【Two】Whatever Happened to Six Sigma?

Feb-24,2022 | Oliver Staley

Article Source:https://qz.com/work/1635960/whatever-happened-to-six-sigma/

Original writer:Oliver Staley

Made in Japan

Six Sigma was born out of the theories of a small group of mid-century engineers who became apostles of quality control. Chief among them was W. Edwards Deming, an American statistician who traveled to Japan to teach manufacturing techniques in 1950. Japan, in desperate need to reinvent its industry in the aftermath of World War II, was eager to learn, and the companies that adopted his techniques of statistical process control saw enormous gains. Deming became a hero to Japanese industry and the Deming Prize is still awarded by the Union of Japanese Scientists and Engineers to companies that master his methods.

The key to Deming’s techniques was the close observation of manufacturing processes and the meticulous recording of data. Only by closely studying outputs could managers understand if defects were the product of random chance, or flaws in manufacturing equipment or raw materials. The process was applied continually to narrow the variability in finished products.

Deming believed quality control was an organization-wide imperative, and insisted on involving CEOs when he worked with companies. He pushed corporations to break down barriers of communication between workers and managers, and to eliminate production quotas and targets that could compromise the process.

By the 1970s, Japanese automobiles and electronics surpassed US products in quality and reputation, and American manufacturers took note. (In 1980, NBC aired a documentary on Japanese management techniques titled, “If Japan Can, Why Can’t We?”) Deming became a sought-after consultant by companies like General Motors and Ford.

Deming’s methods became systematized into Six Sigma at Motorola, a consumer electronics company battered by Japanese competition. Bill Smith, an engineer, developed and named it in 1985, and CEO Bob Galvin made it a company-wide initiative.

GE’s embrace

In June 1995, while recuperating from heart surgery, Welch invited Larry Bossidy, then CEO of AlliedSignal, to talk to a meeting of GE’s senior executives. Bossidy was a Six Sigma convert and Welch was eager to introduce it to GE’s senior managers.

Welch was previously on the fence about Deming’s methods, but a survey of GE employees revealed concerns about quality. After a presentation by Bossidy received an enthusiastic response among GE managers, Welch was ready to take the plunge. A cost-benefit analysis showed that improving GE from three or four sigma to six would save the group between $7 billion and $10 billion annually, or the equivalent of 10 to 15% of annual revenue.

“Once everything came together, I went nuts about Six Sigma,” Welch wrote in his 2001 autobiography Jack: Straight from the Gut. “With that opportunity [for savings], it wasn’t rocket science for us to take a big swing.”

Welch admitted that much of the statistical underpinning of the system went over his head, but he hired the Motorola manager who ran that company’s Six Sigma Academy to make it work at GE. To drive home its importance, Welch determined that 40% of employees’ bonuses would be tied to Six Sigma, and that stock options would be reserved only for managers in black belt training.

In Welch’s telling, fealty to the doctrine of Six Sigma became paramount. No one could be promoted to management without at least green belt training, and candidates could be rejected if their faith wavered. When one internal applicant to run GE’s nuclear power services division seemed less than devoted, he had to fly from San Jose, California, to company headquarters in Connecticut “to talk to us about his Six Sigma qualifications,” Welch wrote. Eventually, the manager “convinced us that he was deeply committed to Six Sigma” and got the job.

By 2001, GE boasted that some 80,000 employees had received Six Sigma training, and completed 500,000 Six Sigma projects since the system was adopted.

It seemed to produce results. In the five years to 2001, GE’s annual profit increased by 66%, to $13.6 billion. The spotlight turned to Welch, and the countless profiles and articles that trumpeted his management savvy inevitably discussed the central role of Six Sigma.

After Jack

While not appreciated at the time, Welch’s retirement from GE in 2001 marked both the high point of the company’s position atop American enterprise and of Six Sigma’s status as a preeminent management credential.

Welch’s successor, Jeff Immelt, continued to preach the gospel of Six Sigma, but without the same missionary zeal of its early days. Managers began to complain about employees lost to Six Sigma training, particularly for functions like sales, where there was little obvious benefit, according to one longtime GE manager who asked to remain anonymous. A growing number of Six Sigma projects launched by employees, essential for securing the all-important green belt, were no longer fixing major flaws in the company but instead focused on marginal, or even trivial, improvements.

Perhaps nothing represented the decline of Six Sigma as much as a 2009 episode of 30 Rock—a satirical show running on NBC, then owned by GE as it happens—when Jack Donaghy, the head of NBC programming played by Alec Baldwin, travels to a GE corporate retreat. There, he meets the Six Sigmas, six men, each of whom “embodies a pillar of the Six Sigma business philosophy: teamwork, insight, brutality, male enhancement, hand-shakefulness, and play-hard.” Further mockery of business jargon and corporate training exercises ensues.

While GE hummed along for years under Immelt, its earnings were propped up by its financial services business, which under Welch had become the company’s single-largest segment. That over-reliance proved ruinous during the financial crisis of 2008, almost crippling the company.

After the financial crisis, Wall Street’s frustrations with GE’s complex organizational structure boiled over and Immelt responded by launching a new program dubbed, simply, “Simplification.” At a corporate level, it meant streamlining the business around a few core industries. For managers, it meant eliminating systems and processes that served no obvious function. For many units, that meant jettisoning Six Sigma.

In a 2014 blog post, Immelt tried to summon the old Six Sigma fervor around a new religion, declaring: “we are transforming our culture around what we call Simplification. This is not just management speak, it’s a crusade.”

More management speak followed. In a 2016 conference call with analysts and investors, Immelt touted “additive manufacturing” technology—a process similar to 3D printing—as the latest fix for GE’s woes, and he revealed more than perhaps he intended about his thoughts on Six Sigma.

“If you put yourself in my shoes, additive manufacturing makes a shit-load more sense than Six Sigma did,” he said. “I was there the first day we did Six Sigma, it made no sense to me.”

In the end, no management system could cure what ailed GE. Immelt borrowed to make big bets, such as spending $10.6 billion to buy the power division of France’s Alstom. Those moves backfired, and as debt mounted and earnings dwindled, restless shareholders forced out Immelt in August of 2017. A year later, his successor, John Flannery, was also out.

Ultimately, GE’s problems were not due to the problems of quality Six Sigma was intended to solve, but with a failure to innovate in a global economy increasingly dominated by technology companies. Six Sigma could get the company only so far, according to Jim Clifton, CEO of Gallup, the polling and consulting company. “Jack Welch was the king of process innovation,” said Clifton. “But when Jeff Immelt took over, he had a problem—there was nothing left for him to Six Sigma.”

(To be continued)