SIX SIGMA METHODOLOGY IN HR FUNCTION: A CASE STUDY

DEPLOYMENT OF SIX SIGMA METHODOLOGY IN HUMAN RESOURCE FUNCTION: A CASE STUDY

*By Bill Wyper and Alan Harrison*

Need for Improvement in HR

Prior to the introduction of improvement initiatives, the HR function did not enjoy a desirable reputation in the company. HR was seen as reactive, uncoordinated, over-manned, and unprofessional, delivering poor, slow, and non-cost-effective services.

HR employees were working hard to keep broken and ill-defined processes in place, with a level of application that bore no resemblance to the required results. The outputs of the key HR processes were not clearly defined. This image had a demoralizing effect on HR employees as they were aware that their considerable efforts were not appreciated in the business.

Many research studies have indicated that Human Resource Management (HRM) processes have a high impact on business performance. For example, in their 10-year study of 100 UK small and medium-sized businesses, Patterson et al. (1997) concluded that "HRM practices . . . are the most powerful predictors of change in company performance".

Why Choose Six Sigma?

Comparison between Six Sigma and HRM versus traditional and personnel core values reveals that Six Sigma and HRM share the same core values of social and technical systems, as presented in Fig. 1.

Business Environment Prior to Six Sigma Deployment

The company ownership had just been changed, and the corporate worldwide integration process, including restructuring, was in its early stage. The global organization business strategy had been defined and communicated.

The newly appointed HR Director realized that the HR strategy was critical to the business survival and success. In the first meeting with HR employees, he shared goals of HR strategy, as: "Right people in the right place at the right time at the right cost".

A radical view of HR was developed and promoted, which determined that HR consists of the following six basic processes that can provide the strategy:

1. Organization environment
2. Employee development
3. Resourcing
4. Reward
5. Communication
6. Organization improvement.

Organization environment and organization improvement surround the four key processes, as presented in the model in Fig. 2, and create the climate and ability for improvement.

Process definition was followed by the definition of HR structure, roles, and responsibilities and measures of performance. An HR function improvement program was initiated based on deployment of Six Sigma methodology, benchmarking, and measurement of strategy implementation and customer results.

What is Six Sigma?

Six Sigma is a logical and methodical approach to achieving continuous improvements in areas critical to the success of any manufacturing or service-oriented business.

This process improvement methodology was developed in the 1980s in Motorola's high-volume manufacturing environment. This has contributed to the creation of the general opinion that Six Sigma is only applicable to high-volume manufacturing processes. Actually, Six Sigma is applicable to both manufacturing and service industries, and to both high- and low-volume production environments.

In the first 5 years of Six Sigma implementation, Motorola achieved savings of $US2.2 billion (Harry, 1994). Other companies followed, e.g., ABB, Allied Signal, Bombardier, General Electric.

Six Sigma starts with the application of statistical methods for translating information from customers into specifications for products or services being developed or produced. Six Sigma is a business strategy, and a philosophy of one working smarter not harder. It promotes and requires different behavior and a new way of thinking—facts-based, statistical thinking, just as predicted by H. G. Wells, who stated that: "Statistical thinking would one day be as necessary for efficient citizenship as the ability to read and write".

Six Sigma is named after the process that has six standard deviations on each side of the specification window. Such a process produces 3.4 defects per one million opportunities in the long term. The Six Sigma model of change is based on Deming's plan-do-check-act model:

* Prioritize: Which processes have the highest priority for improvement, i.e. the key processes that will enable maximum leverage and customer satisfaction?
* Measure: What is the capability of the process?
* Analyze: When and where do defects occur?
* Improve: How can Six Sigma capability be achieved? What are the vital few factors that control process results?
* Control: What controls will we put in place to sustain the gain?

Six Sigma is not a short-term, quick fix improvement project. Committed, competent, and charismatic leadership are essential to coach and guide in the implementation of this holistic, long-term continuous improvement methodology.

Improvement Team

The Six Sigma HR team was established, involving HR process owners, facilitator (Six Sigma Black Belt), and mentor (HR Director). Internal customers were identified as critical stakeholders and their participation was secured through their direct/indirect representation or through feedback communication.

