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The Distant Future of Six Sigma

by Matt Barney

Leadership Supply is just the beginning of where we're taking Six Sigma. By incorporating ideas from Finance, Operations Research, Computer Science, and Organizational Psychology, we're creating the near and distant future of Six Sigma. We believe Six Sigma's future includes broad areas of application that haven't yet been fully explored, including diverse uses ranging from improving financial reporting and the future of Black Belts to better innovation and successful philanthropy.

Six Sigma and Shareholder Value

In the future, Six SigmaLev, 2002). When used correctly, we believe Six Sigma can help investors regain confidence in financial reporting.

Regaining Wall Street's Trust

High-profile collapses and financial restatements have frequently been blamed for causing serious injury to the American economy, specifically in regard to the extended economic downturn of 2002. In a report to Congress delivered February 2, 2002, Baruch LevOnes, Viswesvaran, and Schmidt, 1993). Because it's nearly impossible to detect conscientious, prudent leaders in a structured interview, companies should systematically employ these tests when selecting executives and financial professionals.

At the same time, no personnel selection process is foolproofit is just as critical for companies to establish strong performance management processes that promote ethical behavior of managers. At Motorola, CEO Chris Galvin has consistently emphasized ethics, both in terms of role modeling expected behaviors and managing employee performance. In fact, he has led the effort to establish ethics as a regular metric in Motorola's performance appraisal system; all leaders must score high to continue their employment. The few leaders who slip through the preventive integrity test can be caught with good performance management systems before they cause much harm. Similarly, to further address the root cause of financial reporting problems, companies must establish processes that clearly demonstrate that audits are independent, verifiable, and strive toward objectivity. Six Sigma measurement methods and tools are invaluable in ensuring the integrity of financial and other processes.

Second, government regulators can more fully oversee truthfulness in financial reporting by establishing Six Sigma processes in the public sector. In particular, we strongly recommend that the Securities and Exchange Commission (SEC) use scorecards to establish publicly tracked measures that ensure financial information integrity. Kaplan and Norton call these "impact maps." These should include metrics on the success and volume of audits, errors, failures, litigation settlements, and Black Belt projects underway to make improvements. Today's Web-enabled data sharing technologies and standards (e.g., XML) make it easy, fast, and cheap to provide such visibilityas long as regulators are prepared to manage regulatory and oversight processes with Six Sigma techniques to ensure financial information integrity. For both corporations and governments, Six Sigma is key to ensuring financial process validity because it is based on the same underlying need for integrity that drove its genesis at Motorola. Bob and Chris Galvin's strong focus on doing the right thing underlies why Motorola invented itto ensure that we consistently and honestly deliver value to customers, which in turn produces a feeling that we're as good as our word. Financial processes need to strive for this same underlying value, and we believe ensuring trustworthiness in financial data is Six Sigma's legacy.

Six Sigma has perhaps the most potential to help with the third problem areavaluing intangibles. Six Sigma experts know that there is error in all measurement, and financial measurements are no different; in Measurement Systems Analysis (MSA), a traditional Six Sigma technique to analyze and reduce measurement error, this is called reliability or precision. The accounting profession, in contrast, traditionally assumes that income statements and balance sheets are without mistakes. Even if they acknowledge error, they don't report it, asking the reader to "trust them" that any mistake is trivial.

In addition to highly publicized ethical lapses by firms like Global Crossing, Enron and WorldCom, in 2002 an unacceptably large number of companies restated their earnings. Recent events demonstrate that financial statements do include errors, and unfortunately not always in trivial amounts. This is particularly true because peopleaccountants and auditorsdo a significant portion of the work, and human intensive processes are more difficult to optimize than machine-intensive processes. Sometimes, auditors and accountants have different opinions about how to classify certain kinds of costs.

This difference can be detected using Six Sigma methods. Two significant benefits can be gained by using Six Sigma's Measurement Systems Analysis (MSA) techniques to look at inter-auditor reliability, and systematically report on the error variability inherent in the numbers. First, firms can build higher levels of trust with their shareholders by being honest about how much or little error there is in financial figures. In the current economic environment, candidness in financial reporting can be a significant differentiator in market cap valuations. Second and perhaps more importantly, senior leaders can quantify financial errors and use Six Sigma techniques to reduce financial measurement error to trivial levels.

