Motorola's Involvement with Six Sigma - Essay Example

Running head: SIX SIGMA APPROACH Six Sigma Approach [The of the appears here] [The of the appears here] Word Count: 3995 Table of Contents 1. Terms of Reference ...03 2. Executive Summary ..04 3. Introduction ...05 4. Six Sigma Approach .....07 4.1 Six Sigma Targets ...08 4.2 Implementation Methodology .10 4.3 Six Sigma in Process Management Context ...12 4.4 Limitations of Six Sigma 16 5. Recommendations .19 6. References .20 1. Terms of Reference Research to be submitted to: __________________ To be submitted by: _________________________ Date of Submission: _________________________ Two bound copies of a research report on the topic "Six Sigma Approach" is to be submitted by 6pm on Thursday 10 November 2005. A word processed document on disk is to be submitted along with each copy of the report. 2. Executive Summary Process management is the culmination of the movement to transform software quality operations. It provides a unifying theme for initiatives directed at improving organizational performance. As IT companies move along the six-sigma learning curve, they will encounter the same challenges they confronted with previous initiatives: project proliferation, limited payback, competition with other efforts and inapplicability to larger problems. After picking the low-hanging fruit, they will find themselves in need of a broader and more robust approach. Subsuming six sigma beneath the process-management umbrella addresses those challenges and allows companies to reap its substantial benefits while keeping it away from areas where it won't work. Because process management entails major changes to virtually all management systems, it demands absolute commitment from executives. IT Companies that rise to the challenge will garner extraordinary rewards: not just cost savings, but accelerated new-software introduction, major improvements in client satisfaction and sharp increases in profitability. 3. Introduction For those not familiar with Six Sigma, it is first and foremost a philosophical approach that demands the effective use of data to analyze business issues. Key decisions about business activities now beg the question, "How does the available data support that decision" Whether the decision is a make-buy decision, a product change question, a new-model introduction question, or a manufacturing-process decision, the decision on how to proceed is dependent on the available data. Six Sigma is a measurement. A more illustrative explanation can be found in a 1997 letter Welch sent to GE stockholders: "The Six Sigma quality initiative, very briefly, means going from approximately 3S,000 defects per million operations, which is average for most companies, including GE, to fewer than 4 defects per million in every element in every process that this company engages in every day." (Pande, P.S., et al. 2000) GE was not the first large corporation to undertake the Six Sigma discipline. In the ten years prior to 1995, a number of companies began Six Sigma: Motorola, Texas Instruments, Eastman Kodak, and Allied Signal. Their discoveries and successes were well documented. When embarking on their own process, GE adopted many of the concepts and disciplines of Motorola's Six Sigma methodology. (Pande, P.S., et al. 2000; Harry & Schroeder 2002) Motorola's involvement with Six Sigma began in 1982, when it implemented a quality-improvement program that later became known as Six Sigma. Motorola's CEO asked corporate managers to cut quality costs in half that year. He repeated the charge in 1983. By 1984, the cost-reduction efforts were beginning to point to the need for improved analytical methods and product design for continued process improvement-and the Six Sigma discipline answered this need. (Pande, P.S., et al. 2000; Harry & Schroeder 2002) Motorola's emphasis was on designing for Six Sigma quality, and a number of advanced quality tools were used. Because effective application of these tools was essential, Motorola developed its extensive Six Sigma tools curriculum and created Six Sigma practitioner qualifications. Motorola's early efforts led to winning the Malcolm Baldrige Award in 1988. (Harry & Schroeder 2002) 4. Six Sigma Approach In the 1980s, building on its work in TQM, Motorola developed and organized the six-sigma methodology and achieved both financial benefit and widespread recognition. However, relatively few other companies followed suit -- until General Electric Co. did so in 1996. GE maintains it has saved billions of dollars through the use of six sigma; former CEO Jack Welch once described six sigma as the most important initiative GE had ever undertaken. (Pande, P.S., et al. 2000) With GE's highly publicized success, interest in six sigma went from a trickle to a tidal wave. At least 25% of the Fortune 200 claim to have a serious six-sigma program, including Ford Motor Co., Bank of America Corp., Eastman Kodak Co., DuPont and American Express Co. In June 2001, attendees of a conference on process-based performance improvement were surveyed regarding their companies' use of six sigma. Of the 65 responding companies, 40 were already using it, and most of the others expected to begin soon. Companies' commitments are not minor. Ford, for instance, has trained 2,500 black belts and has nearly 2,000 projects under way. (Pande, P.S., et al. 2000; Harry & Schroeder 2002) As both philosophy and measurement, Six Sigma