Lean Six Sigma for Enterprise
Resource Planning: Four Principles for Chief Executives
Chief executives of businesses large and small are using Lean Six Sigma to improve their organizations' performance. Too often, however, they are viewing the methodology through myopic lenses. Asked how they deploy Lean Six Sigma, they describe initiatives that reduce defects or listen better to the voice of the customer. Asked how the initiatives affect the corporate bottom line, though, too few can provide concrete data.
In contrast, other chief executives are using Lean Six Sigma as the foundation of a sustainable business management system. In their organizations the methodology provides measurable bottom line results -- often with dramatic numbers. That's because it orchestrates deployment of activities that provide the highest yields at points where they will have the greatest impact on the bottom line and applies them at the most opportune times -- throughout the entire organization. Simply put, the system helps the business do the right things and do those things right at the right time.
Rather than seeking out flaws in a process the Integrated Enterprise Excellence system determines whether the process itself is flawed. Rather then replicate projects, it designs and replicates systems. It moves every business unit to a new, more productive business way of life. It provides senior executives with a power-enhancing balanced scorecard that serves as an enterprise-wide roadmap for continually increasing corporate profitability.
Chief executives who take this approach with Lean Six Sigma as the basis for future management of overall operations arm themselves with pinpointed metrics that measure as well as drive business processes. They replace fire fighting with fire prevention. They avoid the setup of projects that may be counterproductive. Their organizations are assured of predictable continuity regardless of changes in leadership. Managers solve difficult problems more quickly and more effectively. Any unit's effort to use fun house mirror metrics that violate the spirit of Sarbanes-Oxley is stopped dead in its tracks.
Lean Six Sigma: Doing Everything and Everywhere
In these organizations, Lean Six Sigma provides the foundation for governing transactional processes at all functions and at all levels. Moving from the factory floor, the methodology is applied to sales (customer service, pricing, sales force performance improvement); human resources (recruiting, personnel evaluation, benefits administration; finance (closing the books, regulatory compliance, shareholder communications); IT; R&D; units involved in a wide range of activities and situated in far-flung locations throughout the business.
A software company used Lean Six Sigma to improve its customer order fulfillment process. A pharmaceutical testing company eliminated iterations of paperwork. An aerospace service company reduced the warranty return rate after product servicing.
GE and Du Pont are using Lean Six Sigma to improve the productivity of their legal departments. Raytheon's legal administrator successfully reduced expenditures by 30% in one year, saving the company $20 million. International Paper reports that Lean Six Sigma not only reduced legal costs but also changes the way it practices law.
(Demonstrating the methodology's application outside the business environment, dramatic improvements have been achieved by healthcare facilities, school systems, professional organizations and government agencies.)
Here are four principles that chief executives can use to help set the stage for implementing Integrated Enterprise Excellence in their organizations
1. A Healthy View of Numbers
Some chief executives have a fear of metrics. They manage to hide it by focusing on vision, strategy and inspired leadership. At the other end of the spectrum, others are fixated on measurement. Their holy grail is numbers having three digits behind the decimal point -- irrespective of whether or not what's being measured affects performance.
In these situations, the obsession with metrics can prompt counter-productive behaviors. Witness the spectacle of Krispy Kreme managers shipping product they knew would be returned because they had to make the numbers. The ultimate travesty took place at Enron, where managers used hocus pocus metrics to produce counterfeit results.
A common management mantra has it that processes must be measured to be meaningful. With Integrated Enterprise Excellence, in contrast, only what's meaningful is measured.
2. Satellite vs. 30,000-foot Metrics
For any organization to be successful, the chief executive should require that meaningful metrics be taken at two levels in the organization. This includes (1) measurement of operational level components throughout the enterprise, or what we call 30,000-foot level metrics, and (2) measurement of the factors that affect overall corporate financials, or satellite level metrics. Both 30,000-foot level and satellite level metrics assess the overall enterprise system responses, where there are no calendar boundaries.
The 30,000-foot level metrics concern, for example, asset management, people development, factory productivity (percent yield, run time productivity), supply chain dynamics, salesperson productivity, safety, new product introduction and suppliers (cost, quality, service), etc. These metrics influence and determine individually and collectively the bottom-line results for the whole corporation.
Satellite-level metrics include return on invested capital, earnings before interest depreciation and amortization, operating income and net profit margin, as well as market dynamics that determine the overall performance of an enterprise.
3. Understanding Non-conformance
Non-conformance can be traced to two different types of variability that can lead to problems. One is what we call special cause, or glitches in the process, such as faulty assembly of a product by a temporary employee. The other is common cause, such as predictable variability of suppliers' raw materials or a flaw in the design of a product or a system.
In many organizations special cause and common cause issues are treated similarly: The business goes into fire-fighting mode whenever a product is not meeting specification. Quite often the blame game comes into active play and the problem is resolved (temporarily) with someone's reprimand or termination.
Successful organizations distinguish between the two types of problem sources. Typically they find the vast majority of non-conformance situations require that the system itself must be modified. W. Edwards Deming has estimated that 94% of problems are due to common cause variability and only 6% are due to special cause variability. Successful chief executives use Lean Six Sigma to analyze the system up and down the line to eliminate or at least lessen the frequency of common cause non-conformance.
4. Anticipating Resistance
Integrated Enterprise Excellence can be threatening. It doesn't allow the blame game, fudging of statistics or avoidance of responsibility because the chief executive has a crystal-clear picture of what's working and what's not. That being the case, implementation of the system will meet with some resistance.
Indeed, in organizations where Lean and Six Sigma professionals operate under different hierarchies and might be reluctant to merge the two disciplines there will be lack of enthusiasm from the start of the implementation.
It takes patience and persuasion to put the system into place -- but the rewards will be enormous and the organization's effectiveness will soar. The gains will be predictable and sustainable. Business strategy will remain on target regardless of a change in management at any level. The chief executive will leave behind a legacy.
Mr. Breyfogle is the founder and CEO of Smarter Solutions, Inc. (www.SmarterSolutions.com), an international consulting and training firm that specializes in enterprise excellence for bottom-line and customer satisfaction benefits. It is based in Austin, Texas. He received the Crosby Award in 2004 and has written widely, articles as well as books, on enterprise excellence. The company offers a one-day workshop, The Eagle's View, on implementing Integrated Enterprise Excellence. Contact him at email@example.com or 512-918-0280.
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