As someone who worked for Motorola from the early 80's until the late mid-90s
I had an opportunity to be a part of the Six Sigma Era. Even though Six Sigma
as a measurement standard originated in the 1920's, Motorola is credited with
applying the methodologies and coining the term Six Sigma.
Six Sigma differs from traditional quality improvement programs in its focus
on input variables. While traditional process improvement methods depend upon
measuring outputs and establishing control plans to shield customers from
organizational defects, a Six Sigma program demands that problems be addressed
at the input root cause level, thereby eliminating the need for unnecessary
inspection and eliminating the added costs for rework.
The Six Sigma approach identifies and eliminates defects with a structured,
data-driven, problem-solving method of using rigorous data-gathering and statistical
analysis. The statistical representation of Six Sigma describes quantitatively
how a process is performing. To achieve Six Sigma, a process must not produce
more than 3.4 defects per million opportunities. The philosophy behind the
Six Sigma approach is that if you can reduce process variation you can improve
organizational effectiveness and efficiencies.
According to General Electric (GE)--an early adopter of the program--Six
Sigma is a "disciplined methodology of defining, measuring, analyzing, improving
and controlling the quality in every one of the company's products, processes
and transactions--with the ultimate goal of virtually eliminating all defects."
Originally used to improve engineering and manufacturing, the Six Sigma approach
has expanded to include all aspects of organizational performance.
In their 2006 book, Six Sigma for Marketing Processes: An Overview for
Marketing Executives, Leaders, and Managers, Clyde M. Creveling, Lynne
Hambleton, and Burke McCarthy wrote that "nearly half of the top one hundred
Fortune 500 companies use Six Sigma methodology in some part of their business."
They found that 70 of the top 100 companies have been in the top 100 for five
or more years and that 63% or 44 of these 70 companies implement Six Sigma
to some degree. In their analysis they found that these 44 Six Sigma users
report on average 49% higher profits (compounded annually) and 2% higher Compounded
Annual Growth Revenue (CAGR) than their peers.
Six Sigma enables companies to improve the marketing's strategic, tactical
and operational processes as a way to enhance the top line to drive revenue.
By applying Six Sigma to marketing you can develop a lean efficient marketing
workflow, identify leading indicators of growth and become proactive about
performance improvement. Measurement of performance is one of the five fundamental
phases in the Six Sigma methodology. Once you begin measuring marketing performance,
you can begin to make modifications and improvements. Six Sigma provides both
a methodology for process improvement and a way to prove its value. These
additions are above and beyond the "traditional" Six Sigma approach to cost
reduction.
Six Sigma has two methodologies: DMAIC and DMADV. DMAIC is used to improve
existing business processes and DMADV is used to create new process or product
designs that result in more predictable, mature, and defect free performance.
Each methodology includes five steps which we will mention here; however,
for the purpose of this article we focus on the DMAIC process.
DMAIC includes five steps: define roles, goals, and deliverables
consistent with customer demands and the organization's strategy; measure current performance and processes, and collect relevant data for future comparison
and improvement, analyze the relationship and causality factors; improve the process to eliminate defects; and control
and correct any variances before they result in defects and thereby
improve performance. The five steps for DMADV include: define the goals of the design activity, measure and identify the critical
quality, product/process capabilities, analyze to develop and
design alternatives to determine the best design, design the
process and verify the design. The purpose of these two methodologies
is to create a data-driven, systematic approach to solving business problems
that will have a positive impact on customers.
Let's consider how we can apply the DMAIC process to marketing to grow
revenue.
- Define: The role of marketing is to create predictable streams
of revenue growth by enabling the organization to profitably identify and
secure new customers, and to keep and grow the value of these customers.
Therefore, a key ingredient in this step is for marketing to establish goals
and deliverables designed to achieve these three outcomes. This will require
most organizations to broaden the role of marketing beyond sales support
and/or marketing communications. To fully realize these three outcomes,
marketing will need to provide a broader more strategic role. As a result,
the various marketing functions will need to be integrated to create a comprehensive
and integrated work flow process. This integrated workflow process will
then need to be mapped. Once these three elements are completed, new metrics
that tie marketing to the business outcomes must be defined and standardized
across the marketing organization for the purpose of providing insight into
performance and facilitating strategic decisions. Typically, it will be
come apparent that new analytical and process-oriented skills will be needed
among the marketing personnel.
