The ‘Six Sigma’ approach to improving the performance of business processes is enabling an ever-increasing number of organisations to transform service performance, enhance customer satisfaction and catalyse the ‘bottom line’. Although the approach originated in manufacturing applications at Motorola, General Electric through their financial services business GE Capital subsequently demonstrated how his could be applied to service and transaction – and in doing so contributed at least $3 billion to profits over the last 3 years. And that figure is auditable!
Surprisingly perhaps many manufacturers have been slower to extend the approach to their key transaction processes and operations. But those who have – including Volvo Cars (part of the Ford Premier Automotive Group) have experienced substantial success. Indeed some manufacturers have experienced that there is more money to be saved and bigger opportunities for improved customer satisfaction in transactional improvements than in manufacturing ones. This may be in part due to previous improvement initiatives such as lean manufacturing having already addressed the ‘low hanging fruit’. So there is often considerable opportunity for gains in Shared Services for manufacturers and well as for service sector companies.
Shared Services operations, both in-house and externally sub-contracted businesses (known as BPOs or Business Processing Operations), can particularly benefit from the Six Sigma approach for a variety of reasons which we will discuss shortly. But first perhaps you may ask – what is Six Sigma?
‘Six Sigma’ as a programme is probably best described as an improvement approach that seeks to improve processes to the point of near perfection. This means that they consistently and profitably deliver outputs (goods, services and transactions) to customers’ requirements in all but a handful of cases in a million times (strictly 3.4 defects per million opportunities – although it’s never been clear to me how you can create 0.4 of a defect!). Such a high performance level is an entry-level requirement when we think of passenger safety in transportation services, but may more realistically be an aspiration when it comes to more mundane although equally vital activities such as processing payroll cheques or employee expenses. Fred Smith, CEO of Federal Express – who featured as himself in the recent Tom Hanks movie ‘Castaway’ - describes 100% plus performance as being the necessary goal in his business of delivering packages. "98% or 99% may be fine for other human endeavours. Our chosen profession is not one of them. Our service standard is 100% plus – our customers expect faultless performance … all of the time!"
Six Sigma scores much better than many other ‘quality’ approaches. It has a rigorous approach to understanding customer requirements and translating them into specific and measurable outputs. It aligns this ‘Voice of the Customer’ with the ‘Voice of the Process’ – improving the design and operation of key processes to consistently meet customer needs. There is strong emphasis on ‘management by fact and data’ – and not merely relying on people’s opinions and experience which can be fallible. Furthermore Six Sigma is focused on issues and problems important to both the business and the customer, and is delivered through manageable sized projects prioritised in line with the business’s strategy (the elephant is eaten in bite-sized chunks).
Examples of improvements actually achieved in transaction operations include:
- Enhanced customer delivery predictability
- Reduced invoicing errors
- Earlier payments from customers
- More timely payments to suppliers
- Faster and more effective recruitment
- Faster time to relief and fix of IT systems and software problems
- Reduced staff absenteeism
Examples of similar improvements from the use of Six Sigma and SPC tools can be found in ‘SPC in the Office’ by Mal Owen and John Morgan (ISBN 0 9523328 4 1).A copy can be ordered at a reduced price just click here for details.
The emphasis on rigorously establishing and then aligning towards customer requirements is particularly significant for Shared Services. Historically often the Cinderella of organisations, key support transactions whether Financial, HR, IT or Facilities (and others) have been poorly resourced, under-funded, subjected to frequent organisational change (centralisation followed by de-centralisation ad infinitum) as well as being poorly understood by other parts of the business. Part of the problem is often associated with the fact that they are paid for by groups (the clients) other than those receiving the value of their outputs (the end-users). Often Service Level Agreements (SLAs) where they exist reflect more the leveling down of service to affordable levels rather than the true requirements of end-users. The focus on, and commitment to improvement can overcome specious arguments about SLAs. Six Sigma projects provide the means to deliver the required improvements and cost reductions without the need for a blunt axe approach.
Six Sigma – with its emphasis on the customer – provides a structured approach to identifying the needs of both types of customers (the business clients and the end-users) together with mechanisms for resolving conflicting requirements and different needs amongst different categories of clients and users in the same business. The emphasis on management by fact and data ensures that customer departments and the Shared Services Operation agree appropriate and realistic customer focused performance and improvement measures and goals – and express those in the negotiated SLAs, enabling resolution of internal political issues and difficulties.
This change of approach is also re-inforced by the so called ‘soft’ skills aspects and techniques of Change Management. E = Q * A is as famous an expression to Six Sigma practitioners as E = mc squared is to physicists (and the proverbial ‘rocket scientists’) where E stands for Effectiveness, Q for the technical quality of the selected solution, and A for the Acceptance of the solution to those affected (the ‘stakeholders’). This equation says that it is just as important to work on persuading people about the benefits of a proposed change as it is to seek a technically optimal solution. Of course actually doing this is harder than it sounds – but Six Sigma addresses this head-on with appropriate Change Management tools and techniques just as effective as the process and data tools more normally associated with this type of improvement programme.
A further particularly valuable opportunity for Shared Services is the direct involvement of customers in joint Six Sigma projects. Too often in the past there has been finger pointing between the clients and the providers with each blaming the other for problems. Too often energy has been expended in this way rather towards solving them. In reality usually the causes of under-performance are many and are attributable to both parties; the client provides poor quality or late information input and this is then compounded by the processor.
I can well remember once being challenged by a main board director of a leading US Telecomms customer of my then employer ‘Vince, what are you going to do about this (invoicing) problem?’ My silence for a minute puzzled him, but my reply ‘Lorne, I’M not going to do anything about it…’ really caught his attention until I added ‘…because, WE are going to jointly sponsor a set of joint improvement projects…!’ The subsequent joint projects saved many millions of dollars, relieved the vast majority of the problems within 4 months, and fostered a real sense of partnership between our two companies – after he had overcome his initial shock reaction! (It also saved me from indigestion at our meeting over a working breakfast!)
So, Six Sigma projects can establish the real causes and their origin, and demonstrate how much of the problem relates to ‘garbage in’ and help secure the commitment of the customer user staff. Joint improvement projects with the client manager acting as a co-champion / co-sponsor, and with customer staff included as project team members can half the time taken to resolve the issue. More importantly perhaps the joint project re-directs the energy of people towards the problem and away from blaming each other; hence real partnership for improvement is created and nurtured.
The opportunity for Shared Services from Six Sigma is enormous. My consulting company Catalyst Consulting is already working with a leading US multinational BPO to assist it in implementing Six Sigma to support its US and UK client base. To borrow a famous phrase…’the only thing left to fear is fear (…of succeeding…) itself’.
Vince Grant is a Director of Catalyst Consulting Ltd.
Vince is an expert in Six Sigma methodologies, and regularly trains Black Belt and Master Black Belt programmes. He is a graduate from Cambridge University, and obtained his PhD in Physics from Manchester University. He is a Fellow of the Chartered Institute of Management Accountants. Vince had international senior executive experience at Hewlett Packard before forming Catalyst in 1995
This was first published in the Dec 2001 edition of 'Shared Services' magazine.