Think Small with Six Sigma
SMEs can take advantage of an improvement paradigm once thought reserved for the largest of companies.
01 April 2006
According to government statistics, two thirds of all employees in Europe and roughly half of all U.S. employees work for small- and medium-sized businesses (SMEs). SMEs face a set of unique challenges compared with large organizations: they typically have very limited resources, they often struggle to achieve economies of scale, and their main advantage, being nimble and flexible, can become a profound handicap when faced with rapid growth.
As a result, the vast majority of management concepts and programs large companies adopt to improve performance are not well suited to meet the needs of the vast majority of SMEs (defined as businesses with revenues of less than $50 million and fewer than 250 employees). However, some of these models can have a significant impact on cost, revenues, and employee morale.
Six Sigma, a popular framework for improving business process performance, is one of these programs that, while initially designed to meet the needs of large companies, could make a significant contribution to the success of a smaller business.
What is Six Sigma?
Six Sigma is the latest reincarnation of what used to be known as Total Quality Management or Continuous Improvement. The basic idea is simple: while most companies are organized by functions such as sales, marketing, operations, etc., the actual work process often times crosses these functional boundaries. And while each function aims at improving the efficiency with which they perform their part of the overall process, the effectiveness of the work viewed from the perspective of the customer is less than stunning.
Examples of poorly designed and managed processes are everywhere: from handling customer complaints in call centers that require multiple transfers to poor coordination between engineering and manufacturing resulting in products that require extensive rework and testing. Thus, almost every business process can be improved.
Six Sigma provides a framework for understanding business processes, identifying the root causes of problems, and making targeted changes to improve the performance against business and customer needs. The Six Sigma tools such as Pareto Charts, Process Maps, and Regression Analysis are used in a structured way to ensure that problems are systematically addressed, typically following a five-step method knows as DMAIC:
- Define the problem, the process, and the customer needs.
- Measure the performance of the underlying process.
- Analyze the data to identify root causes.
- Improve the process by finding solutions for those causes.
- Control the performance once the improvements are in place.
The term Six Sigma describes the aspiration: a process performing at Six Sigma levels results in less than four defects per million opportunities (or a quality level of 99.9996%), with a defect defined as anything that does not meet customer requirements. While that level of performance is often not required, the underlying process is flexible enough to help companies address a wide range of process problems, such as cycle times, product and service defects, customer complaints, etc.
Six Sigma projects can make a substantial contribution to the bottom line by reducing process cost, increasing revenue, improving cash flow, eliminating the need for capital expenditure, etc. Equally important are three "soft" benefits:
- Improves employee morale and effectiveness: over time, even processes that were designed well in the beginning become obsolete, cumbersome, and complex. As the business grows, so does complexity. Employees react to process problems through ad-hoc fixes, which in the long run become counterproductive. (A classic example are the many signatures required for approving small capital expenditures, which are often a reaction to isolated cases of abuse). Providing a common methodology and framework to address those issues helps employees become more productive and effective. Failure to address these issues can result in lower morale and in some instances loss of talent.
- Sharpens the focus on customer needs: Six Sigma measures defects from the customer perspective. By integrating customer requirements into the problem-solving process, the methodology helps safeguard against shortsighted cost reductions without making life better for the customer.
- Manages by fact and strategic alignment: Six Sigma provides a very effective framework for developing and using dashboards and scorecards that align with the strategy of the business. Instead of each department using a different set of measures that are often at odds with one another, the Six Sigma methodology helps to align metrics with the strategic objectives of the business and to ensure that everybody in the organization has a clear line of sight between their role and the objectives for the business.
Small Companies are Different
Six Sigma was made popular by large multinational firms such as General Electric, Honeywell, and Motorola, who -- through devoting substantial amounts of resources (people, time, and money) and creating massive infrastructure -- managed to overcome the inherent inertia and resistance to change that characterizes large companies and achieved stunning results.
The deployment strategy of Six Sigma is in itself a solution to a particular problem: how to make change last in large, complex bureaucracies. However, as small businesses grow larger, complexity and bureaucracy start creeping in, resulting over time in a loss of competitive advantage: processes designed for a small business are no longer capable of sustaining the growth. Six Sigma can help tackle these challenges and prepare the organization for rapid growth.
While the techniques of Six Sigma work in every company no matter what size they are, SMEs are well advised to refine the deployment model to meet their needs. The traditional approach to Six Sigma suggests taking 1% of the workforce and dedicating them to leading process improvement teams of five to seven people, focusing on one issue at a time. The Black Belts (Six Sigma term for team leaders who are often 100% dedicated to leading improvement efforts for a period of two years) typically receive up to five weeks of training in basic and advanced tools that they learn to apply to solve complex, cross-functional problems. A typical Six Sigma project in a large company could deal with issues such as reducing processing times for mortgage applications, reducing defects in a specific manufacturing process, or minimizing hold times in a call center.
Six Sigma, with its traditional emphasis of intensive training and extensive analysis, does not seem like a good fit with the needs of SMEs whose very survival depends on being nimble, flexible, and focused on results.
