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SIX SIGMA

There's no doubt you've heard of Six Sigma. Motorola made it popular in the 1980s, AlliedSignal embraced it in the 1990s and General Electric made it the most popular management philosophy in history.

But what exactly is Six Sigma? Six Sigma is a way to manage a business that puts the customer first and uses facts and data to drive better solutions. Achieving the goal of Six Sigma requires more than just small improvements. It requires breakthroughs in every area of an operation. In statistical terms, reaching Six Sigma means that your process will perform almost perfectly.

But Six Sigma goes beyond statistics. It's a total management philosophy of excellence, customer focus, process improvement, and the rule of measurement over "gut feel."

Its real impact can be seen in the positive results in companies like Motorola, Johnson & Johnson, American Express and GE. For example, GE's former CEO Jack Welch stated that Six Sigma saved the company more than $2 billion in just three years.

So What's a Sigma?
Sigma is a Greek letter that stands for standard deviation. Standard deviation is a statistical way to describe how much variation there is in a set of data, a group of items, or a process. The sigma measure was developed to provide a consistent way to measure and compare different processes and to give everyone a common way to express that measure.
So what does that look like in the real business world? Suppose that you run a pizza business. Your commitment to your customers is that hot pizzas will be delivered within 30 minutes of them being ordered. If you deliver 68 percent of your pizzas on time your process is at a "2 Sigma" level. If you deliver 93 percent on time, you're operating at a "3 Sigma" level. If you get 99.4 percent of them there on time, you're at a "4 Sigma" level. To be at a Six Sigma level, you have to deliver your pizzas on time 99.997 percent of the time!

The Goal of Six Sigma
Now this goal may seem totally out of reach considering that many businesses operate at 1, 2 or 3 sigma levels — especially those in service and administrative areas. But these low levels of performance cost businesses a lot of money.

Even a seemingly low percentage of defects or errors can translate to huge numbers of unhappy customers. Let's say your company processed 250,000 credit card bills a month and you operated at 99.38 percent accuracy, a 4 sigma level. That would mean you would have a whopping 1550 unhappy customers a month.

And unhappy customers act. Here are some facts about low sigma performance.

An unhappy customer will tell nine to ten people about an unsatisfactory experience. 31 percent of customers who have an unsatisfactory experience never even

register a complaint. Of that 31 percent, as few as 9 percent will choose to do additional business with that company.

Furthermore, it's estimated that companies lose 15 to 20 percent of revenues each year to ineffective, inefficient processes. It's the goal of Six Sigma to deliver defect-free products through defect-free processes. While there's always some potential for defects, Six Sigma sets a performance target where defects are almost nonexistent.

Six Themes of Six Sigma
The critical elements of Six Sigma can be distilled into six themes. This will give you some insight as to what Six Sigma would look like in your organization.

#1. Genuine Focus on the Customer
Customer focus is the top priority. Most organizations operate at a Two or Three Sigma performance where 7% of customer experiences are poor. They accept that many customers will be disgruntled. This is not the case in Six Sigma companies where it is only acceptable for .00035% of customer experiences to be below par.

#2. Data and Fact Driven Management
Despite the attention paid in recent years to improved information systems, many business decisions are still based on opinions and assumptions. Six Sigma helps move managers to fact-driven decisions by helping them answer to essential questions like: "What data or information do I really need?" and "How do I use that information to maximum benefit?"

#3. Processes are Where the Action Is
Six Sigma positions the process as the key vehicle for success. Mastering processes like designing products, measuring performance and improving efficiency, is the way to build competitive advantage and deliver superior value to customers.

#4. Proactive Management
Proactive management practices include: defining ambitious goals and reviewing them frequently, setting clear priorities, focusing on problem prevention rather than firefighting, and questioning why we do things instead of blindly defending the way we do business.

#5. Boundaryless Collaboration
Breaking down barriers is one of Jack Welch's mantras for success. There are massive opportunities through improved collaboration within companies. Billions of dollars are lost every day because of disconnects and competition between groups that should be working for the common goal of providing value to customers.

#6. Drive for Perfection, Tolerate Failure
No company will even get close to Six Sigma without trying new ideas and approaches, and this always involves risk. So we must accept and manage occasional setbacks because if failure is punished, people will never try anything new and the company will stagnate.

(Adapted from Pete Pande and Larry Holpp, “What is Six Sigma”)