Driving Operation Innovation Using Lean Six Sigma

IBM Global Business Services

IBM Institute for Business Value

Strategy and Change

Driving
operational
innovation using
Lean Six Sigma

IBM Institute for Business Value
IBM Global Business Services, through the IBM Institute for Business Value,
develops fact-based strategic insights for senior business executives around critical
industry-specific and cross-industry issues. This executive brief is based on an
in-depth study by the Institute’s research team. It is part of an ongoing commitment
by IBM Global Business Services to provide analysis and viewpoints that help
companies realize business value. You may contact the authors or send an e-mail to
iibv@us.ibm.com for more information.

Driving operational innovation using
Lean Six Sigma
By George Byrne, Dave Lubowe and Amy Blitz

CEOs today face mounting pressures to innovate; yet finding ways to actually
enable innovation remains a challenge for many. Top companies with
successful track records of innovation, however, have discovered one possible
solution. Lean Six Sigma, a relatively well-known approach for achieving
operational excellence, can, as it turns out, do more than simply improve
processes. It can help leaders discover innovation opportunities far beyond
operations, enhance financial performance and create organizations that have
an inherent inclination toward innovation.

In today’s marketplace, increased globaliza- They have implemented operations strategies
tion, constant technological advances and based on a relatively well-known management
other competitive pressures are accelerating philosophy which we will call here Lean Six
the pace of change CEOs face. The resulting Sigma. It is also sometimes referred to as Six
opportunities and threats have placed innova- Sigma Lean. And at some of the companies
tion near the top of CEOs’ priority lists. And we studied, leaders still label their initiatives
yet, for many, innovation success has been as Six Sigma or 6 Sigma even though, from
sporadic at best. our perspective, they have moved beyond Six
Sigma’s original definition and scope by incor-
Our research and experience shows that the porating Lean features as well.
right operations strategy can help companies
make innovation a regular occurrence. Such Regardless of the term, the companies that
a strategy, if focused not just on efficiency have used this overall approach have estab-
but also on growth, can serve as a founda- lished disciplined working environments
tion for innovation throughout an organization focused on customer needs, detailed data
– far beyond operations to products, services, analysis and facts, not theories. The results are
markets and even a company’s underlying remarkable:
business model. Simply put, this sort of strategy • At Caterpillar, stagnant revenue growth
is not about doing things better; it is about prompted the company to undertake a
doing better things. massive transformation in January 2001.
As part of our analysis, we examined several Through its 6 Sigma initiative, the company
leading companies that are doing just that. developed a strategic vision that outlined a

Driving operational innovation using Lean Six Sigma

roadmap for change based on fact-based • An innovation vision based on factual
analysis. Caterpillar’s initiative also led to customer and market insights – Leaders
product innovations like its phenomenally crafted a compelling vision based on a keen
successful low-emissions diesel engine and understanding of market demands and their
to redesigned processes including a stream- own capabilities. Their objectives were explicit
lined supply chain. By 2005, revenues had and few in number to enable focus.
grown by 80 percent. • Leadership committed to perpetual innova-
• Coddled by decades of government protec- tion – CEOs and business unit leaders played
tion, Korean steelmaker POSCO faced fierce active, enthusiastic roles. They were clearly
competition as it privatized in 2000. But with committed to making an indelible organi-
the help of Lean Six Sigma, the company zational change, not just launching another
staged a dramatic turnaround. This approach initiative.
helped POSCO escape its low-margin • Alignment across the extended enterprise
business as a regional low-cost provider and – The strategic innovation vision was used as
elevate itself to the global stage as a premier a unifying force to align disparate business
provider of innovative steel products and units and influence supplier and customer
services. Fact-based analysis surfaced high- relationships.
potential markets and unmet needs that led
to differentiated products with entirely new • Organizational capabilities that made innova-
applications. In just a few short years as a tion habitual – At the outset, these companies’
private enterprise, POSCO has become the Lean Six Sigma initiatives involved an intense
world’s third largest steelmaker. period of training, dedicated resources and
an initial bubble of projects to jumpstart their
• In a newly deregulated market, ScottishPower transformation. But over time, as the mindset
was losing customers who now had the became more mainstream, these companies
power to choose their electricity provider. established enduring processes that helped
Determined to reverse the trend, the drive continuous innovation throughout the
company used a Lean Six Sigma approach organization.
to reinvent its customer service function.
By innovating based on facts not assump- Although CEOs might instinctively think of
tions, the company was able to halt a steady management approaches such as Lean
decline in its customer base and increase Six Sigma in terms of process improvement
market share by 60 percent in just four years. and cost reduction, our research suggests
that this perspective is shortsighted. The
As we analyzed the companies that used Lean successful companies we studied acted in
Six Sigma to achieve broad-based innovation a more visionary manner. They deliberately
and superior financial performance, we identi- expanded the scope of Lean Six Sigma, using
fied several distinguishing characteristics of their it to surface significant innovation opportunities
approaches that set them apart from those with that impacted much more than their operations.
a traditional operational improvement mindset. And in the process, they were able to improve
Successful innovators had: business performance and establish organi-
zations that now have an inherent inclination
toward innovation.


