The development of Six Sigma

development of

Six Sigma

-A framework for characterizing

the development of Six Sigma

within

The development of Six Sigma

The development of Six Sigma

-A framework for characterizing the maturity of Six Sigma within organizations-

Master thesis by Nico Dillingh Student number: 1334131 (e) nicodillingh@gmail.com (t) 06-46192374

Msc Business Administration Operations & Supply Chains

Amsterdam, 25 March 2009

Dr. H. Broekhuis Drs. P. C. Geerts MScMC

1st supervisor University of Groningen Supervisor KPMG

Prof. dr. ir. C.T.B. Ahaus

2nd supervisor University of Groningen

University of Groningen

Faculty of Economics and Business Postbus 800

9700 AV Groningen

KPMG Advisory

Business Performance Services Postbus 74500

1070 DB Amsterdam

Abstract

Purpose – To develop a framework that characterizes the development of Six Sigma within

organizations. Currently, a framework or roadmap that describes the development of Six Sigma does not yet exist, and it is advocated that this would benefit theoretical and practical use of Six Sigma.

Design/Methodology/Approach – An exploratory research containing a multiple case study research

has been conducted. The interview results of five internationally operating organizations in the financial service industry form the basis of the constructed Six Sigma maturity model. One additional Lean case has been included to search for contrasting results and to increase the study’s findings.

Findings – The findings show that the development of Six Sigma can be characterized in four different

phases; metric, methodology, management philosophy and organizational culture. Furthermore, the model shows three variables on which Six Sigma maturity can be measured; strategic link, process type, and structure.

Practical implications – This maturity model of Six Sigma will enable organizations to perform a quick

scan regarding their current Six Sigma efforts. This will show opportunities for better applying Six Sigma within an organization which can result in faster and better results. It may therefore lead to shortened payback times of Six Sigma investments.

Originality/value – Currently, no framework for Six Sigma implementation exists and a Six Sigma

maturity model complements the available academic literature about Six Sigma.

Preface

In order to graduate from the Master in Business Administration at the University of Groningen, successfully completing a Master thesis is the final test one has to pass. I honestly believe that this final test has been the most interesting and challenging task of the entire study curriculum!

Some positive and interesting aspects of writing a master thesis include the many ‘Eureka!’ moments and the times in which the puzzle seemed to fit for 100%. Naturally, there have also been times with a lack of ‘Eureka!’ moments and the feeling that one is looking for non-existing pieces of the puzzle. However, at this moment the puzzle has been completed and I would like to thank some people for their support during this research.

First of all, I would like to thank Ms. Broekhuis for her critical thoughts during the many feedback sessions. Her ability to ask the right questions and to reduce complex situations into digestible portions have been of enormous value to my research.

Second, I would like to thank Mr. Geerts for all his patience, time, and effort he put in my research. His insights and critical reviews were extremely helpful in successfully completing this thesis. In addition, I would like to thank KPMG and her colleagues for the opportunity to do an internship. The pleasant working atmosphere and the enthusiastic colleagues were of great support for my thesis.

Last but not least, I would like to thank my family and friends who have always supported me during the inevitable ups and downs. I am very pleased to have these people around me!

The Master thesis you are about to read is the result of the final test I had to pass. I hope you will enjoy reading this!

Sincerely yours,

Nico Dillingh

Table of contents

2.1 Maturity of Six Sigma ... 8

2.2 Developmental stage of Six Sigma ... 8

2.3 Strategic link ... 10

2.4 Process type ... 12

2.5 Structure ... 14

2.6 Lean and Six Sigma... 15

3 Research methodology ... 16

3.1 Research design ... 16

3.2 Data collection method ... 17

3.3 Data analysis ... 20

4 Results ... 20

4.1 Case descriptions ... 20

4.2 Cross-case analysis... 20

4.3 Lean versus Six Sigma ... 22

5 Conclusion and discussion ... 34

1

Introduction

Six Sigma is a widely used methodology for process improvements in order to eliminate variation. Introduced by Motorola and General Electric in the 1980s and 1990s, the concept became very popular and is widely used within the manufacturing industry (Pande et al., 2000). Nowadays, an increasing number of companies in the service industry, such as financial service organizations, also uses this concept to improve their performance (Antony, 2006). The financial crisis, that started in the financial sector but has advanced to other industries, requires organizations to look at cost reductions in order to survive this turbulent period. In addition, especially for the financial sector, supervisory authorities demand more transparency and financial organizations are increasingly obligated to be in control of their processes. Customers warrant more trust and reliability from their financial counterpart. Many households are agitated by the current situation and look for a reliable safe haven to trade with. The combination of the pressure to cut down costs, to be in control of the processes, and to increase customer satisfaction is the ideal situation for the implementation of Six Sigma. Many organizations have reported huge cost savings and large increases in customer satisfaction which are attributed to their Six Sigma efforts. Research showed that especially for complex situations, Six Sigma is known for its power to tackle problems (Nonthaleerak and Hendry, 2008). Moreover, according to Antony (2007) the financial sector will be the future growth area of Six Sigma. Therefore, research about Six Sigma in the financial sector will benefit practitioners who are struggling with today’s turbulent environment.

1.1

Six Sigma

Since Six Sigma is developed by practitioners, academics started investigating this concept after it was widely implemented. Some papers describe how Six Sigma improves processes within a company (Pande et al., 2000) or list critical success factors for implementing this concept (Antony and Banuelas, 2002; Coronado and Antony, 2002). In addition, many researchers have defined their own definition of Six Sigma (for instance Henderson (2000) lists many different definitions) and it appears that there is no single way to look at this concept. Furthermore, some researchers argue whether Six Sigma is really something new or just a repackaged version of TQM (Schroeder et al., 2008; Näslund, 2008). Some academics also apply the Six Sigma methodology to the entire supply chain and develop a new Six Sigma model (Knowles et al, 2005, Dasgupta, 2003) or apply the methodology for non-manufacturing operations (Does, 2002).

