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Six Sigma

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Six Sigma chapter: Improving Quality and Performance in Your Nonprofit Organization  copyright 2016 by Gary M. Grobman

What is Six Sigma?

Six Sigma (a.k.a. “6 Sigma”), a registered trademark of the Motorola Corporation, refers to a statistically-based technique to reduce variability in business processes. Its intent is to reduce waste and rework, and streamline these business processes, eliminating unnecessary steps that may add to defects, and improve processes to further the intended goal of producing “virtually perfect” outcomes—thus increasing profits and increasing customer satisfaction.

It gets its name from the Greek letter (σ) used in the statistical term representing standard deviation. Its goal is to reduce the number of events in which a product falls outside of intended acceptable limits to .0034%, equivalent to six standard deviations from the mean. In practical terms, this means that the goal is to reduce defects to 3.4 per million events.

’Six Sigma’ has come to mean different things to different people because the core concept has diversified to become a philosophy, a belief system, and a disciplined process for rapid improvement (Lazerus & Butler, 2001).

Much of its popularity, beginning in the late 1990s, resulted from reports of spectacular results, including those of General Electric’s legendary CEO, Jack Welch, an early adopter. Investments of hundreds of millions of dollars in the strategy were reported to have resulted in billions of dollars in savings (Suresh, Antony, Kumar, & Douglas, 2012).

Why it is significant—as a philosophy

Six Sigma conjures up a new way of thinking about business processes—“how to work smart” rather than “how to work hard” (Dong-Suk, 2010).  It has much in common with the earlier versions of quality improvement management strategies, such as TQM and BPR. Like TQM, it involves the participation of every member of the organization, and infuses employees with a spirit of improving the quality of the organization’s product or service delivery at every possible way it can. Like BPR, it is a “top down” management tool (Dong-Suk, 2010), and it systematically seeks to redesign any business process that is either unnecessary, or contributes to defects. And by doing so, it has the potential to promote the elimination of jobs and parts of jobs that are not adding to the organization’s value.

“Because Six Sigma is based on scientific principles, decisions were based on facts and data instead of feelings and intuition,” writes the authors of a case study of a program introduced in a 384-bed general hospital in the Netherlands in 2003 that was credited with saving hundreds of thousands of dollars (van den Heuvel, Does, & Bisgaard, 2005).

As I write this in 2016, TQM and BPR as formal change management programs have fallen out of favor. And Six Sigma, and its sister, Lean Six Sigma, are flourishing. Perhaps one reason is that Six Sigma recognizes that employees need some direct motivation to buy into this strategy, and formal Six Sigma programs typically provide compensation to employees based in part on the success of outcomes that are facilitated by Six Sigma techniques. By its reliance with statistical tools, the benefits of Six Sigma—in terms of the reduction of defective products, less waste, and less rework—is measurable. And there is substantial evidence that this directly affects the bottom line of company profits, or its euphemistic equivalent in the nonprofit sector, “net revenue.”

Formal Six Sigma programs focus on discrete individual projects that target a particular business process. It is not unusual for a project to be considered only when the savings from a successful implementation is at least $25,000—and thus part of the process is quantifying the financial benefits of implementation. When a potential project fails to meet that threshold, it is simply not approved.

Why Six Sigma is of interest to the nonprofit sector

All nonprofits, as business organizations, have some work processes in common that are targets that are ripe for Six Sigma interventions. Invoicing, accounts payable and receivable, personnel recruitment, and customer scheduling are examples. Eliminating waste from fundraising procedures and volunteer management are some that are unique to the sector.

As a formal change management strategy, Six Sigma may not be attractive to the small soup kitchen, day care center, or symphony orchestra, partly because the cost of implementing it – for consultants, specialized computer software, compensation packages, and training—might well exceed the entire budget of the that small nonprofit. Despite that limitation, it can be constructive to learn about Six Sigma concepts, if only to think about what imperfections exist in the way work processes are being done that contribute to mistakes being made.

Nonprofits have limited resources, and wasteful spending often means that worthy clients cannot be served. Staff resources, almost always limited, can be better devoted to expanding services rather than dealing with the consequences of defects in the provision of services. It is often much more efficient and less costly to changing a system that creates defects than correcting those mistakes after they occur.