The main roles of stakeholders were as follows:

* Internal customers: to participate in the specification of objectives and targets, selection of particular measures of performance which are aligned with the overall business and HR strategy and to provide feedback.
* HR process owners and participants: in addition to the same role as internal customers, to learn and deploy Six Sigma improvement tools and to develop, implement, and sustain continuous improvement of their processes that optimize measures of performance to the satisfaction of all stakeholders.

The Six Sigma Black Belt had a role to facilitate the team in Six Sigma deployment, from problem definition to sustained improvement implementation, to identify and provide necessary Six Sigma training and to facilitate all participants to deploy improvement tools in the most effective and efficient way in order to optimize processes against selected measures of performance.

The mentor's role was to define required core values and promote them by example, to lead and participate in the change, to gain commitment, to motivate, coach and build trust, and to resolve, overcome, or remove the barriers.

The HR team developed team values based on integrity, honesty, openness, reliability, mutual respect to each other, encouragement of participation and mutual support with no status barriers.

Objectives

The primary team objectives were to develop and implement HR processes and measures of performance with embedded continuous improvement, owned by HR process participants, that would deliver defined strategy, with the focus on complete internal customer satisfaction.

The secondary objectives were to increase job security and survival of HR central within the company, increase employability of HR staff, promote Six Sigma and promote the success of empowered, high-performance teams.

Methodology: Deployment of Six Sigma Process Improvement Methodology

The Six Sigma (prioritize-measure-analyze-improve-control) change model was followed with fact-based decision-making.

Prioritize

Prioritization started with identification of the service provided. Customers were identified and asked to define what they considered as important service characteristics. Process needs were identified to provide a service that satisfied the customers.

Measure

The role of measurement is to get new questions, as it is most likely that the same questions will produce the same results. As we want to change results, we need to have new questions that can indicate the direction of breakthrough improvements. Generally, measures of performance were selected that have an impact on cost, quality, throughput time, and/or human reaction. Quality function deployment was used to identify and analyze measures of performance that are aligned with customer requirements and HR strategy objectives.

The analysis started with the development of HR process maps, which effectively revealed shortcomings in the processes with immediate remedies and benefits. Communication, resourcing, rewarding, and development were selected as the first processes to be analyzed. A standard process analysis tool was applied, as it would have been applied to any manufacturing process. For example, effectiveness and efficiency of each process step were challenged by identifying value added, 'dead-ends', cycle time, rework, and defects, complexity, etc.

An example of a communication process map is presented in Fig. 3. Internal customers and other relevant stakeholders were involved in the definition of the process maps, for example interviews with employees, HR employees, and senior staff who have stakes in a particular HR process.

The criteria for measures of performance (MOPS) selection were agreed by the team, with the main objectives:

* to ensure alignment of HR and business strategic objectives;
* to define critical-to-quality measures (CTQ);
* to define critical-to-cost measures (CTX);
* to define critical-to-throughput time measures (CTT);
* valuable to the organization;
* valuable to the individual;
* easy to understand and remember.

A cost of poor quality estimate was performed. For example, costs of involvement in employment tribunals were very tangible and measurable, and could be regarded as an outcome of the redundancy process, but most other processes have less tangible costs of poor quality attached to them.

A clear definition of process scope and measures of performance that are within the control of HR did focus evaluation and improvement efforts. For example, it is hard to avoid lengthy (and perhaps unnecessary) debates of costs of poor quality of the communication process unless the scope of the communication process is clearly determined and accepted by interested stakeholders.

Internal customer satisfaction has been regarded as an important element as well. High positive correlation between improvement actions and customer satisfaction confirmed effectiveness of measures of performance.

The HR Director introduced upward appraisal from the HR team on his leadership performance to help create the necessary environment for improvement.

Analysis

All data were tested against the CHART[copyright] data test (complete-honest-accurate-relevant-timely), i.e. no data could enter the analysis stage unless they satisfied the CHART test.

Appropriate Six Sigma tools were deployed to monitor and analyze performance of processes. For example, a statistical control chart was used to monitor the quality level of communication process feedback. The lower control limit (LCL) was calculated by following general rules for statistical control charts. In this example, it means that the current process has an LCL equal to 2.8, which is below the minimum target (3.1).