1.2

Aim of research

With the increasing attention of financial organizations towards Six Sigma and the development of Six Sigma, it is interesting to find out how Six Sigma evolves over time in practice. It is highly unlikely that after implementation the Six Sigma program and its practices will stay the same infinitely. Any change that occurs in the use of Six Sigma is interesting for other organizations to learn from since a better utilization of Six Sigma resources delivers faster and better results. This in turn will decrease the payback time of the investments that have been put into Six Sigma. An appealing advantage, especially in today’s economic reality. In addition, the development of Six Sigma within an organization has not been investigated yet, and this research would certainly complement the available academic literature about Six Sigma. This last statement is underpinned by Antony who states that ‘a roadmap or a framework for six sigma implementation is highly desirable that would allow the health and financial sectors to deliver a truly high-class service to their customers’ (Antony, 2007). Therefore, the aim of research is ‘to build a framework that describes the development of Six Sigma within financial service

organizations.’ This framework will help in assessing an organizations’ maturity of Six Sigma. Moreover,

1.3

Research question

To understand how financial organizations use Six Sigma it is helpful to get insights from literature and to investigate the current situation in practice. To guide this investigation, the following research question is constructed: ‘How can the maturity of Six Sigma within financial service organizations be

characterized?’ The maturity of Six Sigma will be the main concept that will be addressed throughout

this research paper. This paper will explain what the maturity of Six Sigma contains and shows how this concept is used to build the framework as stated in the research objective. The following chapter will discuss the conceptual model and elaborates on the different features of Six Sigma maturity. The research methodology will be explained in chapter three and the results of this paper will be elaborated upon in chapter four. The final conclusions and discussions can be found in chapter five. However, first an in depth explanation will be given about the conceptual model that has been used to answer the research question.

2

Conceptual model

This exploratory research will focus on the maturity of Six Sigma within financial organizations. The concept of maturity of Six Sigma is not well investigated and no scientific articles have been written about this concept.

Therefore, the conceptual model (see figure 1) is not a model which displays and predicts causal relationships. Rather it is a

first conceptualization of the idea of Six Sigma maturity. In the following paragraphs each concept will be clarified and the relation with Six Sigma maturity will be explained. First, the concept of maturity will be elaborated upon in the following section.

2.1

Maturity of Six Sigma

The maturity of Six Sigma shows the different phases of development Six Sigma might go through. It can be compared with the phases of a product-life-cycle or organizational life cycles (Quinn and Cameron, 1983). Quinn and Cameron state that a consistent pattern of development seems to occur in organizations over time. This development can be characterized by different developmental stages because organizational activities and structures in one stage are not the same as the activities and structures present in another stage. The same argument holds for the maturity of Six Sigma. The implementation of Six Sigma should not be seen as an absolute all-inclusive fix for organizational problems, but should be adapted and changed over time. It is a continuous process of overcoming challenges and making better use of its possibilities. As Greiner (1972) points out: ‘It is only by solving the problem inherent in each developmental stage that the organization successfully advances to a more mature stage.’ Therefore, a certain level of maturity of Six Sigma will be a choice that an organization (implicitly) makes and each single organization may find itself at a different level of Six Sigma maturity.

2.2

Developmental stage of Six Sigma

There is no single definition of Six Sigma and one of the reasons for this is that the concept is mainly developed by practitioners. However, the increase in academic articles shows an interest from academics and therefore the number of definitions also increases. The Six Sigma definitions can be divided in four different groups which are metric, methodology, management philosophy and organizational culture (Maguad, 2006).

Figure 1: Conceptual model

Structure

Maturity of Six Sigma

Process type Strategic link

2.2.1 Six Sigma as metric

The term Sigma is a Greek alphabet letter used to describe variability. ‘It offers an indicator of how often defects are likely to occur in the process considered where sigma levels and corresponding defect levels are as derived from the standard probability curve for an organizational process’ (McAdam and Lafferty, 2004). Process capability is defined as the level of a product or service meeting customer requirements. The Upper and Lower Specification Levels (USL and LSL) set the limit of allowable process spread. A defect is defined as any measurement that lies outside these specification levels and therefore not meets customer requirements. Six Sigma defined as a measure/metric indicates that the process needs to operate on Six Sigma level which yields 99.9997% or 3.4 DPMO (Defects Per Million Opportunities) (Henderson and Evans, 2000).

2.2.2 Six Sigma as methodology

Six Sigma is defined as ‘an organized, parallel-meso structure to reduce variation in organizational processes by using improvement specialists, a structured method, and performance metrics with the aim of achieving strategic objectives’ (Schroeder et al. 2008). This is a broader view on Six Sigma and it includes improvement specialists like (Master) Black Belts, Green Belts and Champions/Sponsors to execute a Six Sigma project. Parallel structures ‘are extra creations that operate outside of, and do not directly alter, an organization’s normal way of operating’ (Lawler, 1996). Meso structures are project teams that consist of high-level members (Champions, Sponsors), medium-level ((Master) Black Belts) and lower-level team members (Green Belts). This way, decisions are made at the strategic and tactical level and executed at the operational level within the same team. Six Sigma also focuses on realizing strategic objectives, which means that with regard to project selection, the priority should lie at strategic relevant projects. Not all projects are similarly important for an organization and it is highly unlikely that an organization will have sufficient resources to execute all projects (Banuelas et al., 2006).

2.2.3 Six Sigma as management philosophy

The management philosophy definition of Six Sigma ‘links improvement targets to both an organization’s strategy and its business results. It has evolved into an organization-wide improvement program involving hierarchical training, organizational learning, and pay-for learning’ (Maguad, 2006). This definition indicates that training and learning are important aspects that need to be developed. Performing Six Sigma projects by the book is not enough to acquire sustainable competitive advantages since the results can easily be copied by competitors. Instead, fact based decision making and the company wide spread of information are important competitive advantages an organization should develop (De Mast, 2006).

2.2.4 Six Sigma as organizational culture

2.2.5 Developmental stage and maturity of Six Sigma

The development of Six Sigma within an organization follows different phases. The way how Six Sigma is used after an organization has gained much experience may differ from how it has been used during early implementation. Organizations that perceive Six Sigma only as a method to reduce process variation are in a different maturity phase than organizations which view Six Sigma as a philosophy or even culture. In other words, the metric and methodology stage show a lower maturity level than the management philosophy or organizational culture stage. In addition, each stage has its own specific activities and structures, as emphasized by Quinn and Cameron (1983), and the four stages give a good impression of the different levels of Six Sigma maturity. Last, it must be noted that some organizations follow the developmental stages in rapid sequence while others are very slow in reaching the most mature stage (Kimberly, 1979; Downs, 1967). In this context, Lippitt and Schmidt even state that time and development are poorly correlated (1967). Therefore, the developmental stages do no specify a specific length of time before an organization advances towards the next stage. Only when an organization successfully finishes a particular stage it can advance to the next stage.

