Value-Driven Six Sigma: From Cost-Cutting to Revenue Growth

A colleague recently returned from a speaking engagement at the 5th Annual IQPC Process Excellence Week in Chicago and reported several interesting observations:

• Many attendees reported frustration with their process improvement initiatives, stating that they remained at the “grass roots” level and were failing to get full support from their corporate leadership.
• Most business leaders tended to see their continuous improvement/Process Excellence initiatives exclusively from a cost-cutting perspective, never getting those initiatives to the point where they are impacting growth.
• Many process improvement initiatives tended to be cyclical, gaining momentum when business times were tough, but losing focus and impetus when business conditions improved.

My colleague, from the financial services industry, concluded by saying that a) many conference attendees seemed frustrated by the traditional narrow focus on increasing efficiencies at the expense of increased effectiveness, and b) many in attendance were looking for ways to use the tools of Process Excellence (Lean, Six Sigma or others) to drive top-line revenue and market share while simultaneously impacting profitability. In short, they wanted to become a more integral part of corporate growth, and not just “the guys who cut the costs.”

In order for Six Sigma practitioners to shift from the time-worn emphasis on operational efficiencies to the more strategic emphasis on operational effectiveness, they’ll need to shift their focus from the Voice of the Business (VOB) to the Voice of the Market (VOM). And they’ll need to shift from the metrics of Customer Satisfaction, which have little to do with business growth, to the metrics of Customer Value, proven to be the best predictors of market share. That means more proactively and systematically going after customer perspectives on value delivery, and it means integrating those perspectives into a modified DMAIC framework.

A Modified Six Sigma DMAIC Framework

Most readers of this column are already familiar with the traditional Six Sigma DMAIC framework. Loosely stated, DMAIC stands for:

• Define: the project
• Measure: the current situation
• Analyze: to identify the causes of defects and variation
• Improve: by implementing solutions
• Control: to maintain the gains.

The frustrations expressed by attendees at the recent IQPC Process Excellence Week emanate from the fact that the Define phase is typically driven from an internal, VOB, perspective. Six Sigma projects are typically focused on problems associated with cost overruns or perceived waste in the delivery of a product or service. Nothing wrong with that, but it relegates the Six Sigma practitioner to an emphasis on process efficiencies, while corporate executives have their eye on revenue and market share growth. If those Six Sigma folks at the Chicago conference want to achieve greater support from the executive office, they’ll need to bring a new focus and new tools to the DMAIC framework. Here are some suggestions:

Define: The Targeted Market Segment(s)

One thing that every corporate executive knows is that all customers are not created equal. Some customer groups will have little interest in certain product offerings (think: retirees and home mortgages); others represent growing business opportunities. The first step of a modified DMAIC is to acquire a laser-like focus on the market segments that best represent opportunities for business growth. The most appropriate tool to achieve that focus is a Market Opportunity Matrix. After identifying your most important customer groups, you’ll need to align them with your product offerings. The use of these two tools will force you to focus on the two things that make your company money: the products or services you sell, and the customers who buy them.

Measure: To Determine What Drives Value

The key to business growth, both top-line revenues and market share, is to create and deliver superior value. But how can you do that if you don’t know how your targeted customer groups define value? The relative importance of Quality and Price (the two key components of Value) tends to vary from one market segment to another. More importantly, the components of Quality and their relative importance also differ from one segment to another. How can you target your process improvements to provide superior quality if you can’t document what’s most important to improve? One of the hallmarks of Six Sigma is its emphasis on quantifiable outcomes. Why would you settle for anything less in documenting Critical-to-Quality factors (CTQs)?

All the Six Sigma practitioners I’ve met claim to include the Voice of the Customer in their project. A bit of probing, however, typically reveals that they didn’t get the customer perspective until the Six Sigma project was already defined (inside out); the perspective they did get was based on the metrics of satisfaction, not value (wrong metric, wrong results); or they simply used a qualitative approach (talking to a few customers) instead of a more rigorous quantification of CTQs. This can be easily rectified by adopting the metrics of Customer Value.

Analyze: To Determine Your Competitive Performance on CTQs

It’s one thing to understand what the key drivers of Quality and Value are, and yet another to understand how you perform on those relative to competitive offerings. That’s why the Measure phase must include performance ratings from both your customers and those of your competitors. An analysis of those performance ratings will reveal your competitive value performance gaps, as well as performance gaps on the most important CTQs and the underlying value performance criteria. This is where the rubber really meets the road, because these performance gaps—both the positive ones and the negative ones—will direct your opportunities to create and deliver superior value.

Improve: Products, Services, People, and Processes

There are two important aspects of the Improve phase that Six Sigma practitioners often forget. The first is that improvements—whether to products and services, people, or processes—must be aligned with the organization’s competitive marketing strategy. This is why it is so essential to tear down the silos that separate the CI (continuous improvement) professionals from the marketing professionals. The tools to make that happen already exist. You simply need to apply them.

