Capital in the Twenty-First Century–Economic Fairy Tales from the Kuznets Curve to the Laffer Curve


In his masterwork on the subject of economic inequality, Capital in the Twenty-First Century, Thomas Piketty talks in his introduction about the pessimistic conclusions drawn by the nineteenth-century economists Marx and RicardoThe economic analysis of Marx and Ricardo concluded that income inequality would automatically increase in advanced phases of capitalist development.    Piketty discussed some of the reasons why their conclusions were incorrect, which I discuss in my previous post written on 11/9/2014.

Piketty turns his attention to the optimistic or fairy-tale conclusions drawn by a twentieth-century economist, Simon Kuznets, who believed that income inequality would automatically decrease in advanced phases of capitalist development, as summed up in the phrase “growth is a rising tide that lifts all boats.”   This optimism seems almost quaint during the present period of lopsided economic growth in the United States, where the rising tide only seems to be lifting yachts, whereas ordinary boats are left stranded.

The big difference between the nineteenth and twentieth-century economists was that the latter were able to rely on data sources (such as US federal income tax returns) rather than just arguing based on logical principles.   In 1953 Kuznets published Shares of Upper Income Groups in Income and Savings, which dealt with the United States over a period of thirty-five years from 1913-1948.   Based on the income tax data, he was able to measure inequality in income distribution and to gauge its evolution over time.

His findings were that there was a sharp reduction in income inequality in the United States between 1913 and 1948.   So the top 10 percent of US earners claimed 45-50% of the annual national income in the period right after World War I, but that share had decreased to 30-35% in the period right after World War II.

What was the cause of the compression of high US income incomes in the period between 1913 and 1948?   Although he recognized it was due in large part to the multiple shocks to the US economic system delivered by the Great Depression and World War II, he claimed that inequality would follow a “bell curve”, called the “Kuznets curve”, which showed that inequality should first increase and then decrease over the course of industrialization and economic development.

His reasoning was that in the early phases of industrialization, only a minority of people are prepared to benefit from the new wealth that industrialization brings, but that as a larger and larger fraction of the population partakes of the fruits of economic growth, inequality automatically decreases.

In retrospect, however, Piketty believes that the “magical” Kuznets curve theory reflects an optimistic faith in the promise that all social groups would continue to share in the fruits of growth.   This stopped happening in the US in the 1970s for reasons which will be discussed later in the book.   The sharp reduction in income inequality that occurred between 1913 and 1948 was due to an “accident of history”, or actually two accidents, namely, the economic shock of the Great Depression and the military shock of World War II.

A similar fairy tale is found in the “Laffer Curve”, which was used in the Reagan administration to give an excuse to lower taxes on the rich, in the belief that rather than a rising tide lifting all boats, that the water lifting all boats would trickle down from above.   As Bill Murray’s homeless character remarked in a sketch on Saturday Night Live, optimism meant standing next to the gutter and waiting to be trickled on.    Such optimism is faith-based economics, as was Kuznets’ curve.   Liketty is trying to bring back the subject of income inequality to a reality-based study.

In the last part of his introduction, he previews what the conclusions are of his study.   This will be the subject of my next post on 11/30/2014.

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Six Sigma and Suppliers


In their book called Six Sigma: The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, the authors Mikel Harry, Ph.D. And Richard Schroeder talk about the importance of adopting Six Sigma to improve the quality of a company’s processes, and consequently the quality of the products that they make.

As the authors remind the readers, most companies don’t make all the components that go into their products or services.    One approach to making sure suppliers improve the quality of their components is to put in penalties for delays or low quality as conditions in their supplier contract.   However, they say the best way to improve quality of one’s suppliers is to work with one’s suppliers by undertaking their Six Sigma training.

The authors recommend that a company spend at least two years getting its own processes under control before they begin training key suppliers.   This is because a lot of the supplier error is caused by poor drawings and specifications provided to them.

Another recommendation is that rather than focusing on all components of a product, to first focus on those parts or components that are critical to quality.

When you approach a supplier about Six Sigma training, the supplier should be enthusiastic about the training because they should be as concerned about the quality of the product as the customers, and a good-quality product requires good-quality components.

Key suppliers are the only ones that need to be trained in the Six Sigma method.   This is because other suppliers, once that realize that your company is measuring the quality of the components with Six Sigma, will want to start correcting its problems itself, and may become interested in having its own personnel undertake Six Sigma training.

They will be interested in delivering quality components to their customer, i.e., your organization, to the extent that you show you are willing to deliver your customer a good product with the assistance of Six Sigma methodology.

In the next chapter, the authors discuss the importance of the Six Sigma Black Belts, who implement the methodology on a project basis.    They will discuss the numbers of Black Belts they recommend a company have, and what kind of training and indeed what kind of compensation they should receive.