In larger nonprofits, particularly in the healthcare and higher education sectors, Six Sigma programs are potentially cost-effective, and in some cases, in a transformational way. And one additional advantage is that many of these organizations already have TQM programs in place, reducing any disruption as a result of piggybacking Sigma Six efforts and making existing TQM outcomes more successful (Revere, 2003). Integrating Six Sigma to a current TQM program “can be used to complement, embellish, and strengthen such programs” (Revere, 2003, p. 382).

Interviewed in an online industry newsletter, the director of Six Sigma for Sharp HealthCare, Patricia Atkins, R.N., commented that, “Too often in health care, we settle for 90% when we should be aiming for 100%. My passion about Six Sigma is that we can use it to save lives. It’s the hardest thing I’ve ever done, and it’s worth it” (Borgert, N., 2006).

One can make a strong case that it is a good outcome to reduce defects in television sets to a standard of 3.4 per million events (99.9997%) from three standard deviations, 66,800 per one million events (93.3%). It is frustrating to a customer and costly to a manufacturer to respond to customer complaints about a defective newly-purchased television. Now, compare that to the value to society taking into consideration the consequences of a surgical team taking out the wrong kidney or a child protective services worker placing a vulnerable child with abusive foster care parents.

Mistakes are going to be made by workers, regardless of circumstances. That is one aspect of the human condition. Yet every organization, in achieving some mission or program goal, has procedures that contribute, through their design, to increasing or decreasing the probability that a mistake will be made. The philosophy of Six Sigma is that using statistical techniques and collecting sufficient data, it is possible to see where current procedures relating to work processes are contributing to mistakes, and then analyzing what steps can be implemented to redesign these processes to reduce the probability that the mistakes will reoccur.  

A 2008 study commissioned by the Society of Actuaries calculated that the cost of medical errors in the United States was $19.5 billion, causing 2,500 deaths and 10 million lost work days annually as a result of 1.5 million errors (Hobson, 2010). A subsequent study that factored in additional economic factors, such as the costs of lost workdays and the value of the lives that were cut short, estimated that the cost approached $1 trillion (Andel, Davidow, Hollander, & Moreno, 2012). Even if Six Sigma could reduce this unnecessary cost by only 1%, that is certainly substantial, even putting aside the immeasurable cost to society of needless suffering.

 As a result of the increasing diffusion of Six Sigma techniques into the nonprofit sector, and success stories such as those below, Six Sigma is “gaining ground” in the sector (Zell, 2014). And educational settings, particularly higher education, are fertile areas for Sigma Six program adoptions. A page on the University of Alabama website titled Higher Education and Six Sigma: a Perfect Fit, makes the case why this quality improvement strategy is so valuable. 

Today’s management imperative focuses more on the bottom line and on improving your competitive position. This is accomplished by meeting the needs of all your customers, including students, parents, faculty, staff, donors, better than anyone else. The business of education also has greater accountability than it has in the past. This means that implementing quality improvements across the board is more important today than ever before. It is important for both business and academic goals. A quality improvement program can improve all areas of higher education. Six Sigma is a transformative approach designed to tackle these challenges.  All work is process. Managers in higher education and other transactional fields can use Six Sigma to understand their work processes, and how to improve them. Six Sigma can be used in all departments and processes; admissions, registration, requisitions and purchase orders, information technology,  grants administration,  accreditation, repair and maintenance, and more (University of Alabama, n.d.).

The Higher Learning Commission, the accreditation body for institutions of higher learning in the north-central region of the United States, requires its member institutions to demonstrate a commitment to quality improvement.  One way for them to do this is to participate in the Commission’s Academic Quality Improvement Program (AQIP), one of three options for satisfying this formal commitment (Holmes, Jenicke, & Hempel, 2015).

Among those schools participating is Illinois Central College (ICC) in East Peoria, Illinois, which adopted Six Sigma in 2004. A report of how the institution has incorporated Six Sigma into its operations to enhance productivity and quality is included in a 2010 report available on the college’s website.

