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In the thirteenth 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 discuss how to select and prioritize Six Sigma projects within a corporation.

Here are the various metrics that can be used to select projects.

1.  Defects per million opportunities (DPMO)

The total number of defects per unit divided by the total number of opportunities for defects per unit, multiplied by 1,000,000.  Let’s say there are 10 defects per unit that has 100,000 opportunities for such defects per unit.    This means that there is 1 defect per 10,000 opportunities, or 0.01%.   If you multiply this percentage times 1,000,000 you get 100 defects per million opportunities.   This is somewhere between 5 sigma (233 DPMO) and 6 sigma (3.4 DMPO).

2.  Net cost savings

Reductions in variable or fixed costs.

3.  Cost of poor quality

The cost of repairing defects once they are detected, or the warranty and product liability costs of defects that are not detected in the factory and get in the hands of consumers.

4.  Capacity, cycle time

The number of units a process is able to produce in a given period of time, and the length of time it takes to produce a product or service.

As you could probably guess after reading the book so far, the authors think that a focus on “capacity and cycle time” is the least fruitful approach.   Why try to increase capacity if you are not trying to increase quality?   So that MORE defective parts can fly out of the machine?

The focus on cost of poor quality and net cost savings is a good one to show how defective quality impacts the bottom line.  However, the one most easily adaptable to the world of Six Sigma is the first one, the focus on defects per million opportunities or DPMO, and this is what the authors recommend as a key metric.

Another good metric for project selection is customer satisfaction, but the only problem with this is to make sure it is actually measurable.   Once the characteristics of the product are identified as critical-to-quality, then you can be sure that the efforts you make in reducing defects are going to translate to greater customer satisfaction.

There are other metrics possible, but the ones mentioned here are the key metrics towards making quality improvements have the greatest possible impact on the bottom line.

In the next chapter, the authors focus on an interesting topic:   the psychology of Six Sigma.

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In the thirteenth 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 discuss how to select and prioritize Six Sigma projects within a corporation.

There is a top-down approach, where a senior manager called a Senior Champion considers a company’s major business issues and objectives and proposes a series of strategic improvement projects.   A Six Sigma Champion then takes this strategic vision and identifies processes, CTQs (Critical-to-Quality Characteristics), and specific opportunities for improvement.

The bottom-up approach is where production managers make suggestions for projects on their needs to achieve budget reductions, resolve specific quality problems, or improve process flow.

Which of these two approaches do the authors favor?   Not surprisingly, given the word “Strategy” in the title of their book, they recommend the top-down approach.   This is because the focus should be on Six Sigma projects that offer the greatest financial and customer-satisfaction leverage.   Although the authors don’t explicitly say so, I believe part of the reason for that is practical, in that you want to get the best bang for your buck, especially if you are paying for the salary of the Black Belts and their training.   But I can see where another reason is political.   Whenever you decide to make a sweeping change in an organization, as is required with the Six Sigma Breakthrough Strategy, you are going to get some resistance from the “old guard”.   This is not a reference to chronological age, but psychological flexibility.   For some, a new way of doing things gets people out of their comfort zone, which by definition is not a comfortable place to be.   But let’s say you are trying to implement a Six Sigma Breakthrough Strategy as a Senior Champion, and yet face resistance from senior managers.

When your first projects are those that are designed to create the greatest financial and customer-satisfaction improvements, those first results will also be political leverage to use in senior management circles to convince those who are skeptical of the Breakthrough Strategy.   It gives people who are skeptical a way to save face by saying, “well, I was skeptical, but I can’t argue with the results.”   It makes it a discussion about progress and principles, and not about personalities.

And that is yet another reason why a top-down approach is best.   The reason why a bottom-up approach will not work is that, although production managers may identify possible Six Sigma projects, it is up to the Six Sigma champion to choose which of those projects most align with the vision proposed by the Senior Champion.

That’s how you get the entire company working as a team, which is the fastest way for a Six Sigma Breakthrough Strategy to be implemented.

This is all good in theory, of course, but there must be tangible, objective criteria used to prioritize Six Sigma projects.  Those key metrics used to compare Six Sigma projects will be discussed in the next post.

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Of course, the authors of the book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations come from the manufacturing sector, but in the twelfth chapter of their book, they talk about the application of Six Sigma to the service industry.

In retrospect, the suitability of Six Sigma for the service industry should have been obvious, because 90 percent of those employed in manufacturing are actually doing service work:   finance, marketing, sales, distribution, and purchasing.   In this post, I review the authors discussion of commercial as opposed to industrial processes, and how Six Sigma applies to them as well.