Six Sigma–Master Black Belts, Black Belts, and Green Belts


In the tenth chapter of their book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, by Mikel Harry, Ph.D., and Richard Schroeder, the authors get around to discussing in detail who the various players are in the implementation of the Breakthrough Strategy.   In the last post, we discussed the champions–the Senior Champion, the Deployment Champion, and the Project Champions.

This post covers the three levels of “belts” or expertise levels, within the Six Sigma implementation strategy.

1.  Master Black Belts

Master Black Belts assist the Champions in the identification of improvements projects, and they negotiate with Champions for resources for Six Sigma projects.  They then coach and train Black Belts and Green Belts to conduct those projects.

2.  Black Belts

Black Belts work under a Master Black Belt and they apply Six Sigma tools and knowledge to specific projects.   They are the “project managers” of Six Sigma projects.

3.  Green Belts

These are the team members of project team’s conducting Six Sigma projects, working under Black Belts.

The greatest quote I read from the authors describing the various levels of people involved in the implementation of Six Sigma Breakthrough Strategy is the following:   “Champions … decide what gets done, Master Black Belts and Black Belts work full time figuring out how to get it done.”   I can add to that quote the Green Belts, who get it done!

Six Sigma–Senior, Deployment, and Project Champions


In the tenth chapter of their book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, by Mikel Harry, Ph.D., and Richard Schroeder, the authors get around to discussing in detail who the various players are in the implementation of the Breakthrough Strategy.

These were summarized in the last section of the previous chapter, but in this chapter the authors go into more detail, starting with the top:   the Champions.

1.  The Senior Champion

This is an executive leader who ends up selecting the Deployment Champions and Project Champions, the people who will champion the Six Sigma Breakthrough Strategy within specific business units across the organization.

2.  The Deployment Champions

Champion may be anyone from an executive vice president to a vice president in charge of a functional group  at an operating site.  In any case, the Deployment Champion works to implement Six Sigma throughout their respective businesses.   They need to:

  • have solid business experience at the strategic and tactical level
  • experience at leading a cross-functional team
  • be able to develop businesswide financial targets for Six Sigma results

3.  Project Champions

These champions function at the business unit level as they oversee Black Belts and focus on Six Sigma on the project level.   The Project Champions do the following:

  • perform assessments of the organization’s capabilities
  • make sure financial resources are available for the Six Sigma projects
  • benchmark the organization’s products and services, and conduct detailed gap analyses
  • develop a cross-functional Six Sigma deployment plan
  • provide managerial and technical leadership to Master Black Belts and Black Belts

These champions are the grounding force in making the strategy work and supporting the initiative to move forward.

In the next post, we discuss the role of the Master Black Belts.

 

Six Sigma–Roles and Responsibilities of Those Deploying the Breakthrough Strategy


In the ninth chapter of their book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, the authors Mikel Harry, Ph.D., and Richard Schroeder finally get around to telling us how to implement the strategy, after spending the earlier chapters describing what Six Sigma is and what the Breakthrough Management Strategy consists of.

In the last post, I discussed the questions an organization needs to ask itself before it sets up a Six Sigma Breakthrough Strategy within the organization.   In this post, we get to what the roles and responsibilities are of the various individuals who are on team that will deploy and implement the strategy.   This are listed based on a top-down structure.

  1. Executive Management–there has to be support from the executive management.   This is nothing more crucial to getting the strategy off on the right foor.
  2. Senior Champion–a strategic corporate-level position, this is someone who directly reports to the CEO, and who must get business unit-level people onboard (the Deployment Champions).
  3. Deployment Champion-a strategic business-unit-level position, this is someone who must be responsible for the support systems of Six Sigma projects.
  4. Project Champion–this is a tactical business-unit-level position that is responsible for choosing and implementing Six Sigma Black Belt projects.
  5. Deployment Master Black Belts–these are the subject matter experts who are at the business-unit level.   They are responsible for being a repository of technical knowledge regarding Six Sigma for use by the Project Master Black Belts, and for maintaining the company’s database on Six Sigma technical knowledge and keeping it up to date.
  6. Project Master Black Belts–This person is at the business-unit level who transfers Sigma Sigma knowledge to the Black Belts.  They are the teachers of Six Sigma.
  7. Project Black Belts–these are the ones who implement the Six Sigma projects and are where the rubber meets the road with regard to applying Six Sigma to specific projects in order to solve critical quality problems.
  8. Process Owners–these are line managers who must ensure that process improvements, once completed through the Six Sigma process, are captured and sustained.
  9. Six Sigma Green Belts–these are the project team members who have knowledge of Six Sigma under the guidance of Black Belts.   They can even run mini-projects of their own.
  10. Project Team Members–they gather and analyze data for use by the Black Belts.

Some of my favorite metaphors the authors use for the difference between Black Belts and Master Black Belts are the following:

  • the Deployment Master Black Belts spread the seeds of Six Sigma, the Project Master Black Belts plant the seeds and water them, and the Black Belts harvest the fruits.
  • Black Belts are where the rubber meets the road, but Project Master Black Belts are where the tire meets the rim.

