Book Summary: The Six Sigma Way

(book summary written by Scott Lichtman): I recently borrowed a copy of The Six Sigma Way, a book by Pande, Neuman and Cavanagh (consultants to GE, Allied Signal and other corporations). While the book and concept have been around several years, the steps it recommends for services firms are fresh and valuable today.

Six Sigma refers to a statistical principle of reducing defects in any process (invoice entry, web page development, iPod manufacturing) to less then 3.4 per million.

More generally, it’s a method for prioritizing the greatest value-generating processes in a business and reducing ‘defects’ by orders of magnitude – time and again.

Defects can refer to data errors, physical flaws, or anything that a customer considers less than perfectly executed.

Usually, businesspeople associate Six Sigma with the manufacturing line, but it’s equally valuable for services firms.

In fact, it’s extremely valuable for knowledge-based firms because have spent relatively little time analyzing and perfecting their processes.

Some would claim this is because of intangibles in the creative process, but I suggest there’s also a reluctance by higher-paid knowledge workers being to be subjected to “quality control.” Let’s look at a few service activities where process measurement applies.

1) Accurately qualifying prospects. E.g., at what percentage of first sales meetings will the prospect say “yes, this is a service that’s relevant to me”? Do you know what’s an optimal return-on-meetings (or RFIs, for that matter) for your business model?

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2) Up-to-date information on a web page. How many of your web pages at any given time have out-of-date information or broken links?

3) Clarity of marketing materials. How many of your marketing materials would prospects say they “understand fully”.

4) Timeliness of investment research.

Did a research piece your team produced get to the relevant investors within a day? An hour? How long a delay is acceptable to your customers?

5) Finishing projects according to original schedule and budget.

The Six Sigma “cure” isn’t rocket science but almost all firms that have used it succesfully emphasize the following steps in the following order:

1) Identify your core customer-facing and profit-generating processes within and across functions. Also identify your key profit-generating customers.

2) Have customer define the performance levels for acceptable and exceptional delivery.

3) Measure current performance.

4) Prioritize, analyze then implement improvemnets.

5) Integrate Six Sigma into daily activities through ongoing metrics, “Voice of the Customer” input mechanisms, etc. Firms tends to fail at this process when they skip a step, such as systematically interviewing customers or “back of the envelope” guessing current performance.

Firms also tend to underestimate the benefits of long-term adherence to the program and top management support; these foundations lead to both incremental improvements and breakthrough changes in how one does business, resulting in profit improvements of 10% to 30% or more over several years.

Quality control has taken hold in mass-produced services, such as call center response times.

Now it’s time to look at your knowledge-work business and find the benefits of systematic process improvement.

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