The facilitator helped communication process participants to understand the meaning and relevance of the control chart and evaluate correlation between those hard facts and internal customers' perception and satisfaction levels. In this

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SIX SIGMA, INFORMATION TECHNOLOGY AND YOU: CREATING A HAPPY CUSTOMER

What is Six Sigma?

The term sigma is taken from a letter in the Greek alphabet and is used in statistics as a measure of variation.

Sigma measures the capability of a process to perform defect-free work. With Six Sigma, the common measurement index is "defects per unit," where a unit can be virtually anything -- a component part, piece of material, a line of code, or time to market. The sigma value indicates how often defects are likely to occur. As sigma increases, cost and cycle time go down while customer satisfaction goes up.

The fundamental objective of Six Sigma is customer satisfaction through continuous improvement in quality. Six Sigma is the goal, which means products and processes will experience only 3.4 defects per million opportunities or 99.999966% good. To illustrate, if you played 100 rounds of golf a year, and played at:

- 2 sigma -- you'd miss 6 putts per round

- 3 sigma -- you'd miss 1 putt per round

- 4 sigma -- you'd miss 1 putt every 9 rounds

- 5 sigma -- you'd miss 1 putt every 2.33 years

- 6 sigma -- you'd miss 1 putt every 163 years

Using the Six Sigma initiative, companies will focus on achieving specific Primary Performance Drivers. These may include resource use, technical advancement, risk management, speed to market, and technical performance. The goal is for these Primary Performance Drivers to become core competencies.

How Does Six Sigma Work?

Originally, Six Sigma was for the production floor, but some companies are implementing the process in all departments. Other initiatives for measuring quality have traditionally focused on the cost of quality, but with Six Sigma, the belief is that quality is free, in that the more you work toward zero-defect production, the happier the customer and bigger return on investment you'll have.

The Six Sigma methodology allows all processes to be reduced to a common denominator -- defects per unit and sigma. By doing so, it provides organizations with a common quality language crucial to measuring real quality gains and for benchmarking one process, product, and practice against another. Because it creates and institutionalizes this common quality language and goal, Six Sigma significantly heightens quality awareness and provides a framework for identifying and maintaining process improvements. Briefly, Six Sigma uses the following general steps:

Define. A quality team identifies a suitable project based on business objectives, customer needs, and feedback. The team identifies Critical to Quality (CTQ) characteristics and items that will have an impact on quality.

Measure. The team identifies the key internal processes that influence CTQs and measures the defects related to those processes.

Analyze. The team discovers why the defects are generated and identifies key variables.

Improve. The team confirms the key variables and quantifies their effects on the CTQs. The team identifies the maximum acceptable ranges of key variables and validates a system for measuring deviations and variables. The team modifies the process to stay within the acceptable ranges.

Control. The tools are put in place to ensure the key variables remain within the maximum acceptable ranges.

Who Leads the Six Sigma Effort?

As with any major organizational effort, to succeed, Six Sigma must have buy-in and support at the highest corporate levels. Preferably, the initiative will not only have executive-level support but also a true executive suite "champion." In a rapidly emerging trend, as companies have begun to understand and fully embrace Six Sigma, they are creating executive-level Six Sigma positions responsible for overseeing the rollout of the initiative.

At its core, though, Six Sigma is really a grassroots-level managed initiative, driven in day-to-day practice by production-level workers and managers. A key element of the methodology's success lies in the identification, training, and placement of "production-level" Six Sigma experts, called Master Black Belts (MBB), throughout the organization. The ideal MBB has a technical background, understands basic statistics, and has application experience using problem-solving and quality tools. They need to be fully capable of independently training and coaching other employees -- helping them achieve Master Black Belt status and providing strategic and tactical assistance to executive-level Six Sigma champions and management during the course of implementation.

The focus of MBB training is on the development of an in-depth understanding of the Six Sigma philosophy, theory, and application tactics. These include advanced applications in the areas of descriptive statistics, inferential statistics, non-parametric statistics, quantitative benchmarking, process control techniques, process diagnostic methods, and experiment design, as well as organizational/group dynamics that will change processes. This knowledge is acquired to facilitate breakthrough improvement in key processes. The ultimate goal is for Black Belts to accomplish the following:

- Effectively develop and lead line-of-sight or cross-functional process improvement teams;

- Work with, mentor, and advise middle management on the formulation and subsequent implementation of process improvement plans; and

- Coordinate with other Black Belts throughout the organization to further the company's Six Sigma effort. Black Belts are encouraged to use the Six Sigma methods, techniques, procedures, and tools that they have learned to achieve successes within their respective units or divisions and to share this knowledge with their peers.

