Six Sigma: What it is & How it works [2023]

Hi there! Have you heard about the Six Sigma methodology but wanted to learn more about what it is, why it matters, and how it really works? As a data analyst who has worked on Six Sigma projects, let me provide a detailed overview to help demystify it for you.

What is Six Sigma?

Six Sigma is all about reducing defects and variability in business processes. It uses rigorous data analysis and statistical tools to achieve stable, predictable results.

The name comes from the Greek letter sigma σ which represents standard deviation in statistics. By keeping processes within +/- 6 sigma from the mean, defects are kept below 3.4 issues per million opportunities.

Here‘s a chart to put that Six Sigma level in perspective:

At Six Sigma capability, processes are so well controlled that products are virtually defect-free. For example:

• Amazon ships 1.2 defective orders per million packages
• Top banks detect 3.1 fraudulent transactions per million
• Toyota produces just 2 faulty auto parts per million

So in a nutshell, Six Sigma minimizes process variation to limit defects to a negligible amount. This drives incredible gains in quality and efficiency.

A Bit of History

Let‘s go back to the 1980s when Six Sigma originated at Motorola.

Back then, the defect rate for world-class quality was only 3,000-4,000 issues per million opportunities. The Motorola team realized that wasn‘t good enough for complex electronics manufacturing.

They pioneered a new target of no more than 3.4 defects per million, representing Six Sigma capability. After implementing this methodology, Motorola saved over $16 billion in the first 12 years.

Other pioneers like GE and Allied Signal went on to popularize Six Sigma beyond just manufacturing. In fact, GE‘s CEO Jack Welch made it central to his business strategy in 1995. By 2000, two-thirds of Fortune 500 companies had adopted Six Sigma practices.

Today, Six Sigma is a proven quality system used across manufacturing, healthcare, banking, government and more. Over 1.2 million professionals have received formal Six Sigma certifications and training worldwide.

Why It Still Matters Today

With so many new process improvement approaches out there, you might wonder if Six Sigma is still relevant today. I would argue it is more relevant than ever for several reasons:

1. Complexity demands rigorous improvement

As business processes grow more complex globally, the risks and costs of defects increase exponentially. Minor mistakes can lead to huge issues.

Six Sigma provides a rigorous data-driven approach to uncovering the root causes behind defects and variability. Its statistical tools work even in environments with many interlinked variables.

For example, an oil and gas company was struggling with equipment failures that caused safety risks and tens of millions in losses annually. By using Six Sigma analysis, they identified design flaws and corrected them to reduce failure rates over 60%.

2. Customer expectations keep rising

Today‘s consumers have little tolerance for mistakes or quality issues. They demand near perfect products and experiences.

Six Sigma equips companies to catch defects before they reach the customer. Even one negative experience can destroy brand loyalty given rising expectations.

For instance, a major healthcare provider applied Six Sigma to improve the speed and accuracy of appointment scheduling. This reduced patient wait times over 30% and improved satisfaction scores.

3. Data analytics makes it more powerful

The explosive growth in data and analytics capabilities makes Six Sigma even more powerful. By tapping into rich operations data, companies can achieve new levels of visibility and control.

For example, a Six Sigma effort at a retail bank used customer transaction data to identify process bottlenecks causing unacceptable wait times in branches. By optimizing staffing and queues, they accelerated service by 15%.

4. Standardization enables efficiency

Standardizing processes is key to achieving efficiency and scale. Six Sigma provides the tools to remove deviations and inconsistencies that prevent standardization.

This consistency allows companies to deliver exceptional quality consistently worldwide. For instance, McDonald‘s relies heavily on Six Sigma practices to ensure uniform customer experience across 120+ countries.

5. Change demands continuous improvement

Six Sigma instills a mindset of continuous improvement driven by data – not gut feel. In today‘s fast changing world, even winners have to keep raising the bar.

For example, prominent hedge fund Bridgewater Associates attributes much of its success to Six Sigma practices. It continually eliminates errors and defects to make investment decisions as rational as possible.

So while new approaches exist, Six Sigma still powers operational excellence through its rigorous, data-driven philosophy.

How Six Sigma Works

Six Sigma follows a five-step structured improvement roadmap called DMAIC:

Define the problem, goals, scope
Measure process performance
Analyze root causes
Improve by eliminating defects
Control future performance

Let‘s explore what each step entails:

Define

First, the issue is clearly defined including the customer experience and business objectives. Metrics are aligned to goals. Scope, timeline, team roles etc. are finalized.

For example, call center leadership noticed excessive wait times as a top customer complaint. So they launched a Six Sigma effort to reduce the average wait time.

Measure

After defining the problem, performance data is collected to establish a baseline. Data integrity is ensured to support reliable analysis.

In our call center example, the team found the average wait time was 6 minutes against a goal of 2 minutes. Only 50% of calls were answered within 1 minute.

Analyze

The toughest part is finding the vital few factors causing the business issue. Statistical tools help isolate and test possible root causes.

Analysis showed call volume peaks were not aligned to staff shifts. Also, agents averaged 4 minutes per call against a goal of 2 minutes.

Improve

Once key drivers are found, solutions are implemented to eliminate root causes. Improvements are tested to pick the optimal fix.

Our call center rescheduled staff to match call volumes. They also trained agents to resolve inquiries faster. These changes cut wait times over 50%.

Control

Finally, controls and monitoring are implemented to lock in the gains. The improved process is standardized to ensure consistency.

