The current complaint with Six-Sigma Programs, Lean and other cost reduction and business improvement programs is that after a while the increased profits and reduced costs that were promised have either not materialized or have disappeared. A group of business improvement champions for a major global business recently told me that after ten years of effort they realized that the cost reductions and profit improvements predicted by Six Sigma projects were not sustainable. They gave a number of reasons given including a lack of hourly worker involvement and a lack of buy-in and their new corporate initiative goes a long way toward addressing those problems. These are probably true but I think there is much more to it.
One of the fundamental problems behind improvement programs of any kind is the inherent need to exaggerate the size of the anticipated improvement. I submit to you that this need to exaggerate is not only personal but corporate. The following sequence leads inevitably to backsliding down the slipper slope of reality.
Consider, for example, a Six-Sigma black belt. The company pays up to $60,000 to get the black belt trained and then tells them quite clearly that they have 12 months to generate $1 million in improvements to justify the investment. That becomes the objective against which their job performance will be measured. Pressure.
Now consider a department manager or business unit manager who has several black belts working for them. Yes, they now have several million dollars of improvements as part of their job performance criteria.
And so it goes up the ladder from the lowest to the highest levels of the company. Having spent hundreds of thousands of dollars to millions of dollars to implement this improvement program, progress against these goals is a constant item at the board meeting. “Don’t disappoint us now” is the top management mantra. Every bonus in the company rides, in part, on program success.
So, perhaps insidiously at first, the temptation to exaggerate creeps into the improvement estimates. The best of the forecasts are given and the downsides are brushed under the rug. Pressure is applied for success and even the round peg will fit into a square hole for a while. At some point some people just “game the system” to make the numbers.
The net result is that some projects succeed phenomenally, others succeed a bit, others fail a bit and still others fail phenomenally. The improvement program becomes a huge waste of resources and delivers ever-disappointing results.
The bottom line is that yes, you can have fatal structural flaws in your improvement programs such as a failure to engage and involve key people but in the end, no matter how well your program is designed, if you set unreasonable expectations, offer unreasonable rewards or penalties and do not scrutinize proposals with a very critical eye toward reality, you will end up creating a disappointment.
Do not fall into that trap. Make sure that every project you undertake for profit improvement is thoroughly analyzed by your accounting team to insure that the projected savings are real. Test your savings IQ with this short quiz.