Six Sigma A Fad......... By Ashutosh Harbola

It’s one of the most ultimate management jargons of all time, thanks to its initiation by Motorola and subsequent promotion by Jack Welch! But over the turn 0f the century, companies that swore by this concept have been caught in an abyss. Is the practice worth it any more? by Ashutosh Harbola

In those famed and now cherished Jack Welch years, the GE Way was pretty much the epitome of what every business aspired to achieve, be it in terms of products, processes, market positions or management practices. Six Sigma was touted to have been Welch’s Jedi weapon in this thunderous progress, a claim that led to Six Sigma concept getting popularised globally to legendary levels, and even led companies like Motorola (the true pioneers of the concept) to attain iconic cult status amongst Six Sigma fanatics specifically and in the global management world in general.

To its credit, Six Sigma did benefit Motorola to a large extent – at least initially. When one of Motorola’s Quasar TV set producing factories was acquired by a Japanese company in 1970, the former saw dramatic changes under the Japanese management, in particular that the defects were lowered by 95% and costs were brought down as well. Motorola’s then Chairman & CEO Robert Galvin was intrigued by the Japanese firm’s eccentric and fanatic orientation towards reducing defects, and after an exhaustive analysis, decided to make Motorola take the full plunge in implementing Six Sigma!

Bill Smith, popularised as the father of Six Sigma, would never have imagined that his formulation – which talked about reducing defects to less than 3.4 per million processes/products – would change the context of business in the 1990s as it did. Companies like 3M, Sun, Allianz, and many more were adopting Six Sigma hook, line and sinker. After GE adopted Six Sigma, over a quarter of the Fortune 200 followed suit. It seemed Six Sigma possibly could not go wrong.

And then suddenly, the house collapsed in one go! And one after the other, Six Sigma practising firms started churning out pathetic performances and business results. While initially, theorists blamed disconnected factors, over time, the coincidences became too hard to ignore statistically. In a report from Qualpro, founder and principal Charles Holland analysed that out of 58 large companies that announced Six Sigma programs, 91% have trailed the S&P 500 list in the first half of this decade. In one critical case, since announcing the adoption of Six Sigma on July 1, 2001, Home Depot shares went down by 8.3% compared with a 16% rise in the S&P 500 over the same period. This at a time when competitor Lowe’s stock had almost doubled. Home Depot’s stock rose more than 2% on the NYSE to $41.07, after the resignation of CEO Robert Nardelli (ex-GE and a disciple of the Welch way). Nardelli was responsible for implementing Six Sigma at Home Depot fanatically! He joined Chrysler (which too collapsed), and got kicked out again. Same has been the case with other Six Sigma firms like Honeywell, 3M, Lockheed, Ford and Xerox.

What went wrong? Vijay Govindarajan, Professor of International Business at Tuck School of Business, comments to B&E, “Six Sigma is about continuous improvement whereas radical innovation is discontinuous change. So they conflict.” Eugene C. Reyes, VP-Business Development North America, BPO International, Inc. gives a scathing critique of the concept to B&E, “Six Sigma, TQM and even ISOs can stifle areas of business where innovation is key.” Quality has merit, but can have a self-limiting effect when it comes to innovation. In a 2003 study, Nitin Nohria (current Dean of HBS), W. Joyce and B. Robertson found that there was “no direct causal relationship” between some specific management techniques (including Six Sigma) and “superior business performance.”

Then how did Jack Welch succeed in implementing Six Sigma and ensuring fantastic success for GE (earnings grew 13% in just two years of implementation)? That was because Jack, despite targeting outstanding improvement in quality, was never fanatical about achieving the “3.4 defects per million” impossible target. His prime rule for any manager implementing Six Sigma was that the manager should “understand Six Sigma is all about customers winning in their marketplace and GE’s bottom line.” In other words, Jack cancelled any Six Sigma programme that had a chance of eating into the earnings – “Six Sigma should just be selectively applied,” were his key words in the Welch Way. Strangely, CEOs of most other Six Sigma companies never realised this necessary connection; as a matter of fact, Jack Welch never let them on to it since the very end of his tenure. But empirical evidence cannot be ignored, and as much as we may not want it, Six Sigma is on a sure path to a silent demise.

Dr. Chris Trimble of Tuck School of Business suggests to B&E, “The solution is not to kill Six Sigma, but to create ‘safe havens’ where a company can pursue disciplined experiments – while simultaneously striving for excellence in day-to-day business.” Chris, we suspect even that point is long gone...