Our call center added real-time alerts on delays and a weekly audit of random calls. This avoided backsliding.

While DMAIC improves existing processes, DMADV is used to design new products and processes that meet customer needs.

Both follow a data-driven scientific approach. Specially trained experts called Green Belts and Black Belts lead these projects.

So in a nutshell, Six Sigma provides a proven step-by-step recipe to identify, analyze and eliminate the root causes behind business problems.

Have We Reached Peak Six Sigma?

You may have noticed mentions of Six Sigma have declined from its heyday in the early 2000s. Does this mean it‘s peaked and dying out?

Data Source: Google Trends

I would argue the core principles and tools remain highly relevant, but poor execution has hindered results:

• The low hanging fruit is gone: After decades of use, companies have already fixed the most obvious issues. Further gains require tackling complex nuanced problems.
• Complacency has set in: For many companies, Six Sigma has become a checkbox rather than a passion. Belts no longer apply the rigor and persistence needed.
• Innovation is difficult to measure: Six Sigma looks at historical data and existing metrics. Radical innovation that changes the metrics completely does not fit neatly.
• Lack of skills: With high Six Sigma certification requirements and an aging workforce, many companies struggle to find qualified practitioners able to lead projects well.
• Diminishing returns: Like any improvement approach, early Six Sigma gains tend to be largest as major issues are fixed. Over time, returns diminish as problems get more niche.

However, when implemented rigorously, Six Sigma continues to drive tremendous benefits. Between 2000 to 2010, Samsung reported over $10 billion in savings thanks to Six Sigma programs. So the method remains sound, even if execution has faltered.

Watch Out for These Six Sigma Myths

Let‘s bust some common misconceptions about Six Sigma:

Myth: It is too expensive and takes too long
Reality: Proper scoping and project selection ensures affordable, quick wins.

Myth: Statistical tools are complex and require advanced math
Reality: Clear visual tools make analysis accessible to non-experts.

Myth: It stifles creativity and innovation
Reality: DMAIC improves existing processes. DMADV designs innovative new solutions.

Myth: Six Sigma failed at companies like GE and Motorola
Reality: It delivered billions before bad execution caused problems.

Myth: Lean and Six Sigma conflict with each other
Reality: Together they complement each other perfectly for process velocity and quality.

Myth: Six Sigma only works in manufacturing
Reality: It applies equally to services, healthcare, government, and more.

The key is to avoid these pitfalls with careful, flexible implementation tailored to the organization.

Potential Shortcomings to Keep in Mind

Of course, no one approach can address all needs perfectly. Here are some key drawbacks to watch out for:

• Rigid thinking: With intense focus on metrics and statistics, creativity and individual judgement can be stifled sometimes. A balance is needed.
• Siloed efforts: Individual process improvements may sub-optimize the whole value stream and enterprise objectives like agility. An enterprise view connecting projects is key.
• Loss of ownership: Since Green Belts drive improvements, employees not involved can become detached and reliant on "experts" to fix processes.
• Narrow focus: Myopic focus on quality and cost reduction metrics can lead to careless optimization and loss of flexibility.
• Stifles entrepreneurial cultures: Some innovative cultures embrace taking risks and failing fast. Six Sigma‘s pursuit of perfection may conflict.

Thus, organizations must blend Six Sigma with divergent thinking and human-centered design. Used judiciously rather than dogmatically, it remains extremely relevant.

Digital Advancements to Enhance Six Sigma

While the core tools remain the same, digital capabilities can dramatically enhance Six Sigma effectiveness:

AI-driven root cause analysis – Machine learning rapidly analyzes massive data to pinpoint potential failure points. For example, Sigma Computing offers AI-powered business intelligence that automates discovery of insights.

Real-time monitoring – With Internet of Things sensors and analytics, process metrics can be monitored in real-time to catch issues as they arise.

Big data analytics – Six Sigma teams can tap into vastly larger, messier datasets using cloud analytics tools to uncover correlations.

Digital twin simulation – Proposed improvements can be simulated and tested on process replicas before actual implementation.

Collaborative robots – Intelligent ‘cobots‘ like Universal Robots remove human variability and error from processes. They also collect performance data.

Customer journey analytics – Voice of Customer data from experience management platforms like Medallia provides the outside-in view to complement process metrics.

So in summary, emerging digital capabilities can dramatically enhance Six Sigma effectiveness for modern businesses. But human expertise and proper implementation remains equally critical for success.

The Verdict: Is Six Sigma Still Worth Investing In?

After understanding all aspects of Six Sigma – its past, present, how it works, benefits and drawbacks – what‘s the verdict? Is it still worth adopting today?

My take:

For organizations seeking operational excellence, Six Sigma remains one of the most powerful methodologies – perhaps THE most powerful.

Properly implemented, it provides proven techniques to:

• Reduce defects and errors to world-class levels
• Minimize delays, variability and inconsistency
• Rapidly improve product and service quality
• Drive consistent execution across the enterprise
• Promote data-driven decisions vs. guesswork
• Develop analytical, problem-solving skills in employees

However, balancing Six Sigma with flexibility and innovation capabilities is key. Used in isolation or dogmatically, it can certainly backfire.

Targeted judiciously on high-impact business problems, Six Sigma still delivers immense value. It remains essential to any business striving for world-class levels of quality, efficiency and performance.

So what do you think? Does this help explain what Six Sigma is all about? How it can transform organizations? And how to avoid common pitfalls? Would love to hear your thoughts!