In an innovation economy, it's no longer a cure-all

At Home Depot, ousted Chief Executive Robert Nardelli was devoted to Six Sigma. "Facts are friendly" was a favorite mantra of his, neatly summing up his managerial point of view. Six Sigma was used to streamline the check-out process and strategically place vacuum-cleaner displays, for example. But by-products of the program irritated many at the retailer's stores, who thought its constant data measurement and paperwork sapped time given to customers. The bottom line on Nardelli's tenure: Profitability soared, but worker morale drooped, and so did consumer sentiment. Home Depot dropped from first to worst among major retailers on the American Customer Satisfaction Index in 2005.

Now Nardelli's successor, Frank Blake, another General Electric alumnus, is dialing back on the Six Sigma rigor, giving more leeway to store managers to make decisions on their own. The story unfolding at Home Depot echoes closely what's happening at 3M after James McNerney's reign. There are signs of a similar pullback at many companies, even at GE, where CEO Jeff Immelt is trying to reprogram his management ranks to innovate around a theme of "ecomagination," with mixed success. And at Young & Rubicam, where GE board member Ann Fudge flamed out as CEO after she tried to sell ad execs on Six Sigma.

So has the Six Sigma moment passed? "I think it has," says Babson College management professor Tom Davenport. "Process management is a good thing. But I think it always has to be leavened a bit with a focus on innovation and [customer relationships]." The discipline was developed as a systematic way to improve quality, but the reason it caught fire was its effectiveness in cutting costs and improving profitability. That makes it a powerful tool—if those are a company's goals. But as innovation becomes the cause du jour, companies are increasingly confronting the side effects of a Six Sigma culture.

Six Sigma clearly had a profound impact on the corporate world. According to the American Society for Quality, 82 of the 100 largest companies in the U.S. have embraced it. And that's quickly trickling down: Six Sigma consultants are as busy as ever as the quality-improvement system migrates from its traditional focus on U.S. manufacturing companies to the financial-services industry and abroad. In recent years, companies as varied as DuPont, Textron, Bank of America, and Sun Microsystems have all made Six Sigma bedrocks of their culture. Hybrid formulas have spawned, such as Lean Six Sigma and Design for Six Sigma. WCBF, an organization that organizes conferences about the process, has 14 events planned this year, up from seven last year.

But as its popularity endures, the notion of Six Sigma as a corporate cure-all is subsiding. Once a company has done the requisite belt-tightening, "the strategic needs of a business change," says Robert Carter, a consultant at defense contractor Raytheon. Kick-starting the top line becomes paramount; the best way there apart from an acquisition is innovation. At Raytheon, Carter is leading a Six Sigma effort to promote innovation. But while "most Six Sigma practitioners are very strong on the left brain, innovation very much starts in the right hemisphere," says Carter. Even he, a Six Sigma expert, acknowledges the "define, measure, analyze, improve, control" mind-set doesn't entirely gel with the fuzzy front-end of invention. When an idea starts germinating, Carter says, "you don't want to overanalyze it," which can happen in a traditional DMAIC framework.

Of course, Jack Welch has argued that a leader needs to single-mindedly inculcate Six Sigma into every corner of an organization. Should a CEO hedge and say, "Let's do both Six Sigma and also be creative," employees will tune out the part they don't want to hear. Welch has said that even if the concept is applied in areas where perhaps it shouldn't be, it'll be worth it in the long run. It can always be fine-tuned once the workforce gets it. Call it the break-some-eggs-to-make-an-omelette approach.

Problem is, you don't know which eggs you're going to break. When Steve Bennett left GE in 2000 to take the CEO post at software maker Intuit, he was eager to roll out Six Sigma. But he did it gingerly, pilot-testing the quality-improvement tool in certain groups for a year to prove its worth. He was unsure of how a Silicon Valley company would react, given its associations with Six Sigma—"most of them bad," he says. So he cloaked the move under the benign-sounding banner of "process excellence," deliberately avoiding using the name Six Sigma. Says Bennett, "The term gives me an allergic reaction."

By Brian Hindo in New York, with Brian Grow in Atlanta

BusinessWeek, June 11, 2007

The debate: Six Sigma vs. Innovation

Have It Both Ways

"Ambidextrous" companies can handle incremental change and bold initiatives

By Jeneanne Rae

"I can't stand this," said a senior executive of a Standard & Poor's 500 company recently. "One minute the management team is telling us to innovate, and the next minute they are giving us our marching orders in deploying Six Sigma. It's crazy to tell people they should be focused on becoming more efficient while at the same time you want them to explore untapped growth potential. This is making me nuts."

The objectives of Six Sigma seem noble enough for any organization. So what's the rub with simultaneous efforts to innovate? By its nature, Six Sigma fosters a very low tolerance for risk because risk increases variation.

Innovation, on the other hand, seeks to brave undiscovered, uncertain territory. Such fledgling efforts are inherently inefficient. Innovation requires a tolerance for risk-taking and failure.

A corporate culture dominated by Six Sigma management theory will be inclined toward inwardly focused, continuous, incremental types of improvements in process, customer service, systems, operations. A culture that fosters disruptive innovation will be more entrepreneurial, outwardly focused on new markets, technologies, and business models. You explore big new growth platforms that add significant chunks of revenue and profit.

