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Monday, May 29, 2017
Six Sigma Heretic Six Sigma and the Corner Office

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Translating Plans into Action

thought this month we would get away from the stats of the last few columns. Hey, quiet down! How can anybody read over all that cheering?

There’s something missing from most Six Sigma implementations—a gap that, if left unattended, leads to wasted time and money, as well as the failure of the effort itself. This topic will help you make and maintain the business case for doing Six Sigma, since it will become integral to achieving the business’s objectives.

This gap comes from the interaction of two systems that, in my experience, are missing in most companies. If the main purpose of Six Sigma is to identify and reduce the costs of poor quality, this begs the question that we’re working on the right initiatives to do that, or even if reducing the costs of poor quality is the most effective activity to increase profit. Secondly, even if we have selected the correct things on which to work, have we done a good job of translating these company imperatives into projects for people to complete?

So it boils down to two systems that need to be working well: Policy deployment, and project prioritization and selection. The scary thing is that unless both systems are working well, your Six Sigma efforts may not help, and in fact may even hurt the competitiveness and profitability of your company.

Policy Deployment

When I use the term policy deployment I’m not talking about policies like “No smoking while playing with the dynamite.” I mean that we’re deploying the strategic objectives of the company to every employee in such a way that they know what they should work on to achieve those objectives. Once we determine the two or three strategic intents of the organization (I outlined a process to do this in Top Ten Stupid Six Sigma Tricks #1) we can determine what activities, both tactical and strategic, we need to work on to achieve them. (I talk a lot more about this in an article on Business Performance Excellence on my web site.) This is the top-level strategic plan. For example:

  • Strategic Intent 1 – Significantly increase profitability

  • Strategic Intent 2 – Grow market share in profitable markets

Many companies stop here and hide the strategic plan in a locked safe in the CEO’s office. (I have always wondered if they actually feel that not telling anyone what the plan is increases the probability of achieving it. Actually, given the quality of those plans, it just might.) The important step here is to take the top-level plan and translate it into activities at every level of the organization. To do this, the top executive of the company, (say, the CEO) talks to the executive leadership to see what projects they can do to support those objectives. Some efforts require big changes (these are strategic objectives) and others require maintaining or slightly improving where we’re today (these are tactical objectives). The managers negotiate solutions with the CEO and end up with a list of strategic and tactical objectives:

  • Strategic Intent 1 – Significantly increase profitability

    • Strategic Objective 1.1 – Obtain breakthrough reduction in manufacturing costs of $2 million by year end 2004

    • Strategic Objective 1.2 – Significantly increase profit margin by implementing a customer/product rationalization model

    • Tactical Objective 1.1 – Maintain or improve sales and distribution costs at 6 percent of sales

    • Tactical Objective 1.2 – Maintain or improve general and administrative costs at 5 percent of sales

    • Tactical Objective 1.3 – Maintain or improve revenue at $40 million/year

  • Strategic Intent 2 – Grow market share in profitable markets

    • Strategic Objective 2.1 – Obtain breakthrough improvements in market share in Asia

    • Tactical Objective 2.1 – Maintain or improve market share in the domestic Northern division at 15 percent

    • Tactical Objective 2.2 – Maintain or improve market share in the domestic Southern division at 20 percent

    • Tactical Objective 2.3 – Maintain or improve market share in the domestic Eastern division at 10 percent

    • Tactical Objective 2.4 – Maintain or improve market share in the domestic Western division at 30 percent

  • Enabler – Develop system to track market share worldwide on at least a quarterly basis

Now each manager goes to their management team and generates a list of more specific projects that they can work on to support the strategic objectives. This enables each area to come up with a creative solution for obtaining progress across all areas of the strategic plan on which they have an effect. The final plan might look like this:

  • Strategic Intent 1 – Significantly increase profitability

    • Strategic Objective 1.1 – Obtain breakthrough reduction in manufacturing costs of $2 million by year end 2009

      • Focal Point 1.1.1 – Reduce scrap rate by 25 percent by year end 2008

      • Focal Point 1.1.2 – Reduce labor $/revenue $ by 12 percent by year end 2008

      • Focal Point 1.1.3 – Reduce indirect manufacturing costs by 25 percent by year end 2008

    • Strategic Objective 1.2 – Significantly increase profit margin by implementing a Customer/product rationalization model

      • Focal Point 1.2.1 – Develop TAU model for all locations by year end 2008

      • Focal Point 1.2.2 – Develop CPR model to customer/product level for all locations by year end 2009

      • Focal Point 1.2.3 – Develop sales and marketing plan based on CPR by end of second quarter 2010

    • Tactical Objective 1.1 – Maintain or improve sales and distribution costs at 6 percent of sales

      • Check Point 1.1.1 – All sales and distribution locations will monitor the department’s costs/$ Sales

    • Tactical Objective 1.2 – Maintain or improve general and administrative costs at 5 percent of sales

      • Check Point 1.2.1 – Corporate will monitor general and administrative costs/$ Sales

    • Tactical Objective 1.3 – Maintain or improve revenue at $40 million/year

      • Check Point 1.3.1 – All sales departments will monitor revenue/month

  • Strategic Intent 2 – Grow market share in profitable markets
    • Strategic Objective 2.1 – Obtain breakthrough improvements in market share in Asia