- Measure: There is no escaping the fact that to be successful
in measurement marketing will need data. Without data, performance cannot
be measured and improvements cannot be made. Marketing needs to have access
to data about its efforts and expenditures. Marketing will need to have
a collaborative relationship with finance, sales, and customer service because
these organizations are often the keepers of critical data related to performance
and outcomes. Marketing will also need to deploy tools and systems for capturing
and monitoring data. During this step, the team will need to make key decisions
related to the data including: how it will be managed, how it will be shared,
and what processes will be used for evaluation.
The first step in measuring and improving performance is to determine what
data exists, where that data is, what data is needed, and how to obtain
the data. Customer purchase activity, marketing program results and conversion
rates, actual costs for programs and people, lead quality data and lead
cost, win/loss ratios, and defections that occur in the buying process are
examples of some of the data that will be needed. Once the metrics are defined,
the team should use the data to establish a baseline of past expense and
performance.
Measurement suggests that current and future performance is being compared
to past performance. Being able to establish a benchmark using past data
is an important step that eludes most marketing organizations because of
the lack of quality data. It may take considerable efforts to establish
the initial data points but this step is essential to the process.
The metrics should be defined not just in terms of the cost but in terms
of how these investments contributed to the company's ability to achieve
its goals and generate profitable revenue. The marketing metrics are contingent
upon knowing the business outcomes. It is imperative that the business outcomes
be clarified and specified before the marketing metrics are established.
Business outcomes for example may be related to the specific number of customers
to be acquired and at what cost, the specific rate of customer acquistion,
the specific lifetime value of a customer, customer loyalty, and specifically
how quickly customers adopt new products. By knowing the business outcomes,
marketing knows what objectives it needs to achieve and within what parameters.
Marketing can now establish the metrics, the performance targets and processes,
and measure its performance. Tying marketing metrics to business outcomes
forces marketing to transform from a transactional function to a strategic
contributor.
- Analyze: Simply measuring performance will not make it improve.
Performance improvement results from deriving insight through the analysis
of the data. By analyzing the data and understanding what it means, marketing
can determine the degree of impact it is having on the organization, and
redesign processes that will improve performance. Creating a dashboard of
key business initiatives can help process the data and make it easier to
visualize both the impact and opportunities for improvement. Analyzing marketing
performance and processes has impact beyond the marketing organization.
The analysis may yield information that will impact sales, product development,
customer service, accounting, and IT. Marketing exists as a component within
the overall company organizational system and changes to this part of the
system can serve as a catalyst for changes to another part of the business
system. Analysis leads right into the improve step.
- Improve: The main purpose of applying Six Sigma to marketing
is to determine how to improve performance and processes. Data analysis
should result in valuable insights that generate possibilities for improvement.
These possibilities for improvement can include enhancements in tools, systems,
processes, and skills. A performance-driven marketing organization welcomes
opportunities for improvement. Even though change is disruptive, developing
new ways to approach the market enables the marketing organization to play
a more strategic role.
[Nota Bene: As you have probably surmised, an organization repeats the
Measure-Analyze-Improve steps until the optimal processes are defined and
the optimal performance is achieve. These iterated steps enable continuous
improvement.]
- Change and Control: Because marketing prides itself on its creativity,
it has often sacrificed control. But the time has come for marketing to
document its processes and best practices and to apply these consistently.
The lack of standards control will result in less than optimal marketing
execution. An emerging role, marketing operations, provides the organization
with a function and people responsible for ensuring that the knowledge gained
through process improvement is documented and implemented. Regardless of
whether your company establishes this role, it is imperative that the team
establish and document the processes and ensure people adhere to them. Even
if the organization established this role, everyone on the team needs to
be formally trained on the processes and performance metrics. The entire
team must understand how the processes enable marketing to demonstrate its
value and improve its performance.
Applying Six Sigma to marketing will increase marketing's ability to deliver
on market requirements, improve the efficiency and effectiveness of the marketing
planning process, successfully manage marketing operations, provide transparency
into marketing processes, and improve the collaboration between marketing
and other groups within the business.
Marketing has a strategic role in growing revenue. For the marketing team
to provide valuable contributions to business profitability they must assume
a broader set of responsibilities within the company. One proven method of
integrating marketing operations within overall business processes is through
Six Sigma and its DMAIC methodology. Six Sigma enables companies to improve
the marketing's strategic, tactical and operational processes as a way to
enhance the top line to drive revenue. Highly successful businesses that implement
Six Sigma methods "report on average 49% higher profits (compounded annually)
and 2% higher Compounded Annual Growth Revenue (CAGR) than their peers".
