IBM Global Business Services

IBM Institute for Business Value



                                   Strategy and Change

...
IBM Institute for Business Value
   IBM Global Business Services, through the IBM Institute for Business Value,
develops f...
Driving operational innovation using
Lean Six Sigma	
By George Byrne, Dave Lubowe and Amy Blitz


                        ...
roadmap for change based on fact-based               • An innovation vision based on factual
        analysis. Caterpillar...
Driving operational innovation using
Lean Six Sigma
             Lean Six Sigma: A foundation for                         ...
The variations in naming are not surprising,                                          In the past, companies used Lean Six...
FIGURE	3.
                               Lean Six Sigma incorporates, and deploys, the key methods, tools and techniques o...
The launch began with a nine-month training        to engineer, employees and clients began
     period for 4,200 employee...
redesigned the production scheduling process           Key takeaway: Strong leadership yields
                        at C...
“With increasing globalization, every            As the POSCO management team developed
     steel company must innovate t...
opportunity for POSCO. To fill this gap, POSCO         As the Lean Six Sigma way of thinking
                           ha...
Key takeaway: The innovation domino                  Very quickly, the Lean Six Sigma approach
        effect encourages w...
of customers for many of ScottishPower’s               It’s not just for the private sector
                             c...
Assessing your own innovative                     • Organizational capabilities that made innova-
                        ...
Conclusion                                            About the authors
     CEOs might be tempted to downplay the        ...
© Copyright IBM Corporation 2007

                                                                                     IBM...
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Driving operational innovation using Lean Six Sigma

  1. 1. IBM Global Business Services IBM Institute for Business Value Strategy and Change Driving operational innovation using Lean Six Sigma
  2. 2. IBM Institute for Business Value IBM Global Business Services, through the IBM Institute for Business Value, develops fact-based strategic insights for senior business executives around critical industry-specific and cross-industry issues. This executive brief is based on an in-depth study by the Institute’s research team. It is part of an ongoing commitment by IBM Global Business Services to provide analysis and viewpoints that help companies realize business value. You may contact the authors or send an e-mail to iibv@us.ibm.com for more information.
  3. 3. Driving operational innovation using Lean Six Sigma By George Byrne, Dave Lubowe and Amy Blitz CEOs today face mounting pressures to innovate; yet finding ways to actually enable innovation remains a challenge for many. Top companies with successful track records of innovation, however, have discovered one possible solution. Lean Six Sigma, a relatively well-known approach for achieving operational excellence, can, as it turns out, do more than simply improve processes. It can help leaders discover innovation opportunities far beyond operations, enhance financial performance and create organizations that have an inherent inclination toward innovation. In today’s marketplace, increased globaliza- They have implemented operations strategies tion, constant technological advances and based on a relatively well-known management other competitive pressures are accelerating philosophy which we will call here Lean Six the pace of change CEOs face. The resulting Sigma. It is also sometimes referred to as Six opportunities and threats have placed innova- Sigma Lean. And at some of the companies tion near the top of CEOs’ priority lists. And we studied, leaders still label their initiatives yet, for many, innovation success has been as Six Sigma or 6 Sigma even though, from sporadic at best. our perspective, they have moved beyond Six Sigma’s original definition and scope by incor- Our research and experience shows that the porating Lean features as well. right operations strategy can help companies make innovation a regular occurrence. Such Regardless of the term, the companies that a strategy, if focused not just on efficiency have used this overall approach have estab- but also on growth, can serve as a founda- lished disciplined working environments tion for innovation throughout an organization focused on customer needs, detailed data – far beyond operations to products, services, analysis and facts, not theories. The results are markets and even a company’s underlying remarkable: business model. Simply put, this sort of strategy • At Caterpillar, stagnant revenue growth is not about doing things better; it is about prompted the company to undertake a doing better things. massive transformation in January 2001. As part of our analysis, we examined several Through its 6 Sigma initiative, the company leading companies that are doing just that. developed a strategic vision that outlined a Driving operational innovation using Lean Six Sigma