2.3

Strategic link

This first concept in order to investigate the maturity of Six Sigma is based on an organizations’ strategy. Literature states that organizations should not perform all Six Sigma projects that are possible, but should rather focus on those processes that are strategically important (Linderman et al, 2003). The definition given by Linderman et al., underlines the importance of the strategy: ‘Six Sigma is an organized and systematic method for strategic process improvement and new product and service development that relies on statistical methods and the scientific method to make dramatic reductions in customer defined defect rates.’ In addition, many articles have been written about best practices for Six Sigma and the link between Six Sigma and strategy is emphasized in many of them. Antony and Banuelas (2002) and Coronado and Antony (2002) state that for an effective introduction and implementation Six Sigma should be linked to the business’ strategy. Consequently, Six Sigma should be clearly embedded into the organizations’ strategy. An organizations’ strategy can be described with the combination of three different sections; process, content and context. These three items describe an organizations’ strategy more in depth and will be elaborated upon in the following sections.

2.3.1 Process – Supply and demand cues

link with strategy should be further strengthened. Six Sigma should become part of an organizations’ strategy and the following section will therefore elaborate upon the content of strategy.

2.3.2 Content – project selection criteria

Not all Six Sigma projects can be executed immediately. Projects need to be reviewed, planned, and selected to maximize the benefits of Six Sigma. An organization should therefore select projects that are feasible, organizationally and financially beneficial and customer oriented (Kwak and Anbari, 2006). In addition, Johnson and Swisher (2003) argue that ‘picking and selecting strategically important projects’ is one of the critical success factors for a successful implementation of Six Sigma. Banuelas et al (2006) identified the following selection criteria: ‘customer satisfaction, financial benefits, top management commitment and those projects integrated with the company’s strategy.’ The selection criteria can also be examined by looking at five performance indicators stated by Slack and Lewis (2001): costs, dependability, flexibility, quality, and speed. These five performance indicators, and the gaps with the market requirements, are used to set out directions for the organizations operations strategy. If an organization ‘picks and selects strategically important projects’ then the list of selection criteria should be a reflection of the performance indicator an organization focuses at. Therefore, project selection criteria tend to better link Six Sigma to an organizations’ strategy. The Six Sigma methodology becomes part of the strategy of an organization. However, at this stage Six Sigma is only integrated with an organizations’ strategy. It is also possible that Six Sigma leverages competencies that lead to sustainable competitive advantage.

2.3.3 Context – Competitive advantage

2.3.4 Strategic link and maturity of Six Sigma

The previous sections about supply and demand cues, project selection criteria, and competitive advantage have shown the different strategic links Six Sigma can have. First, for the supply and demand cues, the strategic link may be indicated as being weak. The strategic link is weak because the Six Sigma methodology is not integrated within an organizations’ strategy. It is merely in the process of entering the organizations’ strategy. Second, the project selection criteria are important variables for a successful implementation of Six Sigma and explain more about the maturity of Six Sigma within an organization. Banuelas et al. (2006) concluded that organizations which used Six Sigma for a short period of time used different selection criteria than organizations which used Six Sigma for a longer time period. The organizations with a shorter time period focused more on financial benefits and measurability and feasibility of projects. This can be attributed to the fact that during the startup phase, many companies start with pilot projects. These pilot projects are used for measuring the applicability of Six Sigma. Therefore, they tend to focus on quick wins with a high probability of success (Banuelas et al., 2006). Project selection criteria, as part of the content of strategy, better integrate Six Sigma with strategy. The project selection criteria link the organizations’ strategy with actual Six Sigma projects and therefore integrate Six Sigma into the strategy. De Koning and De Mast (2007) elaborate on this link between an organizations’ strategy and project objectives by describing the concept of the critical to quality (CTQ) flowdown. According to De Koning and De Mast (2007), CTQ flowdown consists of several layers which are connected by different linkages and starts with the strategic focal points (or KPI’s). The flowdown ultimately leads to operational measurements which can be used for Six Sigma project objectives. In addition, this flowdown ensures that Six Sigma projects become and remain linked with the strategy of an organization. However, at this stage Six Sigma is still following strategy. Last, the concept of competitive advantage describes the opportunities of Six Sigma to literally drive an organizations’ strategy. Organizations that are able to leverage the competencies that Six Sigma offers show a strong strategic link. Six Sigma is fully integrated with the strategy and ensures sustainable competitive advantage. To conclude, the strength of the strategic link indicates a certain maturity of Six Sigma. A weak strategic link indicates a low level of Six Sigma maturity whereas a strong strategic link indicates a high level of Six Sigma maturity.

2.4

Process type

The second concept in order to describe the maturity of Six Sigma is the process type. There are many different ways to describe processes within an organization. However, there are two different classifications of process types that are interesting for the maturity of Six Sigma.

2.4.1 Primary process, supporting process, regulatory process

that, even though there are disruptions, the primary process can still function properly. A second way of describing processes is by grouping them by aggregation level.

2.4.2 Functional process, functional exceeding process, organizational exceeding process

The second distinction of process types is based on Hardjono and Bakker (2006). Among many other types of processes, they make a distinction between functional, functional exceeding and organizational exceeding processes (see figure 2). Functional processes are the activities that are performed within one functional area or department without any interruptions or relationships to other functional areas. The functional exceeding processes are the activities from multiple departments that contribute to the delivery of the final product. However, the boundary of these processes still lies within the organization. This is different for the organizational exceeding processes. These processes are executed in collaboration with other organizations. The boundaries of these processes lie at the supply or value chain.

Organisation A Organisation B Organisation C

Department A1 Department A3 Department B1 Department C2

Functional

Department A2

Functional exceeding

Organizational exceeding

Figure 2: Functional, functional exceeding, and organizational exceeding process

2.4.3 Process type and maturity of Six Sigma

processes is presented by Friday-Stroud and Sutterfield (2007). They state that their model will quantify decision making and that this will lead to superior decisions. To conclude, the process type on which an organization focuses its Six Sigma efforts will demonstrate a corresponding level of Six Sigma maturity. This will gradually move from pure primary and functional processes towards all different kinds of processes.

