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Six Sigma

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The Breakthrough Management Strategy Revolutionizing the World's Top Corporations

Written by Mikel Harry Ph.D.Author Alerts:  Random House will alert you to new works by Mikel Harry Ph.D. and Richard SchroederAuthor Alerts:  Random House will alert you to new works by Richard Schroeder



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On Sale: July 04, 2000
ISBN: 978-0-553-75294-6
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Synopsis

The extraordinary breakthrough management program--heralded by GE, Motorola, and AlliedSignal--that is sweeping corporate America with its unprecedented ability to achieve superior financial results.

Six Sigma is the most powerful breakthrough management tool ever devised, promising increased market share, cost reductions, and dramatic improvements in bottom-line profitability for companies of any size. The darling of Wall Street, it has become the mantra of Fortune 500 boardrooms around the world because it works.

What is Six Sigma? It is first and foremost a business process that enables companies to increase profits dramatically by streamlining operations, improving quality, and eliminating defects or mistakes in everything a company does, from filling out purchase orders to manufacturing airplane engines. While traditional quality programs have focused on detecting and correcting defects, Six Sigma encompasses something broader: It provides specific methods to re-create the process itself so that defects are never produced in the first place.

Most companies operate at a three- to four-sigma level, where the cost of defects is roughly 20 to 30 percent of revenues. By approaching Six Sigma--fewer than one defect per 3.4 million opportunities--the cost of quality drops to less than 1 percent of sales.

This is because the highest quality also results in the lowest costs. When GE reduced its costs from 20 percent to less than 10 percent, it saved a billion dollars in just two years--money that goes directly to the bottom line. This is the reason Wall Street and corporations as diverse as Sony, Ford, Nokia, Texas Instruments, Canon, Hitachi, Lockheed Martin, American Express, Toshiba, DuPont, and Polaroid have embarked on corporate-wide Six Sigma programs.

Six Sigma should be of paramount importance to every forward-thinking executive and manager determined to make their company world-class in their industry.


From the Hardcover edition.

Excerpt

We believe that Six Sigma is the most powerful breakthrough management tool ever devised.

What is Six Sigma? It is a business process that allows companies to drastically improve their bottom line by designing and monitoring everyday business activities in ways that minimize waste and resources while increasing customer satisfaction. Six Sigma guides companies into making fewer mistakes in everything they do-from filling out a purchase order to manufacturing airplane engines-eliminating lapses in quality at the earliest possible occurrence. Quality-control programs have focused on detecting and correcting commercial, industrial, and design defects. Six Sigma encompasses something broader: It provides specific methods to re-create the process so that defects and errors never arise in the first place.

Throughout this book, you will encounter new ideas and principles-some of which will run contrary to what managers have learned in school or professional practice. Six Sigma represents extraordinary sense, not ordinary or common sense; common sense rarely produces extraordinary results. It is our belief that once managers and their companies understand what Six Sigma is and how it works, they will begin to see that many well-accepted past management practices and quality-control methods are less than optimal, or are even wrong.

Industries are desperate to find new ways to buoy profitability. That is why companies as diverse as AlliedSignal, General Electric, Sony, Honda, Maytag, Raytheon, Texas Instruments, Bombardier, Canon, Hitachi, Lockheed Martin, and Polaroid have adopted Six Sigma. Many of these companies are averse to management fads. But they have embraced Six Sigma because they believe the initiative will help them increase market share, decrease costs, and grow profit margins. As a result, they are beginning to tie quality directly to their bottom line.

Six Sigma produces superior financial results, using business strategies that not only revive companies but help them leapfrog ahead of their competition in terms of market share and profitability. By reaching for the seemingly impossible, companies achieve the impossible.

But the biggest reason for the incredible buzz about Six Sigma throughout the business community has been its astonishing success at dramatically improving a company's bottom-line profitability. As a result, Six Sigma has become the darling of Wall Street. Jennifer Murphy, an analyst with Morgan Stanley, Dean Witter, Discover & Co., spent three days at our ranch in Payson and at our Six Sigma Academy in Scottsdale, Arizona, a teaching facility we designed to educate and train executives in the principles of Six Sigma so that they can transform their companies into world-class organizations. Impatient with the negligible effect quality programs have had on the bottom line, Murphy was astonished by what she learned. "Six Sigma companies . . . achieve faster working capital turns; lower capital spending as capacity is freed up; more productive R&D spending; faster new product development; and greater customer satisfaction," she wrote upon her return. She estimates that by the year 2000, GE's gross annual benefit from Six Sigma could be as high as $6.6 billion, or 5.5 percent of sales.

