For the past two decades, Accenture managing director Mark George has led Lean Six Sigma initiatives at more than two dozen Fortune 1000 companies. The CFO, he says, played a key role in all these implementations, which aim to achieve operational speed, quality, cost reduction and customer satisfaction.
“When the finance community truly understands the significance of the business improvement programme and they make it a priority, you typically find ways to rise to the top,” explains George, who has just published a book called The Lean Six Sigma Guide to Doing More With Less
. The relationship between finance and the team entrusted with business process improvement “can make the difference between an initiative that delivers mediocre incremental methods or one that can truly drive a change in business performance.”
George spoke to CFO Innovation’s Cesar Bacani about Lean Six Sigma and other business transformation initiatives, their relevance for companies that have returned to growth, and other issues around execution, productivity and agility in the finance function and the enterprise as a whole. Excerpts:
What is Lean Six Sigma and how does it help organisations?
Six Sigma has been around for literally decades. It is very powerful in stabilising a process, improving the quality of a process, making it more repeatable, more predictable and providing certainty of outcome on those things that are most important to the customer. But while Six Sigma is required, it is not sufficient.
There’s another powerful tool set that we married to Six Sigma, and that is the Lean tool set. First and foremost, Lean accelerates process speed and also allows you much higher levels of agility and flexibility to respond to changes in the environment, changes in the landscape, changes in strategy.
But while Lean focuses on speed and cost and agility, it really doesn’t do a whole lot for the customer or for quality. Conversely, Six Sigma doesn’t do a whole lot to help you in terms of agility and speed. So we believe that the marriage of Lean and Six Sigma is vital. We believe that Lean and Six Sigma should always come together, to drive simultaneous improvement in speed, in quality, in cost and agility. So that’s just a quick discussion of the tool set.
If Lean Six Sigma has been around for decades, why are you revisiting the topic today and even writing a book about it? Don’t companies know all about it by now?
Most or all of your readers will either be very familiar with a lot of these tools and concepts because they have literally been around for decades, or most likely, already will have some sort of continuous improvement, business transformation initiative, in place. This is not news. What is news-worthy is that a lot of research indicates that the vast majority of these programmes are either a) not successful at all, or b) are not delivering on the full potential to drive value for the organisation.
The Conference Board,
[a global non-profit association of more than 1,400 companies], interviews hundreds of CEOs and division presidents on the top challenges they face. The number one thing that they come back with is excellence in execution. Productivity is also one of the top five concerns, along with speed and agility, and customer loyalty and customer focus.
What’s interesting in that research is that over 70% of the Fortune Global 1000 report that they have formal continuous improvement programmes in their business. Yet when you ask the CEO what he or she is concerned about, they’re concerned about the very issues that Lean, Six Sigma and all these methodologies are supposed to be improving.
One of the reasons why this is the case is that many organisations have put too much emphasis on tactical tools, because they’re easy to acquire. Learning the tools of Lean and learning the tools of Six Sigma is fantastically easy. You can go to the seminars, you can take the courses online, so a lot of organisations are operating under the misconception that these methodologies will drive significant value if you just train a lot of people.
[Such a] bottoms-up approach does give some degree of benefit, but it will in no way transform the organisation to the level where a CEO or CFO can honestly say: I’m seeing competitive advantage because we’re doing these programmes. For that to happen you really need to have a top-down approach, where the CFO organisation is engaged as a valued partner.
You’ve worked with many of these companies. Are there in fact instances when Lean Six Sigma had delivered on execution excellence, speed and agility, customer focus and so on?
There are dozens of examples in the new book that I just published, where organisations, in less than 18 months, are delivering 3% to 5% improvement in operating costs, putting hundreds of millions of dollars in economic profit to the bottom line.
Execution excellence should be the enabler of whatever the strategy is, whether it is to become a low-cost producer, whether it’s global expansion. Execution excellence should be the synapses between cerebrum and the muscle tissue. Execution excellence is what keeps the two together and we find that organisations, by and large, miss the opportunities to truly leverage the value that could be unlocked.
Most companies in Asia have returned to growth mode as the global recession wanes. Are Lean Six Sigma and other business transformation initiatives relevant to them?
I was working recently with one of the largest manufacturers of alcoholic spirits in the world. In one of their regions, they cannot keep up with demand even though they already have more than 20 factories there. They wanted to build three more factories that would have been a capital investment of US$450 million. We did a brief study on what they measure, how they measure productivity.
We were very surprised to find that, even though they’re one of the leaders in their space, if they improve productivity in their 20 factories by 14 basis points, they could avoid building three new factories. We found the factories were only running at about 70% capacity. You can do the maths. If we get those factories from 70% capacity to somewhere in the mid-80s, those plants could absorb the new demand and the company could avoid building three new factories.
Why was capacity just at 70%?
