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SIX SIGMA QUALITY IMPROVEMENT: WHAT IS SIX SIGMA AND WHAT ARE THE IMPORTANT

IMPLICATIONS?

Roger G. Schroeder Donaldson Chair in Operations Management

University of Minnesota, Minneapolis, Minn., U.S.A. Rschroeder@csom.umn.edu

ABSTRACT

Six Sigma is an opportune area for further research. Little is known about how Six

Sigma methods are being used in business and their impact on business results. This paper provides an initial definition of Six Sigma as a basis for further research. It also discusses the controversial question of what is new about Six Sigma and what is already known. Topics for further research in this emerging area of quality management are defined.

Keywords: Six Sigma, Quality Improvement INTRODUCTION

Six Sigma is a concept that was originated by Motorola, Inc. in the U.S.A in about

1985. At the time, they were facing the threat of Japanese competition in the electronics industry and needed to make drastic improvements in their quality levels (Harry and Schroeder, 2000). Six Sigma was a way for Motorola to express its quality goal of 3.4 parts per million (ppm) defect rate. This goal was far beyond normal quality levels and required very aggressive improvement efforts. For example, three sigma is 66,810 ppm defective or 93.3% process yield, while Six Sigma is only 3.4 ppm defects and 99.99966 % process yield. A comparison of defects and yields for various process sigma levels is shown in Table 1.

Process Sigma Defects (parts per million) Process Yield (%)

6 3.4 99.99966 5 233 99.97670 4 6,210 99.37900 3 66,810 93.33190 2 308,770 69.12300 1 697,672 30.23280

Table 1: Six Sigma Measures

Not all processes should operate at the six sigma level. The appropriate level will

depend on the strategic importance of the process and the cost of improvement relative to the benefit. If a process is at the two or three sigma level, it will be relatively easy and cost effective to reach the four sigma level. However, to reach five or six sigma will require much more effort and more sophisticated statistical tools. The effort and difficulty increases exponentially as the process sigma increases. Ultimately, the return on investment for the improvement effort and the strategic importance of the process being improved will determine the appropriate target sigma level.

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In the U.S., interest in Six Sigma has been increasing at an accelerating rate. After Motorolas initial efforts in 1985, only a few companies adopted Six Sigma improvement programs. Allied Signal was one of the first followers of Motorola. Then General Electric (GE) decided to adopt Six Sigma in about 1995. The adoption of Six Sigma by CEO Jack Welch at GE has attracted world-wide attention (Slater, 1999). GE has aggressively implemented Six Sigma not only in its manufacturing businesses, but in service operations such as GE Capital (Hendricks and Kelbaugh, 1998). General Electric has made Six Sigma training and experience a requirement for all managers in the company and a prerequisite for promotion in managerial ranks. In GE the impact of Six Sigma on net income is significant and has encouraged many other U.S. and international companies to adopt Six Sigma practices, as well. A partial list of Six Sigma adopters is shown in Table 2.

Six Sigma Adopters General Electric Motorola Allied Signal ABB Vetco Gray American Express Seagate Technology Citigroup Eastman Kodak 3M Dupont Amazon.Com Toshiba Bombardier Honeywell Navistar Ceridian Dow Chemical Raytheon Johnson & Johnson Ford Motor Lockheed Martin Polaroid Cargill U.S. Bank Carlson Companies Unisys Eaton Sony Electronics Iomega Pacific PTE ltd. Texas Instruments

IBM LG Electronics Iomega

Table 2: A Sample of companies implementing Six Sigma Approaches

In the following presentation, I will discuss definitions of Six Sigma, what is new about Six Sigma, and the opportunities presented for academic research in this emerging area?

DEFINITION OF SIX SIGMA

Six Sigma has not been carefully defined in either the practitioner or academic

literature (Hahn, et.al. 1999). This has resulted in some confusion, since each author provides a different definition. In an attempt to clarify the concepts and principles underlying Six Sigma, the following definition is offered:

Six Sigma is an organized and systematic method for strategic process improvement and new product development that relies on statistical methods and the scientific method to make dramatic reductions in defect rates as defined by the customer.

There are several elements of the Six Sigma approach that require further explanation. Top Management Leadership.

