What is Six Sigma?
Six Sigma is a problem-solving technology focused on achieving, sustaining and maximizing business success. This is accomplished through a close understanding of customer needs, disciplined use of facts, data, and statistical analysis to improve and re-invent business processes. The end result is less waste, more satisfied customers and employees, and greater profits.
The term “sigma” is taken from the Greek alphabet and is used in statistics to calculate the standard deviation (a measure of variance). For a business process, the Sigma Level is a metric that indicates how many standard deviations a process is from the customer specifications. In statistical terms, Six Sigma represents 3.4 defects per million opportunities, or 99.99966% defect-free. The better the process is performing, the higher the Sigma Level. In other words, the Sigma Level measures the capability of the process to perform defect-free, with a defect being anything that causes customer dissatisfaction.
Six Sigma, as a formal methodology, was started by Motorola in the 1980’s and has been widely adopted by businesses of all sizes and industries, across the globe.
Six Sigma Evolution
Six Sigma is not a new concept. Having been developed at Motorola in the 1980’s, it was originally used to eliminate assembly-line defects but has grown to include almost all corporate operations. Through the last half of the twentieth century, many different quality concepts were devised to improve business performance in areas as diverse as product quality, manufacturing yield, service consistency and process speed. Some of these methods include Deming’s PDCA cycle, Control Charting, TQM and the Malcolm Baldrige criteria for quality performance. Six Sigma is a comprehensive strategy that borrows many of its methodologies from previous quality programs and adds many new tools designed to accelerate improvements in processes, products and services. A key differentiator of the Six Sigma approach is its focus on using trained and structured teams to solve business problems that have a clear bottom-line benefit.
Do We Need Six Sigma?
In most companies today the cost of poor quality represents 20-30% of total revenues. Most companies operate around a 3 Sigma Level, or about 95% defect-free. To give you a perspective on what this means, a 3 Sigma Level translates to:
- At least 200,000 wrong drug prescriptions per year
- Two short or long landings at major airports each day
- 5,000 incorrect surgical procedures every week
- 20,000 lost articles of mail per hour
- Unsafe drinking water for 15 minutes each day
- No electricity for 7 hours each month
- 50 dropped newborn babies each day!
Six Sigma starts and ends with the customer – customers define quality and set expectations. These expectations range from reliability, performance, competitive prices to on-time delivery. Six Sigma will ensure that you focus your resources on processes that directly impact your organization’s ability to meet customer requirements.
Functional areas which are potential targets for Six Sigma improvement include:
- Financial transactions
- Logistics and scheduling
- Order processing
- Customer call centers
- Design functions
- Supplied goods receipt
- Inventory management
- Manufacturing processes
- Customer service
- Marketing and advertising
- Quality auditing and control
Each of these entities has two things in common: they all complete their business through the use of processes and they are all accountable to customers and stakeholders.
Just Another Fad?
The ideas behind Six Sigma have proved to be stubborn and are refusing to die out despite some skepticism and criticism. The view that Six Sigma is merely a fad has been raised every year since it was introduced. Every industrial sector that first hears of Six Sigma initially thinks it’s a fad, and thinks they are the first to realize it. This is typical of how evolutionary ideas cross boundaries. It is now apparent companies who first started Six Sigma are still at it 20 years on. In fact, Six Sigma has positively exploded in the business world just recently, with companies from virtually every industry adopting it to some degree. Why? Simply because Six Sigma delivers what it promises!
However, make no mistake; Six Sigma requires hard work, tremendous commitment from senior management, and quite often significant resources in terms of time, investment and training.
The Payoff
OK, so you’re convinced that Six Sigma is not just another fad. But is that reason enough to get involved? Or putting it another way, “Is it worth doing?” Four companies that are most closely associated with the beginnings of Six Sigma: Motorola, Allied Signal, GE and Honeywell, have all made huge public commitments to Six Sigma and published results showing direct benefits from Six Sigma. Between 1985 and 2001, these companies have reported overall savings of between 1.2% - 4.5% of revenues, year over year. This may not seem like much, but remember 3% of revenues adds as much as 10% per year to operating margins. In addition all have professed ROI’s in excess of 100%!
It is widely acknowledged that the average Six Sigma Black Belt produces about $250,000 in bottom line savings per project and implements around four projects per year, leading to $1 million in savings per year. In fact, a central theme of Six Sigma is the idea that all its activities must be seen on the bottom line, something that no previous quality program has focused on.
The Six Sigma Structure
There has been a tremendous amount of discussion around defining Six Sigma in understandable terms to a business or organization. Six Sigma is surrounded with a mystifying cloud of ideas and expressions, like “green belts”, “black belts”, and DMAIC. Borrowing from martial arts terminology, Six Sigma uses a number of “belts” ranging from Master Black Belt to Yellow Belt, to indicate individuals’ level of expertise in the practice. All practitioners must demonstrate proficiency in the DMAIC (which stands for Define, Measure, Analyze, Improve, Control) methodology along with an understanding of a variety of statistical techniques and the ability to lead project teams to success.
Shareholder Value: the Ultimate Byproduct of Six Sigma
In public companies, creating shareholder value is the art and science of managing expectations. All companies employ accounting-based measures of performance but these are limited to a single year’s worth of activity. Six Sigma is an all-encompassing system of performance measurement that permeates every aspect of the company and is designed to positively impact shareholder value over the entire life of the enterprise year after year after year. It imprints itself so deeply into the corporate culture that, as the people of General Electric like to say, Six Sigma has changed the DNA of the company.