Six Sigma: The Language For High Performing Organisations

Updated: Jun 29 2002, 05:30am hrs
Organizations in services and manufacturing sectors today are facing many challenges that include increased stakeholder expectations, extremely high emphasis on customer service and meeting customer expectations and increased pressure on revenues and costs.

These challenges are real and are only expected to intensify in future. Given this scenario, it is vital that management teams have comprehensive understanding of the performance of key processes in the organisation.

Organisations today have developed very detailed Management Information Systems (MIS) that can capture organization performance in terms of operational parameters, quality parameters and financial parameters on a periodic basis.

However, most of the reports churned out as part of the management information system contains huge quantities of data that may not have seamless linkages. Currently, MIS comprises a plethora of data that brings routine operational issues to CEO/Senior Management team’s desk and they in turn get engaged in solving operational issues.

This takes away valuable management time that should otherwise have been spent on primary leadership responsibilities such as direction setting, creating high performance organizations and providing stakeholder delight.

Quite a few organizations have evolved and have started to use more sophisticated tools such as Balanced Scorecard. This is a concept to translate strategy into action. It is a good performance measurement system reflecting most important aspects of the business. It introduces four different perspectives from which a company’s activities can be evaluated.

They are financial, customer, process and learning and innovation perspectives.

The above perspectives when taken in totality provide a comprehensive performance measure for the organization and provide a powerful tool for decision making to the CEO/Senior Management. Though the Balanced Scorecard is a quantum improvement from the traditional performance measures, it sometimes becomes difficult to implement this as the different perspectives still gets measured using the same paradigm of measurement which existed earlier, i.e. in terms of financial numbers and targets.

This sometimes leads to disillusionment and is often seen as a top management instrument and becomes difficult to implement because of its complexity.

However, in order to achieve similar impact, adopting Six Sigma measures, as an universal performance measurement system for an organization is a good option.

The crux in the Six-sigma methodology is to express health and performance of all key processes in terms of a sigma measure. This measure unifies the Voice of Customer and process performance.

Therefore, the effect is dramatic as the organization speaks in the language of Sigma as a measure for organizational performance. This sigma measure can be then used to derive financial impacts.

This measure is a very accurate depiction of the real world as a lot of statistical rigor is inbuilt in the measurement. It is also a low investment measurement tool that does not consume much time and resources to initiate and implement. Having defined the sigma measure, the CEO/Senior management can choose from a host of improvement initiatives like TPM, BPR or Kaizen in order to move on a Sigma improvement journey. The sigma levels of key processes can become part of the management team performance measurement dashboard.

Sigma levels are computed based on historic data using statistical tools and techniques. The financial impact of the improvement in each Key Business Process (KBP) is calculated and included in the dashboard. This dashboard can be updated at any frequency as desired by the Management Team. Such dashboards prove to be very effective for organizations engaged in Services as well as Manufacturing.

Having a sigma performance measurement dashboard brings in tremendous focus in terms of meeting customer expectations, which in turn has a direct link to the bottom line performance of the organization. It simultaneously helps improve the top line performance of an organization.

Here is an interesting experience of design and implementation of a Six Sigma Performance Measurement Dashboard. The case in point was a Rupees Twelve Thousand million corporation with a portfolio of businesses. The corporation had started businesses at different points of time and each had its own reporting system.

There was a maze of reports being generated at different frequencies. The average monthly report would consist of about 100 pages reporting over 200 measures. Clearly, most of these measures had little to do with the key drivers of business. There was a confusing mix of key drivers and basic activity level measures.

The MIS was mostly devoted to capturing operational parameters for all plant and machinery, which resulted in a plethora of data pertaining to non-critical equipment as well. The performance of critical parameters was buried deep inside this pile of data. The reporting system was mostly inward focused.

The voice of the customer hardly figured in any of the reports. For example the MIS did not reflect the delivery performance with respect to the shipping requirement of the customer.

When we started addressing the issue of building a simple but tightly focused MIS that could guide the management team to action we had to answer the following questions:

How do we tell the story of the organization’s strategy and performance in a unique blend of outcome measures, performance drivers and cause and effect relationships * How do we express the performance of the organization in a single unit of measure while reflecting customer voice Key processes were selected along the value chain and process performance measures were identified with respect to the internal customer voice and stakeholder voice.

Quality and delivery indicators with respect to end customer voice were frozen. Key cost drivers of the business were defined and the stakeholder voices on those parameters were ascertained.

Based on the above indicators, the sigma levels of the key business processes were calculated and visual indicators such as sigma boards to track the sigma improvement journey were established.

The outcome: The management team now had a Sigma Dashboard, which communicated effectively the performance of the key business processes. Management team meetings became shorter, focused and productive. The number of measures to monitor came down from 200 to 8. Management could quickly understand the health of various processes and parameters as they were expressed in sigma terms.

Management team meetings started discussing the areas where sigma had to be improved and the means of accomplishing it. The benefits arising out of any improvement initiative were also estimated and an action plan to achieve the same was defined.

The CEO/Senior Management team had more time to focus on strategic direction as they were free from getting involved in routine operational details.

Better still, the operating managers started using the vocabulary of sigma to discuss performance thanks to the relentless championing by the CEO and his team. Tangible benefits like improved delivery performance and quality was evident after introduction of the sigma performance measurement dashboard.

But it had its share of challenges to begin with. The principal challenge waste bring the CEO/Senior Management team on board to this sigma dashboard concept.

The challenges were overcome through successive training programs and imple- menting these sigma dashboards in pilot areas. This experience helped demonstrate the value of tracking a few key performance measures and using the right communication tools to present and interpret them. Therefore, using a Six Sigma Performance Dashboard would be useful for organizations that desire to face the challenges posed by the current business environment.

(The writers are principal consultants at ECS Ltd)