Driving operational innovation using
Lean Six Sigma
Lean Six Sigma: A foundation for As we analyzed the impact of operations
innovation strategy on overall business performance,
Around the world, CEOs are searching for we noticed a similar pattern. We found that
blockbuster products and services, making a company’s operations strategy is often an
major operational changes, and even rede- integral part of a more fundamental enterprise
signing their fundamental business models. transformation – one that impacts not only
This trend toward broad-based innovation how a company works, but also its products
was evident in the 2006 IBM Global CEO and services and its overall business model.
Study. Based on in-depth conversations Innovation in one area drives innovation in
with 765 corporate and government leaders another.
worldwide, the study found that CEOs’ innova-
The leading companies that we examined
tion priorities were spread across all of these
in our research were intentionally pursuing
different dimensions (see Figure 1). And yet
this much larger innovation agenda. They
CEOs ranked an “unsupportive culture and
aimed beyond operational improvement to
climate” as their biggest obstacle to innova-
1
innovation throughout the enterprise. Using
tion success. Their organizations lacked
Lean Six Sigma, they produced breakthrough
the processes, discipline and organizational
innovations that had profound impacts on
mindset to foster meaningful innovation on a
their business performance. But perhaps
continuous basis.
more importantly, they obliterated CEOs’
biggest innovation obstacle by creating an
FIGURE 1. organizational climate in which innovation has
CEOs’ innovation emphasis. become instinctive.
(Percent of emphasis allocated to each innovation type)

50 The evolution of the Lean Six Sigma
approach
40 As its name suggests, Lean Six Sigma is a
combination of Lean methods and Six Sigma
0
approaches. It is also sometimes referred
to as Six Sigma Lean. And at some of the
companies we studied, leaders still label
0
their initiatives as Six Sigma or 6 Sigma even
though, from our perspective, they have moved
0
beyond Six Sigma’s original definition and
scope by incorporating Lean features as well.
0
Products/ Operations Business
services/markets model
Source: “Expanding the innovation horizon: The Global CEO Study
2006.” IBM Global Business Services. March 2006.


The variations in naming are not surprising, In the past, companies used Lean Six Sigma
given the approach’s evolution. Lean Six Sigma primarily for operational improvement – refining
builds on the knowledge, methods and tools existing processes to reduce costs, improve
derived from decades of operational improve- performance and provide better customer
ment research and implementation (see Figure value. However, dramatic upheavals in the
2). Lean approaches focus on reducing cost competitive marketplace are prompting
through process optimization. Six Sigma is business change on a much more massive
about meeting customer requirements and scale. Companies must innovate, not just
stakeholder expectations, and improving improve.
quality by measuring and eliminating defects.
The Lean Six Sigma approach draws on the Despite its heritage, Lean Six Sigma is well-
philosophies, principles and tools of both (see suited for this step change in target and
Figure 3). scope. The leading companies we studied are
proving that the Lean Six Sigma approach has
However, Lean Six Sigma’s goal is growth, not applications far beyond process improvement;
just cost-cutting. Its aim is effectiveness, not they are using it to innovate in all areas of their
just efficiency. In this way, a Lean Six Sigma businesses – their operations, their products
approach drives organizations not just to do and services and even their business models.
things better but to do better things.

