Adapting to change today is inevitable as economic stasis is not an option. The concept of resilience, the capability to nimbly adapt to and or drive change, and recover from difficulty, has emerged as a critical characteristic of complex systems in business enterprises. Change not only creates threats to business continuity it also creates opportunities for business value creation. When change occurs so too must business process innovations.
The premise for this article is as follows:
Management (leadership) is responsible for the creation of strategy to improve the performance of the enterprise and for molding the culture of the enterprise to implement the strategies created, and integrate resilience into the fabric of the organization.
How does the implementation of Lean Six Sigma support this premise?
The adoption of a Lean Six Sigma strategy provides leadership with the unique opportunity to simplify and sustain business processes that eliminate waste, defects, variability in product quality and improve flow, and influence the creation of a resilient organizational culture while increasing customer and enterprise value.
Our journey will begin with a discussion of lean and Six Sigma principles, identifying the leader’s role in the implementation of Lean Six Sigma and the creation of a culture that can successfully adopt these strategies and impact organizational performance.
THE PRINCIPLES OF LEAN
Lean practitioners believe that waste comes from unnecessary activities in the production process that do not add value to the finished product, that if eliminated will lead to increased “flow”, customer satisfaction, cost reduction and capacity to achieve strategy implementation. As a side note, lean does not only apply to manufacturing processes but all processes.
There are five principles, originating from lean manufacturing, outlined by James Womack and Daniel Jones  in “Lean Thinking”, 1996:
Lean is not a substitute for strategic thinking or strategy development and execution. Rather, it facilitates and enables achievement of strategic direction. Lean is a strategy and cultural paradigm that if executed well leads to increased return of net assets and enterprise value.
Katko in The Lean CF0 also presents five principles of lean described below:
Providing value to your customers
Importantly, delivering value is not from the company perspective but from the customer’s perspective. Throughout the value delivery process, it is not merely the product or service provided but the sum of interactions with the company. It goes to the core of value creating activities – the creation of customer goodwill. Every contact with a customer provides an opportunity to increase the perceived value of the product or service provided to that customer and ultimately increase firm value.
Goodwill is a catch all for many different intangible assets. It is estimated that 70 percent of the value of an average company today is intangible – whether in the form of company reputation, customer relationships, “know-how” and the many and varied forms of intangible assets. Mary Adams and Michael Oleksak in their seminal book “Intangible Capital”, push the concept of goodwill further by stating that the harnessing of knowledge is to create firm value.
Creating value streams
What is a Value Stream?
Value stream is defined as the actions taken, in the proper sequence, at the proper time, to create value for some customer and the information required for coordinating these actions.
A value stream is not a department or division, each value stream identifies the process which will fulfill customer value expectations. For example, in a manufacturing company value stream management might have a manager for each type of material flow. Workers in the manufacturing process are assigned solely to that value stream team. Support services in the form of sales, marketing, HR, etc., will assign one person to the value stream team and have a reporting relationship to both the team and the department. Finally, the value team manager above is the CEO for the value stream.
Create flow and pursue continuous improvement
Once the challenge to identify each value stream is complete the next step is to identify wasteful activities, those that do not provide value. Waste or “muda” comes in two forms: pure waste – those activities that provide no value and can be eliminated immediately and non-value adding activities which are described below.
Taiichi Ohno, the executive recognized as the creator of the Toyota Production System describes seven deadly wastes (muda):
The task for Lean is to identify waste and eliminate it. The CFO’s task then is to create the metrics to measure progress which ensures that the changes have been implemented and determine the financial benefit for the value stream and overall operating profits.
Empowering team members
Finally, team members need to be empowered to act and implement the process improvements identified by the team to achieve the overall objectives: improve flow and continuously improve processes, and reduce waste and deliver improved value to the customer. Empowerment and abandonment of a hierarchical top down culture, is perhaps the most important part of the lean enterprise, and the hardest to implement. In many instances the culture of the organization needs to evolve, leadership needs to be engaged and committed, and measurement systems implemented to ensure progress.
Many implementations of lean have not realized their potential benefits as one or more of the above have not been adopted and/or accepted.
“THE SIX SIGMA WAY”
The vision of Six Sigma is that everyone involved in a value stream strives to achieve perfection by eliminating as many defects and variability in product quality and processes as possible and by producing products and services as efficiently as possible. The word sigma has a statistical meaning (standard deviation). It refers to how far something is from perfection.
Six Sigma is:
Instituted by Motorola in 1987 and systematized by General Electric in the 1990’s, Six Sigma consists of five steps, which according to the authors, are “core competencies” for a successful organization as follows:
Six Sigma employs quality tools and approaches including DMAIC: define, measure, analyze,
improve and control. Control charts to measure variance in a process or product quality, Pareto diagram to identify the most prominent problems, root cause analysis to find causes of defects.
It’s evident that both lean and Six Sigma have similar goals – eliminate waste and defects, improve quality, create ever improving systems and meet customer value needs.
LEAN SIX SIGMA
It was a matter of time before the tenets of both approaches were incorporated into a combined system, using lean organizational value streams, and continuous process improvement all the while focusing on customer value. Lean Six Sigma focuses on process speed with quality. Six Sigma focuses on the customer and end product quality, while lean focuses on waste and efficient production methods. Lean practitioners believe that waste comes from unnecessary steps in the production process that do not add value to the finished product, while Six Sigma proponents assert that waste and defects result from variation within the process. To become a truly more efficient resilient organization in terms of operations and business processes, you must employ both lean and Six Sigma approaches; having one without the other ultimately may result in process destruction.
LEADERSHIP AND CULTURE
For either lean or Six Sigma to be successful a leader needs to:
Challenge traditional thinking
Foster a collaborative, process focused team
CULTURE- A FINAL WORD
Central to all the leadership activities discussed above is the simple notion espoused by Peter Drucker that “culture eats strategy for breakfast”.
“It’s estimated that more than 60% of strategies are not successfully implemented. In many cases the problem can be boiled down to the fact that the execution of strategy is not supported by the culture of the organization.”
Culture is not some amorphous cell that exists at an entity's core but rather a changeable, living being that can adapt to a leader's efforts and lead to a resilient organization.
You're Invited! Not-For-Profit CFOShare
Tuesday December 10, 2019
4:00 PM - 6:00 PM
You're Invited! Annual Accounting & Business Conference
Wednesday December 4 2019
Hosted at the MSU Management Education Center in Troy, MI
You're Invited! Construction Update
Thursday November 21, 2019
Detriot Athletic Club
241 Madison Avenue
Detriot, MI 48226