  4. 4. roadmap for change based on fact-based • An innovation vision based on factual analysis. Caterpillar’s initiative also led to customer and market insights – Leaders product innovations like its phenomenally crafted a compelling vision based on a keen successful low-emissions diesel engine and understanding of market demands and their to redesigned processes including a stream- own capabilities. Their objectives were explicit lined supply chain. By 2005, revenues had and few in number to enable focus. grown by 80 percent. • Leadership committed to perpetual innova- • Coddled by decades of government protec- tion – CEOs and business unit leaders played tion, Korean steelmaker POSCO faced fierce active, enthusiastic roles. They were clearly competition as it privatized in 2000. But with committed to making an indelible organi- the help of Lean Six Sigma, the company zational change, not just launching another staged a dramatic turnaround. This approach initiative. helped POSCO escape its low-margin • Alignment across the extended enterprise business as a regional low-cost provider and – The strategic innovation vision was used as elevate itself to the global stage as a premier a unifying force to align disparate business provider of innovative steel products and units and influence supplier and customer services. Fact-based analysis surfaced high- relationships. potential markets and unmet needs that led to differentiated products with entirely new • Organizational capabilities that made innova- applications. In just a few short years as a tion habitual – At the outset, these companies’ private enterprise, POSCO has become the Lean Six Sigma initiatives involved an intense world’s third largest steelmaker. period of training, dedicated resources and an initial bubble of projects to jumpstart their • In a newly deregulated market, ScottishPower transformation. But over time, as the mindset was losing customers who now had the became more mainstream, these companies power to choose their electricity provider. established enduring processes that helped Determined to reverse the trend, the drive continuous innovation throughout the company used a Lean Six Sigma approach organization. to reinvent its customer service function. By innovating based on facts not assump- Although CEOs might instinctively think of tions, the company was able to halt a steady management approaches such as Lean decline in its customer base and increase Six Sigma in terms of process improvement market share by 60 percent in just four years. and cost reduction, our research suggests that this perspective is shortsighted. The As we analyzed the companies that used Lean successful companies we studied acted in Six Sigma to achieve broad-based innovation a more visionary manner. They deliberately and superior financial performance, we identi- expanded the scope of Lean Six Sigma, using fied several distinguishing characteristics of their it to surface significant innovation opportunities approaches that set them apart from those with that impacted much more than their operations. a traditional operational improvement mindset. And in the process, they were able to improve Successful innovators had: business performance and establish organi- zations that now have an inherent inclination toward innovation. IBM Global Business Services IBM Global Business Services
  5. 5. Driving operational innovation using Lean Six Sigma Lean Six Sigma: A foundation for As we analyzed the impact of operations innovation strategy on overall business performance, Around the world, CEOs are searching for we noticed a similar pattern. We found that blockbuster products and services, making a company’s operations strategy is often an major operational changes, and even rede- integral part of a more fundamental enterprise signing their fundamental business models. transformation – one that impacts not only This trend toward broad-based innovation how a company works, but also its products was evident in the 2006 IBM Global CEO and services and its overall business model. Study. Based on in-depth conversations Innovation in one area drives innovation in with 765 corporate and government leaders another. worldwide, the study found that CEOs’ innova- The leading companies that we examined tion priorities were spread across all of these in our research were intentionally pursuing different dimensions (see Figure 1). And yet this much larger innovation agenda. They CEOs ranked an “unsupportive culture and aimed beyond operational improvement to climate” as their biggest obstacle to innova- 1 innovation throughout the enterprise. Using tion success. Their organizations lacked Lean Six Sigma, they produced breakthrough the processes, discipline and organizational innovations that had profound impacts on mindset to foster meaningful innovation on a their business performance. But perhaps continuous basis. more importantly, they obliterated CEOs’ biggest innovation obstacle by creating an FIGURE 1. organizational climate in which innovation has CEOs’ innovation emphasis. become instinctive. (Percent of emphasis allocated to each innovation type) 50 The evolution of the Lean Six Sigma approach 40 As its name suggests, Lean Six Sigma is a combination of Lean methods and Six Sigma 0 approaches. It is also sometimes referred to as Six Sigma Lean. And at some of the companies we studied, leaders still label 0 their initiatives as Six Sigma or 6 Sigma even though, from our perspective, they have moved 0 beyond Six Sigma’s original definition and scope by incorporating Lean features as well. 0 Products/ Operations Business services/markets model Source: “Expanding the innovation horizon: The Global CEO Study 2006.” IBM Global Business Services. March 2006. Driving operational innovation using Lean Six Sigma