FIGURE 2.
Lean Six Sigma builds on the practical lessons learned from previous eras of operational improvement.

Just in Time (1980s) Lean Production (1990s)
(Kanbans, Pull systems, (“Machine that changed the world,”
Visual management) “Lean Thinking,” Value stream mapping)

Total Quality Management (1980s) Business Process Reengineering
(Statistical Process Control, Quality (1990s)
Deming/ Ohno circles, Kaizen, Culture change/bench- (Downsizing, “To be” processes,
Juran marking, Baldridge, ISO9000) Process owners)

Lean Six Sigma (2000s)
(1960s/1970s)
(1950s) (Toyota
(4 production Motorola – Six Sigma
points, system) (1980s)
Statistical
quality) GE (1980s-1990s)
Six Sigma (Applied method for growth and productivity)
Intensity of change

Change Acceleration Process (CAP) (Change method and tools)
Customer Partnering (GE Toolkit, Customer CAP)
Process Improvement (New Product Introduction, Supply chain, Suppliers)
Best Practices (Benchmarking, Across and outside of GE, Ending Not
Invented Here)
Work-out (Kaizen type, Cross functional teams, Boundarylessness, Values)
Strategy (Number and Number in each business, Fix, close or sell)

Source: IBM Global Business Services analysis.

4 IBM Global Business Services

FIGURE 3.
Lean Six Sigma incorporates, and deploys, the key methods, tools and techniques of its predecessors.

Lean focuses on waste elimination in existing processes.

Analyze Plan Focus Deliver Improve
opportunity improvement improvement performance performance

Six Sigma focuses on Continuous Process Improvement (DMAIC) to reduce variation in existing processes.

Define Measure Analyze Improve Control
opportunity performance opportunity performance performance

Six Sigma also focuses on New Process Design/Complete Redesign (DMEDI) for wholesale redesign of
processes as well as new products and services.

Although Lean Six Sigma Define Measure Explore Develop Implement
opportunity requirements solutions solutions solutions
has traditionally been
used for operational
improvement, leading
companies have
demonstrated its Because of its core tenets – analysis based Innovation has legs at Caterpillar
potential for driving on facts and direct customer input – Lean Six In 2000, Caterpillar found itself stalled: four
Sigma is equipped to facilitate a much broader years of flat revenues and intense competition
broad-based innovation.
transformation, helping a company rethink its that showed no signs of faltering. Determined
entire business and create a more innovative to regain its industry leadership position and
climate. jumpstart growth, the company deployed a
Lean Six Sigma approach, or what they refer
The concept in action to as “6 Sigma,” in January 2001. Caterpillar
In virtually every industry and across the wanted to revolutionize not only the way its
public sector, the Lean Six Sigma approach employees worked, but also their mindsets.
has served as a catalyst for broad-scale inno- The goal: continuous, customer-driven innova-
vation. Though the organizations we studied tion. The magnitude of the planned transition
vary in terms of size and mission, they have was staggering: 27 separate business units
all realized substantial benefits – even earning and over 72,000 employees located on six
positive responses from the sometimes fickle continents who spoke multiple languages.
financial markets. Their experiences provide
valuable lessons for firms that want to cultivate
an innovative mindset.

