Lean Six Sigma is fundamentally about addressing strategic gaps within the organisation. Investment in Lean Six Sigma involves a significant commitment of resources, and this investment decision, in common with any other investment decision, should be judged against the potential for return.
Six Sigma originated with Motorola, and started out as a quality improvement programme in the early 1980’s. Motorola did indeed make significant improvements in quality in those early years, and won the Malcolm Baldrige award for Excellence in 1988. By 1994 they had 60% of the mobile phone market, and by 1995 shareholder growth was 54% and they were outperforming the NASDAQ index by a ratio of 4:1. Strategic errors in the mid 1990’s linked to the development of digital technology caused a significant reversal of this performance, however.
GE adopted Six Sigma in 1995, and invested $200‐$300 in training, certification and projects in the early years. Project savings flowed steadily, however, and by 1997 annualised savings were $1.2Bn and according to their annual report Six Sigma alone was expected to add 25 cents to earnings per share in 1998 and $1 per share by 2000. In his annual report Jack Welch quoted that “Six Sigma has spread like wildfire across the company, and it is transforming everything we do.”
After 10 years GE had accumulated over $10Bn in Six Sigma savings, and in May 2009 was listed by Forbes as world’s biggest company. Between 1996 and 2005 GE stock price outperformed the NASDAQ index by almost 2:1.
The Forbes list quotes in 3rd place a company called Toyota. Toyota Motor Corporation developed the Toyota Production System (TPS). The systems used within Toyota have been adopted in many organisations in different sectors, and the approach has become known today as Lean. In the UK, the DTI undertook research which looked at 500 lean projects across a variety of industries over 5 years, and assessed the financial benefits of the process improvements made. The study reported that there was a 100% Return on Investment after just 1 month, with the average savings per year quoted £151,000.
In 1999 Mikel Harry undertook research into the savings made by over 3,000 Six Sigma Black Belt projects. He found that the average savings per project were $175,000. More recent studies carried out by SigmaPro show savings per project to be even higher, with an average savings per project of over $300,000. Studies with individual clients have shown ROI figures of between 4:1 and 10:1.
So, Lean Six Sigma has been shown to save costs, and enhance shareholder value, but what about other aspects of an organisation? In 2001 Quality Digest did a survey of organisations that had implemented Lean Six Sigma, and asked respondents to comment on whether job satisfaction had been improved. 49% replied that it had, and 22% did not think it had improved. In the same survey, 59% of respondents replied that customer satisfaction had improved as a result of the programme, only 14% stated that it had not. SigmaPro also carried out research in 2006 looking at whether or not programmes of improvement were judged to have been successful or not. 73% of respondents stated that their programmes had achieved either a complete or partial success, whilst only 1.3% stated there had been no benefit.
Quantifying the benefits of moving to a ‘Design for Six Sigma’ model for new product and service introduction is more difficult to quantify. DFSS is about commercialisation and technological risk reduction and it can take years before enough new products and services have been through their life cycle for a true measure of the improvement to become apparent. Individual DFSS projects tend to deliver similar savings to their equivalent DMAIC siblings, however, at a median saving per project of $200k (according to an iSixSigma Magazine survey conducted with 1,112companies in 2005)
So what is a Lean Six Sigma organisation really aiming for? Well ultimately, it’s aiming for a complete cultural transformation so that Lean Six Sigma stops being an ‘improvement programme’, and becomes the ‘way the organisation does business.’ It is aiming for a time when Lean Six Sigma becomes a self sustaining way of improving customer experience, profitability and growth through process improvement and reliable new product and service introduction. And it does this by involving people and getting them to work on important areas within the organisation in a structured way using proven methods and tools.
Lean Six Sigma has demonstrated its potential to make a difference and no‐one would argue that it is a magic bullet, or would deny that it takes time and effort to introduce. It won’t make up for poor management or poor strategy, but as an enabler which helps organisations make the most of what they have, enhance shareholder value, improve customer and employee satisfaction and reduce timescales and risk it is a proven system with enviable credentials gained over many years amongst the world’s top organisations.