2.5

Structure

The third concept that describes the maturity of Six Sigma will be defined by using the definition by Schroeder et al (2008), since it includes interesting concepts to further explain the concept of structure: Six Sigma is ‘an organized, parallel-meso structure to reduce variation in organizational processes by using improvement specialists, a structured method, and performance metrics with the aim of achieving strategic objectives’. The concept of structure will be explained by looking at the objective, scope, and timeframe of Six Sigma implementation. This will be elaborated upon in the following section.

2.5.1 Objective, scope, and timeframe of Six Sigma implementation

First of all, Six Sigma is not a method that will be used by all employees of an organization, since an integral or full scale implementation of Six Sigma requires an enormous investment in training and education of employees. Instead, an organized, parallel-meso structure must be created and implemented. Therefore, an organization needs to make choices about the objective, scope and timeframe of Six Sigma implementation (Pande et al., 2000; p 95-101). A specific choice about the objective, scope and timeframe will lead to a specific structure. Relatively small, narrow defined pilot projects can be started if an organization wants to find out whether Six Sigma is beneficial to the organization. At Miracle Semiconductor for instance, a cross functional team was set up in order to identify three to four improvement projects. At Dow Chemicals, management initially selected two businesses for pilot Six Sigma initiatives (Motwani, Kumar and Antony, 2004). If objective, scope and timeframe are widened and a large scale implementation is desired, organizations will have a different structure to lead this implementation. A case study at Seagate underpins this statement because a change in the structure had been made after the initial implementation of Six Sigma (McAdam and Lafferty, 2004). First, the Six Sigma method did not influence or alter the organizations’ structure (see figure 3). However, due to organizational and cultural issues, Six Sigma had moved into the organizations’ structure. It was found that ‘having Black Belts reside in their function groups and reporting to their function manager helped integrate Six Sigma into the organization more effectively’.

MBB BB Director Functional Senior Manager MBB BB Functional Senior Manager Director Champion/ BrB Director Champion/ BrB MBB BB Functional Senior Manager

Initial situation Type 1 Type 2

2.5.2 Structure and maturity of Six Sigma

As stated in the previous paragraph, the structure depends on the objective, scope and timeframe of Six Sigma. The initial definition of structure indicates that Six Sigma is a method that does not alter the structure of an organization. Six Sigma is something that an organization executes in parallel with normal day-to-day operations. However, instead of viewing Six Sigma as something else that an organization has to do, Six Sigma can also be the way in which work is done (Motwani, Kumar and Antony, 2004). This latter definition has been shown in figure 3. Moreover, the structure of Six Sigma will be entirely different if Six Sigma is defined as a management philosophy or even organizational culture where all employees are involved in continuous improvement. Therefore, during the initial implementation (low Six Sigma maturity) a pilot structure or project management structure can be found. As the maturity of Six Sigma increases, the typical Six Sigma structure will gradually move into an organizations’ functional structure.

2.6

Lean and Six Sigma

One last aspect that requires specific attention is the combination of Lean and Six Sigma. Recently, an increasing attention is paid to the joint application of Lean management and Six Sigma (Basu, 2001; Antony et al., 2003). Lean Six Sigma uses practices from both the Lean philosophy and Six Sigma in order to improve organizations’ performance.

2.6.1 Lean Six Sigma

Arnheiter and Maleyeff (2005) state that organizations might benefit from Lean Six Sigma since a stand alone application of Lean or Six Sigma yields diminishing returns. In order to overcome the disadvantages of a stand alone application, Arnheiter and Maleyeff state three important Lean features which contribute to Lean Six Sigma:

• ‘The overriding philosophy that seeks to maximize the value-added content of all operations;

• The constant evaluation of all incentive systems in place to ensure that they result in global optimization instead of local optimization;

• The incorporation of a management decision-making process that bases every decision on its relative impact on the customer.’

Furthermore, a Lean Six Sigma organization would use the following three Six Sigma practices:

• ‘The stress for data-driven methodologies in all decision making, so that changes are based on scientific rather than ad hoc studies;

• The promotion of methodologies that strive to minimize variation of quality characteristics;

• The design and implementation of a company-wide and highly structured education and training regimen.’

In addition, Shah, Chandrasekaran, and Linderman (2005) conclude that ‘the implementation of any practice from a broader set of Lean practices improves the likelihood of implementing Six Sigma.’ Overall, it thus seems that both methodologies have much commonality which allows for a combination of both methodologies. On the other hand, some differences do exist and these will be shown in the next section.

2.6.2 Lean Six Sigma and maturity of Six Sigma

Table 1: Differences between Six Sigma and Lean

Source: Inspired on Andersson, Eriksson, and Torstensson (2006)

Concepts Six Sigma Lean

Origin Motorola, General Electric Toyota

Theory No defects Remove waste

Process view Reduce variation Improve flow in processes

Approach

Improvement specialists (Belts) with structured method, i.e. Define, Measure, Analyse, Improve, Control.

Understanding customer value, value stream, flow, pull, perfection

Tools Advanced statistical and analytical

tools Analytical tools

Effects

Reduce process variation, cost savings, and improve customer satisfaction

Reduce lead time, reduce inventory, increases productivity and customer satisfaction

The differences between Lean and Six Sigma implicate that the development of Lean Six Sigma within an organization may not follow the exact route of a pure Six Sigma development. A few examples can be given to underline this statement. First, the Lean methodology uses only analytical tools for process improvements whereas Six Sigma also focuses on heavy statistics and stresses the need for data. According to Antony (2006) one of the limitations of Six Sigma in service processes is ‘having quality data available, especially in processes where no data is available to begin with (sometimes this task could take the largest proportion of the project time).’ This is clearly a disadvantage with regard to Six Sigma, and implies that Lean can develop much faster during the initial stage. Second, some researchers argue that Lean has a different focus with respect to employees and human aspects. For example, Allen (1997) and Utley et al. (1997) claim that Lean is about ‘a change of focus; from controlling to helping; from evaluating to empowering; from directing to coaching and from planning to listening.’ This can also be illustrated by NOK’s CEO Joseph Day who stated ‘that lean happens on the shop floor, not in a conference room, and that lean must be worked repeatedly’ (Vasilash, 2001). Conversely, Six Sigma projects are executed by improvement specialists, e.g. Green and (Master) Black Belts, and require intensive training before any Six Sigma project can actually start. This difference between Lean and Six Sigma will also lead to differing roadmaps of implementation. To conclude, it is argued that Lean and Six Sigma implementations do not follow the exact same route. During this research, specific attention will be devoted to this aspect, which, among others, will be explained in the following chapter.

