The document discusses Lean Six Sigma as a discipline that improves operational efficiency and quality by focusing on customer value, utilization of effective processes, and minimizing waste. It details the significance of aligning organizational culture with customer needs and the distinct roles of Lean and Six Sigma in achieving overall business effectiveness. Various examples, including Microsoft and successful organizations like Tesla and the New York Ballet, illustrate how implementing these principles can lead to improved performance and customer satisfaction.

1. Lean Six Sigma
Managing Efficient Organizations and their
Operational Processes

2. Table of Contents
1. Competitive Business Processes
2. Lean Organizations
3. Basics of Lean Six-Sigma
4. Lean Six-Sigma Cycle: DMAIC
5. Overview of Lean
6. Improving Process Flow
7. Lean Manufacturing
8. Lean Supply Chain
9. Lean Product Development
10. Lean Health care
11. Overview of Six Sigma
12. Six Sigma Tolls
13. Finding the Root Cause
14. Pareto Chart
15. Fishbone Diagrams
16. Process Variation
17. Process Control
18. Summary and Conclusions

3. COMPETITIVE BUSINESS PROCESSES
Chapter 1

4. Getting it Right
Some organizations seem to get it
right. The New York Ballet delivers a
flawless performance of Swan Lake.
The Yankees win the World Series. The
M.D. Anderson Cancer Center in
Houston treats patients with
innovative cancer therapies, and
Amazon has developed the capability
to make same day deliveries in cities
like New York and Miami.
How do they get it right and are there
lessons from which we can all learn?

5. Customer Value
While at the operational level these companies
are different, what they share is that they have all
developed products, services or performances
that meet their customer’s, client’s, patient’s or
patron’s needs.
To look at this from another perspective, they all
deliver customer value.

6. Customer Value
Value is, of course hard to define but it does represent A combination of price,
quality, dependability and service. Nonetheless, value must be defined from
the customer’s point-of-view. Not from the company’s, not from executive
management’s but from the customer’s point-of-view.
When customer's don’t perceive value, there is no value. It is as simple as that!

7. Customer Value and Organizational
Culture
Delivering value begins with company culture, defined as the shared meaning, values,
beliefs and practices of an organization. Culture pervades every activity from logistics,
sales, marketing, operations, customer service, accounting and finance. When culture
is wrong and fails to emphasize customer value, performance suffers.
Steve jobs, the legendary founder of Apple, left the company in 1985 after a power
struggle with its board of directors. Without Jobs at the helm the company lost site of
its mission, and slid toward bankruptcy. Jobs returned in 1996 and by 1998 had
restored its competitive position by refocusing on innovation and customer value.

8. Organizational Culture and Customer
Value
But a customer-focused culture is less common
than one would think. Before its bankruptcy,
almost a decade ago, General Motors failed to
manufacture cars that people wanted. As they
lost market share Honda and Toyota gained.
General Motors 2000 Saturn
Then in June 2009 they filed in Federal Court for protection under Chapter 11 of the
Bankruptcy Code. The disruptive conditions surrounding their reorganization were
enough to unfreeze a culture that had led to its downfall and in its place a more
customer and value oriented culture began to emerge.

9. Organizational Culture and Customer
Value
There have been many companies that have
been unable to recover from their inability to
deliver what customers want. That list includes
Circuit City, Radio Shack, Borders, Digital
Equipment and Wang Computers just to name a
few.
They failed for many reasons but one of the most important was their inability to
maintain focus on customer value. Unfortunately, as they watched the competitive
marketplace change they were unable to take the steps necessary to change with it.

10. The Alignment of Culture, Products
and Value
But the right culture, by itself, is not sufficient.
The organization must also be capable of developing effective and efficient processes
to deliver the products that its customers want. They must be effective enough to
deliver the right product with the right quality and efficient enough to deliver it at the
right price.