Measuring and Managing Tangibles and Intangibles

Six Sigma Jeanne DiFrancesco (2000, 2002) of ProOrbis suggests that the answer to credibly and validly measuring intangibles lies in changing how we think about valuing all assets, tangible and intangible. The ProOrbis model suggests that classic financial valuation is flawed because the true value of an asset in a going concern isn't the liquidation price or purchase price minus depreciation. If the liquidation or market price were the true value and the company couldn't use the asset at a higher benefit inside the firm, it would be better off selling it to the highest bidder. ProOrbis promotes the idea that assets are valuable when they do work helpful to the firm.

This model suggests that once the business strategy is defined, the value chain or business processes must be developed to execute the strategy. To build the processes, managers must make decisions about the right mix of assetsmachinery, buildings, technology, and human performanceneeded to maximize customer and shareholder value. When assembling the right configuration of physical, technological, and human assets to work for the firm, they are executing what Six Sigma calls the "voice of the business," ensuring that the mix will perform to specifications dictated by the business strategy. The strategy articulates financial goals, such as margin requirements, as well as desired market outcomes, including customer requirements. Once the strategy is complete, the senior leaders design the firm's value chain to ensure the right kind and mix of assets are present at each step in the process. When assets are specified in this way, Six Sigma can help operationally define all the performance specifications required to successfully execute the strategy. To fully manage all firm assets, performance specs should be defined simultaneously for people, machinery, and technologybecause if anyone doesn't perform to levels needed, the entire system can be suboptimized. Figure 3.2 outlines the types of physical and human performance, as well as the attributes underlying the performance that must be managed by organizational subprocesses supporting the value chain.

Because these new valuation models look at the organization as one big system, or a set of interrelated processes, they all must work together to realize the desired value. At the same time, the sum of all investments in all assetsDiFrancesco, 2002). Further, the model suggests that you can understand the effectiveness of your assets in producing this value by using a new Return on Investment (ROI) approach:

Value of Core Assets = Throughputs Inputs

Return on Investment = Value of Core Assets / Investments in Core Assets

A third key is to optimize the configuration of the use of each asset type in every step in the process. If you have too much capacity in one type of asset in a particular part of the process relative to the goals, you waste resources that can't possibly help create value. Importantly, this approach suggests that investments in all assets must be actively engineered together to optimally realize customer, market, and financial goals on the scorecard. It further suggests that the performance of each asset in creating value can only be understood at the organizational levelwhere dollars are collected and customers are delighted. All of these ideas are very well suited to Six Sigma's focus on process, and they augment Six Sigma by specifying better equations by which we can value investing in various assets and improvement projects.

This model also suggests that the biggest constraint to creating shareholder value in the company is that point where the gap between the required and actual asset performance is greatest. All assetswork done by people, machines, and buildingshave value only in the context of the overall value the firm will produce. The next two figures show the overall value chain, or process, of a firm both without a bottleneck in operations (Figure 3.3) and with a bottleneck (Figure 3.4).

This new valuation approach shows that if you understand the work each asset class is doing, you have the ability to pinpoint the places where improvement projects will have the biggest impact. Further, financial forecasting can be improved by measuring the size of the biggest constraint in the core process.

To leverage these ideas and build on the power of classic Black Belt expertise, Six Sigma will start to borrow ideas from other statistically oriented sciencesEconomics, Operations Research, Industrial-Organizational Psychology, and Management Science. In particular, a class of techniques called stochastic models (i.e., Markov chains) and operations research simulation tools can help model the real-time performance of assets in a system. In the future, the most important organizational IT systems will combine these new intangible asset valuation techniques with stochastic models to manage financial value creation in real time. Because the New Six Sigma already connects processes and people, from the individual employee and machine through processes all the way to real-time balanced scorecards, the new valuation techniques are an extremely powerful addition.