  6. 6. The variations in naming are not surprising, In the past, companies used Lean Six Sigma given the approach’s evolution. Lean Six Sigma primarily for operational improvement – refining builds on the knowledge, methods and tools existing processes to reduce costs, improve derived from decades of operational improve- performance and provide better customer ment research and implementation (see Figure value. However, dramatic upheavals in the 2). Lean approaches focus on reducing cost competitive marketplace are prompting through process optimization. Six Sigma is business change on a much more massive about meeting customer requirements and scale. Companies must innovate, not just stakeholder expectations, and improving improve. quality by measuring and eliminating defects. The Lean Six Sigma approach draws on the Despite its heritage, Lean Six Sigma is well- philosophies, principles and tools of both (see suited for this step change in target and Figure 3). scope. The leading companies we studied are proving that the Lean Six Sigma approach has However, Lean Six Sigma’s goal is growth, not applications far beyond process improvement; just cost-cutting. Its aim is effectiveness, not they are using it to innovate in all areas of their just efficiency. In this way, a Lean Six Sigma businesses – their operations, their products approach drives organizations not just to do and services and even their business models. things better but to do better things. FIGURE 2. Lean Six Sigma builds on the practical lessons learned from previous eras of operational improvement. Just in Time (1980s) Lean Production (1990s) (Kanbans, Pull systems, (“Machine that changed the world,” Visual management) “Lean Thinking,” Value stream mapping) Total Quality Management (1980s) Business Process Reengineering (Statistical Process Control, Quality (1990s) Deming/ Ohno circles, Kaizen, Culture change/bench- (Downsizing, “To be” processes, Juran marking, Baldridge, ISO9000) Process owners) Lean Six Sigma (2000s) (1960s/1970s) (1950s) (Toyota (4 production Motorola – Six Sigma points, system) (1980s) Statistical quality) GE (1980s-1990s) Six Sigma (Applied method for growth and productivity) Intensity of change Change Acceleration Process (CAP) (Change method and tools) Customer Partnering (GE Toolkit, Customer CAP) Process Improvement (New Product Introduction, Supply chain, Suppliers) Best Practices (Benchmarking, Across and outside of GE, Ending Not Invented Here) Work-out (Kaizen type, Cross functional teams, Boundarylessness, Values) Strategy (Number and Number in each business, Fix, close or sell) Source: IBM Global Business Services analysis. 4 IBM Global Business Services
  7. 7. FIGURE 3. Lean Six Sigma incorporates, and deploys, the key methods, tools and techniques of its predecessors. Lean focuses on waste elimination in existing processes. Analyze Plan Focus Deliver Improve opportunity improvement improvement performance performance Six Sigma focuses on Continuous Process Improvement (DMAIC) to reduce variation in existing processes. Define Measure Analyze Improve Control opportunity performance opportunity performance performance Six Sigma also focuses on New Process Design/Complete Redesign (DMEDI) for wholesale redesign of processes as well as new products and services. Although Lean Six Sigma Define Measure Explore Develop Implement opportunity requirements solutions solutions solutions has traditionally been used for operational improvement, leading companies have demonstrated its Because of its core tenets – analysis based Innovation has legs at Caterpillar potential for driving on facts and direct customer input – Lean Six In 2000, Caterpillar found itself stalled: four Sigma is equipped to facilitate a much broader years of flat revenues and intense competition broad-based innovation. transformation, helping a company rethink its that showed no signs of faltering. Determined entire business and create a more innovative to regain its industry leadership position and climate. jumpstart growth, the company deployed a Lean Six Sigma approach, or what they refer The concept in action to as “6 Sigma,” in January 2001. Caterpillar In virtually every industry and across the wanted to revolutionize not only the way its public sector, the Lean Six Sigma approach employees worked, but also their mindsets. has served as a catalyst for broad-scale inno- The goal: continuous, customer-driven innova- vation. Though the organizations we studied tion. The magnitude of the planned transition vary in terms of size and mission, they have was staggering: 27 separate business units all realized substantial benefits – even earning and over 72,000 employees located on six positive responses from the sometimes fickle continents who spoke multiple languages. financial markets. Their experiences provide valuable lessons for firms that want to cultivate an innovative mindset. 5 Driving operational innovation using Lean Six Sigma