5 Driving operational innovation using Lean Six Sigma

The launch began with a nine-month training to engineer, employees and clients began
period for 4,200 employees. These trained working collaboratively to pinpoint problems
professionals – with varied backgrounds from and develop solutions, steadily building closer
engineering to finance – then each led their relationships.
own projects and served as mentors to the
rest of the organization. Through alliances it built with Canadian
oil sands mining customers, for example,
Perhaps the most far-reaching transformation Caterpillar learned about the nuances
came from applying 6 Sigma approaches to involved in extracting oil from sand. These
strategy development. Using these disciplines application-specific insights led the company
to collect and analyze hard data on customers, to develop a completely different kind of
markets and Caterpillar’s capabilities, the CEO mining truck. Instead of offering a “one-
and a strategic planning committee crafted size-fits-all” model, its new mining truck is
a detailed vision for Caterpillar in 2020. The available in five unique configurations – each
vision was subdivided into three five-year suited to a particular type of terrain and haul
plans. The immediate plan set out specific, profile. Now, customers in extremely cost-
measurable targets for market position, quality, sensitive industries, such as oil sands mining,
order-to-delivery performance, safety and can select the configuration that offers the
other critical success factors. The plan was best blend of price and productivity.
companywide, spanning all lines of business
and cascading down through the organiza- “You can use 6 Sigma for anything; we
tion. Through the rigor and discipline enforced used it for Sarbanes-Oxley compliance.
by the initiative, the entire company aligned When people talk about SOX, they don’t
behind the same specific objectives. know how much it costs them – but we
“It is always about control. 6 Sigma do… because we tracked it.”
– Dave Burritt, Vice President, Chief Financial
forces you to have the processes and 3
Officer, Caterpillar
the people accountable to make sure
the results are enduring.” Teams also developed a tremendously
– Dave Burritt, Vice President, Chief Financial successful diesel engine breakthrough that set
2
Officer, Caterpillar Caterpillar apart from competitors. The ACERT®
Technology significantly reduces emissions
The initial 6 Sigma launch spawned over 1,100 and offers higher fuel efficiency, saving
projects – some generated subtle (though customers money and allowing the company
financially beneficial) operational improve- to command premium pricing.
ments, while others resulted in innovative
new products and radically different ways of This approach also led to major operational
working. One of the first process changes changes, particularly in Caterpillar’s supply
involved revamping RD to include more chain. Caterpillar has, in its own words,
direct interaction with the customer. Engineer “systematically de-bottlenecked” its order-
to-delivery process. For example, teams


redesigned the production scheduling process Key takeaway: Strong leadership yields
at Caterpillar manufacturing facilities, which speed and strategic alignment
cut lead times by more than 50 percent. Applying Lean Six Sigma to strategy development
They have also reduced delays caused by sends a clear message about how serious
supplier-sourced pumps. Historically, if a pump management teams are about making an enduring
failed during initial testing, Caterpillar had change.
to take time to fix the pump or wait for the In the case of Caterpillar, strong leadership
supplier to send someone to repair it. Now, prompted strong participation, unifying
based on suggestions from the 6 Sigma team, disparate organizational units around common
the supplier has its own pump test cell and strategic goals. Teams saw how their efforts were
breaks in new pumps before sending them linked and contributed to the whole. Results were
to Caterpillar plants. And the supplier faces measurable and visible to all. While its Sigma
a financial penalty if it fails to meet specific initiative helped make the changes enduring,
quality goals. strong leadership and broad participation made
them happen fast. Caterpillar recouped its initial
It takes strong Overall, the results from Caterpillar’s initia-
investment in less than a year.
tive have been phenomenal. Caterpillar
leadership to create
launched 6 Sigma globally and delivered And its story is not an isolated case. As part of
enduring change that benefits that surpassed implementation costs our research, we analyzed the performance of
produces continual in the first year. Since then, it has become a many of our past clients to determine the impact
innovation. critical component of Caterpillar’s success. that a company’s deployment model and level
The rigor and discipline have enabled the of commitment had on overall results. Although
record profits of the past few years and most demonstrated solid results from their Lean
are helping the company achieve its 2010 Six Sigma programs, those with a high degree
strategic goals. According to Caterpillar Vice of CEO commitment and a top-down corporate
President and CFO Dave Burritt, “Caterpillar’s deployment approach experienced a much faster
competitiveness has improved...6 Sigma transformation.
has been applied to increase our percent of
industry in all of our principal lines of business. In the lackluster steel industry,
The machine, the engine, and financial POSCO shines
products businesses have all benefited from After decades of government ownership, the
the rigor of 6 Sigma. Without question, we Korean steel company POSCO was privatized
are in the best of times at Caterpillar, and the in 2000. Long sheltered from market forces,
improvements would have been much less the company now faced serious competitive
4
without 6 Sigma.” pressures. In particular, its low-cost competi-
tive advantage was evaporating as cheaper
competitors emerged from other regions,
notably China. Its limited regional footprint
also left the company exposed to a declining
Korean economy.


