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PAST EVENT: 2nd Annual Successfully Implementing Six Sigma in Service and Transactional Environments Summit
Scottsdale Resort & Conference Center (October 19-21, 2005) |
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| 2000 - 2005 |
SIX SIGMA SHARPENS UP SERVICES
Since Six Sigma was first developed at Motorola, refined at AlliedSignal and transformed into legend at GE under Jack Welch, it has found legions of new converts in myriad business sectors. Now this successful quality initiative is revolutionizing not just manufacturing but also service industries, including outsourcing, financial services and telecommunications organizations.
Six Sigma--originally designed to perfect manufacturing processes that were already highly engineered--might seem ill-suited to service organizations, wherein processes aren’t engineered at all. But this is precisely why the methodology has something valuable to offer service organizations. Because many service businesses (which often suffer from inflated costs and poor customer service) have never analyzed their processes, they are ripe with potential for process improvement.
From task to process
Six Sigma’s wider applicability was first glimpsed at GE. The company understood that Six Sigma techniques could be applied to any process that resulted in defects, whether they be faulty products, financial transactions or business processes. With this knowledge, GE soon expanded Six Sigma to its service businesses, GE Financial.
The heart of every service-based business depends on the opinions, behaviors and decisions of people acting through work processes. Analyzing and modifying human performance in these environments is complex. Nevertheless, task-oriented service organizations including mortgage lenders, wireless phone providers and call centers have discovered that Six Sigma brings a process focus to their operations (e.g., streamlined mortgage approval procedures, improved customer service processes and improved customer-problem resolution).
Financial services
Six Sigma has been particularly successful in the financial services sector, in which performance management is critical.
Customers expect faster and easier service at every point of contact--and if they don’t get it, they go elsewhere.
The economic boom of the 1990s strained many lending institutions’ capacity to originate, close and service loans quickly enough to meet customer demand. As a result, companies attempted to improve the cycle times of all processes, break bottlenecks, minimize errors, cut costs, increase capacity and delight customers. They had discovered that providing more value per customer transaction--rather than securing more transactions--leads to market leadership. Simply put, delighting existing customers can be more important than finding new ones, as this intense focus on customer satisfaction leads to top-line growth and drives greater shareholder value.
By using Six Sigma’s define-measure-analyze-improve-control process, leading financial services organizations have worked to reach the methodology’s aim of near error-free performance. Moreover, this goal is relevant to all processes, from handling customers’ money, to processing payments, to sending out bills, to closing a loan, to answering the phone.
The international private banking division of one of the world’s largest banking and financial services companies provides an example. The group faced increasing customer dissatisfaction as a result of inefficiencies in its international wire-transfer operations. The inefficiencies greatly increased the bank’s annual wire-processing costs, some of which the bank passed along to customers through transaction fees--despite the fact that the bank’s own surveys identify fees as a key customer concern.
The bank used Six Sigma to redesign its international wire-transfer process, greatly reducing the errors, customer callbacks, transfer delays and transfer fees that inconvenienced customers and contributed to high rates of customer churn. Transfer cycle time was slashed 46 percent, which, coupled with an extended cutoff time for making transfers, has all but eliminated delayed wires. Slashing the cost-per-payment order by more than 50 percent has also enabled the division to waive its transaction fees entirely, further improving customer satisfaction. In addition to helping the bank retain valued customers, the improvements could save the company nearly $1 million annually. And perhaps a more important (albeit less quantifiable) result is that the bank has improved its reputation in its customers’ eyes.
A leading mortgage banking firm offers another example of how Six Sigma can drive customer satisfaction and ultimately increase market share and growth. The bank, whose clientele includes borrowers disqualified from traditional loan sources, wanted to improve customer satisfaction and increase investor confidence. In addition to establishing a customer-relationship management initiative, the firm introduced Six Sigma into key business processes by training in-house Six Sigma experts to lead critical process redesign projects. Once the initiative was launched, the bank not only addressed customer and investor issues but also produced significant and unanticipated increases in revenue and reductions in costs.