  8. 8. The launch began with a nine-month training to engineer, employees and clients began period for 4,200 employees. These trained working collaboratively to pinpoint problems professionals – with varied backgrounds from and develop solutions, steadily building closer engineering to finance – then each led their relationships. own projects and served as mentors to the rest of the organization. Through alliances it built with Canadian oil sands mining customers, for example, Perhaps the most far-reaching transformation Caterpillar learned about the nuances came from applying 6 Sigma approaches to involved in extracting oil from sand. These strategy development. Using these disciplines application-specific insights led the company to collect and analyze hard data on customers, to develop a completely different kind of markets and Caterpillar’s capabilities, the CEO mining truck. Instead of offering a “one- and a strategic planning committee crafted size-fits-all” model, its new mining truck is a detailed vision for Caterpillar in 2020. The available in five unique configurations – each vision was subdivided into three five-year suited to a particular type of terrain and haul plans. The immediate plan set out specific, profile. Now, customers in extremely cost- measurable targets for market position, quality, sensitive industries, such as oil sands mining, order-to-delivery performance, safety and can select the configuration that offers the other critical success factors. The plan was best blend of price and productivity. companywide, spanning all lines of business and cascading down through the organiza- “You can use 6 Sigma for anything; we tion. Through the rigor and discipline enforced used it for Sarbanes-Oxley compliance. by the initiative, the entire company aligned When people talk about SOX, they don’t behind the same specific objectives. know how much it costs them – but we “It is always about control. 6 Sigma do… because we tracked it.” – Dave Burritt, Vice President, Chief Financial forces you to have the processes and 3 Officer, Caterpillar the people accountable to make sure the results are enduring.” Teams also developed a tremendously – Dave Burritt, Vice President, Chief Financial successful diesel engine breakthrough that set 2 Officer, Caterpillar Caterpillar apart from competitors. The ACERT® Technology significantly reduces emissions The initial 6 Sigma launch spawned over 1,100 and offers higher fuel efficiency, saving projects – some generated subtle (though customers money and allowing the company financially beneficial) operational improve- to command premium pricing. ments, while others resulted in innovative new products and radically different ways of This approach also led to major operational working. One of the first process changes changes, particularly in Caterpillar’s supply involved revamping RD to include more chain. Caterpillar has, in its own words, direct interaction with the customer. Engineer “systematically de-bottlenecked” its order- to-delivery process. For example, teams IBM Global Business Services
  9. 9. redesigned the production scheduling process Key takeaway: Strong leadership yields at Caterpillar manufacturing facilities, which speed and strategic alignment cut lead times by more than 50 percent. Applying Lean Six Sigma to strategy development They have also reduced delays caused by sends a clear message about how serious supplier-sourced pumps. Historically, if a pump management teams are about making an enduring failed during initial testing, Caterpillar had change. to take time to fix the pump or wait for the In the case of Caterpillar, strong leadership supplier to send someone to repair it. Now, prompted strong participation, unifying based on suggestions from the 6 Sigma team, disparate organizational units around common the supplier has its own pump test cell and strategic goals. Teams saw how their efforts were breaks in new pumps before sending them linked and contributed to the whole. Results were to Caterpillar plants. And the supplier faces measurable and visible to all. While its Sigma a financial penalty if it fails to meet specific initiative helped make the changes enduring, quality goals. strong leadership and broad participation made them happen fast. Caterpillar recouped its initial It takes strong Overall, the results from Caterpillar’s initia- investment in less than a year. tive have been phenomenal. Caterpillar leadership to create launched 6 Sigma globally and delivered And its story is not an isolated case. As part of enduring change that benefits that surpassed implementation costs our research, we analyzed the performance of produces continual in the first year. Since then, it has become a many of our past clients to determine the impact innovation. critical component of Caterpillar’s success. that a company’s deployment model and level The rigor and discipline have enabled the of commitment had on overall results. Although record profits of the past few years and most demonstrated solid results from their Lean are helping the company achieve its 2010 Six Sigma programs, those with a high degree strategic goals. According to Caterpillar Vice of CEO commitment and a top-down corporate