In the case of an industrial process, the unit of manufacturing is the “part”, but in a commercial process, the unit is the “transaction.”   However, just like with a part in a manufacturing process, there are many ways for things to possibly go wrong, which are called “opportunities for defect.”   To show how the Six Sigma process works with a commercial process, the authors talk about the company Foxboro, a process automation control company.   For fifteen months, the company found that its domestic delinquent accounts were costing the company over $7 million each month.   This defect rate for the commercial process involved was the equivalent of operating at roughly two sigma.

A Black Belt team identified the metrics that should be used and designed graphs to track their process.  That $7 million loss per month quoted earlier was their baseline.   The defect rate, defined by delinquent accounts against the total accounts receivable balances, was 15%, meaning that the accounts receivable yield was 85%.

In analyzing the root causes of the disputed invoices, it turned out that commercial delinquencies were responsible for 65% of all the defects.  Out of these commercial delinquencies, there were several root causes revealed by their analyses.   One Black Belt, supported by nine team members from a range of departments across the company, took three months to execute a Six Sigma project which improved the root causes of the problem.   Although the Sigma level was only raised to 2.5, the delinquent account receivables were reduced by $3.6 million.

As a result, new corporate policies were implemented and funds were made available for better computer systems that would lock in the gains made during the project to make them permanent.

This is a good example how the same Six Sigma methods used in manufacturing can also be used on commercial processes using the same Six Sigma Breakthrough Strategy outlined by the authors, with similar positive results for the bottom line of the company.   That’s what’s great about Six Sigma:   it’s an equal opportunity tool!

So your company is eager to use Six Sigma to improve its bottom line.   Once you’ve identified a number of areas to improve upon, how do you choose which Six Sigma projects to do first?   That is the subject of the thirteenth chapter of the book, which I will cover starting with the next post.

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Of course, the authors of the book Six Sigma:  The Breakthrough Management Strategy Revolutionizing the World’s Top Corporations come from the manufacturing sector, but in the twelfth chapter of their book, they talk about the application of Six Sigma to the service industry.

This application of Six Sigma was not immediately recognized, however, in retrospect it should have seemed obvious.  The reason is that 90 percent of those employed in the manufacturing sector are not doing manufacturing itself, but rather service work, such as finance, marketing, sales, distribution and purchasing.   Industrial organizations that first apply the Six Sigma Breakthrough Strategy to design, engineering, and manufacturing will find an opportunity to further increase market share by applying the strategy to the service portion of their company.

Two areas of improvement in the service industry are cycle time, for example, the amount of time it takes to admit a patient into a hospital, and customer satisfaction.

In fact, the application of Six Sigma to transactional processes is even more straightforward than it is for manufacturing and engineering processes.   Also, critical-to-quality characteristics are easy to gauge when you consider the customer’s standpoint, who expects reliability and consistency.   Improved cycle time improves quality because it improves customer satisfaction.

The “unit of product” can vary tremendously–a line of code in software, a guest registration form, a cash register receipt, to give a few examples cited in the chapter.

In the next post, I discuss how the authors suggest applying Six Sigma to a commercial process such as the processing of an invoice or purchase order.

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In the introduction to his masterwork Capital in the Twenty-First Century, the author Thomas Piketty, unlike in a murder mystery, tells us his conclusions right there in the introduction.

After discussion of the overly pessimistic conclusions regarding economic inequality of the nineteenth-century figures like Marx and Ricardo, and the overly optimistic conclusions of the twentieth-century writers like Kuznets, Piketty then discusses the major conclusions he reached in his work.

1.   There is no purely economic determinism with regards to inequalities of wealth and fortune

“The history of the distribution of wealth has always been deeply political, and it cannot be reduced to purely economic mechanisms.”    The period of reduction of inequality between the first and second World War was due to policies adopted to cope with the shocks of war.   The period of the increase of inequality after 1980 (which continues to the present) is due to rightward political shifts in the past several decades, and the policies adopted with those increasingly rightward administrations with regards to taxation and finance.

2.  Dynamics of wealth distribution reveal powerful mechanisms pushing alternatively towards convergence and divergence

The main forces for convergence are the diffusion of knowledge and investment in training and skills.   The law of supply and demand is not as powerful as these forces turn out to be.   This diffusion of knowledge depends in large part on educational policies, access to training and to the acquisitions of appropriate skills, and associated institutions.   That is why the anti-educational policies of the right wing in the United States are more troublesome than any of the other taxation and finance policies they may propose, because the damage they do is more widespread and will be longer lasting.