Given the huge management and cultural implications inherent in each approach, it would be difficult to launch both efforts at the same time. Most organizations, like General Electric, become grounded in one and then attempt the other. In GE's case, Six Sigma came first, and its new innovation initiative, Ecomagination, is now rolling out.

In a Harvard Business Review article, "The Ambidextrous Organization," Charles O'Reilly III and Michael Tushman, business school professors at Stanford and Harvard, respectively, acknowledge the paradox of exploitative vs. explorative efforts. They conclude that smart companies separate the more ambitious efforts at innovation from ongoing efforts at continuous improvement. That allows for different processes, structure, and cultures to emerge within the same company.

An "ambidextrous" organization, they write, has independent project teams integrated into the existing management hierarchy. A tightly integrated senior team makes sure the activities of the right hand don't work at cross-purposes with the goals of the left. Both the traditional business and the fledglings report to the same executive team but are managed under a very different set of rules, depending on where each is in its maturity cycle. Remarkably, in the professors' study of 35 attempts at breakthrough innovation, ambidextrous structures were successful 90% of the time. Other models, such as cross-functional teams and unsupported skunk-works-style groups, were successful less than 25% of the time. Jim Burnick, senior vice-president for quality and productivity at Bank of America and leader of the bank's innovation efforts, says that if managed properly Six Sigma and innovation can go hand in hand. Thanks to Six Sigma, "Paragraph it is now possible for us to think as one organization across fiefdoms and business units to improve every type of customer's experience. This ends up as business-model innovation, which in the banking business is very uncommon."

Here are three strategies for managing incremental and disruptive innovative initiatives simultaneously:

•Separate the efforts. Don't expect people running mature businesses to behave the same as those in charge of startups. Each type has its own incentives, organizations, and talent needs.

•Appoint an ambidextrous senior manager to oversee both efforts. A general manager with responsibility for both traditional and new businesses will foster efficiency by sharing such resources as HR, marketing, and finance, and by promoting integration of the initiatives when the time is right.

•Support both teams appropriately. Don't shortchange one over the other. It kills me to see so much investment in reengineering, training, and employee time being poured into Six Sigma initiatives in the name of cost savings when innovation gets starved for critical research requirements like white-space analysis, ethnographic research, or prototyping. It's as if leadership believes companies can shrink their way to greatness.

Innovation and Six Sigma are different methods that beget different results and require different management styles. They can coexist. Just recognize that each requires its own formula for success.

BusinessWeek, June 11, 2007

IT MATTERS

12. Read more on Six Sigma, innovation and quality management in BusinessWeek http://www.businessweek.com.

HUNGRY MINDS

13. Read the text and discuss the origin of the word, define the concept and speak on the evolution of the idea.

Skunkworks

A skunkworks is a place (or sometimes the people who work in that place) designed to encourage the employees of large organisations to come up with original ideas. It usually consists of a small team taken out of their normal working environment and given exceptional freedom from their organisation’s standard management constraints. The name is taken from the moonshine factory in a famous Al Capp cartoon series called “Li’l Abner”.

All skunkworks are modelled on the Lockheed aircraft company’s secret research-cum-production facility where, in the 1940s, staff were removed from the corporate bureaucracy and encouraged to ignore standard procedures in the hope that they would come up, in the first instance, with a high-speed fighter plane that could compete with those produced in Germany by Messerschmitt. So successful was the concept that the company continued with it, and its skunkworks came up with a number of other innovative products, including the notorious U2 spy plane.

The idea was soon copied by other large companies, including IBM, by then the largest of them all, although the name “Skunk Works” is a registered trademark of Lockheed Martin Corporation. In 1980 Big Blue used a skunkworks to break free from its suffocating mainframe mentality and join the world of the PC, at a time when many of its rivals were unable to make the switch.

The skunkworks concept fell into disrepute when it began to be seen as just another cost centre—and one with attitude at that. But in the new workplace of the 21st century, where there is a heavy emphasis on teamwork and the right environment for teams to flourish, the skunkworks idea is being revived, but in slightly different guise. Much of Motorola’s Razr mobile phone, for example, was developed in a new laboratory that the company set up in downtown Chicago, 50 miles from its main R&D facility in suburban Illinois. With lots of bright colours and no dividing walls, the building and design of the laboratory’s workspace were very different from Motorola’s main offices.

But the company’s expectations of what the skunkworks should produce were also different. It was not left alone to think lofty scientific thoughts, but was regularly kept in touch with marketing, design and accounting folk to keep its feet firmly on commercial ground. The idea is not (as it used to be) that those in the skunkworks emerge at the end of the day with something that makes their competitors say “Wow”. The idea is that they come out with something that makes their competitors’ customers say “Wow”.

Some companies have adopted the skunkworks idea more widely. Malaysia Airlines, for example, has set up what it calls “laboratories”, small groups of people brought together on an ad hoc basis to address specific issues—“raising revenues”, for instance. The group stays together for a month or so, until it has fulfilled its agreed-upon “exit criteria”. Working in a laboratory, says the airline’s CEO, “is not a job; it’s a calling”.

From Economist.com; Aug 25th 2008

14. Make a presentation on one of the topics:

• Six Sigma vs Innovation

• Quality Management Systems

• The Ambidextrous Organization

(Portfolio entry)

REFLECTION SPOT

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