What Is IT's Role in Six Sigma?

Six Sigma literally means reducing defects per million to 3.4 or 99.999966% good. There are two challenges implicit in Six Sigma. The first, obviously, is to achieve the 3.4 defects per million goal. A second, and equally important, challenge is maintaining Six Sigma once that defect goal is achieved. Information technology (IT) plays a crucial role in helping companies meet both challenges.

Heavily driven by quantitative analysis and the assumption that all processes must, to be efficient, be repeatable -- a linchpin of Six Sigma is process control and consistency. But how do you gain this consistency and create control? The answer is through the integration of sophisticated, well-tailored IT solutions into key processes.

Take, for example, the product development process. Today, an organization's product development information is often scattered across many geographically separate R&D facilities, in paper-based systems such as notebooks and files, or in isolated stand-alone computer systems that are cumbersome or impossible to use effectively. Product development knowledge that is crucial to creating a controlled and consistent product development process is inaccessible, unknown, and unleveraged by the company. Skilled R&D, marketing, and manufacturing professionals, because they are isolated from each other and unable to access and share this valuable intellectual asset store -- are forced to constantly reinvent the wheel each time they create a new formula or product. The result is an inconsistent and inefficient process prone to error.

Management has no consistent visibility into the product development process, making it difficult to problem solve, do risk analyses, and make quality, strategic decisions. Fresh, potentially profitable market opportunities go untapped -- because new products and technologies are either not consistently developed -- or may be late to market. The integrity of R&D and new product information is put at risk due to the need for manual entry of approved formula and product data.

Through IT, companies can maximize the performance of product development resources and bring them in line with Six Sigma. For example, at the beginning of a product development project, Marketing creates a "profile" for a new product that includes all the aesthetic and functional performance benefits the product must deliver. Those requirements can be linked to technical parameters and specifications stored in a centralized relational database. The database then links these parameters to formulas that have been previously developed and tested.

Rather than spending hours, or in some cases days, searching through tab notebooks and paper files, lab personnel can now instantaneously search all existing formulas for one that satisfies the marketing profile requirements. They are able to review all associated formula data and significantly advance the development process in a matter of minutes. A guidelines and restrictions database saves additional time and effort by enabling staff to ensure new formulas meet all regulatory requirements and internal corporate policies. All laboratory work adds value.

The system also makes R&D and new product specification data available enterprise-wide and provides sophisticated workflow management tools that automate approval processes and notification of key staff. This speeds the approval of new formula variations and eliminates the need to re-conduct expensive testing programs -- saving both time and money and accelerating speed-to-market.

Approved formulas and product information are accurately communicated to the manufacturing or enterprise resource planning systems by a direct interface. Costly data entry errors are prevented, and complete, accurate bills of material are easily generated. As a result, costly data entry errors that, in many cases, may not be discovered until production is underway, are prevented.

Most importantly, an IT-driven product development system creates and puts in place the crucial infrastructure needed to effectively manage, in a controllable, consistent, and repeatable manner, the complex processes associated with product development -- enabling it to be successfully integrated into the greater corporate Six Sigma effort. At the heart of this integration is a stage-gate process that companies use to monitor the product development process and make go-no-go decisions about the development of specific new products. The goal is to ensure the efficiency of the product development process at its genesis by green-lighting the bring-to-market development of only those new products with the highest odds of success.

Is Six Sigma Right for My Company?

Six Sigma is, both from an organizational and dollar standpoint, a significant investment. The evidence, thus far, strongly suggests that for large companies, such as GE, Dow, and DuPont, the benefits of Six Sigma dramatically outweigh the costs. GE has publicly stated that they expect to save more than $6 billion by way of their Six Sigma initiative. For mid-sized companies, particularly those with a healthy growth trajectory, Six Sigma's potential is also strong.

Modest-growth mid-tier companies and smaller organizations may still want to consider a Six Sigma initiative, but before doing so should do a careful cost analysis. A primary cost of Six Sigma is the personnel charge involved in identifying and