Lean or Six Sigma

Lean Management (Lean) and Six Sigma are getting more and more popular. These methods were developed in the industry, but have proven to be very powerful for service organizations as well. They use the approaches and instruments to systematically work on process and quality improvement. With the large challenges many service organizations face (cost cuts, quality issues, increasing customer demands) these improvements are more than welcome. But which method is best?

Like always, this depends… Both methods have their advantages and disadvantages. Let’s take a look at the methods from an ‘instrumental’ point of view:

An important strength of Lean is the fast implementation. Lean aims at standard solutions to standard problems. Lean is focused at customer value and waste. By applying Lean best practices organizations can quickly streamline their processes and remove waste. Quick results can work as a catalyst for further Lean implementations and Lean successes.
But what if your problems are no standard problems? In this case Lean won’t (completely) resolve them. You might need ‘something stronger’.

Six Sigma is a method for analyzing and resolving complex problems. Based on measured facts, a dedicated improvement team will use powerful (statistical) techniques to really understand the specific problems. Symptoms, problems and causes are identified, enabling the team to fundamentally improve processes.
But Six Sigma comes at a cost. Setting up the program and training the team members is expensive. Also, the method achieves improvements by resolving ‘problem by problem’. With a typical Six Sigma project taking about three months, it will take a lot of time (and costs) to come to a big impact for the organization.

So both Lean and Six Sigma are powerful. It all depends on the problems you have and the fit of the techniques with your organization. If we look at service organizations, we usually see lots of opportunities for improvement. They all face challenges like customer focus, quality and processing speed. Lean offers easy-to-use, common sense techniques to tackle these issues. Six Sigma is powerful as well, but for many organizations a bridge too far. The complexity of the method could draw away the attention from what it should be all about: improving processes and achieving results. Many organizations that experimented with Lean and Sigma also came to this conclusion: initially remove waste and streamline processes with Lean; secondly use Six Sigma for specific complex problems.

Besides the instrumental viewpoint on Lean (and Six Sigma) there is also a cultural viewpoint that might be even more important. Organizations that are successful in systematically improving processes don’t only use the techniques, but they ‘live them’. There is a drive to ‘do the work every day a little bit better’. Lean becomes part of the culture.

BPM….Must-Have Tool to improve your business

Business process management (BPM) is a methodology used by more and more organizations, specifically those that embrace business processes as a management tool. Processes are connected activities that span across departments, people, systems or roles, which are often represented by a flowchart. Processes have been proven successful at helping companies meet their goals by aligning resources with customer requirements.

BPM Increases Business Agility

In today’s fast-paced, global business environment, organizations must quickly respond to changing conditions, or they won’t survive. Customer preferences, government regulations, supply chain issues and competitor performance can all have major and immediate impacts on sales and operations.

BPM makes companies more agile, with a platform that supports process modifications, enabling a business to eliminate shipping delays, reduce a new product’s time to market, bring a new supplier onboard or improve customer service. BPM also provides the means to implement new processes faster, which is helpful when new opportunities develop.

Improve Efficiency

Implementing BPM can greatly increase an organization’s efficiency. As each process is examined, inherent waste and other inefficiencies become clear – and can be eliminated. With BPM, for example, customer accounts can be opened more quickly. Employee training is accelerated. Manufacturing processes are consolidated. Companies are more efficient. As efficiency rises, revenue and profits increase. The more effective an organization becomes, the better its growth potential.

Boost Transparency

One of the biggest BPM benefits is an overall increase in transparency. Many companies experience an inability to proactively recognize where their processes fall short, but with BPM, they can utilize technology to gauge and better understand process performance.

BPM enables the recording, monitoring and measurement of every process activity. From there, companies can identify opportunities for improvement, make necessary modifications and boost efficiencies.

Why BPM is a Must-Have Tool

Business process management offers companies an efficient platform to respond to customer needs, as well as changes in the market. By facilitating the implementation of new processes or changes in existing ones, BPM enables organizations to remain competitive and stay flexible in both long-term strategies and short-term actions. BPM is the ideal tool to move an organization toward its goals, while cutting costs and improving efficiency, with the agility needed to respond to new opportunities that support growth.

UNDERSTANDING PROCESS IMPROVEMENT OPPORTUNITIES

Process improvement is aimed at identifying the waste in your processes and eliminating it. It is about understanding what parameters in your processes are important, monitoring those in real time to make sure they are always on target, and then improving them if they are not.