All quality improvement efforts, whether Six Sigma or otherwise, require top

management leadership (Juran, 1989,1995). Top management must not only provide support for the effort in financial and strategic terms, but insure continuity of Six Sigma effort so that it doesnt become another flavor of the month program. A good example of how this can be done is found in GE, Allied Signal and Motorola cases where strong top

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management leadership resulted in Six Sigma becoming an embedded way of doing business (Hahn et al., 1999; Harry 1998). Customer Driven.

All Six Sigma efforts should be driven by the customers definition of a defect. Internal requirements should not be used, unless the process has only internal customers. Even in this case, the requirements should be defined by the internal customer of the process, not the process managers. A key step in any Six Sigma improvement effort is determining exactly what the customer requires and then defining defects in terms of their critical to quality parameters. Focus on Business and Financial Results.

It is important that Six Sigma efforts have measurable financial returns by the accountants and the financial organization in the firm. For example, General Electric estimates the net income impact for 1999 derived from their Six Sigma efforts minus the implementation costs will exceed two billion dollars (General Electric Company 1999 Annual Report). Companies that institute Six Sigma actually track their financial results and report the impact to all levels of management on a regular basis. Structured Method.

Six Sigma uses a structured method, whether the task is process improvement or new product design. In the case of process improvement, the method is patterned after the PDCA cycle (Shewhart, 1931, 1939). One popular method uses DMAIC: Define, Measure, Analyze, Improve and Control as the five steps in process improvement. A slightly different set of steps called Design for Six Sigma is used for radical or incremental product design. Whatever method is chosen, however, it is important that the method be carefully followed and a solution not offered until the problem is clearly defined. Data and objective measurement is critical at each step of the method. The standard statistical quality tools are incorporated into the structured method used (Breyfogle, 1999; Ishikawa, 1990; Kume, 1985, 1995; Hoerl, 1998). These tools include both the seven classic tools of quality control and the seven new tools for problem formulation and diagnosis (Mizuno, 1988, Gitlow et.al., 1995). Use of Special Metrics.

Six Sigma uses special metrics including process sigma measurements, critical to quality metrics, defect measures and ten-times improvement measures( Hahn et al., 1999; Harry, 1998; Hoerl, 1998). One of the first steps in the improvement process is to measure the current process sigma. This is done by defining current process defects in customer terms (critical to quality metrics), these measures are converted to defects per million opportunities (DPMO) and then to the current process sigma. For most processes a ten times improvement or more is desired in terms of defect reduction. Ordinarily, this will improve the process sigma by one or two units (e.g. form 3 to 4.5). These Six Sigma performance measures are employed at multiple levels of the organization and in service and administrative as well as manufacturing processes. Improvement Specialists.

Six Sigma uses full-time improvement specialists, sometimes called Black Belts.

These specialists are trained in the Six Sigma structured method by typically receiving four

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weeks of training and hands-on experience in conducting one or more projects. Many organizations also have Green Belts who are part-time improvement specialists and Master Black Belts who serve as instructors. Quality teams are formed for each Six Sigma project consisting of employees who operate the process, with Green Belt training, and at least one full-time Black Belt specialist. It is critical to have full-time employees working on improvement projects, and not just part-time efforts of regular employees. Full-time improvement specialists are expected to return between $300,000 and $500,000 in net income improvement per year. WHAT IS NEW?

What is new about Six Sigma has been widely debated. Using the above definition,

several new things can be observed. First, Six Sigma is not new by insisting on top management leadership or in being customer driven. These elements are important in every type of quality improvement initiative including Six Sigma.

The focus on financial and business results is to some extent new. Deming (1986) warned against focusing on results and instead preferred a process focus. On the other hand, the Baldrige Award and derivative quality awards around the world have focused extensively on results (National Institute of Standards and Technology, 1999). The difference is that Six Sigma requires financial returns from all projects and from each full-time Six Sigma specialist. Thus the financial focus is at the project level, not the organization level as it is with the Baldrige, and the results are tracked on a pre-project and post-project audit basis by the financial organization. It is the aggressive insistence on a financial return from each project that is new to Six Sigma.

Use of a structured method for process improvement or new product introduction is also not entirely new. However, the degree of insistence on following the structured method, the intense training of the full-time specialists and the full integration of statistical and other tools is new. In the past, quality improvement teams have been formed with little or no training (perhaps one week) and set out to improve a process with little emphasis on the use of data or a well-structured method. Often these teams were formed more for employee involvement than for improvement. So the intensity of using the specialized method is worthy of note.