3

Research methodology

The aim of this research is to develop a framework that describes the maturity of Six Sigma. This subject is not well investigated in the scientific literature and therefore an exploratory research has been conducted. The purpose of exploratory research is consistent with the aim of this research; to uncover new areas for research and theory development (Voss et al., 2002).

3.1

Research design

chosen because it adds confidence to the final conclusions. It strengthens the precision, the validity, and the stability of findings (Miles and Huberman, 1994; 29). In addition, multiple cases allow the use of replication logic which increases the external validity (Yin, 2003; 37). The unit of analysis or case definition is the Six Sigma concept within an organization. This way, the unit of analysis is directly related to the research question, which is advocated by Yin (2003; 24).

3.2

Data collection method

The multiple case study allows for a data collection method that is based on multiple-case sampling and therefore an explicit sampling frame is needed (Miles and Huberman, 1994). This sampling frame is based on the typology of sampling strategies in qualitative inquiry of Kuzel (1992) and Patton (1990). The three most important rationales for selecting cases were: theory based, critical case, and confirming and disconfirming cases.

3.2.1 Sampling logic

3.2.2 Interviews

Data has been collected through semi-structured interviews with at least one key informant of each financial organization (see table 3). There are many advantages in using a qualitative data collection method and the two most important advantages in this case are: First, qualitative data collection methods focus on ‘naturally occurring, ordinary events in natural settings’. The influences of the local context are taken into consideration and the ‘possibility of understanding latent, underlying or non-obvious issues is strong’. Second, qualitative data tends to be rich and holistic. Qualitative data is very useful in revealing complexity, especially when used for discovering or exploring a new area (Miles and Huberman, 1994; 10). Among the specific types of interviews, the semi-structured interview was chosen. The interview questions are related to the conceptual model and literature, however, it left enough room for emerging patterns to be taken into account. Table 4 summarizes the interview topics that at least have been addressed during the interviews. This list is not exhaustive and new items or interesting subjects brought up by the respondents have also been discussed during the interview. This approach benefited the exploratory research since new insights that appeared during the interviews have been included in the development of the Six Sigma framework. Furthermore, it should be emphasized that the primary interviews were less structured than the latter. This can be attributed to the fact that after the initial interviews a global pattern began to emerge and more structured interviews were necessary in order to test these emerging patterns. This method is consistent with the view of Miles and Huberman on qualitative analysis. They claim that data reduction, data analysis, and conclusion drawing is an interactive process and needs to be documented as a process (Miles and Huberman, 1994; 12). The documentation of this process is described in the following section.

Table 2: Applied sampling rationales Case Organization Lean / Six

Sigma

Starting Year

Level of Six Sigma experience Sampling type A Banking company, region; Netherlands Lean Six Sigma, focus on Lean

2006 Executing Lean Six Sigma projects

Critical case

B Banking and insurance company, region; Europe

Lean Six Sigma

2007 Many finished projects, expanding the methodology Critical case C Banking company, region; Netherlands Lean Six Sigma

2003 Many finished projects, currently little activity

Critical case D Insurance company; region; Netherlands Lean Six Sigma

2006 Many finished projects, expanding the methodology Critical case E Banking company; region; local Lean Six Sigma

2008 Initial pilot projects Critical case

F Banking company;

region; Europe

Lean 2000 Initial pilot projects (now

running third

implementation effort)

Table 4: Interview topic list Part 1:

Current situation

Determining scale and scope of current Six Sigma efforts: e.g. number of employees, finished projects, results

Part 2:

Past

How did Six Sigma enter the organization: e.g. initial motive, first projects and objectives

Part 3:

Current

How does the organization currently use Six Sigma: e.g. current (strategic) objectives, sustainable competitive advantage and/or cultural change? Different stages of Six Sigma development

Part 4:

Future

Determine ambitions and future developments: e.g. new areas for development, future goals and objectives

3.2.3 Data collection

The interviews were carried out in fall 2008 after an initial contact had been established. During this initial contact, the aim of the research has been explained and it was ensured that the obtained information would be handled in confidence. Furthermore, this initial contact was necessary to find the right informant. The research question warrants information from a high aggregation level and therefore the informants’ hierarchical position must be relatively high as well. This resulted in an interview with at least all Six Sigma program managers. Table 3 lists the informants’ position as well as the applied interview method. The first interview in case B has been conducted with a Black Belt. In addition, the COO of case F has been interviewed by phone, in order to ask for additional information. The program manager of case A has been interviewed twice in order to complete that specific case description. This way, data triangulation has been possible for cases B, E, and F since multiple sources of information add up to the case description. Each face-to-face interview has been voice recorded and all interviews (including by telephone) have been transcribed. Written notes that were taken during the interviews have also been included in this transcription. The transcriptions have been sent to the informants for approval. This way, it is ensured that no interviewer bias has affected the transcriptions. Only the approved versions of these transcriptions have been used for analysis. All transcriptions have been coded and this data reduction led to a classification into the four different concepts. This emerging pattern, or chain of evidence, is the basis for the data analysis.

Table 3: Informants’ hierarchical position

Case Informants’ position Type of interview

A Program manager Face-to-face and telephone

Black Belt Face-to-face

B

Regional Lean Six Sigma leader Face-to-face

C Program manager Lean Six Sigma Face-to-face

D Project manager Lean Six Sigma Face-to-face

Six Sigma project leader Face-to-face

E

External Lean Six Sigma consultant Face-to-face

Project manager Face-to-face

F

3.3

Data analysis

The transcriptions of the interviews have been coded and the final code list can be found in appendix A. The initial code list has been constructed after the first interview and consisted of several generic codes based on the acquired data. This initial code list has been refined several times as the data collection and analysis progressed and resulted in the final code list. This approach benefited the exploratory character of the investigation since it helped in describing the emerging pattern of Six Sigma development. Furthermore, it ensured that new insights could be included in the analysis and it was helpful for further data reduction. The results from this data analysis are discussed in the following chapter.