President and CFO Dave Burritt, “Caterpillar’s deployment approach experienced a much faster competitiveness has improved...6 Sigma transformation. has been applied to increase our percent of industry in all of our principal lines of business. In the lackluster steel industry, The machine, the engine, and financial POSCO shines products businesses have all benefited from After decades of government ownership, the the rigor of 6 Sigma. Without question, we Korean steel company POSCO was privatized are in the best of times at Caterpillar, and the in 2000. Long sheltered from market forces, improvements would have been much less the company now faced serious competitive 4 without 6 Sigma.” pressures. In particular, its low-cost competi- tive advantage was evaporating as cheaper competitors emerged from other regions, notably China. Its limited regional footprint also left the company exposed to a declining Korean economy. Driving operational innovation using Lean Six Sigma
  10. 10. “With increasing globalization, every As the POSCO management team developed steel company must innovate to prosper its strategy for becoming a value-added rather than a low-cost steel provider, it again relied and compete in this new environment. on Lean Six Sigma. Using the engineering POSCO was in a difficult situation team’s input on customer needs, senior – you might almost say a crisis – a few management analyzed market potential and years ago as we faced this new global the company’s capabilities in those product competitive threat. As a management and service areas. The optimal strategy team, we felt that Six Sigma was a good seemed to revolve around two high-potential markets: shipping and automotive. Senior vehicle to change all employees’ way managers then aligned the entire company of thinking, current working styles and behind these strategic priorities. RD concen- mind-sets.” trated on these two areas, and pet projects 5 – Ku-taek Lee, Chairman and CEO, POSCO that did not contribute to the value-added vision were cancelled. (It’s important to note Undaunted, POSCO was determined to that these priorities were not static. With remake itself, shifting from a local, low-cost Lean Six Sigma helping POSCO maintain a producer to a global, value-added steel perpetual watch over customer needs and maker. To do so, its entire way of working market opportunities, the company has since had to change. The company made a funda- added a construction vertical to the mix.) mental commitment to use a Lean Six Sigma approach to transform its business and The business model shift to focus on the create a market-driven mindset throughout shipping and automotive industries led to 6 the enterprise. major product innovations. For example, the company invented steel that remains rust-free Initially, RD resisted the Lean Six Sigma in salt water, creating significant opportunities approach, feeling it was too Western to be in shipping and floating dock construction. practical for an Asian company. But after Using Lean Six Sigma to drive interactions special training sessions, designed with with global automakers, POSCO developed 21 these engineers in mind, opinions began to varieties of high-grade steel designed to meet shift. Instead of sending marketing or sales- special industry needs, such as coated steel people to research customer needs, senior that paint adheres to more easily. management sent engineers. This empowered the people who were making the pivotal Lean Six Sigma analysis soon led to another design decisions to talk directly with key realization: in order to expand its products customers and make recommendations. For and markets, POSCO would have to expand the engineers, this approach provided oppor- its operations as well. Although China is tunities to learn directly from customers. The the world’s biggest producer of steel (and in-depth client discussions helped POSCO therefore a competitive threat), the expanding engineers pinpoint several product areas gap between its own production capabilities where customers were looking for more inno- and rapidly rising demand provided a growth vative solutions. IBM Global Business Services
  11. 11. opportunity for POSCO. To fill this gap, POSCO As the Lean Six Sigma way of thinking has orchestrated 14 joint ventures and invested spread across POSCO, virtually no area of US$780 million in China. Just a decade ago, the business was off-limits. The company was 7 that investment figure was zero. equally comfortable (and confident) applying the approach to corporate strategy and Using Lean Six Sigma’s relentless focus on budgeting as manufacturing and logistics. Innovation begets customer demands, POSCO developed innovation; what starts process and IT innovations that dramatically Through its Lean Six Sigma efforts, POSCO as a seemingly minor reduced finished steel inventories and cut lead has produced over US$1 billion in financial 8 times from 28 to just 14 days by 2003. At the gains to date, including strong savings and operational change can same time, however, the company’s focus on record sales volumes. Even in 2001, the first result in new products customer needs sometimes created additional year of its Lean Six Sigma initiative, when or even an entirely new challenges. For example, POSCO found that twenty-five-year lows in prices