The crux of the issue is that Six Sigma has established and exploited the empirical connection between quality and business. As Six Sigma changed the slope of quality improvement from one of incremental change to one of quantum change, we witnessed a commensurate slope change in business performance. Quality and business became inextricably and pragmatically linked, whereas before they were connected only, or mostly, in the mind.
The Role of Projects
For those who embraced Six Sigma, every completed Black Belt project, by virtue of solid leadership and sound planning, yielded benefits back to the corporation in the form of immediate., “hard” cost savings, validated by independent accounting. Beginning in the early nineties, such savings per Black Belt project ran about $150,000. By the year 2000, the average Black Belt project was returning more than $250,000, or more than $1 million in realized hard benefits per Black Belt per year.
Today, many Black Belt project are returning as much as $350,000, which translates to about $1.4 million per Black Belt per year. When this is multiplied by 2000 Black Belts, we realize a net benefit to the bottom line of about $2.8 billion – assuming a company of 100,000 people makes two percent of its people Black Belts.
Of course, all of this assumes that when key people are installed as Black Belts, their previous positions are not backfilled with additional headcount. To the initial disbelief of most executives, a corporation can afford to take approximately two percent of its workforce off their current jobs, particularly when it commits to vacating the slots it has dedicated to initiatives and programs that do not have hard financial targets or that are not yielding more than $1.4 million per year per full-time person assigned to that initiative or program.
More importantly, such projects proliferated in mass in the companies that adopted Six Sigma on a global scale. Furthermore, projects were selected, prioritized, configured and coordinated such that they rolled together to significantly impact higher-level operational and business performance metrics. As well, the vertical correlation between projects and business performance was managed according to a support structure, training initiative and IT system configuration that was wired into the way a corporation did business.
In a nutshell, Six Sigma corporations relied on the Breakthrough Strategy – in the context of a robust and fully empowered deployment and implementation plan – to lead them out of the business of quality and into the quality of business. They galvanized a battalion of their best people as Black Belts, master Black Belts, champions and executive advocates. And they focused solely on improving business performance in management time and space, not in quality time and space.
In the days of TQM, improvement practitioners would make defects their focus and “drive them out” in order to realize a theoretical enhancement to customer satisfaction, cost reduction or cost avoidance. Sometimes they would. But more often than not, the effort only produced a lot of hand waving with no financial impact at the corporate level.
Furthermore, there are inordinately more ways to reduce cost, and increase revenue, than by simply focusing on product quality. At a plant, department, division or corporation, there are a host of capital, capability, capacity, efficiency and yield-related opportunities for improving financial viability. Six Sigma breakthrough projects are focused primarily on these types of problems and opportunities and only secondarily on those related to product-based defects. In other words, Six Sigma reduces direct and indirect cost to a point at which the only way to derive more benefit is through defect reduction in everything a company does.
In contrast with TQM, Six Sigma operates on a very simple principle. Whatever you do to improve quality should simultaneously and immediately improve the business in a visibly, quantifiable, and verifiable way. In other words, if a quality improvement of some practical form is realized, then we should see a direct economic benefit, not far off in the future, but at the close of each business day. As simple as this premise may be, it didn’t seem to guide those who defined and drove TQM.
Andrea Gabor talks about this issue in her book, The Man Who Discovered Quality [Deming]. She relays a story of Xerox’s preoccupation with measuring its cost of poor quality in the mid-eighties, when it launched its widespread Leadership Through Quality program.
In the context of justifying short-term expenditures ultimately leading to long-term performance improvements, Gabor wrote, Xerox quality teams tended to only tackle problems that were easy to measure rather than the ones that were most important to change. For example, she wrote, “because solving small problems is the most effective way to show quick results, teams set up to analyze the cost of quality have sometimes seized on relatively minor issues, such as deciding whether to purchase a particular piece of equipment, rather than broad systemic problems.” Of course, we would never fault a corporation for picking up as much easy ground fruit as possible, albeit recognizing that most will be rotten and only some will be sweet.
Gabor went on to cite a particular Xerox project in which a team estimated the cost of quality in unresolved customer problems to be $1 billion. She then quoted one Xerox president as saying the number was “not factual.” Finally, she closes her discussion by quoting another Xerox executive, Don Clausing, who criticized the focus on the cost of quality by saying, “This is a typical American approach. The Japanese don’t mess with measuring the cost of quality; they know it’s important, and they just focus on improvement.” (Gabor, 1990)
Clausing’s words were true. The Japanese had a more right-brained approach to quality improvement in many respects. TQM, by definition, was quality for “all to do” in as many ways possible, large and small. Again, it was the Kaizen philosophy that defined and drove much of the improvement activity in Japan during those decades in which it made its rise as a business power, as well as a worldwide quality exemplar. It was typical practice for American companies like Xerox to make several trips to Japan, meeting with JUSE “counselors” who taught them the principles and practices of quality as practiced in their culture.