The second aspect of the Improve phase that confounds both Six Sigma and Lean practitioners occurs during their value stream mapping. Because Lean and Six Sigma deployments tend to emanate from an internal focus on efficiencies rather than an external focus on effectiveness, most value stream maps that I’ve seen fail to include a “swim lane” for customers! Don’t believe me? Check out your value stream maps and find the explicit interactions between customers and the functional areas of your business. Drop me a line with your counter-examples!

Control: Your Customer Defect(ion)s

Does a tree in the forest make a noise when it falls if no one is around to hear it? Do your process improvements make any difference from a customer’s point of view? How do you know? Are you measuring customer reactions to your improvements on a transactional basis? Are you able to link those transactional measures to your business key performance indicators (KPIs)?

The message for Process Excellence professionals of all stripes is clear: if you want to be part of the “winning team” within your organization, you’ll need to shift your perspective from one focused exclusively on cutting costs to one that is customer-focused and value-driven. You’ll still be able to identify opportunities for greater efficiencies, but your focus will be upon creating and delivering superior value to your most important customers, resulting in both increased market share and profitability. I dare say, that will get the attention of your executive team!

You Should Check Out:

Value-Driven Six Sigma Requires New Tools and Views

Using the Voice of the Customer to Drive Organizational Culture Change

The Legend of Motorola: Embracing the Next Generation of Process Improvement

An Introduction to Six Sigma Management

Report Abuse   lukewissmann 06/17/2010 4:37:50 PM EDT The new lens you offer to the DMAIC model is fantastic. My belief is that many Six-Sigma projects, although well intended, often end up not delivering increased value to the firm. Quantifying how projects improve value to the customer (you call it customer value and I call it product value), value to the firm (reduction in product cost), and improved pace of innovation is key to ensuring six sigma teams are working on the right projects. In my consulting practice I help business leaders measure and improve their customers' willingness-to-pay for products (product value). Visit wissmanngroup.com to learn more about my services and find a link to my blog that focuses on measuring product value and how to include the metric to drive innovation to improve revenue, market share, profitability and customer satisfaction. Replies (0) Post a reply Sign in or Sign up to post a comment

Report Abuse   eric@6sigmarketing.com 12/14/2009 11:10:33 AM EST For a more detailed explanation of this approach see Six Sigma Marketing: From Cutting Costs to Growing Market Share published by ASQ's Quality Press. The book contains a step by step description of Six Sigma Marketing illustrated with a case example. Replies (0) Post a reply Sign in or Sign up to post a comment

Report Abuse   Reg Goeke 11/20/2009 10:15:41 AM EST I agree with Michael. But the purpose of these tools is to FOCUS the mapping activity on those processes within the value streams that will have the greatest impact on value delivery. It's this laser-like focus that will produce a significant return on your mapping investment, and win over the top management team in the process. For a more detailed explanation of how this work you can copy this link to my archived webinar on Value-Driven Process Improvements. http://media2.impactlearning.org:8080/wmv/ISBM/wm12276.wmv Or, send me your email address and I'll send a copy of the presentation Replies (0) Post a reply Sign in or Sign up to post a comment

Report Abuse   mclayton200 10/23/2009 2:46:42 PM EDT Process improvement efforts fail often, with ANY set of "tools" applied to the problems, unless the top mgmt team has focused effort on real business issues, and the PROCESS is MAPPED in detail by the workers and mgmt team in joint effort BEFORE any improvement effort is made. Just my experience over many years. Nothing is fixed by just applying tools to an apparently flawed process. Replies (0) Post a reply Sign in or Sign up to post a comment

Report Abuse   rbledsoe46 10/22/2009 11:05:32 AM EDT Six sigma is very difficult for marketing professionals to understand as a tool that can lead to a more effective marketing within the organization. However, when you start to understand the tools and metrics that drive customer value, and in turn, market share and profitability, marketing professionals can relate to this. Of course it all starts with a very intense understanding of how to gather, measure and interpret the voice of the customer. I doubt many marketing professional will take time ot listen to someone trying to sell them six sigma as the tool to improve their marketing. robert.bledsoe@cdirg.com Replies (0) Post a reply Sign in or Sign up to post a comment

Report Abuse   eric@6sigmarketing.com 10/21/2009 2:24:19 PM EDT Focusing solely on the call center is, in my opinion, short sighted. The focus should be on the value stream of which the call center is a part. This information would be forthcoming from the voice of the market. By extending your focus you enjoy the synergies that will accrue to the entire value creation and delivery process. The call center is a function, a silo and needs to be seen as part of a value stream. Value is delivered to the market by people, products and processes and until the organization buys into value creation and delivery as its goal or objective, they will continue to optimize system components instead of the entire system. Replies (0) Post a reply Sign in or Sign up to post a comment

Report Abuse   rsnow 10/21/2009 6:06:48 AM EDT To be honest I'm not yet fully convinced of the practicality and value of implementing a formal Six Sigma program in a contact center but I whole heartedly agree that companies need to adopt a Six Sigma like process to improve performance, companies need to focus more on effectiveness rather than pure efficiency, they need to focus on the Voice of the Customer not on inwardly looking historic reporting, and that need to transition to outcome measures rather than efficiency measures, including Customer Value. Replies (0) Post a reply Sign in or Sign up to post a comment