Here are just a few reasons for the enthusiasm so many analysts on Wall Street voice:

General Electric's Jack Welch, a self-proclaimed cynic when it comes to quality programs, describes Six Sigma as "the most important initiative GE has ever undertaken." GE's operating income, a critical measure of business efficiency and profitability, hovered around the 10 percent level for decades. In 1995, Welch mandated that each GE operation, from credit card services to aircraft engine plants to NBC-TV, work toward achieving Six Sigma. GE averaged about 3.5 sigma when it introduced the program. With Six Sigma embedding itself deeper into the organization's processes, GE achieved the previously "impossible" operating margin of 16.7 percent in 1998, up from 13.6 percent in 1995 when GE implemented Six Sigma. In dollar amounts, Six Sigma delivered more than $300 million to GE's 1997 operating income, and in 1998, the financial benefits of Six Sigma more than doubled, to over $600 million.

Larry Bossidy, CEO of AlliedSignal Inc., brought the $14.5 billion industrial giant back from the verge of bankruptcy by implementing the Six Sigma Breakthrough Strategy. The company has now trained thousands of employees from every business unit and staff function in Six Sigma and the Breakthrough Strategy, with the goal of increasing productivity 6 percent each year in its industrial sectors. Broad-base Six Sigma initiatives allowed operating margin in the first quarter of 1999 to grow to a record 14.1 percent from 12 percent one year earlier. Since Bossidy implemented the program in 1994, the cumulative impact of Six Sigma has been a savings in excess of $2 billion in direct costs.

Former AlliedSignal executive Daniel P. Burnham, who became Raytheon's CEO in 1998, has made Six Sigma a cornerstone of the company's strategic plan. By pursuing Six Sigma quality levels throughout the company, Burnham expects Raytheon to improve its cost of doing business by more than $1 billion annually by 2001.

Since taking over GE's industrial diamonds business in Worthington, Ohio, in 1994, William Woodburn has increased the operation's return on investment fourfold and cut the operation's costs in half by employing the Six Sigma Breakthrough Strategy. He and his team have made their existing facilities so efficient that they have eliminated the need for new plants and equipment for at least another ten years. Woodburn and GE's industrial diamond business exemplify how Six Sigma can enable a company to cut costs, enhance productivity, and eliminate the need for new plant and equipment investments.

Polaroid Corporation's Joseph J. Kasabula, quality strategy manager for product development and worldwide manufacturing, believes that the most compelling reason companies embrace Six Sigma is its impact on the bottom line. While other programs may improve quality, Kasabula believes they do not focus on increasing a company's profits. With Six Sigma, companies focus on the processes that affect quality and profit margins on a project-by-project basis. Six Sigma is helping Polaroid to add 6 percent to its bottom line each year.

Asea Brown Boveri (ABB), which successfully applied the Six Sigma Breakthrough Strategy to its power transformer facility in Muncie, Indiana, has reduced measurement equipment error by 83 percent; piece count error from 8.3 percent to 1.3 percent; and no-load loss to within 2 percent. ABB also improved material handling, resulting in an annual estimated cost savings of $775,000 for a single process within a single plant.


We believe the Six Sigma Breakthrough Strategy should be of paramount interest to any forward-thinking executive, manager, and public administrator who wants to make his or her organization more competitive and profitable, and enhance its ability to drive change. Six Sigma principles apply to any business of any size. It applies to far more than just industrial processes-it applies to engineering, product design, and any commercial process, from processing mortgage applications, to credit card transactions, to customer service call centers. By attacking "variation" during the design of products and services, it's possible for any organization to achieve unprecedented profitability.

How does Six Sigma work? The first step in the Breakthrough Strategy is to ask a new set of questions, questions that take you out of your comfort zone, that force you to query what you have taken for granted, and that ultimately provide you with new direction. Six Sigma forces businesses to let go of bad habits. Bureaucracy becomes delayered. Those employees closest to the actual work and to the customer become motivated to meet or exceed consumer requirements. By questioning the speed with which products are produced and services are rendered, people begin to think about new systems that can be put into place to produce a higher-quality product or service in a shorter amount of time. As those closest to the work discover more effective and profitable ways of working, they are able to inform senior management about what changes need to be made, and as a result, push those higher in the organization to reexamine the ways in which they do business.