      • Focal Point 2.1.1 – Increase market share in Singapore to 25 percent

      • Focal Point 2.1.2 – Increase market share in Japan to 15 percent

      • Focal Point 2.1.3 – Increase market share in China to 30 percent

      • Focal Point 2.1.4 – Increase market share in Australia to 10 percent

    • Tactical Objective 2.1 – Maintain or improve market share in the domestic Northern division at 15 percent

    • Tactical Objective 2.2 – Maintain or improve market share in the domestic Southern division at 20 percent

    • Tactical Objective 2.3 – Maintain or improve market share in the domestic Eastern division at 10 percent

    • Tactical Objective 2.4 – Maintain or improve market share in the domestic Western division at 30 percent

  • Enabler – Develop system to track market share worldwide on at least a quarterly basis

This then cascades the original strategic intents all the way down to actionable projects that a Black Belt or Green Belt might run.

Project identification and selection

So how do we identify the projects that meet the strategic objectives? Assuming you can find more areas to improve than you have resources to work them, you will need to prioritize those things that you can support. Every company has some sort of process for this, but deficiencies here cascade throughout the entire Six Sigma initiative. I have noticed a lot of deficiencies. I purposely included identification and selection—too many times I’ve seen companies that select projects but have poor knowledge-gathering systems to generate the right project pool in the first place.

The model I use to identify potential projects is summarized by Figure 1 below.


Figure 1: Project Selection Model

Internally, you examine your critical performance metrics (CPMs) and gaps between where you are and where your company strategy is driving you. By listening to this “voice of the business” you can identify areas that will require work to meet your business objectives. Ignoring the internal measures and focusing only on external measures, such as customer satisfaction, can lead to going out of business with very happy customers. One very useful internal metric is asset utilization, which I wrote about in Top Ten Stupid Six Sigma Tricks #8.

Externally, your market intelligence system gathers data on how your product is performing and how customers perceive the quality of what you provide, as well as unmet needs that you might be able to meet (the “voice of the customer”). Be cautious of only having a reactive system. Ideally, both systems will actively query customers and generate performance benchmarking to serve as an early-warning system for problems and opportunities you currently don’t know exist. Your supplier quality assurance system also generates potential projects by examining supplier performance against requirements as well as the interaction between suppliers and your processes.

All of these potential project ideas need to be filtered by:

  • Cost to achieve success
  • Likelihood of success
  • Time required to capture benefits
  • Company direction, e.g. showing that this project will help move the company toward its goals

A brief side note here: The last point is one that is frequently neglected. The projects that you end up choosing must align with your company’s strategic intents. Even if a project is likely to be successful and beneficial, that doesn’t mean that your company should do it. It has nothing to do with the project, it has to do with the resources that would be diverted away from projects that are aligned with that direction. It’s very hard to turn down an interesting and possibly lucrative project, but it absolutely must be done if it doesn’t link with the business objectives. However, of such situations are new subsidiaries made…

Because you have used data to get to this point (you have, haven’t you?), you should be able to classify the level of improvement necessary. To be successful, projects addressing large strategic gaps between where you are and where you want to be need to have especially commissioned teams (probably including a Black Belt) with well-defined mission, budget, scope, and completion criteria. Smaller tactical gaps, or areas where you are performing at or near target, can be assigned to monitoring and improvement, generally within the boundaries of a daily management infrastructure (which I detailed in Stupid Six Sigma Trick #2).

Once potential projects are identified and filtered, they need to be prioritized. Just because a potential project aligns with the business objectives and would be net beneficial isn’t sufficient reason to do it. You have to show, and be held accountable for, the project being one of the most important things to work on today. If you can’t do that, then managers will quite justifiably steal resources from the project for other more important efforts, ensuring that the project will fail.

There are three common criteria for prioritizing potential projects:

  • The value to the business’ financial well-being
  • Predicting significant returns when compared to projected costs
  • Avoiding lost sales, closing competitive gaps, or eliminating market threats

It’s far better to choose to supply full resources for a few projects than to partially fund many, and it’s a good idea to plan to set aside some resources for the unexpected. (Not that anyone ever takes my advice on that, but I would be remiss if I didn’t at least mention it.)

Summary

A Six Sigma initiative in the absence of a good strategic plan is what I called the No. 1 Stupid Six Sigma Trick. By deploying the plan throughout the organization, and by using a strong project selection and prioritization process, you can really maximize the effectiveness of your Six Sigma efforts. Using this process, Six Sigma becomes part of how your management accomplishes their objectives for the company, and they begin to perceive this as integral to the organization. By deploying throughout the organization, you end up working on the right things across the company instead of competing for resources. This strategic deployment is one step that I emphasize with clients of our Center at the University of Colorado, and I suspect that plenty of you out there see the need as well. In the absence of these two components, your Black Belts and other resources end up being consumed on projects that might even be successful, but don’t advance the company in the direction it needs to go, and managers will correctly perceive it as peripheral or damaging to their goals. I suspect that quite a number of Six Sigma failures are due to not having both systems working well with each other, and as these failures are popularized, businesses that could benefit from Six Sigma decide that it doesn’t work, and don’t pursue something that could have helped them out a lot.

But let me know; I could be wrong.

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