Over the past few months, I have been using this blog to collect information from different operational managers, especially IT managers because of the wide range of services they run. The subject has been, “How are you dealing with the pressure for change and “transformation” in the services you manage?” What have I found? Pressure to improve services is at an all-time high. There is pressure to limit cost while improving service quality. There is pressure to outsource services, although managers are often unsure that outsourcing can accomplish this. There is also pressure to “transform” services, which is even more confusing to most managers. In order to create change, managers are becoming familiar with Six Sigma or are incorporating Six Sigma expertise into their groups. These managers are feeling something that is difficult to articulate, and too vague to outright challenge the experts. Especially in these difficult economic times. What is this feeling? Something is not quite right.
Six Sigma provides a great tool kit, a cookbook of analytic recipes that helps any manager serve up a feast of improvement projects. However, just as a cook needs more than one cookbook, we need more than one “book” of Six Sigma. Six Sigma began in an industrial environment. The tools are good, but the targets are inappropriate and have not been redeveloped for Corporate services. This, I believe, is what the managers have intuitively discovered. A few years ago Malcolm Gladwell put out a book, “Blink” that explained how we can know in an instant something that escapes teams of experts… even after extensive research. This flash of insight could be summed up as, “Something is not quite right.” It’s time to examine the objective information and create appropriate goals for Corporate Services, something that might more appropriately be called 4th Sigma:
- First Sigma: Motorola attained the 3rd sigma, and stayed at that level of quality until Japanese colleagues pushed for a new goal, a 6th Sigma goal. Most corporate services are struggling to reach the 1st Sigma (85% quality). Some report 95% or better quality but few are truly performing at that level (see my earlier blog, “100%, Guaranteed On-Time… Sort Of!”, for details). Not only are Corporations at least 2 Sigma’s behind industry, but they NEED to live within the 3-4 Sigma level to be effective. As you will see.
- Similar vs. Same: Six Sigma processes need to be repeatable. Each time a function is performed provides a new opportunity to measure results, identify issues, and improve processes. In Corporate Services, functions never repeat exactly. Consider a document with 10 words that need to be corrected: it could take 10 keystrokes, or a larger number (depending on the words); all words could be on one page, or you might need to search through many pages; different documents will vary in size and complexity. Each variable affects how edits are performed. We can learn from similar functions, and we can apply what we’ve learned when the “resolution” is no more than 3 or 4 Sigma’s. When we turn up the resolution to Six Sigma’s, similarity generates so much background noise that the results are not useful.
- Client Position: In industry, clients are not integrated into the physical production process, although clients may “direct” production through survey data, input from sales representatives, and data from marketing. Corporate Service clients are directly integrated into productions. Lawyers, consultants and accountants are direct users of corporate services, and external clients (revenue sources) are also involved in production processes: presentation documents, contracts, research projects, application development, and other services. The haze of additional variables from clients prevents… and indicates against… a higher Sigma resolution.
- Open Production Floor: The ultimate example of Six Sigma success is the microchip factory. The greater the need for quality, the higher the Sigma level. Microchips are so complex and have so many opportunities for errors they could not be produced without Six Sigma. Chip factories control airborne contamination by sealing the production space; prevent human contamination by sealing workers in environmental suits; and reduce disruption to calibration equipment by having everyone whisper and walk softly. Corporate Services, by contrast, need to work in an open environment. IT often travels to other departments and clients to perform a function, other services must interact outside of their own physical space. Corporate services can never control their space at a Six Sigma level.
- Role of Procurement: Procurement plays a vital role in industrial production, assuring that external inputs (products from suppliers) meet production needs (quality, timing of delivery, price, etc.). The most important inputs for Corporate Services come from clients or proxies (lawyers, bankers, accountants, consultants, etc.), who are not controlled by Procurement. Because Procurement’s control over supplier inputs is derived from control over payments, they are largely powerless in Corporate Services where “outside” suppliers (the clients) control the payments. Corporate Services lose a powerful Six Sigma lever, reducing possible results.
- Speed of Improvement: Six Sigma text books target a reduction of errors by a factor of 10 every 2 years. This rate of improvement is largely fueled by the rapid evolution of technology. Machine based functions dominate industrial processes, which in turn provides many opportunities for rapid speed/cost/quality upgrades. Service functions are largely people based, where cost is generally rising. Opportunities for speed/quality upgrades exist but are limited, and there is no guarantee that large percentage improvements can go on forever.
- Ownership of IP: In factories, many business processes are embedded in equipment that the firm owns or leases. When equipment is replaced, the new equipment will incorporate existing and upgraded processes. In a Corporate Service, business processes are primarily embedded in individuals, who may leave at any time taking precious knowledge with them. You can turn to your training materials for an (incomplete) backup of business processes, but “reloading” this information into new staff is expensive, time-consuming, and problematic.
- Physical vs. Knowledge Inputs: Measurement is a necessary part of Six Sigma. Measuring industrial inputs is relatively easy because weight, size, height, thickness… are all physical, linear properties. Knowledge inputs, especially client produced inputs, are more difficult to measure and offer few opportunities to examine the elements of the input (Is that spreadsheet formula correct? Do company names require clarification? Was IT instructed to go to the wrong location for a computer installation?). Measurement is possible, but the range and quality of input measurements are greatly reduced.
- Measurement Cost: The cost of measurement is higher for services, because what is measurable (see above) is likely to require an expensive human resources to record the measurements. Furthermore, humans take longer to record measurements than machines, which will increase the time needed for production, negatively impacting client satisfaction. Measurement is necessary and possible, but must be more limited than in an industrial process.
- Definitional Drift: Definitions always change, but changing definitions is a larger issue in services than in industry. If you have a titanium rod as a reference model, a measurement of its length in 1982 will match a measurement in 2082. A corporate library may use reports from a specific equity analyst as a standard for research, but analyst change firms and research groups can go away (example: Lehman and Bear Stearns). Many benchmarks for Corporate Services are relative or abstract. Every process has definitional drift, but it is greater in services than in industry.
Let’s not throw out the baby with the bath water. The tools that have been assembled by Six Sigma have been around for a long time. They work. But the target goals, which are embedded in the Six Sigma process, just don’t work for Corporate Services. According to Praveen Gupta, a noted author and Six Sigma expert, fully 60% of Six Sigma projects fail to achieve the results they planned. We need to turn Six Sigma methodology on Six Sigma itself. By fully developing a 4th Sigma process, something similar but scaled to meet the needs of a service group, we can make the process more understandable and more successful. That’s going to take a lot more than just this one article, but it’s a start. Over the coming months, we will revisit this issue and lay the foundation for a simple but meaningful quality improvement system. But for today, that’s my Niccolls worth!