The use of Six Sigma has fostered a sharper focus on the use of data, information, and performance results in decision-making at ICC. Prior to chartering a team to study a problem, baseline data is gathered to determine how critical processes are functioning. These data help to determine if a team is necessary and to narrow their assignment to a manageable project. The first phase in the team’s work is to define the problem by gathering voice-of-the-customer information from the stakeholders in the process and to map the process. Baseline data

are used to understand the overall “health” of the process in quantitative terms. Data are used throughout the DMAIC process to reduce variability and improve process outcomes. Each process must be designed to meet the needs of the people being served. Through the

use of the DMAIC process, an expectation is being established that data are essential to sound decision-making (Illinois Central College, n.d.).  

Success stories

You can find many other success stories online about how nonprofit organizations have used Six Sigma. Among examples are—

  1. The YMCA’s national resource office in Chicago, Illinois, began implementing a Six Sigma program in 2014 to upgrade its youth development programs, spearheaded by a newly transplanted staff member who had Six Sigma training as a local community YMCA CEO in Dallas, Texas. Leadership identified a problem with YMCA day camp programs—they were becoming “stale.” Ideas were considered that would include making sure every camper learned something new each day, made a friend at camp, and became more bonded to the organization. The change management strategy is credited with at least 40% of YMCA day camps around the country adopting the upgraded camp program, with a 2017 goal of 75% adoption considered to be within reach (Jacobsen, 2016).
  2. Children & Adolescent Treatment Services (CATS) in Buffalo, NY, used Six Sigma to reduce waiting times for children to see a mental health professional, not only reducing its waiting list, but reducing from 65 days to 25 the time it took from the first call the organization received to scheduling a therapy session. The Buffalo-Erie United Way has been a pioneer in spreading the usefulness of Six Sigma through its partnership with 60 affiliated nonprofits, spearheaded by a retired Six-Sigma director who was with Honeywell before he retired. According to a local business newsletter lauding the effort, CATS saw a $200,000 increase in net revenue attributed to the initiative (Zell, 2014).
  3. Thibodaux Regional Medical Center, in Thibodaux, Louisiana, claims to have “increased the hospital’s operating margin to 12% and created a cash reserve of $24 million in just two years as a result of its Six Sigma projects. Medication errors were reduced 42% and the facility saved $2 million (Minitab, Inc., 2008).   
  4. Red Cross Hospital in Beverwijk, the Netherlands. This general hospital with an annual budget of $70 million, reported hundreds of thousands of dollars in savings from Six Sigma initiatives. They ranged from shortening the length of stay for patients with chronic obstructive pulmonary disease (COPD); reducing mistakes made on invoices; standardizing its accounts payable policies, and obtaining reimbursements for permitting parents to stay overnight with their hospitalized children by convincing insurers that doing so would decrease the average length of stay, thus significantly reducing costs (van den Heuvel, Does, & Bisgaard, 2005).
  5. Mount Carmel Health in Columbus, OH, an early adopter of Six Sigma in the healthcare sector, reported an $857,000 increase in net income from 52 Six Sigma projects by the end of 2001 (Revere, 2003).

Sigma Six methodology

For making any particular manufacturing process effective, Six Sigma uses the DMAIC method:

“Define” involves identifying the process that is to be targeted for improvement.

“Measure” relates to assessing which parts of a particular business process that affects customer satisfaction and which can be improved in a way that reduces defects.

“Analyze” pertains to the phase where the business process is studied to determine the all potential sources that result in variability, and thus contribute to a defect.

“Improve” is the phase in which the process is redesigned and implemented, and a cost-benefit analysis is conducted.

“Control” is the final phase in which what has been achieved is documented and monitored, and results are verified using statistical control processes (Lessons from Sweden’s first large-scale implementation of Six Sigma in healthcare (Lifvergren, S., Gremyr, I., Hellstrom, A., Chakhunashvili, A., & Bergman, B., 2010).

There are some variations of this framework. For example, for creating new products or process designs, the method of choice is DMADV:

The Six Sigma culture

The developers of Six Sigma were enthusiasts of the martial arts, and adopted titles of a hierarchy for practitioners that correspond to Six Sigma certification levels of training, knowledge, experience.

Black Belt: These are individuals who are certified to lead Six Sigma teams in organizations, and who can act as coaches and mentors to those who are certified at lower levels. This certification typically requires at least 140 hours of black belt training. They typically devote all of their professional duties to Six Sigma activities.