Improving your process means eliminating the bottlenecks in your process that throttle the smooth flow of work from one process participant to the other. The process participant can be a person or a system. Improving your process means reducing your cycle times, so that you can process more orders or can serve more customers with the same resources. Improving your process means reducing the cost of processing each order, resolving customer disputes faster and, thereby, increasing customer satisfaction. Improving your process means identifying redundant process steps that can be eliminated.

In order to improve the process you need to understand what the measures for the process are. These can be referred to by various names like “process metrics,” “KPIs” (key performance indicators), “performance objectives,” etc. The idea is that in order to improve the process you should be able to describe what your process is and measure the process for its performance. Only then you can improve the process. The metrics for the processes are determined by your business goals. If quick processing of orders is important to you and your customers, then the cycle time of your order management solutions needs to be the key metric. If reducing order management cost is the business objective, then you may want to reduce the number of orders that need special processing because it is more costly.

Business people are most suited to identify the process metrics or KPIs as they are the ones who manage the business and are responsible for its performance. Business managers, whether they are responsible for order management, fraud detection, or product delivery, have certain performance targets that they strive to achieve. Because business results directly affect their performance evaluation, they want to know at all times how they and their teams are performing—so that they know if they are meeting their targets or their plan needs a course correction. That is why it is important that the business managers have the ability to define the metrics, monitor them and do something about them when they fall short of expectations. They need to do all these without needing to wait for lengthy, time consuming and costly IT projects.

 

WHY CHANGE FAILS

An incredibly high percentage of changes introduced in business organizations do not reach their full potential—that is, do not reach full implementation or do not produce the benefits envisioned by their sponsors.
Changes that fail usually do not fail because of technical reasons— something inherently flawed about the change itself. They usually fail because of human reasons—the promoters of the change did not attend to the healthy, real, and predictable reactions of normal people to disturbances in their routines.

Change

These failures create large losses of time, productivity, and morale. They also undercut the legitimate business objectives that the change was meant to engender. For example, one manufacturer attempted to replace several disjointed software systems with one integrated enterprise resource planning (ERP) system. Because of poor project management, the user community was insufficiently involved in the planning stages, and the project failed dramatically. Opponents then said, “Told you, we just can’t do an ERP in our business.” In fact, having an ERP was a great idea. The project failed because of poor change management practices, and it took years for the organization to recover and install an ERP successfully.

This human tendency to want consistency—to resist change—is actually healthy, in the balance. Without consistency, life would fall out of control and into chaos. We would be unable to predict people’s behaviors or establish our own routines and positive behavioral patterns. Thank goodness for the steadying force of our own behavioral inertia.

However, this same steadying force can work against us when we try to introduce a change. People tend not to want to deviate from behaviors that work for them.

Why do they not want to change when the need for change is so clear to you? It is precisely because the need for change is not clear to them. It is often said that people don’t resist change so much as they resist being changed. So your job is clear: in a nutshell, you have to explain why the affected people should want to change. You have to convey the same understanding and enthusiasm that you and your team have.

You have to cultivate readiness, not resistance.

Marketing Communications Designed to Increase Customer Loyalty

The purpose of marketing communications has traditionally been the acquisition of customers, not the retention of customers. We discussed earlier that while traditional marketing communications influence brand image and thereby influence loyalty among customers, this is an unintended effect, as those advertisements are usually designed to acquire customers. But this suggests a question: should some marketing communications be designed specifically to increase the loyalty of existing customers?

In some business-to- business industries, this has been done for many years. Indeed, communications vehicles (company magazines, newsletters, and company videos) aimed at current customers have been developed especially for this purpose.

But this idea is new in many business-to- consumer categories. It would seem to warrant consideration, at least. One reason is that research has found that customers of a given brand tend to be more attentive to that brand’s advertisements than noncustomers.

This raises the question of what the content of such communications should be. Should it be the same as that for noncustomers? Certainly, the communications should support the image of the brand the company is trying to maintain. That said, one of the reasons for customers’ greater attentiveness to the company’s marketing communications is that they are unconsciously trying to obtain confirmation that they made the “right” choice.
Given that, perhaps a company should use its marketing communications to meet this desire. Such marketing communications would need to focus on the rational or functional benefits of the product/service.

In the case of consumer services, a company may want to consider using the communications to remind the customer (consciously or unconsciously) of how the company’s service satisfies the human needs we discussed ear-lier (security, self-esteem, justice). I do not know of any companies that have used these strategies in designing marketing communications, but they do seem reasonable.