Use of specific metrics is new with Six Sigma. Processes have not been measured in terms of their DPMO, or process sigma. Nor, have aggressive targets such as ten-times improvement been set. The effect of these measures is to highlight the importance of improvement and to state difficult, but attainable, goals for improvement. Six Sigma requires a discipline toward measurement and improvement that has not been evident in previous quality improvement efforts.

Finally, the use of a significant number of full-time improvement specialists is new to many organizations. Heretofore, organizations have been reluctant to make the investment in full-time specialists and instead have assigned the improvement task to already overworked staff on a part-time basis. Even when full-time specialists were used, there were not many of them and they were not highly trained in a common structured deployment method. For example, in 1997, GE invested $250 million is training nearly 4,000 Black Belts and 60,000 Green Belts out of a workforce of 220,000 employees (Harry and Schroeder, 2000). This large investment paid off in 1997 alone by adding $300 million to the bottom line. Since investments are converted immediately to bottom line results, explains why management is able to relatively easily justify the commitment of extensive training and full-time employees (Fuller, 2000).

In summary, much of what is being done in Six Sigma is not entirely new, but is a matter of emphasis and commitment. For some organizations, however, many of the six elements described above are new, since they have not implemented previous quality efforts in this way. Six Sigma has been attractive to many CEOs and executives precisely

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because it is a very disciplined approach and delivers an immediate financial return. It is not a nebulous approach with uncertain payoff.

The Baldrige, ISO 9000, and other predominant quality frameworks describe what an organization should do in a macro sense to achieve quality. Six Sigma is a very detailed approach to quality on a step-by-step basis describing how to improve quality for specific projects or products. While the Baldrige and other frameworks can be viewed as the what of quality, Six Sigma is the how. Therefore, Six Sigma is not a substitute for Quality frameworks such as Baldrige and ISO 9000, but rather an augmentation to those frameworks.

IS SIX SIGMA JUST THE LATEST BUSINESS FAD?

Is Six Sigma a business fad which is likely to follow the path of other fads? I dont think so, for several reasons. First, Six Sigma relies on well established methods and principles. It uses tried and tested statistical methods and the scientific method for improvement. Six Sigma is built on a variation of the PDCA cycle that has been successfully used in business for years.

A second reason that Six Sigma is likely to persist is that is shows financial results. Financial results from improvements are carefully monitored by the accountants, and financial justification is required before beginning a project along with an audit after the project is completed. So, the Six Sigma method is not pursuing quality for qualitys sake, but speaks directly to the financial concerns of business on a project-by-project basis.

A third reason that Six Sigma is likely to become a regular part of business practice is that it is prescriptive in its approach. The steps required are very carefully defined and practitioners are trained in the method and follow it carefully. It is a method that works not only on manufacturing processes, but transactional processes, service processes and new product introduction. The scope of the method is, therefore, quite general.

Finally, Six Sigma has already been adopted and well integrated by some of the best established and most respected companies in the world. While these companies may adopt variations of Six Sigma over time, the basics will remain in place. Six Sigma has already survived leadership changes in many of these companies.

The prospects for Six Sigma becoming part of established business practice are, therefore, very good. While no one can predict the future course of business, Six Sigma is well on its way to moving beyond the initial hype and fad stage into the mainstream of business practice. ACADEMIC RESEARCH

Now that we have established a basis for describing what Six Sigma is and how it relates to existing quality approaches, possible research topics can be identified. The following are some suggestions for those who are interested in pursuing this area of study. Research on Six Sigma is still in its infancy and very few published results have appeared to date. Most of the current literature takes the form of books or practitioner articles. These are listed in the references as a starting point for future research.

One area of interest to academics is research on the different approaches being used for Six Sigma in industry. This research could be organized to study the similarities and differences in use, along with some explanation for the observed differences, such as organization context. Since so little is known about Six Sigma, a starting point for this research would be a definition of the elements of Six Sigma such as those presented here. Then a grounded theory approach could be used to selectively sample companies and build upon the initial definition with each company studied. When some convergence and understanding is achieved, after studying multiple organizations, the common and unique elements of Six Sigma could be identified along with the probable reasons for differences.

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This would form an initial theory and definition that could then be subjected to further statistical sampling and testing. It is important to build good theory and definitions from practice in this area before starting on large-scale statistical work (Yin, 1981,1994; Miles and Huberman, 1994).