The lender improved customer satisfaction and response time by 350 percent, cutting “abandoned customer call” rates from 12 to 4 percent and reducing process redundancies by 66 percent. At the same time, an increase in loan retention of 20 percent and the elimination of $21 million in risk exposure boosted investor confidence. Together, these improvements save the company $5.5 million annually and have generated additional revenues of $1 million.
Telecommunications
Following that solid record of success in financial services, the next Six Sigma revolution is likely to take place in the telecommunications industry. Both the telecommunications equipment and services sectors have been badly battered in recent years. Total spending on equipment fell by about 15 percent in 2001 and another 20 percent in 2002. Long-haul optical networks now operate at less than half their capacity. Until sales of core wire-line equipment pick up, manufacturers in the United States and Europe also face the challenge of developing products to deliver data and voice traffic from long-distance networks to broadband customers in urban areas. The mobile communications segment is also changing as exhaustively hyped mobile data services and third-generation wireless technology arrive.
During the late 1990s, the telecommunications services sector held fast to the motto, “Build it and they will come.” After the Telecommunications Act of 1996 passed, the telecom sector rode the high-tech current of an economic expansion that, in retrospect, appears to have been built on blind faith. During the five years following the 1996 legislation, the telecom industry received $1.3 trillion from investors and has since lost more than $1 trillion in market value.
For telecommunications equipment and services, short- and long-term success depends on excelling in operational focus, financial discipline and opportunistic growth. Six Sigma can help with all three. What follow are examples illustrating highly focused projects that suggest the enormous potential of applying Six Sigma to the telecommunications industry:
Increasing sales force availability for customers in emerging markets. Relentless competition in telecommunications requires an account team that can assess customer needs and submit quotes quickly. Nevertheless, Six Sigma analysis suggests that salespeople in the emerging market for a telecommunications provider spend an average of 52 percent of their time in nonvalue-added activities such as travel, meetings and customer service issues--despite the fact that the company depends on increased sales force productivity to weather the economic downturn and industry turmoil.
Six Sigma analysis uncovers statistically and economically significant relationships between the time spent on nonvalue-added activities, the extent of a salesperson’s territory (whether the salesperson sets his or her own customer appointments or these are preset), and the amount of time and territory-management skills required to provide outstanding service.
A company can address all these factors by setting up a special call center team to set appointments for salespeople and develop a process for route management that enables the team to prioritize appointments in the most geographically efficient way. As a result, salespeople can spend more time in front of prospective customers, save money on travel and spend less time on non value-added activities.
Reducing the sales-to-cash interval. As a private branch exchange dealer/distributor’s selling model shifts to resale, the company must forecast and accelerate customers’ payments after installation more accurately in order to reduce exposure to creditors. The sales-to-cash interval averages four months, whereas reducing it by only one month would save $550,000. However, the company’s sales-to-cash process is complex, with numerous interdependencies that can cause excessive delay. A Six Sigma team finds that the longest interval under direct control is the time from installation to posting the invoice. The average time stands at 18.3 days, costing the company $420,000 annually in delayed revenue.
Focusing on this critical interval, the team develops a database to track an order through its entire life cycle, creates tools for process operators to monitor overdue orders, modifies the process for more direct operator communication and develops a means for regular process control review and discussion. The interval is reduced by 7.5 days, which results in annual savings of $420,000. In addition to increasing the accuracy and timeliness of customer billings, improving forecasting accuracy, and reducing internal costs, the project leads to modifications in setting customer expectations and paves the way for an improved collections process.
Reducing business market collections. A telecommunications provider focused on generating sales revenue in its business market performs poorly when it comes to collecting that revenue. A preliminary analysis by a Six Sigma team determines that 60 percent of billed revenue, or approximately $25 million, goes 60 days past due every month--jeopardizing the company’s objective to achieve positive cash flow by the end of the year.
Combining Six Sigma analytical tools and business process management, the team’s program to reduce defects in the collections process includes reprioritizing collections work, assigning collections representatives to strategic accounts, conducting collections blitzkriegs, stopping the high turnover in the collections manager position and implementing a new call strategy. The project reduces by almost 18 percent the total past due greater than 60 days, increasing revenue by $2.4 million.