11. The Alignment of Culture, Products
and Value
Tesla motors has the right culture and the
right product, but they must develop the
production processes to deliver their right
product at the right price. To increase
their market share they too must address
the value issue.
Sustainable organizations must assure that
culture, products, and value are aligned.
Only then can an organization survive in a
competitive market environment.

12. Is There Help?
How can effective and efficient processes be developed?
Are there guidelines?
Is there a discipline that can be followed?
The short answer is, yes. And that discipline is called Lean Six Sigma.

13. Lean Six Sigma
What is Lean Six Sigma?
Considerable confusion can be avoided if we
begin by separating the term “Lean” from “Six
Sigma.” And the reason this eliminates confusion
is that they basically address two different
functions. There is overlap but it is best to start
by defining each one separately.
First we turn to Lean.

14. Lean Defined
While lean is primarily a philosophy that pervades organizational culture, at the
operational level it is a collection of practices, tools and methodologies directed at
improving process efficiency and minimizing waste.
Furthermore, some organizations are so committed to this philosophy that they refer
to themselves as “Lean” organizations.

15. Applies to All Functional Areas
Lean is a philosophy that can be applied to every functional area in the organization.
• Lean manufacturing, implies a manufacturing process that has been designed to
maximize efficiency while eliminating delays and wasted steps.
• Lean supply chain refers to an approach for selecting suppliers that ensures a
smooth flow from these suppliers to the customer. It suggests a transportation
system that moves goods efficiently and minimizes delays.
• Lean product development suggest a process that minimizes the length of time it
takes to develop a new product from the time the project is approved to the time
it is made available to customers or clients.
In all of these functional areas the focus is on delivering customer value while
maximizing efficiency and minimizing waste.

16. Six Sigma
Six sigma is different.
It addresses quality and consistency. As such it focuses
on the ability of operational processes to meet customer
quality expectations. To accomplish this, It sets targets
and measures outcomes against these targets.
An automobile manufacturing assembly plant is deigned to produce cars that meet a
set of quality standards. But to ensure that thee standards are met quality control
procedures are instituted to confirm that assembly processes are in control.
Medical procedures at a health clinic are designed to minimize infections, but quality
control procedures are also established to confirm that thee processes are also in
control.

17. Six Sigma Defined
Six-Sigma can be defined in the following way.
A highly disciplined process that focuses on developing and delivering near-perfect
products and services.
Near-perfect does sound a bit ambitious, so a more detailed explanation of what it is
that we mean by six-sigma is in order.
However, a full explanation would require an excursion into the world of statistics,
which is beyond the scope of this chapter. But, an intuitive understanding of six sigma
is not.

18. What is Meant by the Term Six Sigma?
The term six sigma is a statistical term used to measures how far the output from an
operational process deviates from perfection. The less it deviates the more consistent
is the output. The more it deviates the less consistent is the output and the greater is
the likelihood that output standards are not met.
But why should outputs deviate at all. Aha, here is the reality. All processes deviate
from an average or reference standard. When computer chips are made some are
found to be defective. The goal, for example, might be to keep defectives within one
percent of the total. But sometimes the defectives are smaller and sometimes larger.
The output therefore deviates from the process average.
When the New York Ballet company performs Swan Lake not all performances are the
same. Some are better than others. Again, the output varies, but on the average
performance is near ‘perfect’.

19. Perfection
But what do we mean by perfection? Is it possible to establish a concrete measure?
Well, we can!
Perfection, within the context of six-sigma, is reached when the the output from a
process leads to no more than 3.4 defects per million opportunities. An opportunity
here means specific process outputs. So if we are producing ignition switches for
automobiles then we would design the process to deliver no more than 3.4 defective
switches per million produced. If this target was, in fact, met it could be concluded
that the process was in ‘perfect’ control.
So we can conclude that processes designed at the six-sigma level need to be nearly
flawless to deliver ‘perfection’.