4

Results

The results are displayed in three sections. The first section will show in depth case descriptions. The second section will analyze the results across cases and the third section is devoted to the issue of Lean versus Six Sigma.

4.1

Case descriptions

The results are displayed per case and are divided in four categories, which are based on the four concepts that together describe the maturity of Six Sigma: developmental stage of Six Sigma, strategic link, process type, and structure. The results are shown per case in order to give an in depth case description (see table 6). In addition to the case descriptions, a cross-case analysis of the results per concept is shown in the following paragraph.

4.2

Cross-case analysis

The results per concept are displayed in tables 7 until 10 and cover the four concepts. Each concept will be analyzed in the following subparagraphs.

4.2.1 Developmental stage of Six Sigma

The results in table 7 show much commonality and indicate a rather solid base for identifying different stages of Six Sigma maturity. In the metric phase, all cases show that this is related to having processes under control and proving that the methodology is beneficial to the organization. In the methodology phase, a supporting methodology is required and organizations start with training and coaching employees. Management support and communication of Six Sigma throughout the organization are important factors for the management philosophy phase of Six Sigma. The last phase, organizational culture, indicates a small variation in the results. Some cases stress the importance of continuous improvement and the involvement of all employees. Other cases emphasize the focus on processes rather than products. These different characteristics all characterize different features of organizational culture. In addition, some respondents explicitly state the relationship between the different developmental stages of Six Sigma. One respondent of case A states that ‘an organization does not choose for a specific phase, but the successful completion of one phase leads automatically to stepping into the following phase. If you remove the barriers of a specific phase, you have automatically rolled into the next phase.’ The respondent of case E concludes with the following: ‘I believe that all phases are essential to Six Sigma and that the last phase is the most important. Therefore, our goal is to have all employees be critical about their tasks and functions and look at opportunities how to improve these.’

4.2.2 Strategic link

where someone talks about Six Sigma. In all the cases that were examined, some demand cues that show the internal need for change were apparent. The demand cues themselves vary between low customer satisfaction ratings and high costs but all clearly show this internal ‘need for change’. In most cases, the project selection criteria show many similarities with these prevailing demand cues. For example, case A found that deteriorating profit margins and their cost-income ratios were lower than those from their competitors’. This resulted in throughput time, processing time, first time right and risk control as the main drivers for improving the profit margin, and therefore as the most important project selection criteria. In other cases, the project selection criteria themselves changed as time passed. Case D illustrates this statement since their initial project selection criteria were written down in a list of management issues but finally evolved into more specific criteria aiming at costs and customer satisfaction. There are also some small differences when the results for sustainable competitive advantage are compared. One respondent of case B states that in a growth market, Six Sigma can be a sustainable competitive advantage and in a mature market, it will only help for staying in the market. On the other hand, case C indicates that Six Sigma only delivers a competitive advantage on the short term, but this will not evolve into a sustainable advantage on the long term. Although there are minor differences, some cases argue that Six Sigma can help in obtaining a sustainable competitive advantage. The respondent of case D argued that Six Sigma can help in successfully realizing strategic objectives. These objectives, if carefully and well chosen, can lead to a sustainable competitive advantage. Case E stresses the importance of organizational culture: ‘An organizational culture that supports Six Sigma is needed in order for Six Sigma to become a sustainable competitive advantage.’ A final remark is that the word ‘strategy’ is more often used in the last phases of strategic link. Especially during the supply and demand phase, no or little connection with strategy is made where in the last two phases, strategy becomes much more important. This can be illustrated by the respondent of case A: ‘We always measured our customer satisfaction, but we never linked it with internal operations. At this moment, however, Six Sigma has moved into the top 3 of strategic programs and its strategic value has increased most certainly.’

4.2.3 Process type

Sigma methodology takes the customer as a starting point for process improvements and therefore it is hard to think about Six Sigma projects that focus on functional processes only.’ In addition, there is strong agreement on the development towards organizational exceeding processes and some organizations already executed a few projects that included third parties. Although Six Sigma projects on organizational exceeding processes will be possible, one respondent of case B points out that they will execute these kinds of projects when third parties are important suppliers of input. Furthermore, they state that they always start by looking at the problem and then improve the corresponding process, rather than choosing a type of process to improve. In conclusion, case A, D, and E state that in the near future they will start to execute organizational exceeding projects, but only after the functional exceeding processes are on an acceptable level of performance.

4.2.4 Structure

The case results for this final concept are shown in table 10. This concept is divided in four categories which show the development of structure as an indicator of Six Sigma maturity. The first category shows the results for the item ‘pilot’. Most organizations have started their Six Sigma endeavor with a few pilot projects. The main reason for executing pilot projects is that organizations want to have evidence of the profitability and potential of Six Sigma. In addition, case A and C also used these pilot projects for gaining insight in the methodology and being able to adapt this new approach. All organizations also erected a project (management) team after these pilot projects. In most cases, the project team is responsible for the implementation of Six Sigma and training and coaching of employees during Six Sigma projects. In case B, the project team is also responsible for the appraisal of Belts and works on aligning the methodology throughout the entire organization. The main point of the third category, business managers, is that organizations start to transfer specific knowledge into the functional areas. Six Sigma is not only performed by the project team, but Six Sigma is integrated within the business. The means to achieve this differs between the cases. Case D, for instance, has created the specific role of Business Green Belts. These Business Green Belts are managers from different departments and from all over the organization. They have been trained to execute Six Sigma projects in their own functional area for which they are held accountable. The final category shows that Six Sigma will be performed by all employees. Not all cases have clearly expressed this development and case A, B, and C do not (yet?) have the ambition to have Six Sigma performed by all employees. On the other hand, respondents from case D and E state that they would like to have all employees trained in the new methodology. Case D even states that all (new) employees must have a Yellow Belt which can be obtained after one or two days of training. It must be noticed, however, that currently they are far from achieving these objectives and that organizations A, B, and C do not yet have these ambitions. On the other hand, as case B indicated, for an organization to achieve sustainable results with Six Sigma, a minimum amount of certified Belts is needed. This minimum amount of Belts ensures the adoption of future business leaders who are Six Sigma oriented. The respondent of case A, although not literally aiming for transferring Six Sigma to all employees, explained that sustaining results can only be achieved if they have employees of local banks trained in Six Sigma. Moreover, they start training the higher management of local banks and have them implement Six Sigma further into the organization. It can be argued that on the long term, organizations tend to integrate the Six Sigma methodology into functional areas and finally towards all their employees.