These examples illustrate only a few of the many processes and functions that Six Sigma in telecommunications can address. From maintenance, procurement and operations to customer care, sales cycle time, cost-per-transaction and duplications, Six Sigma will likely make enormous differences in customer satisfaction, revenues and costs. And as the methodology spreads to more of those functions, its benefits will grow exponentially.
Succeeding with Six Sigma in services
Successfully implementing Six Sigma in the service sector requires a relentless focus on customers, specifically, meeting their needs as efficiently as possible. This requires four critical steps:
1. Define what’s critical to your customers and confirm that your core processes are aligned to those requirements. As the term “services” implies, you must understand your customers’ needs before you can serve them. Find out what those needs are through surveys, call center data, focus groups, promotional campaigns--whatever means allow the voice of the customer to be heard clearly. At the same time, you must understand the key business issues for your company and align the voice of the customer with them.
2. Translate customer requirements into measurable characteristics of your processes. Once you understand customer requirements, you must fulfill them by measuring your processes’ effectiveness and efficiency. “Effectiveness” means addressing the problem of defects that your processes produce; “efficiency” means addressing the time and money that the processes consume in meeting customer needs. A high rate of defects, and time and money wasted in nonvalue-added activities, increases your cost-per-transaction. The formula for translating customer requirements into measurable characteristics is simple: “as measured by.”
For example, if on-time delivery is important for your customer, the metric would typically be “on-time delivery as measured by the time from the promised date to the date of actual fulfillment.”
3. Quantify the effect of gaps in your processes in terms of the cost of poor quality. For example, a mortgage lender whose customers want fast action on their applications might find that the process includes a high number of abandoned calls by customers or long delays in producing quotes, causing a drop in prospects and numerous inaccurate credit reports. The Six Sigma methodology includes powerful tools for analyzing each of those gaps and quantifying the related cost of poor quality.
4. Prioritize improvement projects. Once you clearly understand what each process gap costs, you can prioritize improvement efforts according to what’s most critical to your company (e.g., customer service, time, money, perceived value or other criteria). Because improvement in any organization proceeds project by project, you must ensure that you’re investing your effort in the right projects in the right order.
Above all, you must continue to look at your business through your customers’ eyes. It’s possible--but pointless--to redesign your internal processes and never address your customers’ real needs. However, don’t remake your processes with only the customer in mind. You must also address your stakeholders’ concerns and ensure that your customer-pleasing processes also meet the critical needs of your business. Six Sigma provides a means for keeping those sometimes competing voices in perfect harmony.
About the author
Zachery Brice is a managing partner at Six Sigma Qualtec (www.ssgi.com), a nationwide provider of Six Sigma process improvement training and certification to large corporations. He has Master Black Belt and Black Belt certifications, and more than 26 years of experience. Brice heads up Six Sigma Qualtec’s newly formed telecommunications practice. source: Quality Digest
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| 2000 - 2005 |
MEASURING AND IMPROVING SERVICE PROCESSES WITH SIX SIGMA
Service processes play integral roles in almost every company – loan processing in the case of banks, mechanical services in an automobile dealership, recruitment or new employee orientation in a human resources department, accounts payable in an accounting department. Service processes can consume a large portion of a company's operating margin. So it is not surprising that Six Sigma efforts are often directed at these processes in an effort to model, measure, modify and improve them.
Typical problems in the use of Six Sigma in service processes arise in the selection of qualitative and quantitative measures appropriate to the business and the service process being improved. For example, quantitative measures related to time taken for completion may be very important in a fast food restaurant. However, in a gourmet restaurant the same fast service may be seen as a negative indicator. The gourmet restaurant wants to provide its customers with a relaxing dining experience, rather than be seen as trying to rush clients through as quickly as possible.
When trying to measure qualitative aspects, one problem is balancing the variety of qualitative aspects being measured with the response rates which realistically can be expected from customers. People do not have patience for long surveys. They may abandon them or decline to participate if they are too long.