On the divergence side, it is worthwhile noting that the top decile share of US national income has returned to 45-50 percent in the past decade, returning to the level it was in the decade leading to World War I.   The spectacular increase in inequality reflects an unprecedented increase in the incomes received by the top managers of large firms.   In many cases, they have the power to set their own remuneration without limit and without any clear relation to their individual productivity.

This process will not stop by an “natural” economic counter-force but by a deliberate policy that limits this distorting influence.   This turns out to be consonant with the first conclusion.

One way to explain this trend for divergence is contained in the formula r > g, which I will explain in the following post on his book.

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In the eleventh 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 discuss the role of the Black Belts, who are the project managers who run Six Sigma projects.

In the previous of this chapter the authors discussed, the training people need to become black belts, and how many belts a company needs.

But let’s say you have figured out your company, using the simple calculation given in the last post, has $10 million in annual revenues, and therefore needs 10 Black Belts, and 1 Master Black Belt.

Where do you get them?   Do you train them yourselves or do you hire from the outside?   That is the subject of this post.

The authors recommend that, if you are a large company and you need to get Black Belts from outside the company, that you consider setting up a training program for Black Belts within the company.   Here’s why:   hiring an Black Belt from outside is risky because the person will be conducting Six Sigma projects while simultaneously trying to familiarize him or herself with the company’s culture and history.

Someone who is already familiar with the company’s culture and history will then only need to concentrate on one thing:   completing Six Sigma projects.    The authors also recommend utilizing this person exclusively for Black Belt projects in order to get the maximum return on the investment of training that person.

But Master Black Belts can get involved in training as well as doing their job of selecting and supervising Six Sigma projects, forming a nucleus of a Six Sigma Project Management Office.   This last statement does not come directly from the authors, but is my interpretation of what I have read in their earlier chapters.

Just as the investment in Black Belts will yield benefits from the company, investment in the training of Black Belts will also yield benefits to the company.   In order to make sure any changes from Six Sigma projects are permanent, the company’s culture also needs to permanently change.    And that should be the goal of any company, no matter how large or small it is.

So far, the discussion in the book has focused on manufacturing, but some of the most impressive growth in Six Sigma projects comes from service industries, including health care.   How Six Sigma is applied in those types of industries is the subject of the 12th chapter, which I will go through next week.

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In the eleventh 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 discuss the role of the Black Belts, who are the project managers who run Six Sigma projects.

In the last section of this chapter the authors discuss what training people need to become black belts.   But how many black belts does a company need?

This is based on discussions about how much Black Belts can save a company for each Six Sigma project.   Companies can reap at least $150,000-$175,000 and, on average, around $230,000 per project.    A fully trained Black Belt will be able to do one project every two to three months.   So if you multiply the range per project times the number of projects per year (four to six), you can an range of a minimum of $400,000 to well over $1,000,000 in direct cost savings and productivity improvements.

Thus, a company can use the following simple calculation to figure out how many black belts a company needs:

Revenues / $1,000,000 = # of Black Belts

Furthermore,

# of Black Belts / 10 = # of Master of Black Belts

So a company with $100 million in annual revenues would need 100 Black Belts and 10 Master Black Belts.

Now this simple calculation can be adjusted by several factors, such as

• geographic location of factories (are they in a small area or are they spread across the country)
• how company is laid out (divided by product or by location)
• why company is implementing Six Sigma (to remove defects, to improve customer satisfaction, and/or to improve delivery time)

In the next post, we discuss whether a company should train its own black belts or hire them from outside the company.

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“If we study what is merely average, we will remain merely average.” Shawn Achor

Shawn Achor is a psychologist who is the CEO of Good Think, Inc. He gave a talk about positive psychology at a TED talk  in May 2011.  I outline his talk below which he concludes with a methodology on how to press the “reset” button for your mindset so that you are more optimistic.    One of the methods includes writing three things you are grateful for, so I thought it would be appropriate to post this on Thanksgiving Day.   However, the method goes far beyond simple gratitude…

1. Escaping the law of the average

Social scientists make pronouncements about trends based on averages within populations, but people have to realize that when you are dealing with the potential for individual happiness or creativity, you need to escape the “law of the average”. When psychologists strive to make people “normal”, then if they succeed, people will continue to remain merely average.

I can illustrate Shawn Achor’s point with a story.  A friend of mine who was taking economics in graduate school, and I saw him one day in a coffee shop looking a little glum. “What’s wrong?” I asked him. “Oh, it sounds silly, but I’m a little bummed. My statistics professor said that up to 50% of us in the class would end up doing below average on the test.”