focuses on gaining full-process understanding, including thorough analysis of how the key process inputs affect the process output. Data about output alone is not the defining parameter, but rather that information is analyzed together with the input data to confirm the "root cause." Once the key inputs are identified, assuring sustainability of any process, improvement is simplified by linking the control plan to controlling the input rather than controlling the output. Why go through all of this In most businesses, data on process output is available in some form, but data on process inputs is commonly missing. The business question is, "Why generate the additional cost to gain this information" Corporate profitability must be the driver of such an effort. If it doesn't deliver dollars to the bottom line, don't do it. 4.1 Six Sigma Targets Literally everything a company does is a candidate for the Six Sigma process. Whether it is analysis, design, development, testing, communications, paperwork, training, production, inspection, testing, returns, recalls, rejects, response time, attitude or organizational structure--it is all of those and more. The disciplined processes used by Six Sigma also apply to senior-level functions, e.g., finance, law, health and engineering, but the procedural steps are specialized. The possibilities for improvements and cost savings are significant, but the Six Sigma process requires a commitment of time, talent, dedication, disciplined persistence and, of course, a financial investment. It is a pervasive effort that creates unprecedented focus and teamwork at all levels throughout an IT company. The typical cost of poor quality--hardware defects and process wastes--is 20-30 percent of revenues. The disciplined Six Sigma process can help companies and their business units turn over working capital faster, reduce capital spending, free up or make new capacity unnecessary, produce greater results from R&D costs, and expedite product development. Depending on the circumstances, it is not always necessary actually to achieve Six Sigma, but it is necessary to aim for levels that will significantly improve quality and reduce defects. Companies must build around their capabilities and proceed at a level consistent with their resources. Six Sigma is seeing significant growth because new software programs have taken the drudgery and pain out of the statistical analysis that prevents many novices from using the tools. Employees with lower levels of technical skills can now use the statistical tools needed to pursue Six Sigma's disciplined process of measurement. Success in achieving results with the Six Sigma process depends on whether chief executive officers accept responsibility for their non-delegable roles. There are steps every CEO must take if their companies are to achieve the quality and defect-free levels sought: Set up and serve on the Six Sigma management council, Establish goals for the process, Lead the deployment process, Allocate needed resources, Assign responsibilities for review and measurement, Lead the employee recognition ceremonies, and Revise the company's reward system. (ReVelle 2002) Top management can overcome the powerful forces in any company that may resist unity of direction. The answer is to find a universal thought process like Six Sigma--a common, highly disciplined way of thinking about quality--which fits all functions in an organization. 4.2 Implementation Methodology Technically, six sigma is a specific measure of quality -- namely, 3.4 defects per million opportunities. Most companies operate at a much lower level of quality (typically in the two-to-three-sigma range, from 66,000 to 300,000 defects per million opportunities). But the technical definition is irrelevant. Some companies don't need to reach that level, whereas others need to go even higher. (Breyfogle 1999; Pande et al. 2002) In practice, six sigma has become a code name for a set of methodologies and techniques used to improve quality and reduce costs. The six-sigma methodology that is most widely used -- the one promoted in best-selling books -- is known as DMAIC (define, measure, analyze, improve and control). DMAIC offers a structured and disciplined methodology for solving business problems. (Pande et al. 2002) The premise of six sigma is that companies need consistently higher levels of quality and lower levels of cost and that a disciplined, organized approach will root out the variance, waste and errors that plague operations. Six sigma does not address business problems at a superficial, phenomenological level but by attacking root causes. If defects are too high, one does not reduce them by inspecting for defects and then discarding defective items; rather, one carefully measures and analyzes operations to determine exactly how and why defects occur and then takes steps to address those causes. With DMAIC, a problem is first defined and quantified; then measurement data are collected to bound and clarify the problem; analytic tools are deployed to trace the problem to a root cause; a solution for the root cause is identified and implemented; and finally, the improved operations are subjected to ongoing control to prevent recurrence. The six-sigma tool kit includes a variety of techniques, primarily from statistical data analysis and quality improvement. Many tools are familiar from the era of total quality management (TQM); others are more recent and