Careful Characterization of Defects
Another practical issue in Six Sigma measurement of service processes is the careful characterization of what a defect is – qualitative or quantitative. The measurement data can be discrete or continuous depending upon the context. Customer satisfaction when measured qualitatively needs to be converted into an equivalent quantitative measure such as "overall satisfaction on a scale of 1 to 7." Any score below 6 could be considered a defect in the case of a strong customer service-critical process, while in a less customer service-oriented process a lower score could be acceptable.
When considering quantitative measures, the definition of a defect is even more context-sensitive. Newspaper delivery in the morning is expected before a certain cutoff time. Beyond that time, it may not be useful to have morning newspapers delivered. On the other hand, mail that shows up in the mailbox may only need to be timely as in the context of today versus tomorrow. For most Postal Service customers, delivery may not need to be tied to a specific time during the day.
Four Ways to Sensible Measurements
Sensible Six Sigma measurement in service processes will be useful and meaningful. Four ways to help ensure sensible measurements are:
• Use Appropriate Level of Measurement - The measurement needs to be at the right level for it to be meaningful. There are usually many end-to-end processes across organizations. The right level of abstraction is usually necessary for measurement to be meaningful. There could be many intermediate steps and manual steps. Measurement of these process steps at very low levels of detail may not add much value to what is being measured. As in other areas in life, the 80/20 rule applies to service processes – 20 percent of the steps may contribute 80 percent of the time taken to execute service processes, 20 percent of the customers may account for 80 percent of the customer dissatisfaction when qualitative measures are used. Focusing only on some key elements may get you a large percentage of the payoff. Getting into more detail than that usually does not add significant incremental value.
• Account for Variability - Service processes may have significant variations in how they are executed, depending upon the complexity of the tasks they handle. For example, in the case of automobile insurance underwriting, the underwriter could be considering a run-of-the-mill case such as a regular passenger car for a driver with no accidents on his record. Or it could be a motor home or a customized vehicle that needs to be handled as a special case. Six Sigma assessments of these cases could be significantly different, and the usual measures may not be applicable across both cases. Adjustments may have to be made as to what is being measured and how.
• Put Strategic Emphasis on Quantitative Versus Qualitative Measures - The right mix of quantitative and qualitative Six Sigma measures is important to get meaningful results. Nordstrom, the apparel store chain, prides itself on the service it provides customers. Qualitative measures may be more important in customer-facing service processes there. Quantitative measures are more important in a company that specializes in quick service, such as a speedy oil change business.
• Emphasize Management Communication and Support for Change - Service processes, especially on a large scale like insurance claims processing, involve so many different groups of people inside and outside the company that any Six Sigma process improvement could face significant resistance. People involved in executing the same process step for a long time may not know how they fit in the bigger picture. If Six Sigma practitioners suggest process changes, the status quo may be threatened and therefore may need significant management support for implementing changes. This is where information sessions that provide the bigger picture to all those who may be affected by the process changes will help.
Conclusion: Pay Attention to Measures
Six Sigma efforts in service processes can increase customer satisfaction and, consequently, increase sales. They also have the potential to increase operating margins by reducing processing time and/or human resources needed. Both of these have the effect of boosting revenues and profits for any company. To realize the full potential, it is essential to pay attention to sensible and wise measurement in the application of Six Sigma to service processes.
About the Author
Nari Kannan is president and CEO of Ajira, a company that designs and develops service process management tools. He has 18 years of experience in information technology. He started as a senior software engineer at Digital Equipment Corp. and has since served as vice president of engineering or chief technology officer of five Silicon Valley startup companies. Mr. Kannan has dealt with problems in IT consulting, automotive claims processing, human resources and logistics applications. He can be reached at nkannan@ajira.com source www.isixsigma.com
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| 2000-2005 |
SIX SIGMA FOR THE SERVICES SECTOR
Six Sigma, the quality improvement methodology made famous by Motorola in the 1980s, has garnered much-deserved recognition in the last few years as more and more companies swear by its effectiveness in improving their bottom lines.
It only takes a glance at the long list of manufacturers --Ford Motor Co., General Motors, GE, Honeywell --to reveal not only Six Sigma's potential for quality improvement, but also its unprecedented success.