Less Training, More Results
The traditional training model with its emphasis on filling classrooms and extensive training curricula clearly does not work for SMEs. Not only do they struggle to free up the necessary number of people to make the classroom model work, they also cannot afford to wait for six to nine months until the team returns with the answer to the problem. In any small business, six to nine months is an eternity. And while dedicating resources makes a lot of sense for large companies who need to insulate the change agent against being pulled into numerous directions, these businesses live in a much less complex world. Decisions can be made much quicker and access to leadership isn't a problem.
On the other hand, dedicating an employee to be a full-time improvement specialist is much more difficult -- everybody in the company already plays multiple roles, and besides that, most businesses in this category are hesitant to add indirect labor cost.
While chambers of commerce, local universities, and other institutions have tried to respond to this need by providing local, open-enrollment training specifically to SMEs, the response has been muted: sending a single employee to training is simply not enough to make sure that the project is a success. No matter what size the business is, candidates always require plenty of coaching and support during the first couple of projects to make sure that they gain the experience necessary to make good use of the Six Sigma toolkit.
Large businesses oftentimes struggle to make sure that improvement initiatives such as Six Sigma deliver real savings instead of productivity gains that cannot be verified. SMEs rarely fail to focus on results. Not only is it easier to verify whether a particular idea has resulted in savings due to a less complex environment, but the fact that many of these businesses are family-owned also helps a lot to ensure that everybody watches the bottom line.
Compared to a large business where competing initiatives, complex processes, and organizational inertia make it easy for middle management to avoid dealing with a particular problem, SMEs are guided missiles: they focus on very specific markets, are generally close to the customer, and their complexity is limited. Of course that does not mean that they are more successful -- poor leadership can be found everywhere -- but making change happen and making sure the organization buys into the change is less of an issue for SMEs.
Project-based Learning: a Revised Model for SMEs
While extensive training classes are appropriate for large companies who can afford the low project completion rates that come with this style of deployment, SMEs need to get it right. By having candidates learn the tools through direct application to a project, the knowing-doing gap can be avoided. In this model, candidates pick a project and learn the tools through a series of workshops that focus only on those tools that can be applied immediately. No more three-day modules on Design of Experiments when the problem does not require it.
This approach instead requires consultants with practical experience who can consult and coach instead of teach and preach. Also, in this model, learning the tools is not limited to the Black Belt: the entire team participates in these workshops, which reduces the length of the project. This model also makes it easier to get leadership involved. Instead of conducting formal review sessions, training business leaders as Six Sigma champions, or implementing large-scale tracking systems, it is much easier to get business leaders to participate in a workshop that focuses on a specific project (instead of a new methodology to solve problems).
Another advantage is that results can be achieved much faster than through the typical Six Sigma model, which assumes every project needs to take four to six months. At the end of a project using the SME model, both the Black Belt and his team have learned a number of tools and have seen how these tools can be applied to solving a particular problem. The remainder of the tools can be easily taught by providing the Black Belt candidate access to an experienced coach who can help with subsequent projects.
Overall, the benefits of this approach are that it:
- increases the probability of success dramatically,
- reduces time to complete the project,
- focuses on learning just-in-time instead of all-at-once,
- limits training to what is needed, and
- adapts to the pace of the team and the needs of the business.
While the initial investment in support significantly exceeds the cost of typical classroom training, the return on investment is oftentimes higher due to the much lower completion rate of a traditional, large-scale deployment.
This model -- designed for the small- to medium-sized business -- has started to attract some large companies who are not interested in adopting a new religion, but instead want to use Six Sigma as a practical approach to solving real-world problems. Maybe the needs of SMEs will help redefine the Six Sigma deployment model and overcome the limitations of the training factory.
Six Sigma's Long-Term Benefits
At first sight, Six Sigma can be intimidating: the toolkit is extensive and includes advanced statistical tools. Six Sigma introduces a new, common language, and picking the right projects seems more an art than a science. However, once a management team "gets" the idea and begins to apply the fact-based approach that is at the core of Six Sigma to the way they manage the business, the results can be truly astonishing, and not just from a financial perspective.
While almost every deployment of Six Sigma has a significant return on investment, the cultural changes are often the more valuable ones. Properly used, Six Sigma increases accountability, drives alignment of a management team toward its strategic objectives, and encourages a better use of data, turning information into insight. As a consultant, seeing those changes is rewarding, since they typically outlast the benefits of any process improvements.
Equally important, Six Sigma emphasizes listening to the Voice of the Customer and encourages a business to analyze and improve its processes to stay in synch with customer needs.
Want to Learn More about Six Sigma?
The following resources will help you further explore Six Sigma.
Rath & Strong's Six Sigma Leadership Handbook, Wiley, 2003
What is Six Sigma?, Pete Pande & Larry Holpp, McGraw-Hill, 2001
Lean Six Sigma: Combining Six Sigma Quality with Lean Production Speed, Michael L. George, McGraw-Hill, 2002