hit other steel- business model. filling orders faster left too many partly used makers and their investors hard, POSCO 10 steel slabs, which hurt margins. Determined achieved double-digit profitability. By 2005, to meet customer needs profitably, POSCO in less than four years, the company had developed sophisticated production sched- transformed itself from a regional, low-cost uling algorithms that allowed it to pack multiple producer to a global, value-added provider orders on a slab. This allowed the company to of high-quality steel. POSCO is now the third optimize slab utilization (and profitability), while largest steelmaker worldwide. It also ranks 9 still responding rapidly to customer demand. high in terms of efficiency and profitability and has been selected as “the world’s most In addition to growth and profitability, the Lean competitive steel firm” for three consecutive Six Sigma approach helped POSCO realize years in a global study conducted by World an altruistic objective – to help restore and Steel Dynamics. 11 protect Korea’s natural environment. The years following the Korean War were hard on Korea “As we became privatized and more ecologically; in the drive to improve economic globally oriented, we had to dramati- conditions, companies too often ignored the cally change everything within the entire environmental impacts of their actions. In an effort to contribute positively in this area, enterprise – all processes and ways of POSCO, through its Lean Six Sigma efforts, operating. But you can’t make these was able to introduce diverse environmental kinds of changes overnight, especially management programs and processes, not employees’ mind-sets and attitudes. including an iron-making approach that We are using Six Sigma as a way to do eliminates the sintering and coking processes, this gradually and continuously…” which, in turn, reduces environmental pollutants. 12 – Ku-taek Lee, Chairman and CEO, POSCO 9 Driving operational innovation using Lean Six Sigma
  12. 12. Key takeaway: The innovation domino Very quickly, the Lean Six Sigma approach effect encourages wholesale transfor- proved that the company’s initial assump- mation. tions about why customers were leaving were As Lean Six Sigma disciplines steadily infiltrated off-base. In reality, many customers were the thought processes of employees and company being lost when they moved to a different leaders, POSCO experienced a domino effect. home. When customers called to cancel their As the company innovated in one area of the service, customer service representatives business, it triggered transformation in another. (CSRs) did just that, following their scripts For example, the business model decision to precisely but never considering whether the focus on high-potential segments such as the caller might need service elsewhere. They automotive industry inspired new, innovative steel were extremely efficient, but not effective. products. These new products, in turn, led to new Once Lean Six Sigma exposed this market- processes to produce higher-grade steel. share leak, ScottishPower instituted a “hot key” Collectively, these ripples of innovation enabled process to transfer callers to advisors who POSCO to accomplish a top-to-bottom trans- could offer service at the caller’s new home. formation – from government-owned business The company also offered financial incentives to profitable private enterprise; from low-cost to CSRs to encourage the transfers. Because producer to value-added provider; and from Lean Six Sigma forced an end-to-end inspec- regional player to global competitor. tion, ScottishPower was able to close the loop by designing a new process that notified sales teams to approach the new inhabitants at Market share and margins surge higher the vacated address. So instead of losing a at ScottishPower customer, the firm was now more likely to end In 2001, ScottishPower found itself losing up with two. market share in the recently deregulated UK retail energy marketplace. Regulators who In its initial wave, ScottishPower launched 130 were responsible for safe, reliable energy such Lean Six Sigma projects. Others included supply were beginning to express concern a targeted marketing campaign that boosted about recurring customer service complaints. use of direct debit payments by 14 percent, The company needed to reverse the trend a simplified sign-up process for business quickly. By radically overhauling its customer customers that led to a 20 percent increase in service and sales operations, it hoped to acquisition, and new meter reading processes regain a market-leading position. with lower costs and higher accuracy. Defying the notion that Lean Six Sigma Combined, the Lean Six Sigma approach is primarily for manufacturing firms, helped ScottishPower expand from 3.2 million ScottishPower decided to use the approach to to 5.1 million customers in just four years, or drive innovation in its services-based business. an average of about 40,000 new customers It launched Lean Six Sigma by establishing per month during the period. This contrasts a Business Transformation department and sharply with the trend of declining numbers training hundreds of employees. 0 IBM Global Business Services
