array of industries. In each case, they have generated concrete, measurable results and helped boost business performance in myriad ways. We know that you'll find them useful tools in your organization as well—whether your goal is to cut costs, improve productivity, enhance customer loyalty and satisfaction, or spark strong top-line growth.
Remember, implementing Strategic Six Sigma principles isn't easy. Above all else, it requires strong leadership commitment and intense employee commitment (buy-in) to succeed. Having said that, the results from deploying it are nothing short of miraculous for those organizations daring and courageous enough to embark on the Strategic Six Sigma journey to breakaway performance. Good Luck!
Dick Smith Jerry Blakeslee
PwC Consulting PwC Consulting