Six Sigma is about asking tougher and tougher questions until we receive quantifiable answers that change behavior. Through Six Sigma, companies relentlessly question every process, every number, every step along the way to creating a final product. Managers, employees, and customers ask different kinds of questions of each other than they've asked before. As Six Sigma takes hold across an organization, it creates an internal infrastructure that includes executives, managers, engineers, and operations and service personnel. When 50 percent or more of an organization's staff embrace Six Sigma, those individuals are able to mobilize massive changes in the way business is done, dramatically increasing profitability.

Questions, of course, are not meant to exist in a vacuum. The methodology behind Six Sigma is designed to pave the way to find the right answers for your company. In the classic children's story "The Wizard of Oz", Dorothy's persistent questions about what she sees and where she is going lead her down the Yellow Brick Road and into the Land of Oz. Similarly, when an organization starts to question what it does and why it does it, it too can begin to lay a Yellow Brick Road that will lead to its own long-term goals.

The fact is, organizations need ways of measuring what they claim to value. Measurements, or "metrics" as we prefer to call them, carry relevance to every member, for every activity, of an organization. You can't change what you can't measure. The foundation of Six Sigma uses metrics to calculate the success of everything an organization does. Enthusiastic speeches, colorful posters, and corporate mandates will not produce quantum change-only measuring the things a company values can do this. Without measuring a company's processes-and its changes to these processes-it's impossible to know where you are or where you are going. Six Sigma tells us:

We don't know what we don't know.
We can't do what we don't know.
We won't know until we measure.
We don't measure what we don't value.
We don't value what we don't measure.

So, in a general way, Six Sigma is a process of asking questions that lead to tangible, quantifiable answers that ultimately produce profitable results. This book will share what Six Sigma is, how it is applied, and what it can do for your company, business, or organization. It will be your guide for transforming knowledge into a living vision.

To date, every company that has followed our Six Sigma methodology has achieved breakthrough profitability. Our intention in these pages is to pass on to you the knowledge that has taken us nearly two decades to learn.

We wish you well in your journey toward breakthrough profitability.
Mikel Harry Ph.D.

About Mikel Harry Ph.D.

Mikel Harry Ph.D. - Six Sigma
Mikel Harry is the cofounder and chief executive of the Six Sigma Academy, Inc. He was one of the original architects of Six Sigma while working at Motorola in the 1980s. He later served as Corporate Vice President at Asea Brown Boveri Ltd. He received his B.S. and M.A. in electronic from Ball State University and Ph.D. at Arizona State University. Harry lives in Scottsdale, Arizona.
Praise

Praise

What the business world is saying about Six Sigma:

"[Six Sigma] is the most important initiative GE has ever undertaken--it is part of the genetic code of our future leadership."
--Jack Welch, CEO, GE

"We've taken the difficult but basic Six Sigma skill of reducing defects and applied it to every business process, from inventing and commercializing a new product all the way to billing and collections after the product is delivered. Just as we think we've generated the last dollar of profit out of a business, we uncover new ways to harvest cash as we reduce cycle times, lower inventories, increase output, and reduce scrap. The results are better and more competitively priced products, more satisfied customers who give us more business, and improved cash flow."
--Larry Bossidy, CEO,  AlliedSignal

"The [Six Sigma] Breakthrough Strategy gives new structure to the tools we already had. Structure has been the key element missing in Polaroid's drive for quality. I keep telling my people that the Breakthrough Strategy cookbook tells us how to use time-tested ingredients in new ways--For us, the results from the Breakthrough Strategy have been quick and powerful."  --Mike Hart, Black Belt engineer, Polaroid

"Mikel Harry's innovation of Breakthrough Strategy has taken quality into America's boardrooms. While Dr. Deming's theory of profound knowledge built management awareness and Dr. Juran's trilogy helped to establish the foundation of a solid quality 'science,' Dr. Harry has demonstrated how to make theory become practice at companies like Motorola,  ABB,  AlliedSignal, and GE."
--Gregory Watson, President,  American Society for Quality


From the Hardcover edition.

  • Six Sigma by Mikel Harry and Richard Schroeder
  • March 21, 2006
  • Business & Economics
  • Crown Business
  • $17.00
  • 9780385494380

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