The Role of Measurement
While we could diverge into a protracted discussion about the cultural differences between the East and West in the eighties, our purpose in this context is to make a simple point. The West is not like the East. We do have a stronger preoccupation for measurement, perhaps the roots of which flow back at least as far as 1891, when British physicist Lord Kelvin said the following: “When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind: it may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the stage of science.”
Herein is an indication of the role of measurement in the era of TQM versus the role of measurement in the era of Six Sigma. Quite interestingly, when Dr. Harry was busy about the work of developing Six Sigma and the Breakthrough Strategy at Motorola, he conducted a comprehensive benchmarking study of existing problem-solving methodologies. (Harry, 2000) None had a separate step or phase devoted solely to measurement. This “mission critical” task was often subordinated to a lower level, or neglected altogether in virtually all of the quality improvement strategies and business-related initiatives of the day.
It appeared that many of the American quality improvement programs had taken their lead from Japan — quite literally taking measurement for granted rather than revering it as sacred. But making the activity of measurement an “underlying assumption” significantly diminished its importance, perceived and real.
Ironically, as Six Sigma Black Belts engaged in the rigorous process of measure, analyze, improve, and control (the core steps of the Breakthrough Strategy), they tended to spend most of their time in the measure phase. Experienced Black Belts are the first to point out that “M” is the most difficult and time consuming step of the Breakthrough Strategy. Why? Because it holds the most leverage in bringing about quantifiable change and financial benefit. Simply stated, if it can’t be measured, it can’t be improved.
The Value Proposition
Contrary to the philosophy that quality is always good, or always free, Six Sigma operatives function purely on the basis that quality is only good if it contributes to business success and customer satisfaction – in a quantifiable, tangible way. More specifically, “quality” is a state in which value entitlement is realized for the customer and provider in every critical aspect of the business relationship. This is the Six Sigma definition of quality that Dr. Harry developed after many years of Six Sigma deployment, implementation and application.
The principle underlying Dr. Harry’s new definition is that quality must be good for the customer and the provider for it to be considered as “quality business.” Projects completed under the guise of cost avoidance or future realization don’t count, as they do not yield value entitlement for the customer and the provider. In the context of a Six Sigma initiative, only projects that have been properly selected, completed and validated are counted as legitimate improvements.
Furthermore, in the context of a properly configured and managed Six Sigma initiative, all Black Belt projects are tracked via a disciplined review process. They are also tracked by an IT system that is separate from a company’s regular accounting system. Through these systems, management obtains complete and clear visibility into the financial impact of each and every Six Sigma project – a line of sight that TQM didn’t have.
The forefathers and those perpetuating TQM simply asked the executive community to accept, by faith, that it would help their companies. Sure they had some convincing exercises and theories that demonstrated why variability was bad, or why defects can be costly. But they lacked the overall framework and focus for empirically demonstrating the domino-effect relationship between quality and business at the corporate level.
Six Sigma, on the other hand, goes right to the control function of a corporation because it is based on the empirical connections between business and quality. This is precisely why it was adopted on a broad scale by some of the most discriminating and hard-nosed CEOs of our day. Robert (Bob) Galvin of Motorola, Larry Bossidy of AlliedSignal, Jack Welch of General Electric, Charles Holliday of DuPont – these men were not willing to bank the resources and destiny of their corporations on programs that were rich with promise but poor with proof. Nor were they about to install a global management initiative that added to rather than detracted from the ambiguity so often associated with corporate life. In short, they demanded an initiative that connected quality with cash, while concurrently addressing customer satisfaction issues. Six Sigma made this connection immediately, not far down the road. Because of this, these men were willing to sacrifice all the “alphabet soup” initiatives that were not making this connection, or that were performing below the performance of Six Sigma.
What they needed was a veritable machine for churning out business breakthrough – where quality was the fuel and money was the output, not the other way around. They needed a strategy that connected the “Xs” of achieving their business “Ys.” If they envisioned themselves as leaders in their industries – which they did – then what management vehicle would take them there? Was there an instrument for quantum change and cultural transformation that was actually robust and powerful enough to deliver what was needed, from a business point of view?
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Business Email: Mikel.Harry@SS-MI.com
Copyright 2013 Dr. Mikel J. Harry, Ltd.