  13. 13. of customers for many of ScottishPower’s It’s not just for the private sector competitors. These gains are even more The Lean Six Sigma approach can also be applied remarkable given that all of these companies to the challenges of the public sector. Take, for are competing in the same market for a rela- example, the Office of the Principal Legal Advisor tively stable number of households. To date, (OPLA) in the U.S. Department of Homeland ScottishPower has realized a total of US$170 Security (DHS) Bureau of Immigration and million in additional revenue and cost savings Customs Enforcement. OPLA, DHS’s largest legal through its Lean Six Sigma initiatives. program, litigates 400,000 alien removal cases each year. Embracing strategic management To build an innovative “I believe the methodology is robust and Lean Six Sigma, it deployed a nationwide, track record, companies and transferable – it enhances the Web-accessible case and document management need facts, not just customer experience, develops my system; gave each employee a scanner; staff and improves the bottom line. If I established a Strategic Review Division to review good guesses. offices and spread best practices; improved hiring left ScottishPower tomorrow and joined and training; and formed numerous Lean Six another company, [this approach] would Sigma working groups made up of employees be one of the first things that I would from across the country. adopt.” By giving its employees shared ownership in – Willie MacDiarmid, Director of Energy Retail, OPLA’s processes, it is now quickly moving ScottishPower toward more efficient litigation and admin- istrative processes. The working groups are Key takeaway: Specificity and facts trump increasing OPLA’s efficiencies in everything generalizations and assumptions. from electronically exchanging documents with Instead of blindly marketing to enhance image and the private bar; to increasing the efficiency with build market share, ScottishPower used Lean Six which court cases are calendared; to devising Sigma to identify the real reasons for customer case-management metrics that will capture ineffi- dissatisfaction and defection. The company no ciencies in its litigation processes; to creating longer needed to rely on guesses or assumptions electronic case files that its trial attorneys can – it had facts. With these insights, the company carry into courtrooms using laptops. Many other was able to redesign the specific processes that processes are also under review, and OPLA is now actually impacted customer relationships. And embarking on forming strategic alliances with in the end, the cost of regaining its market share stakeholder agencies. through Lean Six Sigma was much lower than a With software enhancements, new personnel, traditional mass marketing approach. and numerous process fixes in the works, OPLA will continue its historic transformation. Lean Six Sigma has been key to its success. Driving operational innovation using Lean Six Sigma
  14. 14. Assessing your own innovative • Organizational capabilities that made innova- tion habitual – At the outset, these companies’ climate Lean Six Sigma initiatives involved an intense The successful companies we studied took a period of training, dedicated resources and deliberate detour from the traditional approach an initial bubble of projects to jumpstart their to operational improvement. By using the transformation. But over time, as the mindset Lean Six Sigma approach in a broader, more became more mainstream, these companies strategic fashion, they were able to uncover established enduring processes that helped innovation opportunities across their business drive continuous innovation throughout the – not just in operations. And in the process, organization. they were able to improve business perfor- mance and establish organizations that are The challenges these companies faced more naturally inclined to innovate. are not unique. Peers around the world are feeling similar pressure to innovate. The As we analyzed their Lean Six Sigma efforts, pivotal question is whether your organiza- we identified several distinguishing features tion is equipped to do so – and to do so of their approaches that set them apart from in a sustainable manner. Here are several those with a traditional operational improve- questions that can help you assess your level ment mindset. The common characteristics of preparedness: shared by these innovators include: • Do you have a clear vision of where you • An innovation vision based on factual want your company to be in two years? In customer and market insights – Leaders five years? In ten years? crafted a compelling vision based on a keen understanding of market demands and • How closely tied is this vision to the needs their own capabilities. Their objectives were of your current and target customers? And explicit and few in number to enable focus. is your understanding of these needs based on actual assessments or assumed informa- • Leadership committed to perpetual inno- tion? vation – CEOs and business unit leaders played active, enthusiastic roles. They were • Will this vision require innovations in your clearly committed to making an indelible business model? In your products or cultural change, not just launching another services? In your markets? initiative. • What will you need to do at the operational • Alignment across the extended enterprise – level to enable and drive these innovations? The strategic innovation vision was used as • To support innovation, what changes will be a unifying force to align disparate business required to your management approach, units and influence supplier and customer organizational structures, metrics and skills? relationships. • How are you making innovation happen more systematically? Are you establishing the right environment? IBM Global Business Services