more sophisticated. (Breyfogle 1999) Six sigma is a project-based methodology. That is, the unit of activity is a project that applies the DMAIC methodology to solve a specific performance problem recognized by the organization. Projects are performed by project teams led by six-sigma black belts (expert practitioners). A rule of thumb is that a project should take three to six months to complete and should yield savings of $150,000 to $500,000; a black belt should be able to lead four to six projects per year. The power of six sigma lies in the discipline it provides for coping with the complexity of business operations. Many different factors could be the cause of a quality problem: a mis-calibrated machine, raw material that is not up to specification, an operator who performs a task incorrectly. Rather than trying random solutions, a company using six sigma pinpoints the cause of a problem and applies only appropriate solutions. Six sigma has been aptly compared to detective work: filtering through clues in a logical way to solve a problem. The Wrongly Accused Supplier: A pharmaceuticals company was experiencing rapid growth in demand for a compound, but the compound's production line had low yields. The company thought the fault lay with poor quality in a raw material from a supplier. However, six-sigma analysis uncovered the real problem: variation in temperature in different parts of the production facility. Adjusting the HVAC system to standardize temperature improved yield by 60%, leading to direct savings of more than $17 million. Moreover, the improved yields enabled the manufacturer to postpone a $500 million capital investment for constructing an additional production facility. (Hammer & Stanton 1999) The Air-Bubble Mystery: As part of quality control, a pharmaceuticals manufacturer routinely took samples of tablets, dissolved them in a liquid and then conducted tests on the solution. Unfortunately, the test results often conflicted, necessitating high rates of rework. Six sigma traced the problem to a step in which air was added to the liquid to facilitate tablet dissolution. Exactly how much air to add was not specified in the step, and consequently different testers added different amounts. The answer was to designate precise parameters for aeration and to reassign testers who could not perform the task as required. Rework was essentially eliminated, quality improved, and costs were reduced. (Hammer & Stanton 1999) 4.3 Six Sigma in Process Management Context Process management is a structured approach to performance improvement of software that centers on the disciplined design and careful execution of an IT company's end-to-end business processes. Formally, a business process is an organized group of related activities that work together to create a result of value to clients (for example, requirement fulfillment, software development and post-implementation support). The two most important words here are organized and together. All activities in a business process must work together; they must be aligned for the common purpose of serving customer needs. People must operate as a team instead of focusing narrowly on individual tasks and protecting turf. All activities in a business process also should be guided by a design that specifies which activities are to be done when and by whom. A process design ensures repeatability and consistency. Process management ensures that activities are thought of, designed and performed in a process context. When employees recognize that their individual activities are part of something larger, they align around customers and common goals. When a process has an explicit end-to-end design, people can perform it consistently, and managers can improve it in a disciplined way. Process management ensures that a company's business processes are well-designed, that the designs are followed, and that they are kept up-to-date. (Hammer & Stanton 1999; Hammer 1996) The central figure in process management is the process owner. (Hammer 2001) The process owner needs to ensure that the people performing the process understand it, are trained in it, have the required tools and are following the specified design. The process owner will make minor changes to the process design in order to fix a flaw or to address new issues. When there is a major gap between the current performance of the process and the desired performance, then the process owner must lead an effort to create an entirely new process design -- that is, a reengineering project. Business processes provide the context for DMAIC. Before beginning a six-sigma project, a company should create a SIPOC (supplier, input, process, output, customer) model of its processes, relate the problem to be solved to a specific business process, and map that process (document its steps). The process map provides an analytic framework for identifying the specific actions causing the observed problem (say, aerating a liquid or picking up boxes with a forklift). Once the problem's source has been identified, the remedy (establishing specifications for aeration or installing shorter forks on the lift) is typically straightforward and localized to the problematic activity. Although DMAIC ensures the correct execution of the steps of a process and enables minor modifications to the process design, when there is a large gap between current and desired performance, a process will need an entirely new