Because they were not vigilant in many of the things [that Lean Six Sigma is concerned about]. The processes were not robust, they were not measuring the correct metrics in terms of key performance inputs, and they had a very big challenge with empowering frontline resources, taking accountability into maintenance and a number of other things. Of course they would love to operate 99% capacity if they could, but historically they were operating in the 70% range.
This particular company, experienced as it is, was not fully exploiting the benefits of execution excellence. In the few weeks with them, we uncovered an array of projects [meant to improve productivity]. We helped prioritise those projects and now that client is executing on those improvements and is driving towards that 84%-85% productivity. They’ve put aside the plan to build new factories.
What about services? Does Lean Six Sigma work in companies that are not in manufacturing?
Absolutely. We worked with an insurance company not long ago. Their revenues were increasing by 3% to 5% per year, but their head count was increasing by over 14% per year. If you look at the two slopes, something’s wrong.
One of the big challenges they had was that they were acquiring new customers by going into new markets with new products and new offerings. They already have a Lean Six Sigma programme in place, but they were not considering the impact of the complexity of adding new offerings. They were very focused on growing revenue, but because they were not making their processes more agile, every new product, every new customer group was creating exponential demand on legacy systems and legacy processes.
Every time you add a new task or offering or activity or customer group, you’re potentially adversely affecting the productivity of every other previous offering or customer because you’re adding more demand, you’re adding more complexity. You have to ask yourself: If I’m adding any new additional requirements, any added additional complexity to the process, am I at the same time relieving [the process of] old offerings or rationalising old offerings?
You have to analyse your processes and build in greater degrees of agility and flexibility. Sometimes all that means is looking at the process, identifying the complexity hotspots and pinch points, and then adding some strategic capacity at those pinch points. Sometimes all it means is some cross-training. But many organisations don’t understand the relationship that processes, offerings and customers all have together. Many times we look at a process by itself.
The minute you add the many dimensions of all the offerings as they flow through a process, and all those customer requirements that process is required to serve, you can see why growth can actually lead to lower overall margin. You’re not growing agility and flexibility at the same pace you’re growing your offerings and your customer base.
What are the challenges that companies on the growth path face when they decide to improve business processes at the same time that they are expanding?
They should resist the temptation to encumber, to over-leverage and just buy capacity when in fact they may have spare capacity. Even when you’re in growth mode, you can find ways to rationalise capacity and then start manufacturing new products in the plant that you freed up.
One of the things we find [in Lean Six Sigma implementation] is that organisations tend to have the biggest challenge around resourcing. Once they understand what the methodology is about, once they understand the tools and the logic and the way they work, most people tend to embrace them especially if you had done a good job building the business case for change. The one area that people tend to truly have the biggest pain is in resourcing. How do we get people working on these projects? We’re already doing too much, we don’t have enough people, etc.
What you can do is rely on partners like the finance community to uncover initiatives that are already going on. You can then use [Lean Six Sigma] methodologies and structures to effectively empower the people that are already trying to drive change through the company.
Many organisations lack the strategic focus to understand based on the strategy of the company or the organisation based on where we are today, what are the few things we need to focus on? And many organisations are very fragmented when it comes to having true focus on where they should be applying their energy and their resources. And so we believe that the finance community can be a valued partner in helping provide that focus and then with that focus comes the resourcing.
That’s why you refer to the finance function as a key success factor in Lean Six Sigma implementation.
You need to understand what the value levers are, where the information is that helps us understand which offerings are creating value, which ones are destroying value. You need to partner with two organisations, IT and finance. Those two organisations end up being critical partners for [the company] to make the right decisions, to get the data, to understand where value opportunities lie and then to be able to translate those into actionable projects.
If you’re going to have a formal process improvement or Lean Six Sigma programme, you need to have a PMO [Programme Management Office] or Centre of Excellence. One member of that team should be the Money Belt. [In Six Sigma, the team leader is the Black Belt while the team members are Green Belts]. The Money Belt is the liaison between the finance function and the business process improvement team; he or she is basically the conduit.
The Money Belt provides vital finance information that allows [the PMO] to pick the right projects. No. 2, they also help validate the savings. So when someone says, “I believe that we improved the capacity at our alcohol plant from 70% to 84% and if we do that across 20 plants, we can avoid building three new factories,” that’s a pretty bold assumption. There needs to be a high degree of validation to make the cause and effect correlation between those two.
You need to have someone in the PMO or in the Centre of Excellence with a high degree of understanding of the finance function, not only to provide the information but also validate the assumptions. You want the Money Belt there to help you remain vigilant as the projects are advancing, as you collect data, to make sure that all of the initial assumptions, not just in the benefit but in the effort required, are what you thought they would be. All the Lean Six Sigma tools in the world won’t give you that if you don’t have that vital liaison between business improvement and the finance community.