As mentioned earlier, marketing communications vehicles targeted at current customers have been used in business-to- business for years, but are now sometimes being used in business-to- consumer settings. Some companies that collect their customers’ contact information send them fliers and catalogs.

WHAT IS (GOOD) INNOVATION?

Innovation is ‘hot’; it has a prominent position in many strategies and within many core values of organisations. These days, many organisations therefore regard innovation as the way of distinguishing themselves from their competition. The result of this is that many conventions, a considerable amount of research and numerous publications address the topic of innovation.

However, the word innovation is an umbrella concept and its proper interpretation is absolutely necessary in order to address this subject in a focussed manner, otherwise it will continue to be an umbrella concept. It is for this reason that we have adopted the following definition of innovation: Innovation is the development of new and practical ideas, combined with successful implementation (Von Stamm, 2003).

Innovation can be divided into a number of categories, namely:

  1. Product innovation: development, improvement and marketing of new services and products
  2. Service innovation: changes to the way in which services and products are sold (for example via online channels)
  3. Process innovation: changes to the way in which products are produced and services are delivered (for example more efficiently, more flexible and/or more customer-focused)
  4. Business model innovation: the (re-)configuration of an organisation or part of an organisation (issues can relate to the areas of chain integration, (out)sourcing, mergers and acquisitions as well fundamentally changing the structure, the processes and the way of competing in a business sector)
  5. A combination of the above

For each type of innovation the outcome must be innovative, it must be implemented successfully (otherwise it just remains an idea) and it must have demonstrable added value for the organisation and preferably, in our opinion, for the customer. Because innovation ensures a competitive edge it is vital that organisations develop and launch new products quickly and successfully (Tidd, Bessant & Pavitt, 1997).

Brand Image on the Customer’s Experience

To paraphrase a definition by Aaker (1991), a brand is a name, term, or symbol intended to identify the products or services of the seller and to differentiate them from those of competitors.

The definition of brand provided earlier contains the phrase “differentiate them from those of competitors.” More is meant by “differentiation” than simply preventing shoppers from mistaking the product of one company for that of another. A brand also gives the consumer a reason to buy one product instead of another. It does this by adding something intangible
to the purchase, ownership, or use of the product. That “something” may be perceptions about broad functional benefits of the product, such as overall quality, or it may be emotional benefits (for example, security, increased status, or meeting the need to nurture).

These benefits are conveyed by brand image. Brand image has traditionally been thought of as a method for acquiring customers, but it also influences current customers. Consider the following:

  • An image of overall quality will make an owner more satisfied with a product. This effect is even greater if the product is such that its quality cannot be fully evaluated, even by the user. Home heating equipment is one example of this.
  • If a food brand has an image of being healthful, the satisfaction of health-conscious consumers will be increased.
  • In some product categories, if a product has an image of being for a certain type of person(for example, sophisticated or successful people), customers who want to be members of that group will increase their self-esteem by owning that brand.
  • If a restaurant has an image of being family oriented, the satisfaction of some patrons will be increased.
  • In business markets, purchase of a name brand provides the emotional benefit of security, as illustrated by the advertising statement, “No one ever got fired for buying IBM.”
  • In business markets, an image of being technologically advanced is important for industries in which the pace of technological change is rapid.

Traditionally, companies in most product categories have relied primarily on advertising to establish brand images. In the case of an emotional benefit, a common strategy is to have advertisements consistently depict a certain type of person (for example, a financially successful person) enjoying a commensurate lifestyle and using the brand. Because of those advertisements, a person who wants to be a member of this group (financially successful people, in this example) will mentally associate the brand with the group, and owning or using a product of that brand will increase his or her self-esteem.

A company decides which images it should associate with its brand on the basis of a brand positioning study. Formally stated, the purpose of a brand positioning study is to identify a distinct and valued place in the consumer’s mind that is not currently occupied by a brand. After this place and the brand images defining it have been identified, the company designs
its advertising to convey those images, and it designs new products or modifies existing ones so that they are consistent with those images.

