Six Sigma delivers speed and efficiency in business. Marina Theodotou discusses the concept, key requirements, and caveats
of the process improvement methodology.
Though Six Sigma was born in the manufacturing industry and has been implemented since the 1980s, it gained traction in the services industry, and banking in particular, in the past decade in the U.S. In statistics, Six Sigma stands for six standard deviations from the mean, sigma being the Greek letter used to represent standard deviation. In the everyday world, Six Sigma performance translates to 34 errors in one million opportunities to provide a product or a service. For example, Six Sigma means only 34 delayed flights out of one million flights of a particular airline flown in a given time frame, let's say a year. Another example would be only 34 checks out of a million are processed incorrectly by a bank in a given period.
What is Six Sigma?
It is a statistically measured and rigorously managed process improvement methodology providing techniques and tools to improve the capability and reduce the defects in any process with the final goal to meet the quality expectations of the customer and ultimately increase revenue or decrease costs. Six Sigma focuses on quality and a performance level of Six Sigma, or 34 errors in a million opportunities, drawing much of its process and tools from Dr. W. Edwards Deming, the renowned statistician, consultant, and lecturer on process quality.
Where and when did Six Sigma begin?
Six Sigma was developed by the manufacturing division of Motorola in the 1980s. The concept, tools, and system of Six Sigma have evolved over the years, and have been implemented within companies such as Allied Signal/Honeywell, and Kodak. General Electric (GE), one of the companies most successfully implementing Six Sigma, estimates cost cutting and revenues totaled $10 billion during the first five years of Six Sigma implementation.
Who uses Six Sigma?
The methodology has evolved from the manufacturing to the services industry to banking and the financial service industry. Citibank, JPMorganChase, Merrill Lynch, ABN Amro have all implemented Six Sigma in certain divisions of their business during the past decade. Bank of America is one of the few banks which successfully implementing Six Sigma from the top down across the organization. Today, Bank of America has realized over $2 billion in its first four years of implementation and has increased client satisfaction by 25% to an all time high of 52.5%.
How does Six Sigma work conceptually?
Six Sigma hinges on the concept of the three-legged stool, focusing on three interdependent components: the customer, the process, and the employee. Customers dictate quality and have certain expectations in performance, reliability, competitive prices, on-time delivery, service, clear and correct transaction processing, etc. The Six Sigma methodology helps the business identify and quantify those aspects of the product or service that are critical to the customer's definition of quality. Once the business has identified and quantified those critical to quality parameters, they have to look at the process of delivering the product or service from the customer's perspective, or from outside looking in. For example, in a bank, the process of cashing a check has to be observed and reviewed from the customer's standpoint in front of the teller counter. Six Sigma allows the business to examine, eliminate, correct, or strengthen the various process steps from the customer perspective to eventually meet customer needs in better and faster ways. Efficient processes help increase revenue by increasing customer satisfaction, sales and market position, while also helping to decrease cost of goods sold by working smarter and more efficiently. In order to review the process from the customer standpoint and successfully implement Six Sigma, employees must be involved in the process; they should be knowledgeable about the business and trained in the methodology. In addition, senior level management commitment is imperative to the organizational focus and vision of implementing Six Sigma.
Why use Six Sigma as opposed to another process improvement scheme?
A key factor that differentiates Six Sigma from other process improvement methodologies, such as Total Quality Management (TQM), is that Six Sigma focuses on the "vital few" inputs to the processes that affect the customer as opposed to the broader and often esoteric aspects of improving the entire process, making it difficult and costly to see measurable results. In Six Sigma, the vital few inputs are quantified using statistics. The great impact of this structured, rigorous methodology that rises above TQM is the direct effect on the bottom line. Six Sigma's problem-solving techniques with hard data mean profit generation and cost savings.
How is Six Sigma implemented?
Six Sigma uses a five step approach to identify, measure, analyze, improve, and manage a process or service that needs to be upgraded to meet the customer satisfaction expectation. The approach is known as DMAIC (derived from the acronym of each action verb as seen below)
Define the current issue and identify the aspects of the product and service critical to quality.
Measure the performance of the current process.
Analyze the current process to identify the defects or the pieces that need to be improved.
Improve the performance by implementing new steps. Correcting broken steps or eliminating extra steps in the process.
Control the performance of the process by setting up monitoring systems to ensure it continues to deliver quality products and services to the customer.
Six Sigma methodology can also be used to create a brand new business process from the ground up using DFSS (Design for Six Sigma) principles, where the core DMAIC methodology is the same, however the process is built from scratch per the customer quality specifications rather than reviewed and corrected. For example, in Jordan several banks are focusing on building or improving their SME business division. Aspects of DFSS or the Six Sigma methodology could prove useful in this effort.
Can anyone implement Six Sigma?
Six Sigma requires training and commitment from the team members focusing on a particular Six Sigma project. A meaningful Six Sigma project implies several prerequisites for success including a clearly defined and measurable business challenge, management commitment and vision, dedicated resources and a return on investment projection during project definition, and measurement of the same at project completion. Training can vary from two days to thirty days depending on the role of each employee in a project, which includes: a project Champion, a Master Black Belt, a Black Belt, a Green Belt, and the rest of the implementation team. Champions communicate the vision for the effort, create the mandate for improvement, provide direction to the team, remove barriers, implement the process improvement to achieve the financial results, and communicate success. This requires about 10% of their time spent on the project. A Master Black Belt provides the technical expertise and advice to the Champion and the Black Belt on the project and is required to dedicate 100% of their time to the project. Black Belts work and coach Green Belts and other members of the team to implement the project.
Apart from fixing the process, can Six Sigma have other influences on the business?
Six Sigma can change the way you think and run your business. A fundamental prerequisite to a successful Six Sigma project is a paradigm shift in the culture of a business, and changing the way things have been done in the past to focus on new processes.
While Six Sigma works for banking, what are some of the implementation challenges facing the industry?
While in manufacturing most products are tangible, in the services industry and in particular in banking, the products are mostly intangible: information, requests, orders, proposals, invoices, etc. This characteristic makes processes difficult to define, measure, analyze, and improve to Six Sigma standards. In particular, measuring data around a service process is inherently more difficult than a manufacturing process, especially when existing data is anecdotal and subjective. Another key caveat in implementing Six Sigma is the commitment in approach and resources to hire and train the staff, communicate the methodology, maintain the momentum, and monitor the results from the top executives to every employee in the organization.
The bottom line: If you are serious about growing your business and your profitability, you can use Six Sigma to really focus on your customers' needs and their definition of quality and use this information to fix your processes with the commitment of your executive managers and the expertise of your trained Six Sigma staff.
The writer is a certified Six Sigma Black Belt and the Country Director for the Financial Services Volunteer Corps (FSVC) a MEPI funded program providing technical assistance to Jordan's financial sector.
Marina Theodotou
© Jordan Business Monthly 2005