20. When is Six Sigma Appropriate?
When GE manufactures a turbine
engine for a new passenger plane, it is
reasonable to understand why great
precautions must be taken to achieve a
level of quality that is near perfection.;
flaws in the engine can lead to great
tragedy. But perfection at this level
would be inappropriate for making cell
phones, computer chips or even
ignition switches.

21. When is Six Sigma Appropriate?
Of course we could design every processes to
achieve the six-sigma level of perfection, but
the cost of developing such processes together
with the cost of instituting quality control
measure to ensure consistency at this level
would make phones, computer chips and
ignition switches very expensive to produce.
The reality is that for most products and
services, we need reasonable quality not
perfection.

22. Consistency
Consider an example in the food service industry.
Restaurants are constantly under pressure to
efficiently deliver high quality dishes. And today
almost every one can expect to be reviewed on Yelp.
Six-sigma reminds us that variation from one meal is
inevitable but that process quality must be such that
very few meals fall outside the acceptable range. Of,
course it is not possible to satisfy everyone, and
there will be individuals who will write a negative
review without cause, but, in general, establishing
standards and creating controls can minimize the
likelihood of critical ratings.

23. Consistency
Still, restaurants must set a reasonable standard of performance. Setting a six-sigma
level would mean little tolerance for anything but near perfect meals, a standard few
restaurants could afford to meet.

24. Efficiency and Consistency
What we have learned this far is that
effective management of operational
processes must deliver efficiency,
quality and consistency. And these
objectives represent the very essence of
Lean Six-Sigma.
Here is a simple case that illustrates the
basic philosophy and principles of Lean
Six Sigma – primarily Lean - at work.

25. Microsoft
Three companies represent the emergence and significance of computers in terms of
their economic and social impact on our lives. They include IBM, Microsoft and Apple.
Each, of course, started small and each grew large enough to require elaborate
management structures, some of which border on large bureaucracies.
In the next case we will see how one process at Microsoft grew to such proportions
that the cost of the process exceeded it value. Then a lean initiative was taken.

26. Microsoft
Microsoft was founded in 1975 by Bill Gates and Paul Allen. In 1980 a partnership
was formed with IBM to bundle the Microsoft operating system with IBM
computers. Shortly thereafter they introduced the Windows operating system that
has since dominated the PC market.
With sales of over $86 billion and more than 100,000 employees worldwide
Microsoft has clearly had to established standard operating procedures as well as a
system of checks-and-balances to ensure that its operations are both efficient and
under control.

27. Microsoft
One business function that has grown
accordingly is marketing and sales.
To work with its customers and to best meet
their needs, sales managers routinely travel to
client sites. In the past they charged
expenses to a credit card and upon returning
completed a travel expense report that
included explanations for each charge
incurred. Then, the expense report would be
sent to the travel department where staff
would review each expense item and verify
that it met the guidelines for an approved
expense. Often the staff would return an
expense report to collect additional
information before payment could be
authorized.

28. Microsoft
While reviewing an annual budget, one senior VP questioned the cost of this control
process. Where these steps really necessary? Could it be, he asked, that very few
people overstate expenses or submit unauthorized charges? If so, then these checks
and balances might be excessive.
If expenses were not overstated then the effort directed at this process would only
serve to increase costs with little value to the company and certainly little value to the
customer.
So he set out to collect some data that would help him answer these questions. He
asked the travel office to determine how many expense reports, filed in the last
month, actually overstated expenses, by how much, and how many included
unauthorized charges.

29. Microsoft
Upon receiving a response, he was not surprised to learn
that most of the sales staff were quite honest and when
expenses were overstated it was only by a few dollars.
Even fewer took unauthorized charges.
He then established a new policy.
Sales staff would submit only credit card bills and there would be no review of their
charges. Payment would be credited to the employee’s bank account within two days,
compared to the ten it had taken under the old system.
But, to insure compliance, a control system would be established whereby random
statements would be audited on a periodic basis.