Empathy

As is the case in other human endeavors, we sometimes overlook the obvious.
One such instance here is that service employees who have direct contact with customers should empathize with customers. This is especially true of service channels or customer contact points designed to resolve customer complaints. In the context under discussion, empathy has the following ingredients:

  • Being friendly
  • Being aware of the customer’s feelings
  • Caring about the customer’s feelings
  • Caring about the customer and meeting his or her needs
  • Affirming that the customer’s concern or feeling is valid, in the case of problem resolution
  • Owning the problem

This is very different from the common practice of dealing with customers in the same way that a farm worker manages the movement of cattle.
How can the company get its employees to have (and show) empathy? One method is to show employees videos of service experiences (actual or mock) in which empathy is and is not expressed. A video, as opposed to a written description, is needed because a substantial portion of communication (by both employees and customers) is nonverbal: eye contact, tone of voice, facial expressions, and body language.

Notice that this has implications in the hiring process. While it is true that some employees can be trained to exhibit more empathy than they actually have, this is possible only up to a degree, and even that effect may be temporary. Consequently, the company needs to hire people who are predisposed to empathizing with customers. This reminds us of the saying,
“No type or amount of training can get a cat to bark; if you want barking, get a dog.”

The Golden Rule: Do unto others as you would have them do unto you.

Business and Process Metrics

What do you measure in your business? You probably use a number of metrics, which may include some of the following:

  • Inventory levels
  • Aging of inventory
  • Profits and losses
  • Cost of goods or services sold
  • Return on investment

As you get more and more into Six Sigma, you’ll need to supplement these overall business metrics with metrics related to the performance of the processes you’re trying to improve, such as:

  • Cycle time (an important indicator of process speed, which is often a key competitive factor)
  • Percent of final products or services with defects or the number of defects per product or service
  • Hours required to produce a certain number of outputs or provide a service
  • Customer satisfaction (extent to which products or services meet customer expectations)
  • Yield (amount of acceptable goods or services relative to the total number produced or delivered)
  • Cost of poor quality (a concept we’ll cover in a later)

If you haven’t set any metrics, I’m surprised you’re still in business!

How have you made important business decisions without data? Have you relied on your intuition? Have you just guessed?
Imagine for a moment that you’re a surgeon. You are in the operating room, about to operate on a man who is suffering from abdominal pain. But you haven’t run any diagnostic tests, you haven’t asked the patient any questions, and you don’t have his previous health records. What do you do? Do you take a wild guess that he has appendicitis and just start cutting? Of course not!
Just as a physician uses information to diagnose an illness before beginning treatment, Six Sigma uses metrics to help you identify areas (processes) for improvement.

I cannot emphasize to you enough that, as a small business owner or manager, it is absolutely imperative that you track the progress of your company!

Defining Quality for Small Business

Quality for the small business doesn’t mean the same thing as for a large organization. Why not? Well, the key difference has to do with size. A large company, with a variety of products or services and lots of resources(like cash), can sometimes afford to provide its customers with less than high quality and still stay in business.

For example, there are big retailers that offer a wide variety of quality goods at competitive prices, but provide poor customer service. Regardless, consumers continue to shop in their stores because of the low prices— they’re willing to put up with poor quality service to get those prices.
I’ll go even further and state that customers have actually come to expect lower quality from large corporations, as long as the corporations make up for it in other ways. We expect some defects. Here are some examples to illustrate this point:
• Cell phone companies drop calls.
• Car manufacturers recall millions of vehicles.
• Home appliances need constant repairs and/or extended warranties.
• Airlines lose luggage.

When defects like these rear their ugly heads, are we surprised? Of course not. And, more often than not, these defects do not prevent us from continuing to patronize these businesses because we derive other benefits from them that mean more to us. For example, maybe your cell
phone company drops calls, but you got a great deal on it from that company.
Or, your car might have been recalled, but it gets great gas mileage.
And, although you had to buy an extended warranty on that dishwasher,
it’s the quietest one on the market. Finally, even though the airline lost
your luggage, it had the best deals on Disney vacation packages! You see
what I mean.
On the other hand, it’s entirely different for the small business. In
most cases, a small business can’t overcome defects in quality. The bottom
line: defects will slowly kill you. They will put you out of business. Do you
agree? If not, you’re in denial. If you don’t eliminate defects, your customers will go elsewhere. You can use Six Sigma to get rid of those defects
once and for all! And the fact is that maybe your competitors will be using
Six Sigma.
I have been trying to sell you on the benefits of Six Sigma. I hope I have succeeded. But before we move on to actually learning how to do it, I want you to pause for a moment and consider the human element of Six Sigma.

Six Sigma is all about identifying and fixing problems that lower costs, improve quality, and raise your bottom line. But businesses are about more than just money; businesses are people. So what are the internal effects of Six Sigma? How will Six Sigma affect your employees and your company’s culture?