[sparky]

What is the true cost of implementing six-sigma in your organisation?-By Mark Rewhorn

Is it really worth it, does it all add up?

Firstly, I must declare an interest here. I’m a trained and certified six-sigma black-belt, who delivers six-sigma training for a living. I have also delivered several financially successful projects. I do truly believe in the methodology that six-sigma advocates. I also honestly believe that when used for customer derived issues six-sigma delivers its true promise. What I’m not so happy about though, is the way that companies deploying six-sigma are attributing the cost benefits achieved.

I have just found an article on the internet with headlines stating that Motorola have saved $2.2 billion over 2-3 years and Polaroid have saved $100m over one year with the sub heading, “These statistics demonstrate the dramatic impact Six Sigma can have in improving business performance.” I have no wish to single these companies out, and many other companies make similar claims, but are these headlines completely truthful? As a six-sigma trainer, I teach how important that the accuracy and taking realistic and appropriate measures are. Are these companies revealing the whole truth with the figures they are citing? Are their measures correct, transparent and will they stand scrutiny?

Let me say here and now, that I am in no doubt that these companies have actually achieved the savings trumpeted, but what I do question are the “hidden” costs that appear not to be taken into account by many of the companies deploying six-sigma. It appears that “cherry picking” is going on, with the good news being broadcast, and then finding its way into the corporate brochures. OK, there might be a value to be had here, and nobody wants to hear bad news, but after the recent scandals with accounting practices, isn’t it time to come clean?

For instance, what has happened to all the training and equipment costs; where and how have these been absorbed? When I talk about training costs, I’m not just talking about training the belts themselves, but what about champion training and general company awareness training? And during training we’re not just talking about the cost of employing trainers, (certainly not cheap) but what about the cost of the employees’ time, and the fact that they’re not productive during training? Also, in my experience, companies deploying six-sigma purchase nice new laptop computers and expensive, dedicated software. Where are these costs shown, how are they amortised? How are the now trained belts accounted for? Are they seen as a central resource and funded that way, or are they still funded by their previous departments? If the latter is the case, do they work on the company’s true ills, or only on the ones that affect their home department?

Next, there’s the argument about back filling the positions left vacant by the selected and now full time belts. Does this ever get taken into account? If it does I haven’t seen it. In fact one of my arguments over the years has been that companies usually can’t afford to back fill. Whether back filling takes place or not, the point is that there is a need for the work previously carried out by the newly appointed belts to be carried out by others. How is this accounted for? Whichever way it’s looked at, there is a cost burden.

What about the cost of changes to company procedures? Many six-sigma projects require procedures or process steps changing; these rarely appear to be accounted for. To change a procedure costs money, but if a factory layout needs changing to accommodate changed process steps it can incur significant cost. Six-sigma requires accurate data collecting; I have yet to see a company make the cost for this apparent. Often, existing measurement procedures or equipment are inadequate (or non existent) and need changing or updating. These costs need to be taken into account and reflected in individual project costs or as a capital expenditure against the company infrastructure itself. Designs of experiments don’t come for free, but again, I haven’t seen them accounted for. What happens to items that need reworking after the DoE? How is this accounted for? There are many more instances that I could go on about, but I guess you get the gist? It appears to me, we are hiding some of the costs.

Then of course there are the projects that are actually carried out. If six-sigma hadn’t been employed, would they still have been done? Is it right to claim all projects since the deployment as being directly attributable to the six-sigma methodology? Would expensive warranty based projects really not have been tackled if six-sigma hadn’t have been taken on board? How many of these projects were already underway before the six-sigma deployment was started, and then just ended-up embroiled within the euphoria of first project realisation?

How many projects are started and then for various reasons abandoned? What happens to account for the time and effort expended on these aborted projects? Equally, how many projects end up costing money in order to improve the customer experience?

The bottom line is that I think we’re being more than a touch hypocritical. Trained six-sigma belts are required to detail the costs of their projects; usually, with a financial analyst, and often they are required to put a value on intangibles such as customer satisfaction. However, the organisation as a whole doesn’t appear to feel the need to detail the true cost of deployment. This begs the obvious question, “What (if anything) is there to hide?” Or is it simply a case of an organisation not being able, or not wanting, to actually identify its true cost. Might it be deemed a commercial secret? Companies obviously don’t want to publicise the rates that they are paying their trained belts, but what does it cost to retain a now highly marketable person?