These approaches are laborious without the invention of new software called Workflow. Workflow is a class of powerful software that manages work in processes. While many white-collar work environments today execute processes through email, without performance-tracking capability, there is significant potential as organizations become aware of Workflow to improve processes. Today, no existing workflow software includes these intangible asset valuation measures, but it's just a matter of time before they do, because it appears to be the only way to practically track value flowing through complex organizations. When you consider the new approaches to valuation together with workflow and scorecard software, it becomes apparent that balanced scorecards are just snapshots of the areas where senior executives believe serious business constraints are found. Figure 3.5 graphically depicts the relationship between workflow and balanced scorecard measurements. With these innovations, Six Sigma will allow organizations to rapidly change themselves in response to market conditions and strategy shifts.

Innovations in Project Selection

These new intangible assetCopeland and Antikarov, 2001). This is because choices with more variability have bigger upside potential than those with less variability. Real options, by combining the new work on valuation, with techniques such as Monte Carlo analysis and linear programming, allows executives to further mitigate risk and maximize returns. Monte Carlo looks at the probability and distribution of various outcomes, while linear programming provides precise strategies for optimizing choices about the best portfolio of projects or decisions to diversifying risk and maximizing economic value creation. By combining these techniques, leaders of Six Sigma efforts can treat their improvement projects as a portfolio of investments and consider Black Belt project diversification, risk, and return just like any other type of investment. At Motorola University, we are currently studying whether these new techniques do a better job of valuation and forecasting than classic financial models, and we are eager to integrate the findings into the future of Six Sigma.

The Future of Mitigating Risk

Several risk mitigation strategies that synchronize well with Six Sigma have already proven effectivethey just aren't yet known to Six Sigma practitioners.

One of the most important contributions of Six Sigma is the focus and measurement of customer requirements. Traditional Six Sigma practitioners use a variety of largely qualitative and survey techniques to specify the particulars of the product and service desired. This typically starts with listening to the Voice of the Customer (VOC) and converting this voice into Critical Customer Requirements (CCRs) and ultimately metrics that specify factors Critical to Quality (CTQs). The problem with the current approach, particularly with Motorola's experience with software requirements, is that customer requirements seem to change faster than an organization's ability to adapt. Two new Six Sigma approaches can help assess customer requirements more accurately and with more stability.

First, a technique called policy capturing can reverse-engineer customer decisions about features, functions, and specifications. For many years, cognitive and organizational scientists have used policy capturing to discover the underlying decision-making processes and variables that people use. Since customers are people too, companies can now use these techniques to reverse-engineer the customer's decision-making processes that created customer requirements in the first place. Customers' decision-making processes are less likely to change as fast as specific requests or specifications. By understanding models of customer decision making, Six Sigma Black Belts should better understand how and why clients have specified their current requirements and forecast future customer requirements, thereby giving advanced notice faster than the competition. We believe today's Master Black Belts can adopt this technique to more accurately assess the particular specifications and requirements of customers.

Second, lists of customer requirements are often very long, sometimes hundreds of variables long. Traditionally, Six Sigma hasn't had a good way to identify the vital fewor the underlying customer need. Multidimensional scaling, principle components, and factor analysis are powerful data-reduction techniquesbut the vast majority of Black Belts have never even heard of them, let alone used them. Used correctly, they can do a great job of summarizing the customer requirements that represent the underlying customer need.

A still more-powerful technique called structural equation modeling can also improve the accuracy and stability of requirements. Structural equation modeling can be used to model a variety of business phenomena, not limited to customers. Applied to customer requirements, Master Black Belts can test specific models of customer delight relative to features, while at the same time modeling financial outcomes such as return on equity or cash flow. Unlike some statistical tools, structural equation models have the ability to test competing models where different variables affect dollars and delight. If Black Belts gain skill in these sophisticated tools, they will substantially improve their focus on the most important customer requirements as well as improve the validity and stability of improvement projects.