design. Creating one is something for which six sigma, with its analytic rather than creative orientation is unequipped. When a process is operating consistently but at a performance level lower than required, and when the reason is that the overall design is flawed, six sigma will spin its wheels. There was no single narrow root cause why Progressive's process for handling claims was taking 10 days. Indeed, there was no "problem" with the execution of that process; it was operating correctly and consistently. When market circumstances demanded that Progressive come up with a breakthrough approach that would allow claims to be handled in hours rather than days, an entirely new design was needed. The distinction between improving process performance and creating a new process design is related to the distinction between waste and non-value-adding work. Waste comes from individual activities erroneously or inconsistently performed; DMAIC is effective at tracking down the sources of waste so they may be eliminated. Non-value-adding work, on the other hand, is work that holds the process together and so cannot be eliminated readily. Process redesign aims to reduce the amount of non-value-adding work. Identifying non-value-adding work is the easy part; the hard part is reorganizing the process so that less of it is needed. Moreover, six sigma does not get the performers of a process aligned around common goals. With six sigma, business processes are just the framework for a problem-solving regimen. The notion that they are the central organizing theme of the enterprise is missing. As Bombardier's managers concluded in 1999, the company was doing six sigma but not being six sigma. The ideas underlying six sigma were apparent in the context of specific performance-improvement interventions, but not in the day-to-day operation of the business. Six sigma is not a system for operating and managing a business. It does not transform a company into a process enterprise. Nor does it address the changes to culture and mind-set, measurement and rewards, organizational structures or other management systems needed to make processes the central axis of an organization. In six sigma, even process ownership is only a weak afterthought and overlay on an existing structure. (Pande et al. 2002) To overcome six sigma's limitations and get the most out of it, companies should position it in the larger context of process management. In a process-managed organization, the process owner is responsible for ensuring peak performance of business processes. When a problem appears, the relevant process owner decides whether, when and how to address it. If it appears amenable to a six-sigma solution, then the process owner convenes a project team; if broader change is needed, then a process-redesign team, employing different tools, is organized. Thus, six-sigma teams are formed only when appropriate; moreover, the process owner ensures that all six-sigma projects are aligned and integrated to achieve the strategic goals of both the process and the enterprise. Bombardier took just such an approach after its assessment of its six-sigma efforts. The company instituted an organized program of process management: It identified performance goals for its major processes, supplemented the DMAIC methodology with a methodology for holistic process redesign, and instituted a mechanism for determining whether the situation called for a process-improvement team or a process-redesign team. American Express, Merck, Motorola, and Air Products and Chemicals have taken similar steps to bring DMAIC under the process-management umbrella. Some companies want the six-sigma label even though they have recognized the limitations of DMAIC; they are stretching six sigma to include process management and process redesign. A few are applying to process design a GE-developed variant of DMAIC originally developed to guide the development of high-quality products: DMADV (define, measure, analyze, design and verify). But it's better to call things what they really are. Process management and process redesign antedate DMADV and any extension of six sigma beyond DMAIC. Stretching the definition of six sigma to encompass process redesign and process management is like stretching the definition of basketball to include baseball. It is also likely to create confusion, because to most of the business world, six sigma is synonymous with DMAIC. Moreover, process design is not the same as product design, and DMADV's effectiveness as a tool for process design is still open to debate. Six sigma should be part of process management, not the other way around. 