In the tenth chapter, the authors go into more details about the six categories of people involved in Six Sigma, categories which include all of the above categories except for one:   the customer, for whom the entire Strategic Breakthrough Strategy is done.

Six Sigma–How to Organize the Breakthrough Strategy


In the ninth chapter of their book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations, the authors Mikel Harry, Ph.D., and Richard Schroeder finally get around to telling us how to implement the strategy, after spending the earlier chapters describing what Six Sigma is and what the Breakthrough Management Strategy consists of.

In the last posts, I have summarized what choices the authors have given on how to focus the implementation (they prefer a focus on processes) and what strategic goal to use (they prefer an emphasis on design processes which correlate highly with customer satisfaction).

The next question is:  how will a company organize the people working on Six Sigma projects.   Of course, a lot of the answer to this question will depend on the focus and strategic goal (which were covered in the last two posts).   Before launching the Six Sigma Breakthrough Strategy, here are the three largest groups of questions to be considered, based on the question words “who”, “what”, and “how”.

WHO

  1. Who will oversee the selection of Black Belts (those who run the Six Sigma projects)?   What selection criteria will be used, and once they are selected, what will the company do to retain them in terms of pay, recognition, and other rewards?
  2. Who in the company will sign off on (or sponsor) the projects?   This person will have to know what the guidelines will be to decide how each project is judged to be successful or not based on the strategic goals of the company?
  3. Who will be the ultimate champion of the Breakthrough Strategy itself?    This person will have to get the concurrence of senior management regarding what the focus and strategic goal of the Breakthrough Strategy will be.

WHAT

  1. What will be the project selection process?
  2. What will be the quality metrics used as a standard across the country?
  3. What will be the savings tracking process used, and what categories of savings will be used in that process?

HOW

  1. How will the budget for the strategy be handled, including the question of whether salaries for Black Belts will be categorized as direct or indirect costs?    Direct costs are costs that are billed to a specific Six Sigma project, indirect costs are not billed to a specific project, but to the Six Sigma Breakthrough Strategy as a whole.
  2. How will the Six Sigma Breakthrough Strategy be aligned with other quality initiatives and systems, such as just-in-time inventory planning (JIT)?
  3. How will the company train its Master Black Belts, the people that will train the Black Belts (those who run the projects) and Green Belts (those who are on project teams)?

All of this has to go into the initiating process for implementing the Six Sigma Breakthrough Project, and should be done when creating the Program Charter for implementing it.

In the next post, we discuss the various roles and responsibilities for those implementing the strategy, from the “general”(Senior Champion) to the “ground troops” (Green Belts, Yellow Belts).

Six Sigma–Five Ways to Prioritize Projects


In the last post, I described how the authors Mikel Harry, Ph.D., and Richard Schroeder of the book Six Sigma:  The Breakthrough Strategy Revolutionizing the World’s Top Corporations choose describe four ways to focus an organization’s Six Sigma projects:

  1. Focus on project cost savings
  2. Focus on deliverables
  3. Focus on processes
  4. Focus on problems

Of these four, the authors clearly prefer focus #3 rather than #1, #2, or even #4.

But once you have chosen your focus, there are five ways to prioritize the possible Six Sigma projects your organization has decided to focus on.   That is the subject of this post.

  1. Focus on geographical location–this will depend on the number of employees or facilities within a specific site or division, the point being that you want to focus on a set of operations that can support a Six Sigma initiative, and you also want to focus on an area that will be able to replicate successful results in other parts of the corporation.
  2. Focus on design–you need to characterize processes in the Measure and Analyze phases, and then optimize them in the Improve and Control phases.  If you want to redesign a product to go beyond the Five Sigma wall, then focusing on the design phase of the product will be the best focus for your organization.
  3. Focus on internal processes–if a company feels that its managerial processes are in need of improvement before its operational processes, then a company may choose to focus here.
  4. Focus on supplier processes–once a company has improved its own processes, then a company may choose to focus on its supplier chain and making sure they launch their own Six Sigma initiatives.
  5. Focus on customers–this is an excellent place for a company to start focusing on that makes products for customers.  Translating customer satisfaction studies into critical-to-quality characteristics of one’s products, and then focusing on Six Sigma initiatives that improve those characteristics, is a surefire way to produce positive bottom-line business results.

The first focus is the choice of the geographical location of the facilities within the company, the other choices for focus are where to start focusing within the organization of the company.   In my opinion the authors tend to prefer the focus on #5 (customers) and #2 (design), followed by #3 (internal) and #4 (supplier).

Now that the question of where to focus has been considered, the next question is “who will spearhead the effort?”  What personnel resources will a company commit to Six Sigma initiatives?   That is the subject of the next post…