Value-Driven Six Sigma: From Cost-Cutting to Revenue Growth
A colleague recently returned from a speaking engagement at the 5th Annual IQPC Process Excellence Week in Chicago and reported several interesting observations:
- Many attendees reported frustration with their process improvement initiatives, stating that they remained at the "grass roots" level and were failing to get full support from their corporate leadership.
- Most business leaders tended to see their continuous improvement/Process Excellence initiatives exclusively from a cost-cutting perspective, never getting those initiatives to the point where they are impacting growth.
- Many process improvement initiatives tended to be cyclical, gaining momentum when business times were tough, but losing focus and impetus when business conditions improved.
My colleague, from the financial services industry, concluded by saying that a) many conference attendees seemed frustrated by the traditional narrow focus on increasing efficiencies at the expense of increased effectiveness, and b) many in attendance were looking for ways to use the tools of Process Excellence (Lean, Six Sigma or others) to drive top-line revenue and market share while simultaneously impacting profitability. In short, they wanted to become a more integral part of corporate growth, and not just "the guys who cut the costs."
In order for Six Sigma practitioners to shift from the time-worn emphasis on operational efficiencies to the more strategic emphasis on operational effectiveness, they’ll need to shift their focus from the Voice of the Business (VOB) to the Voice of the Market (VOM). And they’ll need to shift from the metrics of Customer Satisfaction, which have little to do with business growth, to the metrics of Customer Value, proven to be the best predictors of market share. That means more proactively and systematically going after customer perspectives on value delivery, and it means integrating those perspectives into a modified DMAIC framework.
A Modified Six Sigma DMAIC Framework
Most readers of this column are already familiar with the traditional Six Sigma DMAIC framework. Loosely stated, DMAIC stands for:
- Define: the project
- Measure: the current situation
- Analyze: to identify the causes of defects and variation
- Improve: by implementing solutions
- Control: to maintain the gains.
The frustrations expressed by attendees at the recent IQPC Process Excellence Week emanate from the fact that the Define phase is typically driven from an internal, VOB, perspective. Six Sigma projects are typically focused on problems associated with cost overruns or perceived waste in the delivery of a product or service. Nothing wrong with that, but it relegates the Six Sigma practitioner to an emphasis on process efficiencies, while corporate executives have their eye on revenue and market share growth. If those Six Sigma folks at the Chicago conference want to achieve greater support from the executive office, they’ll need to bring a new focus and new tools to the DMAIC framework. Here are some suggestions:
Define: The Targeted Market Segment(s)
One thing that every corporate executive knows is that all customers are not created equal. Some customer groups will have little interest in certain product offerings (think: retirees and home mortgages); others represent growing business opportunities. The first step of a modified DMAIC is to acquire a laser-like focus on the market segments that best represent opportunities for business growth. The most appropriate tool to achieve that focus is a Market Opportunity Matrix. After identifying your most important customer groups, you’ll need to align them with your product offerings. The use of these two tools will force you to focus on the two things that make your company money: the products or services you sell, and the customers who buy them.
Measure: To Determine What Drives Value
The key to business growth, both top-line revenues and market share, is to create and deliver superior value. But how can you do that if you don’t know how your targeted customer groups define value? The relative importance of Quality and Price (the two key components of Value) tends to vary from one market segment to another. More importantly, the components of Quality and their relative importance also differ from one segment to another. How can you target your process improvements to provide superior quality if you can’t document what’s most important to improve? One of the hallmarks of Six Sigma is its emphasis on quantifiable outcomes. Why would you settle for anything less in documenting Critical-to-Quality factors (CTQs)?
All the Six Sigma practitioners I’ve met claim to include the Voice of the Customer in their project. A bit of probing, however, typically reveals that they didn’t get the customer perspective until the Six Sigma project was already defined (inside out); the perspective they did get was based on the metrics of satisfaction, not value (wrong metric, wrong results); or they simply used a qualitative approach (talking to a few customers) instead of a more rigorous quantification of CTQs. This can be easily rectified by adopting the metrics of Customer Value.
Analyze: To Determine Your Competitive Performance on CTQs
It’s one thing to understand what the key drivers of Quality and Value are, and yet another to understand how you perform on those relative to competitive offerings. That’s why the Measure phase must include performance ratings from both your customers and those of your competitors. An analysis of those performance ratings will reveal your competitive value performance gaps, as well as performance gaps on the most important CTQs and the underlying value performance criteria. This is where the rubber really meets the road, because these performance gaps—both the positive ones and the negative ones—will direct your opportunities to create and deliver superior value.
Improve: Products, Services, People, and Processes
There are two important aspects of the Improve phase that Six Sigma practitioners often forget. The first is that improvements—whether to products and services, people, or processes—must be aligned with the organization’s competitive marketing strategy. This is why it is so essential to tear down the silos that separate the CI (continuous improvement) professionals from the marketing professionals. The tools to make that happen already exist. You simply need to apply them.
The second aspect of the Improve phase that confounds both Six Sigma and Lean practitioners occurs during their value stream mapping. Because Lean and Six Sigma deployments tend to emanate from an internal focus on efficiencies rather than an external focus on effectiveness, most value stream maps that I’ve seen fail to include a "swim lane" for customers! Don’t believe me? Check out your value stream maps and find the explicit interactions between customers and the functional areas of your business. Drop me a line with your counter-examples!
Control: Your Customer Defect(ion)s
Does a tree in the forest make a noise when it falls if no one is around to hear it? Do your process improvements make any difference from a customer’s point of view? How do you know? Are you measuring customer reactions to your improvements on a transactional basis? Are you able to link those transactional measures to your business key performance indicators (KPIs)?
The message for Process Excellence professionals of all stripes is clear: if you want to be part of the "winning team" within your organization, you’ll need to shift your perspective from one focused exclusively on cutting costs to one that is customer-focused and value-driven. You’ll still be able to identify opportunities for greater efficiencies, but your focus will be upon creating and delivering superior value to your most important customers, resulting in both increased market share and profitability. I dare say, that will get the attention of your executive team!