Value-Driven Six Sigma Requires New Tools and Views

Welcome to the Delivering Customer Value through Six Sigma column, where we will be discussing the third generation of Six Sigma, what it means to the evolution of both Lean and Six Sigma in your organization and the tools you will need to leverage Six Sigma into value-enhancing initiatives for superior business performance. We’ll be talking about the importance of a market focus for your initiatives, why customer satisfaction is the wrong metric to use for a strategic deployment of Six Sigma, why you need to shift from using Voice of the Customer (VOC) to Voice of the Market (VOM) and how to use the VOM to identify value performance gaps to be addressed with the tools of Six Sigma. But first, let’s talk about how we got to this third generation of Six Sigma, and why this evolution will finally unleash the full strategic potential of the Lean Six Sigma tool set.

Recent advances in the measurement and management of customer value have made it a powerful tool for identifying and prioritizing Six Sigma projects. No longer do Six Sigma Champions and Black Belts have to solely rely on the elimination of defects (Generation 1) or on cost reductions (Generation 2) to justify the selection of Six Sigma projects. Now the real power and potential of Six Sigma can be turned to its strategic purpose–creating and sustaining value differences that will translate into greater market share and enhanced profitability (Generation 3).

Making the transition to Six Sigma: Generation 3, however, will require applying the same sort of discipline and rigor that is so characteristic of the entire Six Sigma methodology to the measurement and management of value. This is no small task, and it will require a significant shift in perspective on the part of most Six Sigma practitioners. Additionally, Black Belts and Champions will need to understand the metrics of customer value and learn how to use those to identify and prioritize Six Sigma projects. And the metrics of customer value will direct those projects toward the effective management of people, products and processes–all key elements of competitive marketing initiatives–and the full integration of Six Sigma with competitive marketing planning.

The Shift from an Internal to an External Perspective

The focus of Six Sigma: Generation 1 was on defect reduction. One didn’t need to be a very market-focused organization to understand that defects were bad, and needed to be reduced or eliminated. The metrics associated with defects–defects per million, etc.–were all internally focused and easily quantified.

The focus of Six Sigma: Generation 2 was on cost reduction. In the words of Mikel Harry, this shift in orientation from defect reduction to cost reduction led to becoming more concerned with the quality of business than the business of quality. Despite modest, reactive efforts to bring the voice of the customer to bear on these Six Sigma projects, the focus remained an internal one. Internal process costs were easily quantified, and project success was measured in terms of cost savings. Lip service was paid to the effects of cost reductions on the organization’s capacity to create and deliver value, but little was done to actually assess those impacts.

The transition to Generation 3 will require the shift to an external perspective on the business. If Generation 3 is all about value creation and delivery (the words of Mikel Harry again), then who defines value in the first place? Whose perspective on the actual delivery of value is most relevant? We think the point here is obvious: Six Sigma practitioners are going to have to get serious about capturing and understanding the voice of the customer (VOC) and, more importantly, the voice of the Market (VOM) in order to create and deliver superior value.

VOC: Whose Voice, and How to Collect It?

Different customers define value differently. Mining customers have different quality requirements than building contractors. And even building contractors have different requirements for their backhoe loaders than for their trucks. If you want to really use your Six Sigma projects to create and deliver superior value, you’ll need to focus those on the specific critical-to-quality factors (CTQs) of your targeted market segments.

Focusing your Six Sigma initiatives on the creation and delivery of superior value will also require you to be proactive in collecting market perspectives. A recent survey of Six Sigma practitioners revealed that fully half relied upon customer complaints as their only source of customer feedback. If you’re going to be serious about moving to Generation 3 of Six Sigma, this simply won’t do. And, if you’re going to be true to your Six Sigma training, you won’t rely just on customer interviews and focus groups either. The rigor of Six Sigma demands quantification, and that requires the quantification of customer perspectives as well.

Which Metrics: Satisfaction or Value?

If the focus of Six Sigma: Generation 3 is on the creation and delivery of superior value, then why would you use the metrics of customer satisfaction? The metrics of customer value are demonstrably predictive of business performance–revenue growth, market share and profitability; the metrics of customer satisfaction are not. And this is true for two very important reasons: The metrics of satisfaction fail to account for the interaction of quality and price, and they tend to focus exclusively on your own customers. We’ll devote several columns to the metrics of customer value–what to collect, how to analyze and how to deploy.

The explicit focus of Six Sigma on value creation and delivery is long overdue. This focus will force a shift from a myopic, internal perspective defining the success of Six Sigma projects to a market perspective. It will force a shift from passively collecting customer feedback to actively and purposefully collecting the Voice of the Market (VOM). And the metrics of customer value will bring the same discipline and rigor to market perspectives on value that Six Sigma has brought to defect and cost reductions, enabling you to identify and prioritize Six Sigma projects that will create and deliver superior value to your targeted market segments.