  15. 15. Conclusion About the authors CEOs might be tempted to downplay the George Byrne, formerly Americas Leader, Lean importance of operations strategy and related Six Sigma. management approaches such as Lean Six Dave Lubowe, Global and Americas Sigma, thinking of them in terms of process Operations Strategy Leader for IBM Global improvement and cost reduction. But this Business Services. Dave can be contacted at perspective is competitively shortsighted. dave.lubowe@us.ibm.com. Industry leaders – such as the companies analyzed in our study – are using Lean Six Amy Blitz, Strategy and Change Leader at the Sigma approaches to surface significant inno- IBM Institute for Business Value. Amy can be vation opportunities that have far-reaching contacted at ablitz@us.ibm.com. impacts on their businesses. Certainly their Contributors operations are changing dramatically – but so Dr. Saul J. Berman, Global and Americas are their products and services, their target Business Strategy Leader for IBM Global markets and, in some cases, even the funda- Business Services. Saul can be reached at mental design of their business models. saul.berman@us.ibm.com. Most importantly, the successes of the Ian Wilson, Global Lean Six Sigma Leader and companies we researched were not Operations Strategy Leader for Europe with anomalies. Through the discipline of Lean IBM Global Business Services. Ian can be Six Sigma, these CEOs and business unit reached at ian.b.wilson@uk.ibm.com. leaders have substantially improved business performance and permanently reoriented their We would also like to thank other contribu- organizations’ mindsets, creating the type of tors as well, including Paul Campbell-Kelly, environment where innovation can flourish. Jerry Coover, Geoff Gibbons, Changdae Kim, Bill Kane, Mark McDonald, and many others To learn more about this IBM Institute for throughout IBM, all of whom generously Business Value study, please contact us at shared their time and insights to help produce iibv@us.ibm.com. For a full catalog of our this paper. research, visit: Finally, we sincerely thank our clients profiled ibm.com/iibv in this paper, and congratulate them on their successes. Contact For more information, contact Monica Painter, Americas Leader, Lean Six Sigma at monica. painter@us.ibm.com. Driving operational innovation using Lean Six Sigma
  16. 16. © Copyright IBM Corporation 2007 IBM Global Services About IBM Global Business Services Route 100 Somers, NY 10589 With business experts in more than 160 countries, IBM Global Business U.S.A. Services provides clients with deep business process and industry expertise Produced in the United States of America across 17 industries, using innovation to identify, create and deliver value 01-07 All Rights Reserved faster. We draw on the full breadth of IBM capabilities, standing behind our IBM and the IBM logo are trademarks or advice to help clients innovate and implement solutions designed to deliver registered trademarks of International Business business outcomes with far-reaching impact and sustainable results. Machines Corporation in the United States, other countries, or both. References ACERT is a trademark of Caterpillar Inc. in the United States, other countries, or both. 1 “Expanding the Innovation Horizon: The Global CEO Study 2006.” IBM Other company, product and service names Business Consulting Services. March 2006. http://www.ibm.com/bcs/ may be trademarks or service marks of others. ceostudy References in this publication to IBM products 2 and services do not imply that IBM intends to IBM Global Business Services interview with Mr. Burritt, March 31, 2006. make them available in all countries in which 3 IBM operates. Ibid. 4 IBM Global Business Services correspondence with Mr. Burritt, August 3, 2006. 5 “The Gartner Fellows Interviews: Ku-taek Lee, Chief Executive Officer, POSCO.” Gartner, Inc. April 12, 2005. http://bvit2.gartner.com/research/ fellows/asset_140300_1176.jsp. 6 Because POSCO launched its transformation efforts before the term “Lean Six Sigma” came into common use, it continues to refer to it as Six Sigma. 7 Brooke, James, “Korean Steel Maker Finds Strength in Flexibility,” New York Times, August 5, 2003. 8 Ibid. 9 IBM Corporation. “Optimizing production scheduling helps POSCO to meet new customer demands and reduce costs.” http://domino.research.ibm. com/odis/odis.nsf/pages/case. 2.html 1 10 Brooke, James, “Korean Steel Maker Finds Strength in Flexibility,” New York Times, August 5, 2003. 11 Ibid.; Keun-min, Bae. “POSCO World’s Most Competitive Steel Firm.” The Korea Times. June 20, 2004. 12 “The Gartner Fellows Interviews: Ku-taek Lee, Chief Executive Officer, POSCO.” Gartner, Inc. April 12, 2005. http://bvit2.gartner.com/research/ fellows/asset_140300_1176.jsp. G510-6331-01

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