Green Belt: These are workers who have Six Sigma training, but who incorporate the techniques of Six Sigma into their primary duties with the organization, which might be working on a particular manufacturing process. Six Sigma training is typically under 100 hours, mostly in statistical techniques and team problem-solving.

Yellow Belt: Those with this certification have received training in basic Sigma Six concepts and language, perhaps 15-25 hours of training, and often are involved in data collection.

Champion: This designation is for high ranking organization managers who are tasked with greasing the wheels to assure that Six Sigma projects are successful with support from the organization, and working to remove barriers to success.

White Belt: These are novices within the organization who have received perhaps a few hours of Six Sigma training, often as a way to create an organizational culture among workers who may be affected by changes in designs and processes, but who will not necessarily be using any Six Sigma tools and methods directly (ASQ, n.d.).

History of Sigma Six

Walter Shewhart (1891-1967) was a University of California-Berkeley trained physicist who was one of the pioneers of quality control. Initially earning his living as an academic, he became an inspector for the Western Electric Co. in Hawthorne, Illinois, in 1918. His supervisor there was George D. Edwards, who later became the first president of the American Society for Quality Control (renamed American Society for Quality in 1997) (Smith, 2009). This plant, which manufactured equipment for Bell Telephone, had many employees who were pioneers in the quality movement. Among them were Edward Deming, who was an intern at this plant, and who was inspired by Shewhart’s activities, as well as Joseph M. Juran, whom was mentored by Shewhart. (see page insert). A short memo from Shewhart to Edwards in May 1924 proposed a revolutionary way of reducing costly manufacturing errors, and served as the blueprint for what is known today as process quality control. His 1931 book, Economic Control of Quality of Manufactured Product, served to diffuse statistical control far beyond Western Electric and had substantial influence on manufacturing processes during World War II.

Although Shewhart felt that manufacturing processes needed to be modified whenever variation exceeded a three-Sigma standard (in which the expectation is that no more than 93.32% of output is not defective), adherents of Six Sigma rediscovering his writings and adopted Shewart’s methods with the higher standard.

Edward Deming, often considered to be the father of quality control (see page insert) collaborated with Shewhart for many years and was influenced by Shewhart’s approach (Smith, 2009).   

Much of the work of Shewhart languished in relative obscurity until it was rediscovered as a result of intense competition between U.S. and Japanese manufacturing industries. Japanese industry focused on improving the quality of their products and reducing costs, and the result was a quantum increase in their market share, almost all of it at the expense of American products. The response from the other side of the Pacific at first was met with arrogant complacency, followed by panic at the hemorrhaging of profits and market share.

Among the responses to the challenge from Japan’s quality revolution in manufacturing was the “Zero Defects” Movement, which had its genesis in the 1960s in the aerospace and auto industries. Among its proponents was Phil Crosby, the author of the Foreword to this book who, along with Edward Deming and Joseph Juran, was one of the three gurus of the 20th century quality movement, and the author of Quality is Free. Crosby became the Johnny Appleseed of the Zero Defects movement, making a strong case that it was much cheaper to prevent defects in products and services compared to fixing them and implementing inspection programs. Accepting that there will always be some level of defects actually encourages them to be made, he asserted, and management should never accept this and do whatever it can to eliminate every possible defect in their business processes. Crosby believed that there is not only a direct cost to a defect of a product or service, but a hidden cost, as well, in inspection time, wasted material, wasted labor, and customer dissatisfaction. The principles he espoused have found their voice in Sigma Six (Crosby, 1979).

Motorola was one of the first American firms to try to “beat (the Japanese) at their own game.” The company directed its engineers to aggregate the best-known quality practices they could find, and the result was the first Six Sigma program, with the initial goal of improving quality by 10 to 1 within five years. By the time the quality improvement program had been completed in 1991, Motorola had achieved a company-wide improvement of 800 to 1, surpassing the Japanese quality strategies (MSG Presentations, n.d.).  

Six Sigma’s Relationship to Lean

Lean is a related management technique that focuses primary on looking at business processes in the context of what is really of value to the end customer. Thus, if any particular business process or part of one doesn’t really add anything that is of value to the customer, measured as something that the customer would be willing to pay more for, then it is eliminated—unless, of course, it is required by law or regulation or would otherwise provide some competitive advantage (Sherman, 2014). So, Lean analyzes business processes to eliminate waste and reduce the time it takes to complete each business process.