Intellectually, he knew that this was of course true because it hinges on the technical definition of the word “average”. However, it was the implication that he had only a 1 out of 2 chance of escaping mediocrity that was a challenge to his self-esteem.

2. Studying outliers

Shawn Achor has studied those individuals who have higher than average potential to find out what their secret is in order to be see if some of those secrets can be passed on to the rest.  Instead of a psychology model that tries to drag everybody down towards being average by making them “normal”, he wants to have a positive psychology model that moves everyone’s average up.

3. Changing the lens

We view the world through the lens of the media, which selectively captures negative events and brings them to our attention, with the news hour occasionally ending in a positive story. This has an effect on us where we start to assume a false picture of the world where that same ratio of negative events to positive events is replicated throughout the world.

4. External circumstance does not determine inner attitude

Shawn Achor related how the students he counseled at Harvard University should have been happy to be at such an elite school, but they sought counseling because they concentrated on the negatives of the workload, peer pressure, etc. He realized that no matter how good the outer circumstances, there were some people who have a negative attitude internally. He found that the external circumstances only account for 10% of a person’s happiness over the long term; the other 90% are determined by the way in which that person views the world.

In the work environment, he found that only 25% of job successes are predicted by a person’s intelligence level. The other 75% are accounted for by your optimism levels, your social support levels, and your ability to see stress as a challenge rather than as a threat.

5. How can you change your mindset?
Here’s the kernel of what Shawn Achor came to talk about. Most schools and workplaces have the mindset “if you work hard, you will be successful. If you are successful, then you will be happier.”  This theory of motivation is backwards.  If you have a success, then the workplace or school simply changes the goalposts and you have to achieve even better success the next time. If happiness is thought to be on the other side of success, your brain never gets there, it pushes happiness over the cognitive horizon.   Just remember that one of the definitions of a horizon is “an imaginary line that gets farther away from you the closer you get to it.”

The problem with this method of motivation is that our brains work in the opposite order:  if you raise a person’s happiness in the present, then their brain experiences a happiness advantage, meaning that performs better than if it is negative, neutral, or stressed.  Every business outcome improves for an employee who has this happiness advantage: people are 31% more productive, they produce 37% more sales, doctors are 19% more accurate at diagnosis, etc.  So if our brain is more positive in the present, than it becomes more successful.

If people do the following 21 days in a row, it can rewire their brains to be more optimistic and therefore more successful.

Here Shawn gives an explanation of these 5 factors; I have added a sixth factor which I explain below

1. Writing down the 3 gratitudes changes you mind so that it starts scanning the world for the positives rather than the negatives. It doesn’t change the ratio of positives to negatives in the outside world, but it does change which factors you focus on as being the most significant.

2. Writing about a positive experience you’ve had in the past 24 hours allows you relive it.

3. Exercise teaches your brain that behavior matters.

4. Meditation allows you to detach from the cultural pattern of ADHD which we are creating through the constant attempts at multitasking, and increases the ability of the brain to focus on the task at hand.

5. You can write in your journal about a random act of kindness which you performed in the last 24 hours for someone, meaning that you did it without consideration of being paid back by the person whom you helped.  Alternately, perform a conscious act of kindness by sending a note of support to someone in your social support network.

6. To these activities, I have added a sixth of my own to Shawn’s list, which is to take a negative experience which you had in the past 24 hours, and created some lessons learned from it so that you will experience it in the future not as a threat, but as an opportunity to overcome a challenge.

I have to tell you that Shawn Achor’s method WORKS! I did try it for 21 days and found that I do see live in a more positive way than I did a month ago. The interesting thing for me was that, at first I thought I was just changing the way things were appearing for me, that is, the same ratio of negatives to positives happened out there in the external world, but I was gradually starting to focus on the positives.  The negatives were seen as less and less threatening and more and more as opportunities.

However, by the end of the 21-day period, I was starting to experience more and more positives on the outside. I think that the positive attitude I took with me while networking, for example, automatically drew people towards me and made them more helpful to me than they would have previously precisely BECAUSE I had a positive attitude.  So it does change your interior “weather” first, but that sunnier internal weather will gradually become reflected in your exterior circumstances.  I don’t know if it will work for everybody, but I recommend that you at least try it, because you have literally nothing to lose, and we could all stand to win a little more, right?

