When Lean Six Sigma Stalls
Since my first foray into Lean and Six Sigma while consulting to Motorola and Toyota during the late 90’s, many organizations have embraced the two related disciplines and realized huge gains. But many hit a wall and don’t achieve their potential. Or, as in 3M’s case a couple of years ago, they were viewed as having a negative effect on creativity and innovation.
There’s a reason for this.
In its simplest terms, Lean is focused on improving process flow while Six Sigma is focused on reducing process variation. Lean attacks waste (defined as anything not adding value), that restricts the flow of a process. Six Sigma strives to become 99.9997 percent defect free (3.4 defects per million) by getting control of processes so they produce consistent results. Maximum improvement comes from employing both, so I’ll refer to them here using a common term, Lean Six Sigma.
Lean Six Sigma has two components.
One is the technical aspect, the hard side of business. It focuses on mechanics, techniques, calculations and formulas. It requires installing processes that help get control of the business.
The second is the cultural aspect, the soft side of business. It focuses on the people-related issues such as leadership, communication, involvement, learning and incentives. It requires people to think and act differently.
I tend to think of the technical side as the “what” we must do to improve and the cultural side as the “how” we do the “what.”
In companies where Lean Six Sigma stalls, it’s almost always because the leadership has implemented the “what” in ways that are consistent with traditional top-down management, rather than in ways associated with high performance cultures. In top-down environments, employees may view Lean Six Sigma as “another management program du jour” with more work attached to it rather than a different way of leading the business.
What causes Lean Six Sigma to stall?
Here’s an example. An important part of Lean Six Sigma is a visual daily management system that enables people to “see at a glance” how they’re doing against specific goals and what might be impeding progress. While it’s a key part of a communication process (the technical aspect), it’s really a critical component of aligning people who are learning together to add more value for the customer (the cultural aspect).
Working with a client recently to generate more from the company’s Lean Six Sigma effort, we observed that their visual management system display was “by the book.” Scoreboards were nicely designed, updated regularly and relatively well-positioned throughout the organization. The “what” was impeccable.
Reality hit when we met with employees. People knew the scoreboards existed but didn’t understand what they were for, why they were there, and had no idea what some of the numbers meant to the company or to them.
Managers had installed scoreboards but had not involved people in the process of designing, testing, distributing or updating the boards. Employees told us the visual management system was part of “management’s program.” As a result, the company wasn’t getting anywhere near the results they could have been. The technical and cultural aspects—the “what” and “how”—had not been blended.
Why does this happen so often?
Installing techniques and tools is easier than building relationships where human idiosyncrasies can wend their way into the process. To understand the technical side of Lean Six Sigma, you can pick up a book and inspect diagrams and sketches that show you in vivid detail what run charts and cell configurations should look like. You can then take those sketches, move your machines and work stations around and voila, you have the hard side of Lean Six Sigma.
But few books are that graphic when it comes to helping leaders manage cultures of contradictions where people, not machines are at the center of the organization and where mindsets, not toolsets drive the culture. “This is nothing more than soft, touchy-feely values. C’mon, we don’t have time for that. We’ve got to get the work out.”
The fact is both are important–the hard and the soft.
In my experience with companies trying to make the transition, managing the soft is a lot harder than managing the hard. But when you master the blend of the two, you can create a workplace world where magic happens–where the passion and enthusiasm of the team consumes the place and the gains soar to unheard of heights.
Myths About Pay—Including Bonuses
The recent hoopla over management bonuses clarified at least one thing: a lot of people don’t understand the basics of pay-related issues. This includes many public officials, reporters, people who design bonus plans and a small group of one of my client’s employees in central Pennsylvania.
In a meeting two weeks ago, one of the women in the group wondered aloud why she and her fellow employees couldn’t get a bonus this year, “as in a little something extra for coming to work every day,” she added.
People should know how their pay is determined. And plenty of evidence suggests that a primary reason people are dissatisfied with their pay or a company’s pay plan is that it’s either poorly designed, administered or communicated—or some of each. Understanding that the pay plan has integrity is the most critical part of acceptance.
Here’s my take on explaining bonuses.
Pay plans represent one way a company communicates what it values to its employees, customers and ultimately its shareholders. If you pay people for their contributions to the enterprise, you’re paying for performance. You’re paying for value.
Total cash compensation can consist of a fixed amount, such as base pay or salary, and a variable amount, which can be paid as performance bonuses, gain sharing, or a hybrid of profit sharing and long-term cash incentives. The fixed amount is “guaranteed,” assuming you don’t commit a heinous crime. For purposes of simplicity, let’s call the variable amount a “bonus.”
The variable amount is at risk, meaning to earn it you have to deliver something above and beyond what the fixed amount pays. This recognizes that if the reward is high enough, people will take risks and/or work smarter or harder to create that reward.
In a perfect world, the base pay coupled with the bonus payout should always represent an acceptable percentage of the overall gain that’s created. If it’s not, you’re apt to go out of business paying people for more than they actually created. Sound familiar?
Back to the discussion in Pennsylvania.
After explaining how bonuses worked, I asked if any of the people seated around the table would be willing to forfeit a percentage of their pay and put it at risk. Say, $4 of their $12 hourly base pay.
“No, of course not,” they replied. “We think it should be on top of the $12.”
“But,” I asked, “if $12 an hour is the market price for your services, then adding another $4 to your costs would mean you’re overpaying people. If your competitors are paying market price and you’re paying above market price, but your products and their products are essentially the same, what could happen?”
“Then everyone would want to come here where the pay is better,” one young man suggested.
“That might be true for a while,” another person said. “But we either would have to increase our price to cover our increased costs or we would have to reduce our profits, which would affect our profit sharing.”
Someone spoke up, “If we increased our price, customers would go to our competition. If we reduced our profits, we get less in the end. How about if we stay right where we are?”
When people of the same basic intelligence get the same information, they’re apt to come to similar conclusions–about pay issues or anything else.
Suggested Reading from Johnson & Johnson
Craig Rothenberg, vice president of corporate communication at J&J, invited me and a few other consultants to join his smart, high-energy team as they built their three-year strategic plan.
Craig suggested before the meeting that we all read “Can You Say What Your Strategy Is?” It appeared in Harvard Business Review’s April, 2008 issue. I commend the article to every business leader, beginning with the many CEO’s who read this Report regularly.
I’m particularly sensitive to the inside strategy folks we work with who have to put up with the mumbo-jumbo blah, blah, blah language put into business strategies that no one can figure out, including the people who have to implement those strategies.
Jim Shaffer