Many organizations, however, have taken a look at Six Sigma's track record and surmised that it won't work for them. Why? Because Six Sigma was developed in and for a manufacturing environment; so, how would it apply to a non-manufacturing environment? Organizations such as financial service providers, health care systems and educational facilities are asking this question. Others have gone so far as to take that leap toward Six Sigma and have witnessed the results first-hand.
Often referred to as "transactional Six Sigma," the methodology is proving to be a useful tool in environments that focus more on people and less on product.
People processes
"Six Sigma's historical roots are in manufacturing," says Rick Schleusener, master consultant at Six Sigma Academy. "Without really understanding Six Sigma, someone in the service industry could think, 'this doesn't fit us because we're in service.' In fact, our recent experience has shown service companies that invest in Six Sigma are saving millions of dollars per project."
Experts agree that the most common reason service companies shy away from Six Sigma is that they see it as a manufacturing solution. One of the major hurdles service organizations must overcome is the notion that, because their company is human-driven, there are no defects to measure. This is wrong, say the experts.
"Service companies are often dependent on people processes," explains Excelsis Magno, deployment champion and Master Black Belt at Volt Services Group, the staffing business unit of Volt Information Sciences Inc. that has recently implemented Six Sigma. "Human intervention is common practice in the service sector, which results in a lot of hidden factors. However, human resources are core to service companies." To overcome this challenge, Magno and her teams train functional leaders in Six Sigma to balance their staffing expertise with statistics-based analytical tools.
Where are the numbers?
Another hurdle that must be jumped is the fear of metrics. "When some people explain Six Sigma, it sounds too techie," notes Forrest Breyfogle, president and CEO of Smarter Solutions Inc., a Six Sigma services provider and author of Implementing Six Sigma (John Wiley & Sons, 2003). "They don't appreciate the importance of creating meaningful metrics that give insight into how their business processes perform over time. This can lead to firefighting common-cause variability issues as though they were special-cause.
"High-level control charts get organizations out of firefighting mode and into fire prevention mode. When one of these charts identifies an in-control or predictable process that isn't capable of consistently producing a desired level of response, we can 'pull' for the creation of a Six Sigma project to improve the process. This is much better than 'pushing' projects that have questionable value into a Six Sigma system.
"Companies need to focus on creating Six Sigma projects that are aligned to business needs (i.e., creating more customers and cash)."
All work is a processs
Schleusener urges service companies to adopt three principles of statistical thinking: All work is a process, all processes have variability and all processes create data that explains variability.
For example, if you were to apply Six Sigma to a company that provides housekeeping services, you must first understand what the work (process) involves. Using Six Sigma's definemeasure-analyze-improve-control method, a housekeeping service company can implement quality:
Define. Because Six Sigma is aimed at reducing defects, the first step is to figure out what a defect would be. For example, the company may decide that leaving streaks on the windows is a defect because it is a source of customer dissatisfaction.
Measure. The next step is to collect data to find out why, how, and how often this defect occurs. This might include a process flow map of where employees start and finish cleaning houses. Other metrics may include recording what products and tools the employees use to clean the houses.
Analyze. After the data is measured, the company's Six Sigma team realizes that a particular employee is better at cleaning windows than the other employees.
Improve. The team implements that employee's process as a standard way of cleaning windows.
Control. The company teaches new employees the correct technique to wash the windows. Over time, there's significant improvement in customer satisfaction and increased business.
It may have taken the Six Sigma team one or two brainstorming sessions to clearly define its process, but the DMIAC model remains the same for housekeeping services as it is for a window manufacturer.
Convincing the service industry
Convincing the service industry of Six Sigma's benefits is a major challenge. As noted before, many companies still conform to the idea that the methodology is only for manufacturing. An effective way to convince a service organization to implement transactional Six Sigma is to show relevant examples.