“With increasing globalization, every As the POSCO management team developed
steel company must innovate to prosper its strategy for becoming a value-added rather
than a low-cost steel provider, it again relied
and compete in this new environment.
on Lean Six Sigma. Using the engineering
POSCO was in a difficult situation team’s input on customer needs, senior
– you might almost say a crisis – a few management analyzed market potential and
years ago as we faced this new global the company’s capabilities in those product
competitive threat. As a management and service areas. The optimal strategy
team, we felt that Six Sigma was a good seemed to revolve around two high-potential
markets: shipping and automotive. Senior
vehicle to change all employees’ way
managers then aligned the entire company
of thinking, current working styles and
behind these strategic priorities. RD concen-
mind-sets.” trated on these two areas, and pet projects
5
– Ku-taek Lee, Chairman and CEO, POSCO that did not contribute to the value-added
vision were cancelled. (It’s important to note
Undaunted, POSCO was determined to
that these priorities were not static. With
remake itself, shifting from a local, low-cost
Lean Six Sigma helping POSCO maintain a
producer to a global, value-added steel
perpetual watch over customer needs and
maker. To do so, its entire way of working
market opportunities, the company has since
had to change. The company made a funda-
added a construction vertical to the mix.)
mental commitment to use a Lean Six Sigma
approach to transform its business and The business model shift to focus on the
create a market-driven mindset throughout shipping and automotive industries led to
6
the enterprise. major product innovations. For example, the
company invented steel that remains rust-free
Initially, RD resisted the Lean Six Sigma
in salt water, creating significant opportunities
approach, feeling it was too Western to be
in shipping and floating dock construction.
practical for an Asian company. But after
Using Lean Six Sigma to drive interactions
special training sessions, designed with
with global automakers, POSCO developed 21
these engineers in mind, opinions began to
varieties of high-grade steel designed to meet
shift. Instead of sending marketing or sales-
special industry needs, such as coated steel
people to research customer needs, senior
that paint adheres to more easily.
management sent engineers. This empowered
the people who were making the pivotal Lean Six Sigma analysis soon led to another
design decisions to talk directly with key realization: in order to expand its products
customers and make recommendations. For and markets, POSCO would have to expand
the engineers, this approach provided oppor- its operations as well. Although China is
tunities to learn directly from customers. The the world’s biggest producer of steel (and
in-depth client discussions helped POSCO therefore a competitive threat), the expanding
engineers pinpoint several product areas gap between its own production capabilities
where customers were looking for more inno- and rapidly rising demand provided a growth
vative solutions.


opportunity for POSCO. To fill this gap, POSCO As the Lean Six Sigma way of thinking
has orchestrated 14 joint ventures and invested spread across POSCO, virtually no area of
US$780 million in China. Just a decade ago, the business was off-limits. The company was
7
that investment figure was zero. equally comfortable (and confident) applying
the approach to corporate strategy and
Using Lean Six Sigma’s relentless focus on budgeting as manufacturing and logistics.
Innovation begets customer demands, POSCO developed
innovation; what starts process and IT innovations that dramatically Through its Lean Six Sigma efforts, POSCO
as a seemingly minor reduced finished steel inventories and cut lead has produced over US$1 billion in financial
8
times from 28 to just 14 days by 2003. At the gains to date, including strong savings and
operational change can
same time, however, the company’s focus on record sales volumes. Even in 2001, the first
result in new products customer needs sometimes created additional year of its Lean Six Sigma initiative, when
or even an entirely new challenges. For example, POSCO found that twenty-five-year lows in prices hit other steel-
business model. filling orders faster left too many partly used makers and their investors hard, POSCO
10
steel slabs, which hurt margins. Determined achieved double-digit profitability. By 2005,
to meet customer needs profitably, POSCO in less than four years, the company had
developed sophisticated production sched- transformed itself from a regional, low-cost
uling algorithms that allowed it to pack multiple producer to a global, value-added provider
orders on a slab. This allowed the company to of high-quality steel. POSCO is now the third
optimize slab utilization (and profitability), while largest steelmaker worldwide. It also ranks
9
still responding rapidly to customer demand. high in terms of efficiency and profitability
and has been selected as “the world’s most
In addition to growth and profitability, the Lean competitive steel firm” for three consecutive
Six Sigma approach helped POSCO realize years in a global study conducted by World
an altruistic objective – to help restore and Steel Dynamics.
11