Lean Six Sigma combines these compatible two change management strategies into one.

Among the categories of waste in the context of Lean Six Sigma are:

  1. Defects—This involves choices among scrapping, reworking, returns from the customer, and all other problems emanating from the production of a product/service that does not meet customer specifications.
  2. Overproduction—Creating more capacity of the product or service than the market is willing to buy means no revenue is ever generated from the work that went into creating that product or service.
  3. Waiting—This encompasses not only waiting for raw materials and partially completed finished products to be received by the next business process, but also obtaining approvals and quality checks before the next process can be implemented. For example, an entire team of professionals may be kept waiting because of a delay in the intake process of another team.
  4. Personnel inefficiencies—Unnecessary meetings, conference calls are among the examples of how the time of large numbers of people can be “wasted.”
  5. Transportation—This involves the costs and time delays of moving materials around during the process.
  6. Inventory—There are consequences of having too much or too little inventory. Too much ties up capital and limits storage space, and requires more management to keep track of it. Too little means that important components might not be available when they are needed, adding to wait time.
  7. Motion—This refers to keeping resources (including people, but including tools, materials) farther away the less important they are, and arranging personnel and materials efficiently to reduce the time it takes to coordinate all business processes.
  8. Extra Processing—This refers to eliminating processes that cost money but do not add to the value of the finished product, such as overheating or air conditioning, or using machines to deliver parts when simple gravity could replace them (Goleansixsigma.com, n.d.).

The Nature of Waste

Peter Sherman, in a July 7, 2014 issue of Quality Magazine (10 reasons Organizations Do Not Use Lean Six Sigma) makes a compelling argument in favor of Lean Six Sigma, and refutes many of the knocks against it.

An example of where to look for to find wasteful business processes is provided by Phil Emard, a Six Sigma consultant. He notes that there may be a tendency to automate processes that could be eliminated entirely, particularly those that relate to transportation of materials, sorting, and storage (Bogert, M., 2006).   

Criticisms of Six Sigma

As with any other change management strategies in this book, Six Sigma has its detractors. Among the criticisms often lodged against it are—

  1. It is likely to increase worker workload in nonprofit organizations where it is not unusual to have understaffing (Dong-Suk, 2010).
  2. The culture of highly paid consultants may be more interested in client billing than the spirit of quality improvement that was ingrained in the original leaders of the quality revolution (Dalgleish, 2003).
  3. Six Sigma is simply another quality fad of repackaged ideas that will come and go, and is often an expensive distraction that can have the organization focus as much or more on the color of their belts and certifications than “the tasks that lead to a healthier business” (Dalgleigh, 2003).
  4. Six Sigma requires passionate and committed leadership to be successful. Projects are doomed to fail without leaders that, among other qualities, have faith in facts, pursue a clear and compelling vision, work effectively with colleagues, and commit fully to the program (Suresh, Antony, Kumar, & Douglas, 2012).
  5. It is difficult, if not impossible to change an organization’s culture to support Six Sigma, so once the consultants leave, the organization “reverts back to its original habits” (Travispower, 2009).

As you might expect, there are many other reasons to resist Sigma Six. But there are certainly reasonable justifications for taking a look at this quality management strategy where it might be a good fit for the organization. Matthew Barsalou, in a 2015 article in Quality Digest, takes a look at some of the major criticisms of Six Sigma, and refutes them (Barsalou, 2015).

Conclusion

Six Sigma builds on the progress made with quality management strategies such as TQM and BPR, and takes a scientific approach to eliminating waste and reducing errors that are attributable more to flawed business processes than by worker carelessness. It appears to have an exemplary record of improving quality, particularly in large organizations such as hospitals and universities. And even for those without the resources to make a major investment in training, which includes most nonprofit organizations, Six Sigma embraces a philosophy that makes a valuable contribution to those with a commitment to quality improvement.