UPDATE:   I am writing this update in 2014, and I can tell you that this has become part of my daily ritual throughout the preceding year, with my gratitude journal also doubling as my planning journal.  I have to caution people against thinking that the gratitude journal will change someone’s brain chemistry who is clinically depressed.   Stephen Fry, in describing his struggle with bipolar disorder (what used to be called manic depression), said that when you are in the “depressed” part of the cycle, it doesn’t matter how good the internal weather should be, you find yourself living under a metaphorical cloud.    For people whose brain chemistry has severe challenges, just having a gratitude journal will not be enough–you will need professional guidance and medication to alter your brain chemistry to the point where you can live a productive life.

However, for those with “situational depression”, that is, a temporary state of hopelessness or helplessness brought about by traumatic circumstances, and not any particular imbalance in the brain itself, the gratitude journal can lessen the amount of time it can take to snap out of it.    I have a recent experience with this because my youngest brother passed away unexpected at the end of October, and after the week of preparations for his funeral, I had a chance to reflect back on my own life.    For about a week, I looked at the challenges I faced, and wondered if I could step back into the stream of life again, which suddenly looked as chaotic as whitewater rapids.

But my gratitude journal made me look at what lessons my brother, who had such an optimistic outlook on life despite his own challenges, could teach me.    Rather than seeing his passing away as a loss, I could see that his life only added to my own–a lesson reinforced by all the stories people told at his funeral and at the memorial service that was held later.   And finally, I realized that as his life was a gift, my own is a gift and I need to react to it as you would with a priceless gift–with gratitude.    Suddenly I looked at the challenges I faced in a positive light and I launched myself into the various projects I needed to accomplish.

In fact, that’s why I’m grateful for the Thanksgiving holidays, because it gives me a chance to work on my planning journal for the month of December in order to finish whatever projects need completing by the end of the year, and to reflect in my gratitude journal about the bounties I have received.    When you are thankful, your mind and spirit are opened, and life seems to expand to answer that openness.

So make it a promise to try a gratitude journal, if only for 21 days.   You will see a difference–and be thankful for it!

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In the eleventh 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 discuss the role of the Black Belts, who are the project managers who run Six Sigma projects.

In the section of this chapter that discusses what training people need to become black belts, the authors emphasize the need for them to follow the Plan-Train-Apply-Review training cycle.

• Plan–the potential Black Belts meet with the Deployment Champions and Project Champions to discuss which projects the training will be applied to
• Train–the Black Belts learn the Six Sigma philosophy, the theory behind Six Sigma, and then the various breakthrough tools (statistics, quantitative benchmarking, process-control techniques, Design of Experiments) that form a scientific and repeatable process that can be used to solve an industrial or commercial problem
• Apply–The Black Belts use the knowledge gained in the Train period to the projects identified by the Champions
• Review–The Black Belts review the results gained by application of the knowledge gained in the Train period to the projects identified by the Champions

This cycle is repeated, as Black Belts receive new projects to work on, and deepen their understanding by teaching others in successive cycles (other potential Black Belts or Green Belts).

In this way, the learning is a constantly evolving process.

One of the comments the authors make that was very intriguing was that, as project managers of a Six Sigma project, learning leadership skills should be part of the Black Belt certification program, but isn’t.   The Train and Apply parts of the training cycle above contain the bulk of the Black Belt certification program.   You learn the theory and take a test, but you also must have a project which demonstrates the knowledge you have just learned.

However, if you consider the plan and review sections of the training cycle outlined above, you will see that there are plenty of opportunities outside of the formal Black Belt certification program to exercise leadership.   It should be the Champions’ job to make sure that these opportunities are taken advantage of.

The next posts after Thanksgiving will discuss the topics of “how many Black Belts does an organization need” and whether the company should train their own or hire from the outside.

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In the eleventh 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 focus on the Black Belts, the lynchpin of any strategy implementing Six Sigma.

In the last post, I talked about the origin of the “black belts”, which were developed by one of the authors, Mikel “Mike” Harry, as a way of labeling the training of the project leaders trained in statistical problem solving, in parallel to the “black belts” in karate.

Why should a company invest in the training needed to create Black Belts?   Because companies can reap at least $150,000-$175,000 per Black Belt project, with many projects achieving a savings of closer to $250,000 per project.   That means with an average of four to six projects annually (or one project every two to three months), a fully trained Black Belt can deliver at a minimum of $600,000 to well over $1,000,000 in cost savings and productivity improvements.

Now, it does takes about twelve months of practice for Black Belts to become fully proficient in the Breakthrough Strategy, but they are the “gift that keeps on giving,” not just because of the cost savings they achieve on Six Sigma projects, but because they can guide others, called Green Belts, in applying the Breakthrough Strategy to selected projects.

So Black Belts can, once trained, bring a tangible cost savings to the company.   What does their training consist of?

That is the subject of the next post.

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