protect Korea’s natural environment. The years
following the Korean War were hard on Korea “As we became privatized and more
ecologically; in the drive to improve economic globally oriented, we had to dramati-
conditions, companies too often ignored the
cally change everything within the entire
environmental impacts of their actions. In
an effort to contribute positively in this area,
enterprise – all processes and ways of
POSCO, through its Lean Six Sigma efforts, operating. But you can’t make these
was able to introduce diverse environmental kinds of changes overnight, especially
management programs and processes, not employees’ mind-sets and attitudes.
including an iron-making approach that We are using Six Sigma as a way to do
eliminates the sintering and coking processes,
this gradually and continuously…”
which, in turn, reduces environmental pollutants. 12
– Ku-taek Lee, Chairman and CEO, POSCO

9 Driving operational innovation using Lean Six Sigma

Key takeaway: The innovation domino Very quickly, the Lean Six Sigma approach
effect encourages wholesale transfor- proved that the company’s initial assump-
mation. tions about why customers were leaving were
As Lean Six Sigma disciplines steadily infiltrated off-base. In reality, many customers were
the thought processes of employees and company being lost when they moved to a different
leaders, POSCO experienced a domino effect. home. When customers called to cancel their
As the company innovated in one area of the service, customer service representatives
business, it triggered transformation in another. (CSRs) did just that, following their scripts
For example, the business model decision to precisely but never considering whether the
focus on high-potential segments such as the caller might need service elsewhere. They
automotive industry inspired new, innovative steel were extremely efficient, but not effective.
products. These new products, in turn, led to new Once Lean Six Sigma exposed this market-
processes to produce higher-grade steel. share leak, ScottishPower instituted a “hot key”
Collectively, these ripples of innovation enabled process to transfer callers to advisors who
POSCO to accomplish a top-to-bottom trans- could offer service at the caller’s new home.
formation – from government-owned business The company also offered financial incentives
to profitable private enterprise; from low-cost to CSRs to encourage the transfers. Because
producer to value-added provider; and from Lean Six Sigma forced an end-to-end inspec-
regional player to global competitor. tion, ScottishPower was able to close the loop
by designing a new process that notified sales
teams to approach the new inhabitants at
Market share and margins surge higher
the vacated address. So instead of losing a
at ScottishPower customer, the firm was now more likely to end
In 2001, ScottishPower found itself losing
up with two.
market share in the recently deregulated UK
retail energy marketplace. Regulators who In its initial wave, ScottishPower launched 130
were responsible for safe, reliable energy such Lean Six Sigma projects. Others included
supply were beginning to express concern a targeted marketing campaign that boosted
about recurring customer service complaints. use of direct debit payments by 14 percent,
The company needed to reverse the trend a simplified sign-up process for business
quickly. By radically overhauling its customer customers that led to a 20 percent increase in
service and sales operations, it hoped to acquisition, and new meter reading processes
regain a market-leading position. with lower costs and higher accuracy.

Defying the notion that Lean Six Sigma Combined, the Lean Six Sigma approach
is primarily for manufacturing firms, helped ScottishPower expand from 3.2 million
ScottishPower decided to use the approach to to 5.1 million customers in just four years, or
drive innovation in its services-based business. an average of about 40,000 new customers
It launched Lean Six Sigma by establishing per month during the period. This contrasts
a Business Transformation department and sharply with the trend of declining numbers
training hundreds of employees.