4.3

Lean versus Six Sigma

for the control questions that were asked during the interviews with all organizations. The second section is devoted to the organization in case F, which is entirely focused on Lean.

4.3.1 Control questions

The results of the control questions that dealt with the influence of Lean show much resemblance (see table 11). Most organizations indicate that it is not important to decide whether to start with Lean or Six Sigma. They stress the importance of removing the root cause of a problem. After the root cause has been defined, the proper tools for removing this cause are determined. Case C underpins this statement by stating that their starting point for process improvements is always the problem, not the methodology. They underpin this statement by using a decision matrix with two variables: problem known or unknown and problem complex or simple. The combination of these two variables creates a four cell-matrix. If a problem is complex and unknown, the Six Sigma is advised. If a problem is not very complex but unknown, then Lean or Lean Six Sigma will be used. On the other hand, not all organizations agree with this statement. For example, case A states that they have a slight preference for Lean, since this method is easier to use. In addition, they find it hard to acquire the necessary data that are needed for Six Sigma.

4.3.2 Disconfirming case

Table 6: Case descriptions per concept

Case A

Developmental stage of Six Sigma

The statistical definition refers to bringing processes under control. In order to control these processes, it is required that the performance of the processes can be measured. However, if you focus entirely on measuring the performance and reducing the variation you also require a supporting methodology. This methodology is required since it structures the process improvements (DMAIC) and defines specific roles (Champion, Belts, Sponsor). From the early start they try to place employees in specific roles, however this is not always easy. Currently, the organization can be found at this stage. In addition, it is found that during the implementation of the methodology and the training of employees, it is required to have management support and propagate the Six Sigma vision. Without management carrying out the vision, it is impossible to implement Six Sigma successful. For the future, the respondent believes that in the last phase of Six Sigma, support from all employees is needed. The propagation of Six Sigma by management must lead to this support of all employees. Only then, an organizational culture that emphasizes continuous improvement can be realized. Two important issues are seen as vital for this organizational culture. First, it is found important that employees focus on customer requirements instead of focusing on possible risks and risk adverse behaviour. Second, it is felt that a change in employee behaviour which includes a shift from reactive towards proactive behaviour is important. Employees should be encouraged to freely express their opinions and suggestions.

Strategic link The initial motive for using Lean Six Sigma in this organization is based on supply and demand cues. First, the informant was

already familiar with the methodology and therefore the organization decided to adopt the methodology. This is a perfect example of a supply cue. There are two reasons for adopting Lean Six Sigma which can be viewed as demand cues. Profit margins in the mortgage market were deteriorating and a benchmark showed that the organizations’ cost/income ratio was different with regard to their competitors’. In addition, it was noted that an integral view on processes was needed in order to improve efficiency. The project selection criteria that have been used to link Lean Six Sigma to the organizations’ strategy are throughput time,

processing time, first time right, and risk control. The methodology is also listed in the top three of strategic programs of this organization. The informant stated that the strategic importance of Lean Six Sigma has certainly increased over time.

Types of processes The organization started Lean Six Sigma on the primary process but it was also found that regulatory processes need to be

improved. Supporting departments are not subjects for process improvements, however, there are also possibilities for process improvement at HR for example. Furthermore, the first Lean Six Sigma project focused on the customer-to-customer process (mortgages) and can be defined as a functional exceeding process. It is found important that processes are viewed from an integral perspective and decisions with regard to project selection should be based on this integral view. Due to a lack of this integral view, there used to be a lot of sub-optimalisation. In the near future, this organization will focus more on the

organizational exceeding processes which allow for this integral perspective.

Structure This organization started with a pilot team which included 5 local banks, headquarters, improvement specialists, and an external

Case B

Developmental stage of Six Sigma

It is found that the metric definition relates to reducing the variation of processes. However, the respondent notes that this definition of process improvement is based on a bottom-up approach. At this moment, this organization focuses on the

methodology definition which they claim is the top-down implementation of Six Sigma. This includes communicating the success stories throughout the organization and establishing promising results. Moreover, they also start using Six Sigma as a talent-development program. This is especially important in the third phase, where all managers will be trained and the organization deliberately searches for future organizational leaders. In the last phase, Lean Six Sigma becomes the DNA of the organization and is the only way of doing business. To arrive at this stage, it is important that there is a minimum amount of Lean Six Sigma expertise throughout the organization and especially in the management team.

Strategic link In this organization both supply and demand cues are apparent. First, the current executive board member for the European

division previously worked for the US division, where Lean Six Sigma was already implemented. This also led to the implementation in Europe which is an example of a supply cue. Second, the mature market in the Netherlands required cost reduction and productivity increases because only this way the organization could meet its growth targets. On the other hand, the Eastern Europe market was growing fast and in this market it was necessary to increase revenues. In both situations, this organization found that Lean Six Sigma was the right methodology in order to meet these demand cues. These demand cues are also related to the three most important project selection criteria: cost savings, cost avoidance, and increase revenues. These selection criteria are also indicators of future competitive advantage, since they depend on the market the organization operates in. In the Netherlands, ‘cost savings’ and ‘cost avoidance’ are important and Lean Six Sigma is used in order to stay in the market. In Eastern Europe, the selection criteria ‘increase revenues’ is important and Lean Six Sigma is used to sustain the competitive advantage they already have. The respondent believes that in a growth or new market, Lean Six Sigma can be used to gain a sustainable competitive advantage, however, in a mature market it will be used to ‘stay in the market’.

