Many companies are often trapped in the 'working hard' approach instead of 'working smart.' There is no point in working hard – if all the energy and effort aren't focused on a single direction. The hard work only ends up wasted.
Imagine a company as a rowing boat and the people in the company as the rowers. If everyone rows hard (as manic as possible) but in different directions, the boat goes nowhere.
The hard work only matters if everyone is rowing in a single direction. This is exactly the value of strategy, i.e., determining a single direction and directing all the people in the company toward that direction.
Many great companies manage to become great because they can focus on a single direction instead of manically chasing chaos. Let's learn from the case of General Electrics (GE), a company that successfully reinvented itself by focusing and obsessing on one thing, i.e., the Six Sigma approach.
But before we start, let's understand Six Sigma first.
What is Six Sigma? Why is it important?
Six Sigma (6σ) is a set of techniques and tools for process improvement. Typically, a company generates about 50,000 defects per million products (a 5% error rate). The Six Sigma method aims to reduce the defects to less than 2 per billion products (near 0% error rate).
The term sigma actually comes from the field of statistics. A sigma (σ) denotes a standard deviation (kind of the average errors versus the expected number, i.e., mean or the average). Under the normal distribution curve (it is called 'normal' for a reason, i.e., it is a probability distribution that frequently occurs in nature), the rough probability of product defects is as follows:
70% of the values fall within 1 sigma from the mean ==> 1 defect per 3 products.
95% of the values fall within 2 sigma from the mean ==> 1 defect per 20 products.
99% of the values fall within 3 sigma from the mean ==> 1 defect per 400 products.
99.99% of the values fall within 4 sigma from the mean ==> 1 defect per 15,000 products.
99.9999% of the values fall within 5 sigma from the mean ==> 1 defect per 2 million products.
99.9999999% of the values fall within 6 sigma from the mean ==> 1 defect per 500 million products.
There are two principal methods of Six Sigma, namely:
DMAIC (Define, Measure, Analyze, Improve, Control), which is used to improve existing business processes. It comprises five steps:
Define the goals and processes to be improved. These goals should be consistent with the customer's demand and the business strategy.
Measure the key aspect of the current process and collect the relevant data.
Analyze the data to understand the cause-and-effect relationship. Then, determine the relationships and ensure all the factors have been considered.
Improve and optimize the processes based on the analysis.
Set up a control system to ensure any deviations a corrected before they create defects. For example, set up pilot runs and better tests before extending the approach and continuously monitor the process.
DMADV (Define, Measure, Analyze, Design, Verify), which is used to create new products or new processes. It also comprises five steps:
Define the goals. These goals should be consistent with the customer's demand and the business strategy.
Measure and identify CTQs (critical to quality factors). Also, identify and quantify the product's capabilities, the critical elements of the production process, and any significant risks.
Analyze the best design alternatives, create a high-level design, and select the best one.
Design the details, then implement and improve the design. This phase may require simulations.
Verify the designs, for example, by using piloting and beta testing. Also, implement the production process and ensure it is managed and improved continuously.
Since the Six Sigma methodology can help companies to reduce defects, improve product quality, increase process efficiencies, and cut costs, many companies are interested in implementing Six Sigma. Motorola, for example, attributed over $17 billion per year in savings to Six Sigma.
By the late 1990s, about two-thirds of the Fortune 500 companies had tried to implement Six Sigma. However, more than half of projects are unsuccessful: in 2010, the Wall Street Journal reported that more than 60% of projects fail. And none of them were as successful as GE.
Why was GE so successful with Six Sigma? Did they invent it?
Nope. It is actually Motorola that pioneered Six Sigma (an American engineer Bill Smith introduced it while working at Motorola in 1986). Then, Motorola set a "six sigma" goal for its manufacturing business and registered Six Sigma as a service mark in 1993.
In fact, GE only learned and got detailed information about Six Sigma in 1995 from Motorola at one of the company's regular gatherings of global managers. As soon as they received it, GE could see the value and decided to start the first pilot immediately.
Following a positive pilot result, Jack Welch (GE's CEO) made Six Sigma the single direction of his business strategy:
In mere five months since they learned it from Motorola, GE had launched 200 Six Sigma projects.
The next year, in 1996, it launched 3,000 Six Sigma projects – covering every single aspect of GE's business, from aircraft engines and plastics to financial leasings. All of GE's executives (the top 30 executives, the 500 global managers, and the local executives) were fully focused on one thing, i.e., Six Sigma. The company soon split into the following roles:
Executive Leadership includes the CEO and other members of top management. They are responsible for setting up a vision for Six Sigma implementation. They also empower other stakeholders with the freedom and resources to transcend departmental barriers and overcome resistance to change
Champions take responsibility for Six Sigma implementation across the organization. The Executive Leadership draws them from upper management. Champions also act as mentors to Black Belts.
Master Black Belts, identified by Champions, act as in-house coaches on Six Sigma. They devote all their time to Six Sigma, assisting Champions and guiding Black Belts and Green Belts. In addition to statistical tasks, they ensure that Six Sigma is applied consistently across departments and job functions.
Black Belts operate under Master Black Belts to apply Six Sigma to specific projects. They also devote all of their time to Six Sigma. However, they primarily focus on Six Sigma project execution and unique leadership with special tasks, whereas Champions and Master Black Belts focus on identifying projects/functions for Six Sigma.
Green Belts are the employees who take up Six Sigma implementation along with their other job responsibilities, operating under the guidance of Black Belts.
By 1997, over 60,000 GE managers were trained in the application of the Six Sigma method. In addition, their performance bonuses were made dependent on the Six Sigma results. The entire company was made to focus on one direction (Six Sigma). Soon, GE announced $350 million in cost savings thanks to Six Sigma (this figure later grew to more than $1 billion).
Between 1994 (the year before the introduction of Six Sigma) and 1998, GE's operating margin had improved by a whopping $3.1 billion.
Photo by EEJCC from Wikimedia Commons.
The Secret is in Focusing on a Single Direction
GE's success in applying a new working method so quickly and effectively was due to its relentless focus on a single direction. Everyone within the company was focusing on Six Sigma. In addition, they brought the suppliers, customers, and allies into Six Sigma too. It is as if Six Sigma were GE's religion – they were fanatical about it.
Nonetheless, by focusing only on one thing, the new initiative can spread remarkably quickly and effectively through the organization from top to bottom. The lesson is that it is wise to focus on a single direction.
Continue exploring winning strategy here.
Comentarii