0 IBM Global Business Services

of customers for many of ScottishPower’s It’s not just for the private sector
competitors. These gains are even more The Lean Six Sigma approach can also be applied
remarkable given that all of these companies to the challenges of the public sector. Take, for
are competing in the same market for a rela- example, the Office of the Principal Legal Advisor
tively stable number of households. To date, (OPLA) in the U.S. Department of Homeland
ScottishPower has realized a total of US$170 Security (DHS) Bureau of Immigration and
million in additional revenue and cost savings Customs Enforcement. OPLA, DHS’s largest legal
through its Lean Six Sigma initiatives. program, litigates 400,000 alien removal cases
each year. Embracing strategic management
To build an innovative “I believe the methodology is robust and Lean Six Sigma, it deployed a nationwide,
track record, companies and transferable – it enhances the Web-accessible case and document management
need facts, not just customer experience, develops my system; gave each employee a scanner;
staff and improves the bottom line. If I established a Strategic Review Division to review
good guesses.
offices and spread best practices; improved hiring
left ScottishPower tomorrow and joined
and training; and formed numerous Lean Six
another company, [this approach] would Sigma working groups made up of employees
be one of the first things that I would from across the country.
adopt.” By giving its employees shared ownership in
– Willie MacDiarmid, Director of Energy Retail, OPLA’s processes, it is now quickly moving
ScottishPower toward more efficient litigation and admin-
istrative processes. The working groups are
Key takeaway: Specificity and facts trump increasing OPLA’s efficiencies in everything
generalizations and assumptions. from electronically exchanging documents with
Instead of blindly marketing to enhance image and the private bar; to increasing the efficiency with
build market share, ScottishPower used Lean Six which court cases are calendared; to devising
Sigma to identify the real reasons for customer case-management metrics that will capture ineffi-
dissatisfaction and defection. The company no ciencies in its litigation processes; to creating
longer needed to rely on guesses or assumptions electronic case files that its trial attorneys can
– it had facts. With these insights, the company carry into courtrooms using laptops. Many other
was able to redesign the specific processes that processes are also under review, and OPLA is now
actually impacted customer relationships. And embarking on forming strategic alliances with
in the end, the cost of regaining its market share stakeholder agencies.
through Lean Six Sigma was much lower than a
With software enhancements, new personnel,
traditional mass marketing approach.
and numerous process fixes in the works, OPLA
will continue its historic transformation. Lean Six
Sigma has been key to its success.


Assessing your own innovative • Organizational capabilities that made innova-
tion habitual – At the outset, these companies’
climate
Lean Six Sigma initiatives involved an intense
The successful companies we studied took a
period of training, dedicated resources and
deliberate detour from the traditional approach
an initial bubble of projects to jumpstart their
to operational improvement. By using the
transformation. But over time, as the mindset
Lean Six Sigma approach in a broader, more
became more mainstream, these companies
strategic fashion, they were able to uncover
established enduring processes that helped
innovation opportunities across their business
drive continuous innovation throughout the
– not just in operations. And in the process,
organization.
they were able to improve business perfor-
mance and establish organizations that are The challenges these companies faced
more naturally inclined to innovate. are not unique. Peers around the world are
feeling similar pressure to innovate. The
As we analyzed their Lean Six Sigma efforts,
pivotal question is whether your organiza-
we identified several distinguishing features
tion is equipped to do so – and to do so
of their approaches that set them apart from
in a sustainable manner. Here are several
those with a traditional operational improve-
questions that can help you assess your level
ment mindset. The common characteristics
of preparedness:
shared by these innovators include:
• Do you have a clear vision of where you
• An innovation vision based on factual
want your company to be in two years? In
customer and market insights – Leaders
five years? In ten years?
crafted a compelling vision based on a keen
understanding of market demands and • How closely tied is this vision to the needs
their own capabilities. Their objectives were of your current and target customers? And
explicit and few in number to enable focus. is your understanding of these needs based
on actual assessments or assumed informa-
• Leadership committed to perpetual inno-
tion?
vation – CEOs and business unit leaders
played active, enthusiastic roles. They were • Will this vision require innovations in your
clearly committed to making an indelible business model? In your products or
cultural change, not just launching another services? In your markets?
initiative. • What will you need to do at the operational
• Alignment across the extended enterprise – level to enable and drive these innovations?
The strategic innovation vision was used as • To support innovation, what changes will be
a unifying force to align disparate business required to your management approach,
units and influence supplier and customer organizational structures, metrics and skills?
relationships.
• How are you making innovation happen
more systematically? Are you establishing
the right environment?