The last area we will discuss in mitigating risk involves simulations. Today, many Master Black Belts use process simulation tools to model processes before implementation as part of Design for Six Sigma (DFSS). This helps identify unforeseen bottlenecks and remove them to ensure that new or redesigned processes work right the first time. But few Black Belts know about project simulation tools designed to optimize a project's work breakdown structure. Research out of Stanford and Carnegie Mellon on predicting successful projects has created spin-off companies that not only help mitigate the risk of tasks failing, but also model the organizational design that could constrain approvals at key points in a project. Future Six Sigma leaders will require project simulations before starting improvement projects and process simulations before implementing improvements. Together, the risk of failure can be mitigated significantly.

The Future of Black Belts

We believe that the future of Black Belts is heavily dependent on using Six Sigma on itself. Many companies and academic research have identified optimal processes for selecting, training, and managing employees that are unknown to practitioners of Six Sigma.

In the first part of the Six Sigma development process, it's important that you select candidates for Green Belt or Black Belt who have a high aptitude for being successful. Some of these areas aren't trainablesuch as the ability to learn quickly. Based on research done by the Six Sigma Business Improvement Group at Motorola University, candidates for Black Belt must have high levels of:

Cognitive ability (intelligence)

Integrity/conscientiousnessdoing the right things right

Extraversion and agreeablenessthe interpersonal abilities of initiating and enhancing relationships

Without these talents in a Black Belt, there's no chance that they'll ever get onto the CEO's speed dial when there are big picture business improvements needed. With them, Black Belts can be extremely effective, with consistently better project outcomes. Part of the future of Black Belts will involve using these sophisticated Black Belt management techniques, so that Black Belts are treated as a precious asset that requires careful use of these screening tools to nurture.

The visionary Black Belts and quality leaders in Motorola's cellphone business (Personal Communications Sector) Greg Milano and Kevin Kent have begun implementing a systematic Black Belt development information system. The information system is a cradle-to-grave management system of all aspects of Black Belt from admission to candidacy, through development and stock option and cash rewards through mentoring and Master Black Belt. These workflow systems automating Black Belt development are a key component to future high-quality Black Belt programs.

Future Black Belt Skills

Today, most Master Black Belts are experts at solving business problems in quality domains. Six Sigma's future application will require Black Belts to learn new techniques across a variety of disciplines. Business needs will demand ever-higher levels of Black Belt skill in leading and managing change, as well as improving all parts of business processes with the right tools. This means the profile of the Black Belt will change from largely engineering skills to interdisciplinary expertisewith the common grounding of the scientific method combined with an MBA.

Change Skills

Leading and managing change provides the biggest opportunity for improvement in Black Belts. Black Belts will need to create better burning platforms to ensure fast, sustained improvement in a variety of disciplines. Further, Black Belts must take the study of Industrial-Organizational Psychology much more seriously than they have in the past. By understanding the root causes of employee behavior and using validated models, they'll be much better equipped to manage change across areas as diverse as Law, Marketing, Facilities, Finance, and Human Resources.

Industrial-Organizational Psychology

Black Belts will need to learn extensively from the experts at measuring and improving employee performance: Industrial-Organizational psychologists. Black Belts have a great deal to learn about the statistically derived models that can predict which job candidates have a high probability of performing well; measuring the impact of training; crafting valid measures of employee performance; and measuring and scientifically managing organizational culture change. I-O psychologists can share a host of quantitative techniques along with sophisticated technical knowledge about employee performance engineering that is critical for the success of Black Belts working in human-intensive processes. Motorola used these very techniques in the Leadership Supply process described earlier. We used the processes optimized by I-O psychologists, as well as their tools for creating assessments of leadership capability and performance, designing succession plans, forming development paths, and compensating executives. HR statistical methods will be required in future Black Belt toolkit, since work increasingly blends sophisticated machinery with even more-sophisticated humans (i.e., biologists, engineers).

The good news is that many of the quantitative skills required for analyzing HR problems but unknown to modern Black Belts are also useful in Marketing, Quality, and Engineering. Based on the same statistical, customer, and business improvement principles as the classic Black Belt knowledge base, these tools are important new areas that give extra power. Techniques that show the reliability of ratings between two or more people are important in both Market Research and Human Resources to establish good measurement systems, for example. Similarly, to appropriately characterize market segments, Black Belts will need to learn data reduction and summary tools such as inverse principle axis factor analysis, and graphical tools to show segment groupings or customer preferences such as multidimensional scaling. To fully understand why customers or employees defect to the competition, Black Belts increasingly will use a tool called survival analysis. Lastly, new prediction and modeling tools such as hierarchical linear modeling and neural networks will play important roles in continuously improving forecasts about areas as diverse as finance, customer loyalty, and employment brand image.