Let me throw down a challenge to any organisation that has fully embraced six-sigma and its methodologies. How about getting one of your highly trained black belts to carry out a project on the true cost of implementation to the organisation? Isn’t it about time we had an open and honest balance sheet? Or is this seen as a non value added action?

Mark Rewhorn (treqna alias sparky) comes from Motor industry with strong 21 years of experience. He was responsible for original BS5750 cascade through the department in his organization. Mark was trained on Six Sigma in 2001. Currently working as six sigma trainer and can be reached at rewhorn@hotmail.com.

[TomHuckabee]

Spartky,

Great subject for discussion. You are actually hitting on a topic that most of the folks in the trenches would whole-heartedly agree with. The have long asserted that the numbers are being "gamed" using many of the points that you raise. In some places we have to deal with the significant "Six Sigma Angst." Such SSA (Six Sigma Angst) is the outcome of hyped up results that (tend to imply) mischaracterize the process owners as incompetent or irresponsible for allowing such great financial impact to have gone so long unrealized.

Anyway, you rightly surface this topic for dialogue.

Thanks;
Tom

[Saurabh Chatterjee]

Wonderful article Sparky! Thanks for sharing.

However, IMO, maybe not being able to project the true cost of deploying Six sigma could also have reasons other than mere hypocricy. I think it could also have to do with oversight, or a lack of understanding of the true cost benefits out of SS deployment.

Your thoughts?

Best Regards,
Saurabh

[Saurabh Chatterjee]

Sparky,

A very practical and thoughtful article....

Don't you feel that these projections of cost benefit in a wrong way need not always be related to apparent hypocrisy prevalent in the business houses, but could also be an issue of negligence or maybe lack of awareness / oversight related towards calculating the "true benefits" towards deploying six sigma projects in the businesses ?

I was just thinking that the facts brought out in your article are very valid, but also are most common and prevalent almost everywhere. Could it also be an area where more emphasis needs to be laid in terms of training the "deployers" or "leaders" within a business house?

Best Wishes,
Saurabh

[Onemeanmode]

I wonder if we should ask ourselves and our associates the question in another way ? That being: what is the true cost of NOT implementing six sigma ?
Seems it's always or predominately looked upon as maybe an unnecessary expense to train indiduals in this discipline. Maybe that is driven by non support of folks that dont understand it or perhaps have some agenda. In my personal opinion though, it is much more expensive for a business concern of any type to Not use this methodology in some fashion. Just my 2 cents

[Lakota]

Originally Posted by Onemeanmode

I wonder if we should ask ourselves and our associates the question in another way ? That being: what is the true cost of NOT implementing six sigma ?
Seems it's always or predominately looked upon as maybe an unnecessary expense to train indiduals in this discipline. Maybe that is driven by non support of folks that dont understand it or perhaps have some agenda. In my personal opinion though, it is much more expensive for a business concern of any type to Not use this methodology in some fashion. Just my 2 cents

Right on the mark with your comments, as far as I am concerned.

Blessings,
Lakota

[Saurabh Chatterjee]

About 2 weeks back, I had the privilege of speaking with the Global head of Quality for NCR Corp - seemingly an old man with wealth and wealth of knowledge and experience. He was highly focussed on continuous improvement, but at the same time, he was more impressed with kaizen than six sigma.

is it got to do with his age? - That was what my wife asked forgive her as she hardly knows the meaning of six sigma. But this was a Quality head of a Global organization, who understood the importance of six sigma, but didn't seem too obsessed by it!!

What might have been the reasons? thoughts please....

[sparky]

Originally Posted by Saurabh Chatterjee

About 2 weeks back, I had the privilege of speaking with the Global head of Quality for NCR Corp - seemingly an old man with wealth and wealth of knowledge and experience. He was highly focussed on continuous improvement, but at the same time, he was more impressed with kaizen than six sigma.

is it got to do with his age? - That was what my wife asked forgive her as she hardly knows the meaning of six sigma. But this was a Quality head of a Global organization, who understood the importance of six sigma, but didn't seem too obsessed by it!!

What might have been the reasons? thoughts please....

Perhaps the realisation that there are cheaper and easier methods around?

Six sigma is often embarked on by companies that are no where near enough ready for it. Many companies fool themselves that there is no longer low hanging fruit to be harvested.

All too often people get swept along with the tide, perhaps your head of Quality is a bit more of an independent free thinker?

I think that a plan and commitment to continuously improve business processes is far more important that a name.