Businesses who are themselves large customers must view their suppliers as extensions of their operations and continue to be actively involved in the improvement process.
The supplier management processes are defined by the quality management systems a company has implemented. For those systems to have value, the company must establish clear expectations with its suppliers in terms of technical, busi- ness, and service requirements. Supplier performance can then be measured against clearly defined goals as well as the rate of improvement.
In the case of Six Sigma initiatives, many companies have started to train people in herds, expecting miracles. But the mir- acles are not happening. I was at a company recently where I learned about the performance of its internal processes and was amazed that the company even survived as long as it had. Two days later I read in the newspaper that the company had saved hundreds of million dollars through its Six Sigma initiative. If I had asked the employees about the improvement, however, they would have said that they had not seen a penny from all the savings. To the employees, the savings appeared to exist because of the management’s number manipulation tech- niques rather than because of any actual improvement.
Each Six Sigma project at a large corporation is expected to save about $100,000 to $250,000. Some of these large corpora- tions, with the help of recognized consulting firms, have initi- ated thousands of projects. Recent feedback from one such company is that about 10 percent of these projects are pro- ducing significant savings. At another company, a CEO had committed to Six Sigma, hired a consulting company, trained all his professionals (more than a thousand), and initiated many more changes to transform the culture. Those trained Black Belts, however, are having a difficult time identifying projects for improvement. Eventually, because the strategy was poorly executed, many of these employees will leave the com- pany for a better work environment.
Larry Bossidy and Ram Charan, in their recent book Execution (2002), have identified the building blocks of exe- cution. Those building blocks include knowledge of people and the business, realism, clear goals and priorities, follow-through, rewarding the doers, employee growth, and self-awareness.
What I have seen in many corporations is that execution fails because someone failed to plan to do the job well. The impli- cation here is that the resource requirements needed to carry out the plan well are quite different from those needed to just do it. Without visualizing the end product or service, people fail to recognize how the project will be completed successfully and what will be the measures of successful completion.
Another flaw lies in understanding empowerment.
Empowerment includes education, authorization and accountability, and recognition. Businesses poorly implement
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all three aspects of empowerment. For example, we establish the expectations of employees before signing up for training.
We also give employees time off from work life by sending them to a seminar.
Training employees and expanding their skills are one of the best investments a company can make, especially when the employee can use the skills learned in the training class. There is also value in simple awareness, however; that is a short-term benefit with no significant impact on the bottom line.
The authorizing aspect of empowerment means communi- cating an assignment and then forgetting it. Authorization includes clearly communicating the expectations of the pro- ject, the expected behaviors and processes, and the account- ability for results. Just as there is a reward for excellence, there must also be a lesson learned from failures, which are not to be repeated.
In many companies, people do the work and try their best while all the while not really knowing what is expected of them.
In other words, they really do not understand what and how they are supposed to perform at work. Lack of clearly defined expectations, responsibility, and accountability leads to subopti- mal performance instead of peak performance. Among these employees indecisiveness prevails and dependence on superiors increases. Through better checks and balances, empowerment occurs in a subtle manner to achieve common objectives.
Change is routine in any business. There are no two iden- tical days, strategies, or even people in this world. Everyone must be prepared to handle change. For a group in a busi- ness, the change process must be managed based on sound building blocks.
John Kotter, in the book Leading Change (1996),has iden- tified eight stages of implementing a change. The first stage is to establish a sense of urgency. We allow too much compla- cency in the early stages of the project, assuming there is still a lot of time to complete it. Producing initial successes, like small wins, is very critical in order to understand the details of the new strategy and optimize the execution process. The ini- tial phases of the change process are overlooked. We end up having a change process that lacks urgency, doesn’t provide mentoring, and poorly communicates expectations.
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Another stumbling block is the decision-making process.
Uncertainty about doing a task is worse than doing it wrong or not doing it at all. Uncertainty creates confusion and affects others. Indecisiveness comes from a lack of information and a fear of failure. The leadership must reward innovation and risk taking, and it must also establish a culture to make decisions and move on them. That creates a dynamic and ever-changing organization, as people are willing to try different things and do not fear failure.
Well-executed strategy can be measured in terms of its performance against expectations and its timeliness. If we do a great job when the customer does not need it, that is just as bad as performing a job poorly. Every requirement has a timeliness component associated with it, and it must be given equal significance. The challenge is to define expected performance levels and establish appropriate timeliness requirements associated with them. Performance can be measured in terms of Cp, a ratio of expected to actual perfor- mance levels:
Cp
In manufacturing operations, the expected performance level is predefined tolerance, and the actual performance level is the process capability in terms of its variance.
Another measurement, Cpk, measures the shift from the target, or closeness to the limits, to estimate the reject rate. In general, Cpk can be stated as follows:
Cpk
In other words, we need to measure how much inconsistency we have in our processes compared to expected inconsistency, and how far we are from the established target performance level.
These are statistical measures and are a good set of performance measurements. The total cycle time and the attempt to reduce the total cycle time enable us to identify waste of resources and streamline processes.
Nearest limitAverage performance Inconsistency in process
Expected performance level Actual performance level
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6.S
ALES ANDD
ISTRIBUTIONJust like purchasing, sales and distribution are well-understood processes. And again, the emphasis should be on the sales of value—not on the cheapest product or service. For a company to be profitable, certain margins must be maintained. In some companies, for example, sales representatives receive a com- mission from every sale, while the companies themselves lose money in delivering the promised products and services.
The sales effort consists of identifying new business by building relationships. The intent must always be profitable growth. I have seen companies trying to be billion-dollar com- panies within a year that are starting from the ground level. I have also seen companies where new business accounts for only 5 percent of the total business, and they depend heavily on a customer or two for their success. For a company to be successful, there must be a balance between total sales and the ratio of new business.
Since the success of the sales process is viewed as get- ting new business, that is how it must be measured. The network of dealers and distributors selling your products and services must be similarly managed as a process with clear expectations for sales and margins. When a business exists just to keep people busy, it achieves exactly that result—keeping people busy—but no profits. Businesses do not last long this way.