The Yin and Yang of Process Excellence

Today’s business leaders are having a hard time handling the impact of the economic downturn on their companies. As consumption drops to a long‐time low and competition increases, it is imperative to do things better, faster and cheaper and find new ways to create and capture value to survive. In this situation, decision makers can turn for help to two proven vehicles: Six Sigma and Innovation.

Both Six Sigma and Innovation can be used to drive earnings growth and achieve results better than their peers. But many companies get bogged down in an either/or dilemma where advocates of Six Sigma find themselves competing with advocates of Innovation. In many cases, this results in conflict that undermines the effectiveness of each approach and limits the ability of the company to achieve its growth targets. In other cases, there is a balance or uneasy peace between these two approaches and companies are able to make reasonable progress. But the companies that consistently outperform their peers are those who use both Six Sigma and Innovation in an integrated way to drive sustainable high performance.

While some believe that Six Sigma and Innovation are just different tools to deliver the same type of results, our belief is that this is fundamentally wrong and leads to “false” choices:

1. Innovation is a process where new and different ideas are implemented from concept to commercialization to result in new and better offerings or processes. It requires a risk taking and inventive mindset to come up with new ideas and new ways to implement them. The fact that these types of ideas are new and different from existing offerings and processes creates both technical and emotional barriers for implementation. As a result, many new business ideas do not get implemented, especially in the operations area where any factory stoppage is severely frowned upon. There are exceptions like CEMEX, a global cement manufacturer from Mexico, who changed its cement production process by grinding the raw input materials to smaller particle size and as a result was able to make clinker at a lower temperature saving over millions of dollars per furnace per year. Similarly, BYD in China reverse‐engineered Sony’s lithium battery automated manufacturing process and beat them by eliminating costly automated processes with low cost Chinese labor.

2. Six Sigma, on the other hand, is a formal methodology rooted in quality, statistical methods and discipline to eliminate defects from manufacturing and other operations processes. The mantra is define, measure, analyze, improve, and control the process. The central goal of Six Sigma is to identify the cause of defects and errors and to eliminate dissatisfactory products resulting from the processes. The most famous examples for comprehensive application of the Six Sigma is Motorola, the inventor of the framework itself, and GE who made huge success in operational excellence. Their financial results delivered by its application broke ground for widespread application of the methodology.

Innovation OR Six Sigma is not the right question: This difference in approach and goals often leads companies to try to choose between Innovation and Six Sigma. As a result, many CEOs like James McNerny of 3M, Robert Nardelli of Home Depot and Ann Fudge of Young & Rubicam have forced a shift to Six Sigma initiatives in innovative companies and have almost destroyed them. By taking out innovation spending from the company’s budgets and focusing instead on improving existing processes, these executives achieved some short‐term financial successes. However, this improvement could not be maintained in the long run and dry innovation pipelines led to poor performance overall.

Innovation AND Six Sigma: It is clear that both Innovation and the Six Sigma methodology drive value. Executives have a more powerful toolset at hand if they manage to utilize combination of the two. Leaders use an efficient innovation framework and process to collect and connect innovative ideas available within the company’s means, and use Six Sigma to provide improved discipline and output from those divergent processes. Leaders also use innovation pipeline tools to drive Innovation from concept‐to‐customer with a Six Sigma‐driven discipline that recognizes the need for risk and opportunity management to increase the value of this pipeline. Finally, leaders use innovation tools and frameworks to drive accelerated launch and rollout through new business models and new processes whose performance and productivity is improved through Six Sigma.

In conclusion, the experience of leading companies in both expansionary and recessionary times demonstrates the power of BOTH Innovation AND Six Sigma. The experience of lagging companies in both good and difficult times demonstrates the severe limitations created by continuing conflict between advocates of Innovation or Six Sigma. Winners connect the dots and combine the strengths of these powerful complementary approaches.