The following case studies can be found in Schleusener's paper "Jet Engines and Sales: How Six Sigma Brings Breakthrough Results to the Service Sector":
Does wining and dining prospective customers lead to sales? The conventional wisdom of a product sales team is that such entertaining is necessary to close the deal. But, a Six Sigma project that examined sales data found that although face time with customers is important, wining and dining is not. The data showed that regular face time helped close sales, but that time could be spent over a cup of coffee instead of golfing at a resort. In addition, the data showed that too much face time with customers is counter-productive. A regularly scheduled customer picnic was found to be detrimental to closing sales because it was held at a busy time of year, when customers preferred not to be away from their offices. Changing this process resulted in an increase of more than 10 percent of sales for the product.
A financial services firm believed it was paying an inordinate amount of money to provide customer service. Although using the Web-based contact approach was the least expensive, customers continued to turn to the call center to get account information. The firm wanted to keep its tradition of high customer service but needed to deliver it in a less expensive way. A Six Sigma project examined call center and Web site data. It found that if the Web site was reconfigured in a way that reflected the questions being asked at the call center, costs would decrease as the quality of customer service increased. The result was the movement of customers to the Web, rather than the phone, to get account information.
Prior to applying Six Sigma tools and methodologies, one large insurance company's cycle time for claims was 41 days. Because nearly 89 percent of past claimants deemed 14 days sufficient time for completion, customer satisfaction was at an all-time low. In less than five months, the project team not only assessed the organization's defect rate and identified the key factors involved, but it also reduced the defect rate by more than 70 percent. In addition, the company's project savings exceeded $250,000 in the first five months, and customer satisfaction increased dramatically.
A facility management company had a high level of "days sales outstanding." Initially, the company tried to fix this by reducing the term of days in its billing structure. This, however, upset customers. A Six Sigma project examined the process data and found that a large percentage of the accounts with high DSO received error-ridden invoices from the company. The project then worked to understand how the errors were produced, and process changes were made to prevent such errors in the future. The result was a better invoice process and reduction in DSO.
Schleusener also recounted his recent work with a college's janitorial crew. The key objective in the organization was to cut the amount of overtime janitors were working without compromising the quality of the service. "We collected some data and came up with a concentration diagram," explains Schleusener. "We found that there were certain parts of the classroom where trash accumulated most. So, we put a trash can in those places. We also noticed a fair amount of dirt being tracked into the classrooms, so they put mats in the doorways of each classroom." After collecting and analyzing the data, Schleusener and the janitorial crew had indeed found opportunities for reducing work time.
These examples help service organizations see the positive effects of a transactional Six Sigma system. For another example, see the case study of GE Financial Employer Services Group on page 26.
Learning transactional Six Sigma
After a company decides to tackle Six Sigma, the next step is to learn more about it. One resource is a new Transactional Six Sigma course from the Center for Lifelong Engineering Education at the University of Texas at Austin.
"In the six years that we've been teaching Six Sigma, we find more and more service organizations coming to us," comments Cath Polito, executive director of CLEE. "They say, 'What about us? How can we streamline all our paper processes?'"
The three-week course teaches basic elements of Six Sigma using a "keep it simple statistically" approach, design of experiments and knowledge-based management. It also features case studies that are specific to paper processes.
"We go into more detail in terms of improving customer satisfaction, generating business growth, and understanding and gaining knowledge about processes," Polito adds. "It gets more into the soft skills because the applications are in areas like finance, sales and marketing, and human resources."
Week one of the course is set for June 23 to 27; week two will be July 21 to 25; and week three will follow Aug. 18 through 22. So far, Polito says companies from several service sectors have signed up, including financial services, educational institutions, state agencies and high-tech companies that are interested in how Six Sigma relates to software processes.
The health care industry is one that Polito is interested in targeting. "We've had several calls, but nobody has signed up from health care organizations," she says. "But I believe there's a heightened interest in this sector."
Another resource is iSixSigma (www.isixsigma.com). The online forum for all things Six Sigma-related includes an introductory section, numerous articles on Six Sigma implementation, a forum, news, deployment tips and more.
"Service companies also are taking advantage of the expertise of outside consultants or hiring deployment champions who have led successful Six Sigma implementations at other organizations," adds Magno. "Organizations such as the American Society for Quality also provide an outstanding venue for networking and exchanging ideas."
About the author
Kennedy Smith is Quality Digest's associate editor
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