Another area of useful research is to understand the benefits and costs of Six Sigma. This could be directed at the types of processes that need to be improved in organizations and the typical magnitude of improvements that are possible for each type of process (Hendricks and Singhal, 1997; Itter and Larcker, 1997). Such research could help guide the selection of Six Sigma projects and provide an approach for estimating the benefits that could accrue. In this research, consideration should be given to the use of Six Sigma for manufacturing processes, transactional processes, product design efforts and service processes. This research project would help convince skeptics that Six Sigma is indeed beneficial, if used in the right way on the right projects in the right kind of organization. The contextual influence on the results obtained would be interesting to study and would define the conditions for achievement of certain results. In this research study it would also be beneficial to proceed with a small sample to initially define the scope of the work followed by a larger statistical sample to test appropriate hypotheses (Eisenhart, 1989; Jick, 1979).

Another research project is to carefully track Six Sigma projects on a real-time basis. This would permit the researchers to observe the dynamics of each project as it unfolds (Sanders and Hild, 2000). As a result, some interesting cause-and-effect changes could be studied. Research questions such as the role of project leadership, changing team composition, the use of specialists, outside support of the project and other dynamics could be studied. The research literature on teams, innovation and project management could be useful in forming theories and hypotheses for testing. But, the unique characteristics of Six Sigma would enrich the available literature on innovation and project management, while adding to the Six Sigma literature.

Six Sigma could take on an international flavor, by observing the use of Six Sigma in different national cultural contexts. This research could build on the work of Hofstede (1991) and others by first understanding cross-country differences. These differences could be used to hypothesize the types of adaptations of Six Sigma that might be required in different countries along with the potential results. These studies could be done in the international divisions of companies such as GE or Motorola to provide some control for uniform implementation of the same method within different countries. The resulting acceptance and adaptation could then be observed in different national cultural contexts. This research would contribute not only to our understanding of Six Sigma, but its deployment in remarkably different cultural contexts (Kostova, 1999).

There are also many opportunities for improving the statistical tools used with Six Sigma (Box and Luceno, 2000). Some of the improvements might include the use of simulation analysis to predict process or product improvement effects, use of non-normal distributions, and advanced DOE methods (Hahn, Doganaksoy and Hoerl, 2000). Research on Six Sigma should not concentrate on empirical field research alone, but could investigate the development of new tools coupled with field research to test their effectiveness in actual use.

We could go on with many other possibilities, but will mention just one more. This research project concerns the role of Six Sigma in knowledge creation and diffusion. It is possible that a highly structured method such as Six Sigma could be very useful in adding to both individual and organizational knowledge (Kim, 1993: Kogut and Zander, 1992; Cohen and Levinthal, 1990). Since little is known about knowledge creation and diffusion by structured methods such as Six Sigma, the opportunity exists to contribute to both the knowledge and Six Sigma literatures. The author is currently engaged in a study of this type in the U.S.

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CONCLUSIONS The use of Six Sigma methods has recently accelerated in business circles. Yet, the

academic community is largely unaware of these methods and has not initiated research on the phenomena. What is needed is a concerted effort to understand Six Sigma methods, their benefits and their limitations in actual use. This research would not only lead to theory enrichment and development, but could help practitioners gain a better understanding of Six Sigma.

A preliminary definition of Six Sigma has been provided as a starting point for further research. This definition attempts to identify the six critical elements of Six Sigma along with some comparisons to other quality methods and to the literature. What is needed is an evaluation of the definition of Six Sigma methods based on field research relating different uses of Six Sigma methods to different organizational contexts.

Another area of promising research is to carefully study the cost and benefits of Six Sigma along with the factors that influence variation in cost or benefits. This would help academics understand the economic impact of Six Sigma and assist practitioners in evaluating their Six Sigma efforts.

There are a variety of other research projects that could be undertaken. Some of these have been suggested along with an appeal to start with qualitative case-based research approaches aimed at theory development, before launching into large-scale statistical studies. A better understanding is needed of the Six Sigma phenomena that will come only through carefully constructed small-scale studies aimed at enriching our initial understandings of Six Sigma.

This is a fruitful area of research and one that is in need of careful studies. It is an opportune area for academics to join with practitioners in research that is of mutual interest. It is my hope that we will see the results of Six Sigma studies forthcoming at future meetings.

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