Financial Acumen

Wall Street does not forgive companies who miss financial forecasts on the downside; to ensure accurate forecasts, Black Belts need to learn new techniques including time series analysis, time series-based structural equation models, and other econometric methods. Black Belts also must learn more about real options valuation. As discussed previously, combining probability estimates of decisions together with discounted cash-flow techniques provides a much more powerful method of making organizational decisions (e.g., picking improvement projects) than ever before.

Six Sigma and Innovation

Critics of Six Sigma have sometimes argued that it isn't useful for improving innovation (American Banker, 2002). In fact, there is a long and fruitful history of the application of statistical methods to improving people-intensive processes of all kinds, including creative research, development, and innovation.

First, many Six Sigma practitioners also have expertise in a technique from Russia called TRIZ, which stands for the "theory of inventive problem solving" (translated from Russian). It involves decomposing an engineering problem into a basic structure showing contradictions and using software to show how the problem has been solved in other domains. This technique has successfully generated a variety of creative solutions to Six Sigma engineering problems.

But there are even more useful tools and processes that the Six Sigma community hasn't known about. Traditionally, process improvements related to creativity and innovation are unknown to Six Sigma practitioners because successful applications mostly have been published in academic journals by researchers who haven't historically connected themselves to Six Sigma business improvement.

Three creativity process innovations are especially important. The first is hiring creative people. Steven Guestello of Marquette University has written about cognitive and personality variables that vary between people and predict creativity. He reports that many studies have shown that these validated tests consistently forecast which people in an organization will excel at innovating (Guestello, 1995, pp. 303304).

Research has identified that creative people are divergent thinkersand there are good assessments that can help companies find divergent thinkers in their hiring process. Furthermore, all creative people share a common personality profile (Table 3.1).

Of course, innovative personality traits have to be present in a person with domain-specific knowledgea creative physician won't do a good job at innovation in software engineering. By including good measures of cognitive divergence, creative personality traits, and intrinsic motivation in addition to domain-specific skills in employee selection, organizations can systematically improve their people's ability to innovate. This is especially true for employees whose job it is to create (e.g., researchers).

Second, research suggests that matching each person's creative style with work requirements can be an important driver of innovative performance. Researchers have identified three major styles that organizations can exploit to their benefit (Sternberg and Lubart, 1991). Some people are very good at generating new ideas, while others sort out good from bad ideas, and still others translate abstract ideas into practical reality. Depending on what part of the innovationAmabile, 1996). In addition, her work demonstrates that the person must also have domain-relevant skills, a work style conducive to creativity, and motivation to complete tasks. Amabile finds task motivation to be the most important component in driving creativity; intrinsic or internal motivation (rather than external rewards like dollars), in particular, is the key to reaching the highest levels of creativity.

Amabile's work with real companies strongly suggests that once you've picked the right creative people, you cannot leverage their full potential unless you put them into a work environment conducive to creativity. She suggests that time and resources, positive and constructive feedback that is work or task focused, a playful and experimental climate, and a safe environment for risk taking are all necessary. Inhibitors to creative performance include supervisory surveillance as well as time pressure and stress unrelated to the creative tasks (Amabile, 1996).

A key driver of a creative work environment is the organizational climate and work style of management. The best environment includes positive emotional state, a concern for creativity, tolerance for individual differences between team members, and a willingness to take risks. The best managers of innovative employees have a personality profile similar to that of creative peoplethey are dominant, social, bold, and intelligent; they are less rule-oriented, more sensitive, more imaginative, and more unconventional than other managers; and they prefer to work alone rather than in groups.

Six Sigma and Philanthropy

During the dot-com boom, many rich people donated large sums of money through "venture philanthropyTrickle Up, 2001, p. 2).

Trickle Up