Types of processes This organization focuses their Lean Six Sigma initiatives on the primary processes because a direct link can be made between

process improvements and savings in euros. Process improvements in the primary process can generate immediate savings. The challenge with supporting processes lies at the fact that it is more difficult to show that Lean Six Sigma process

improvements can generate a direct benefit. Supporting processes are always taken into consideration and some supporting processes have been improved with Lean Six Sigma, but improvements in the supporting processes have an effect on the long term and take more time to be measured. Furthermore, Lean Six Sigma focuses on the customers’ needs and customers are less interested in the, for instance, financial processes of an organization. However, at corporate finance level this organization has two Black Belts which execute Lean Six Sigma projects on the reporting and budgeting processes.

This organization also focuses on functional exceeding processes or end-to-end processes because these processes are directly linked to the customer. Sometimes this large end-to-end process needs to be split up and results in several distinct Lean Six Sigma projects, however, it is important that an experienced (Master) Black Belt keeps the overview over the entire process. It will be challenging to execute Lean Six Sigma projects on organizational exceeding processes since it is difficult to involve external parties. However, if they are important suppliers of input, then they will be included in Lean Six Sigma projects.

Structure This organization has Black Belts that are full-time committed to Lean Six Sigma projects and Green Belts that work 20% on Lean

Case C

Developmental stage of Six Sigma

This organization indicates that the four definitions of Lean Six Sigma can be seen as the development of such a program. It is argued that an organization does not really choose for the metric definition, but always aims for the philosophy. From this vision about Lean Six Sigma an organization will try to implement this methodology into the organization. This is not always the case, and in most situations this requires much energy, management support, and a real strategic vision about the future state of the organization. At this moment, the respondent feels that this is not yet the case in his organization and that it will be difficult to move to the next phase. He indicates that they are still in the methodology phase which focuses on executing Lean Six Sigma projects. In addition, it is found that the current financial crisis might boost the development of Lean Six Sigma in this organization. The large business/investment deals cannot be made anymore and it is felt that organizations should focus on their internal organization.

Strategic link The supply cue that led to the adoption of Lean Six Sigma was an internal email sent by a co-worker. In this email to the executive

board, the advantages of Lean Six Sigma were explained and the board was enthusiastic about it. This email also explained the most important demand cue for adopting Lean Six Sigma. At that time, customer satisfaction ratings were low and performance measurement hardly existed. The organization was looking for a method that could help in measuring the performance and a method that could resolve the problems that caused the low customer satisfaction rate. This has resulted in three project selection criteria. First, the executive board created a list with 10 important or urgent issues (mostly based on customer complaints). A project that will contribute in resolving an urgent issue can be selected. In addition, a Green Belt project should have an economic benefit of at least 50.000 euros. Black Belt projects should have an economic benefit of 100.000 euros. The respondent of this organization believes that at this time, executing Lean Six Sigma can be a competitive advantage since an organization will outrank competition on customer satisfaction and costs. However, in the long run other companies will be able to copy this advantage.

Types of processes The respondent believes that Lean Six Sigma can be applied to primary, supporting, and regulatory processes. However, they opt

for primary processes because those processes generate the income for the organization. It is stated that also regulatory processes could be improved by Lean Six Sigma, but this would require a different way of using the methodology. In addition, this organization prefers to improve end-to-end or functional exceeding processes. For example, one process starts with a customer asking for a mortgage and finishes when the customer has received the mortgage. This illustrates a process that crosses all functional areas. At this moment, this organization does not yet focuses on organizational exceeding processes. They have finished two projects with external parties. These external parties were the source of many problems or variation in the organizations’ own processes and therefore needed to be improved. This organization would like to execute more of these organizational exceeding projects, however there are not that many external parties. Moreover, it is found that the organization should first improve their own processes before collaborating with third parties.

Structure During the start-up of Lean Six Sigma, this organization identified 10 pilot projects across the entire organization. These pilot

Case D

Developmental stage of Six Sigma

The foundation of Lean Six Sigma methodology lies in the data. Measuring performance and knowing how your organization operates is crucial for starting process improvements. Without knowing how your organization performs, it is impossible to rate processes in terms of good and bad. The first definition is seen as a requirement for Lean Six Sigma. Once you passed the initial phase and have collected all evidence, you start using the methodology and thus need to train people and start executing projects. Once you have completed several projects, it is necessary to sustain the results and improvements. This is part of the management philosophy, where the organization finds itself currently, and where training and coaching, especially for management, is believed to be important. Management support is required if an organization changes to ensure that all employees adapt the new methodology. In addition, in this phase you keep executing Lean Six Sigma projects and communicating the results. Moreover, you must make Lean Six Sigma supportive to objectives of the organization and employees. If all managers and employees are used to Lean Six Sigma and also view processes from a Lean Six Sigma perspective, then an organization has reached a new organizational culture. For example, you want all employees to have at least a Yellow Belt and you encourage bottom-up initiatives for process improvements.

Strategic link This organization also based their choice for Lean Six Sigma on supply and demand cues. First, many consulting companies

offer this methodology and people are made familiar with the concept through company visits and meetings. In addition, the operations director was already familiar with Lean Six Sigma and had the authority to start such a new program. Second, the two most important demand cues were efficiency and customer satisfaction. This company faced low margins in the insurance market and wanted to become the best service center in its field and therefore choose Lean Six Sigma in order to achieve these goals. During the startup phase, this organization created a list with important issues on which Lean Six Sigma projects were selected. However, they found out that some issues were not well described and new selection criteria were introduced: costs and customer satisfaction (which the respondent believes are strongly related to delivery time and quality). This organization also indicates that Lean Six Sigma will not deliver sustainable competitive advantage by itself, but should be linked to the organizations’ strategy. The strategic goals have the potential to deliver sustainable competitive advantage and Lean Six Sigma must be used in order to achieve those goals. The objective to become the best shared service center at lowest costs possible is translated into the project selection criteria. This way, Lean Six Sigma is made supportive to the strategic goals.

Types of processes Lean Six Sigma projects are executed on both primary and supporting processes. This organization does not focus at one

specific type of processes but has a combination of Lean Six Sigma projects aiming at primary and supporting processes. Furthermore, the first projects were aimed at functional processes. The sales or marketing departments are not involved in the Lean Six Sigma projects, but Lean Six Sigma is entirely focused on the operations department. In the near future, they expect to execute Lean Six Sigma projects on organizational exceeding processes. At this moment, one Lean Six Sigma project also involves an external party and they expect more organizational exceeding projects in the near future.

Structure This organization started with a pilot project two years ago and in the first year the project team had to prove that this