4.4 Limitations Despite the extravagant claims of its advocates (one widely used book begins with the assertion that six sigma is "the most important breakthrough management tool ever devised"), six sigma success is not synonymous with business success. (ReVelle & Harrington 1992) Some of its early adopters -- Kodak, Xerox Corp. and Polaroid Corp., among others -- have experienced significant business reversals recently. Even Motorola has seen its performance fall and rise and fall again, despite its ongoing practice of six sigma. GE is virtually alone among six-sigma practitioners in showing consistently superior performance. Moreover, many companies have successfully improved operations without six sigma. For instance, IBM's revival in the mid-1990s began after it had experimented with and then abandoned six sigma. (Pande, P.S., et al. 2000) Even companies that have been successful with six sigma have learned that it cannot do everything. In that regard, the experiences of Bombardier are instructive. Bombardier is a Canadian corporation active in aerospace, rail transportation, recreational products and financial services. In 2000, it had more than 80,000 employees and revenues of $16 billion (Canadian). Having had a positive experience with TQM in the early 1990s and having learned about six sigma, the company's leaders decided in 1996 to commit to it: 200 black belts were trained in the DMAIC methodology; more than 500 projects were launched. Bombardier achieved five-year net cash-flow savings of $137 million (Canadian) on an investment in six sigma of $21 million. (Pande, P.S., et al. 2000) In 1999, Bombardier undertook a formal assessment of its six-sigma efforts and concluded that despite the success achieved those efforts suffered from serious limitations: Most six-sigma projects were narrowly focused, concentrating on low-level and small-scale activities, typically within one functional unit of the organization. When managers attempted to apply six sigma to larger-scale projects, the results were unsatisfactory until the scope was narrowed. Six sigma was not well aligned with the strategy of the organization as a whole. Although each individual project was worthwhile, in the aggregate the projects did not contribute to larger corporate goals. The six-sigma efforts had not gotten at the company's basis assumptions or its functional organizational structure. Because breakthrough improvements in performance require just such fundamental change, six sigma's impact was limited. In other words, although DMAIC-based six sigma can lead to higher quality and lower costs, it is not effective at generating dramatic improvements in business performance. In the last decade, companies such as IBM and Allmerica Financial Corp. have reduced costs by hundreds of millions and even billions of dollars while simultaneously achieving huge increases in customer satisfaction; they have done so through concerted programs of transformation, not through DMAIC. The managers at Bombardier also concluded that DMAIC was not a vehicle for business transformation. Other early implementers of six sigma, such as American Express, Merck, Motorola, and Air Products and Chemicals, have reached similar conclusions. Six sigma's limitations are inherent in its nature as a project-oriented, problem-solving regimen. It deploys statistical analytic tools to uncover flaws in the execution of an existing process. Those tools do not raise questions about whether there is an entirely different way of performing the process. Six sigma assumes that the existing process design is fundamentally sound and just needs minor adjustments to be more efficient. That assumption is not the road to dramatic improvement. The project orientation that makes six sigma manageable simultaneously limits its power. Companies undertaking it convene many largely independent project teams that address self-contained problems. It is common to have dozens, even hundreds, of such teams in operation. Organizing around a large number of small-scale projects does offer a high likelihood of success and attractive returns on investment, but it cannot lead to a systemic attack on a company's major problems. 5. Recommendations For those contemplating a similar approach to Six Sigma, there are a number of key considerations to poise the organization for success: Tie defect reduction goals into cost reductions. And tie projects into business strategies. Monitor and report the progress. Get everyone engaged and speaking the language of Six Sigma. Focus on improving the infrastructure to facilitate both measurement and control of processes (in the IT Company and in project-based applications). Don't forget the human element communicate both the why and the how of Six Sigma as early as possible, and provide the opportunity for people to improve their comfort level through preliminary training classes. Restructure the IT Company to drive the culture change and make Six Sigma a part of everyday life. 6. References Breyfogle, F.W. III. (1999) Implementing Six Sigma: Smarter Solutions Using Statistical Methods. New York: John WUey & Sons, 1999. Hammer M. (1996) Beyond Reengineering: How the Process-Centered Organization Is Changing Our Work and Our Lives. New York: Harper Business, 1996 Hammer M. (2001) The Agenda: What Every Business Must Do To Dominate the Decade. New York: Crown Business, 2001, 137-140. Hammer M. and Stanton S (1999). How Process Enterprises Really Work, Harvard Business Review 77 (November-December 1999): 108-118. Harry, M. and R. Schroeder. (2002) Six Sigma: Vie Breakthrough Management Strategy Revolutionizing the World's Top Corporations. New York: Doubleday, 2000 Pande, P.S., et al. (2000) The Six Sigma Way: How GE, Motorola and Other Top Companies Are Honing Their Performance. New York: McGraw-Hill, 2000 Pande, P.S., et al. (2002) The Six Sigma Way: Team fieldbook. An Implementation Guide for Process Improvement. New York: McGraw-Hill, 2002 ReVelle, J.B, ed. (2002) Manufacturing Handbook (Best Practices: An Innovation, Productivity and Quality Focus. Boca Raton, FL: St, Lucie Press, 2002 ReVelle, J.B. and H.J. Harrington. (1992) Statistical Process Control, In Quality Engineering Handbook. Milwaukee, WI: ASQ Quality Press, 1992 Read More