Focusing Six Sigma Investments to Maximize ROI

Reg Goeke

Six Sigma: Generation 3

In our introductory column, we acknowledged and applauded the evolution of Six Sigma into Generation 3, with the attendant shift from an internal focus on defect and cost reductions to an external focus on value creation and delivery. We also noted that Six Sigma: Generation 3 will require a more proactive approach to collecting the Voice of the Customer (VOC) and extended that approach to include the Voice of the Market (VOM). But this begs the following questions: Which customers? And which markets?

Identifying and Prioritizing Six Sigma Projects: All Customers are Not Created Equal

One of the frustrations expressed by many Six Sigma practitioners is that they’d like to use the Voice of the Customer to help identify Six Sigma projects, but there are just so many voices, and they often point in different directions. Part of the problem, of course, is that these Six Sigma practitioners are relying heavily upon customer complaints, which are reactive and difficult to quantify. Another problem is that the discipline of Six Sigma, in many organizations, is not aligned with the strategic priorities of the organization. In other words, even when the intent of Six Sigma is to enhance the creation and delivery of value to customers, those Six Sigma initiatives might not be focused on the right customers—the customers most essential to the future growth of the business.

Most businesses have already segmented the markets they serve, and, while some of those segmentation schema are better than others, all serve as a place to begin the process of evaluating opportunities for business growth. Some of those market segments will certainly be more attractive than others. Some are already quite large, but they may be stagnant or in decline. Others may be relatively small, but their rate of growth is extremely fast. Some may provide a modest opportunity for initial sales, but tremendous opportunity for after-sale support and revenue. Some segments will definitely be more profitable than others, if only due to the level of competitive intensity. Would you invest the same level of resources across all of those segments, or would you prefer to target your investments for maximum returns?

In similar fashion, your organization’s current and future ability to compete effectively will vary from one segment to another. In some segments you may already compete very effectively and will continue to invest in order to "protect the heap." In other segments you may not currently be competing as effectively as you might like, but could become very effective with selective improvements to people, processes or services. The challenge lies in deciding where to invest today’s limited resources in order to identify and prioritize your Six Sigma initiatives.

Six Sigma Marketing: Define your Focus

The Six Sigma Marketing Toolkit™ includes two tools that will help bring a focus to your Six Sigma marketing initiatives. The first of these is a Market Opportunity Analysis® that will help you to evaluate the attractiveness of the market segments you serve (or wish to serve), as well as your current ability to compete in those segments. Of course, you’ll want this analysis to be fact based and data driven, so your management team will need to select appropriate criteria for the evaluation of both segment attractiveness and your current ability to compete. Some suggested criteria pertaining to segment attractiveness might include, for example, size of the segment, the segment growth rate, competitive intensity and relative profitability. Criteria pertaining to Ability to Compete might include your current market share, the literal availability of your products or services, the depth and breadth of your people skills and your actual proximity to the segment.

Some of these evaluative criteria may be more important than others in your decision making, so your management team will need to weigh the criteria in terms of their relative importance. Finally, the members of your team will need to rate performance on each criterion in order to position each segment on the matrix. The actual calculations are automatically generated by the Market Opportunity Analysis® tool.

In the example shown below, Segment A is clearly a winner for this company (very attractive, and the company is in a strong competitive position), and its position should be actively defended. Conversely, Segment E is a bit of a dog (unattractive, and the company has not invested to be competitive). But what about Segments B, C, and D? Both Segments B and C appear to be relatively attractive. If this company were to invest in them to become more competitive, those two segments could become winners as well. No amount of investment, however, is likely to make Segment D more attractive. (Click on diagram to enlarge.)

But the Define phase of Six Sigma Marketing requires more than just a focus on important market segments—it requires a determination of strategically important products and services as well. After all, those are the two things that make your company money: the products or services that you sell and the people who buy them. This takes us to the second tool in the Six Sigma Marketing Toolkit™, the Product/Market Matrix. (Click on diagram to enlarge.)

The Product/Market Matrix aligns the products you sell with the markets you serve. You’ve already evaluated the strategic importance of your market segments, so all that’s left is to apply similar criteria to the individual cells representing the intersections of product lines with market segments—and you really only need to do that for the strategically important segments—the ones identified by the Market Opportunity Analysis®. For this analysis, the evaluative criteria might include unit or dollar sales, current market share and profitability—and those criteria should be uniformly applied to each cell within the matrix.

The result of this analysis in this particular example is a focus on three strategically important product/markets. This does not mean that the company will stop serving the other 12 product/markets, but it does mean that they are now able to invest their limited resources much more effectively, with a much greater likelihood of significant returns. And the first of those investments is to Measure and Analyze the Voice of the Market (VOM) in order to understand what drives Value in each of those targeted product/markets better than anyone else.

Collecting the Voice of the Market (VOM) for Your Six Sigma Initiatives: How to Listen

Your organization probably already has many listening posts for the Voice of the Customer (VOC). In the next column, we’ll talk about how you can extend those to include the Voice of the Market (VOM), and how you can move from a reactive listening system to a proactive one. In the meantime, do you know which product/markets your Six Sigma initiatives are targeting?