30. Microsoft
It worked.
The office staff responsible for reviewing and approving expense reports was reduced
to less than 25 percent of its original size and one year later an internal audit found no
significant increase in overstated expenses.
The point here is that bureaucratic processes – business processes dominated by
hierarchy, procedures and rules - tend to take on a life of their own. Very often as
processes mature and as a company becomes more successful, additional procedures
and processes are added that create little or no customer value. They just add cost.
Yes, some may be necessary but many are not. And managers who add these
additional steps, procedures and ‘safeguards’ find it easy to justify them in the interest
of preventing abuse or improving management processes.

31. Microsoft
But you can imagine that changes like the one at Microsoft, regardless of how
small they are, are not easy to make. They can be criticized as counterproductive
and even irresponsible. How could these ‘important’ safeguards be eliminated?
Those accustomed to the old ways might insist that failing to review each and
every expense report could tempt staff to be less than honest. Of course that is
always possible, but decisions such as this need to be based on the facts. And the
facts here were clear; the sales force was honest!

32. Inefficiencies Not Limited to
Established Processes
It would be a mistake to think that inefficiencies, like the one suggested in the
Microsoft case, are limited to established processes.
Often, inefficiencies are inadvertently built into a new system. Certainly, there may
have been better ways when it was first designed, but they went unexplored. Perhaps
it was the rush to complete the project, or the failure to think critically about the
efficiency of the process.
Here is the basic problem. It is almost always more difficult to design a lean process
than an inefficient one and under pressure to get the ‘job’ done the extra time it can
take to design one that is efficient is simply not available.

33. Inefficiencies Not Limited to Old
Processes
Here is what Blaise Pascal had to say about
efficiency. He ended a letter with an apology:
I'm sorry that this was such a long letter, but I
didn't have time to write you a short one. In
our context we might say “ I’m sorry this was
such an inefficient process, but I didn’t have
time to develop an efficient one.”
Writing short letters or designing efficient processes takes time and in the rush to
meet project deadlines process efficiency is frequently shortchanged. As a result
Lean Six Sigma is never at a loss for opportunities to improve process efficiencies and
customer value.

34. Summary
Lean six sigma works because it focuses on the value customers or clients receive
when they buy products and services. It is an approach that works best when it
becomes part of the organization’s culture, core values, beliefs and processes that
define the organization.
To understand lean six sigma it is best to separate out lean from six sigma. Lean
focuses primarily on efficiency and the minimization of waste while six sigma focuses
on quality and consistency
In fact, Lean has become such an important contributor to the process of managing
competitive organizations that many companies now consider themselves “lean”
organizations. Everything, from designing international supply chains to building
effective customer service systems, is constantly and rigorously subjected to lean
analysis.

35. Summary
Is there evidence that this really produces results?
More than three-quarters of the Fortune 500 companies have extensive Lean Six
sigma programs. They see the benefits in lower costs, more dependable process
outputs and, above all, an improvement in customer satisfaction.
Furthermore, it works because it provides professionals with a discipline for improving
organizational performance.

36. Review Questions
1. Designing efficient processes often takes less time than designing inefficient ones.
2. About 75 percent of the Fortune 500 companies utilize Lean Six Sigma.
3. There is little difference between Lean and Six Sigma.
4. Lean is primarily responsible for improving process efficiency.
5. When a new business process is designed it is not necessary to utilize Lean Six
sigma concepts because it can be assumed that new processes are efficient.

37. Answers
1. Designing efficient processes often takes less time than designing inefficient ones.
(F)
2. About 75 percent of the Fortune 500 companies utilize Lean Six Sigma. (T)
3. There is little difference between Lean and Six Sigma. (F)
4. Lean is primarily responsible for improving process efficiency.(T)
5. When a new business process is designed it is not necessary to utilize Lean Six
sigma concepts because it can be assumed that new processes are efficient. (F)