Andel C, Davidow SL, Hollander M., Moreno DA. (2012). The economics of health care quality and medical errors. Journal of Health Care Finance, Fall 2012, 39(1) pp. 39-50. Retrieved online from http://www.ncbi.nlm.nih.gov/pubmed/23155743

Barsalou, M. 2015). Lean Six Sigma: 10 objections and answers: Can we stop calling it a fad now? Retrieved online at: http://www.qualitydigest.com/inside/six-sigma-column/101315-lean-six-sigma-10-objections-and-answers.html

Borgert, N. (2006). Adapting LEAN management and Six Sigma techniques in the clinical lab. Clinical Lab Products (Online). February 4, 2006. Los Angeles, CA: Anthem Media Group. Retrieved online 4/26/2016 (Proquest).

Crosby, P. (1980). Quality is free. New York, NY: McGraw-Hill.

Dalgleish, S. (2003). Six Sigma? No thanks. April 2003, Quality Magazine. 42(4), retrieved online from: http://www.qualitymag.com/articles/84042-six-sigma-no-thanks

Dong-Suk, K. (2010). Eliciting success factors of applying Six Sigma in an academic library. Performance Management and Metrics. V11n1 pp. 25-38.

Goleansixsigma.com. (n.d.). What is waste. Retrieved online from: https://goleansixsigma.com8-wastes

Hobson, K. (2010). Study puts cost of medical errors at $19.5 Billion. Wall Street Journal, August 9, 2010.  Retrieved online from http://blogs.wsj.com/health/2010/08/09/study-puts-cost-of-medical-errors-at-195-billion/

Holmes, M., Jenicke, L., &Hempel, J. (2015). A framework for Six Sigma project selection in higher education institutions, using a weighted scorecard approach. Quality Assurance in Education, 23(1) pp. 30-46.

Illinois Central College (n.d.). AQIP systems portfolio. May 2010. Retrieved online from:  http://icc.edu/about-icc/files/2014/04/ICC-AQIP-Systems-Portfolio-May-2010.pdf

Jacobsen, J. (2016). YMCA upgrades day camps using Six Sigma. Making the case for quality. January 2016. Retrieved from: http://asq.org/2016/01/six-sigma/ymca-upgrades-day-camps-using-six-sigma.pdf

Lazarus, I. & Butler, K. (2001). The promise of six sigma. Managed Healthcare Executive. October 2001, 11(9) pp. 22-26.

Lifvergren, S., Gremyr, I., Hellstrom, A., Chakhunashvili, A., & Bergman, B. (2010). Lessons from Sweden’s first large-scale implementation of Six Sigma in health care.  Operations Management Research, (2010) 3:117,-pp. 128.

(Minitab, Inc., 2008).  Case Study: Thibodaux Medical Center. Retrieved online at: http://www2.kke.co.jp/minitab//case_studies/service/pdf/Thibodaux.pdf

MSG Presentations (2016). The Motorola Six Sigma story. Retrieved online from:  http://managementstudyguide.com/motorola-six-sigma-story.htm

Revere, L. (2003). Integrating Six Sigma with total quality management: A case example for measuring medication errors. Journal of Healthcare Management. November/December 2003 48(6), pp. 377-391.

Smith, J. (2009). Remembering Walter A. Shewhart’s contribution to the quality world. Quality Magazine, March 2, 2009. Retrieved online from: http://www.qualitymag.com/articles/85973-remembering-walter-a-shewhart-s-contribution-to-the-quality-world

Suresh, S., Antony, J., Kumar, M., and Douglas, A. (2012). Six Sigma and leadership: Some observations and agenda for future research. The TQM Journal. 24(3), pp. 231-247.

Travispower (2009). Six Sigma criticism/problems, Chasing down quality (post). April 21, 2009.  Retrieved online from: https://travispower.wordpress.com/2009/04/21/six-sigma-criticismproblems/

University of Alabama (n.d.). Higher education and Six Sigma: A perfect fit. Retrieved online from: http://training.ua.edu/sixsigma/sixsigma-highered.php

van den Heuvel, J.; Does, J. M. M. & Bisgaard, S. (2005). Six Sigma Forum Magazine, February 2005 4(2).

Zell, S. (2014). Six Sigma and nonprofits: Expanding partnerships, August 8, 2014. Six Sigma Daily. Retrieved online from http://www.sixsigmadaily.com/six-sigma-nonprofits-expanding-partnerships/

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