Conclusion About the authors
CEOs might be tempted to downplay the George Byrne, formerly Americas Leader, Lean
importance of operations strategy and related Six Sigma.
management approaches such as Lean Six Dave Lubowe, Global and Americas
Sigma, thinking of them in terms of process Operations Strategy Leader for IBM Global
improvement and cost reduction. But this Business Services. Dave can be contacted at
perspective is competitively shortsighted. dave.lubowe@us.ibm.com.
Industry leaders – such as the companies
analyzed in our study – are using Lean Six Amy Blitz, Strategy and Change Leader at the
Sigma approaches to surface significant inno- IBM Institute for Business Value. Amy can be
vation opportunities that have far-reaching contacted at ablitz@us.ibm.com.
impacts on their businesses. Certainly their
Contributors
operations are changing dramatically – but so
Dr. Saul J. Berman, Global and Americas
are their products and services, their target
Business Strategy Leader for IBM Global
markets and, in some cases, even the funda-
Business Services. Saul can be reached at
mental design of their business models.
saul.berman@us.ibm.com.
Most importantly, the successes of the Ian Wilson, Global Lean Six Sigma Leader and
companies we researched were not Operations Strategy Leader for Europe with
anomalies. Through the discipline of Lean IBM Global Business Services. Ian can be
Six Sigma, these CEOs and business unit reached at ian.b.wilson@uk.ibm.com.
leaders have substantially improved business
performance and permanently reoriented their We would also like to thank other contribu-
organizations’ mindsets, creating the type of tors as well, including Paul Campbell-Kelly,
environment where innovation can flourish. Jerry Coover, Geoff Gibbons, Changdae Kim,
Bill Kane, Mark McDonald, and many others
To learn more about this IBM Institute for throughout IBM, all of whom generously
Business Value study, please contact us at shared their time and insights to help produce
iibv@us.ibm.com. For a full catalog of our this paper.
research, visit:
Finally, we sincerely thank our clients profiled
ibm.com/iibv
in this paper, and congratulate them on their
successes.

Contact
For more information, contact Monica Painter,
Americas Leader, Lean Six Sigma at monica.
painter@us.ibm.com.


© Copyright IBM Corporation 2007

IBM Global Services
About IBM Global Business Services Route 100
Somers, NY 10589
With business experts in more than 160 countries, IBM Global Business U.S.A.
Services provides clients with deep business process and industry expertise Produced in the United States of America
across 17 industries, using innovation to identify, create and deliver value 01-07
All Rights Reserved
faster. We draw on the full breadth of IBM capabilities, standing behind our
IBM and the IBM logo are trademarks or
advice to help clients innovate and implement solutions designed to deliver registered trademarks of International Business
business outcomes with far-reaching impact and sustainable results. Machines Corporation in the United States, other
countries, or both.

References ACERT is a trademark of Caterpillar Inc. in the
United States, other countries, or both.
1
“Expanding the Innovation Horizon: The Global CEO Study 2006.” IBM
Other company, product and service names
Business Consulting Services. March 2006. http://www.ibm.com/bcs/ may be trademarks or service marks of others.
ceostudy References in this publication to IBM products
2 and services do not imply that IBM intends to
IBM Global Business Services interview with Mr. Burritt, March 31, 2006. make them available in all countries in which
3 IBM operates.
Ibid.
4
IBM Global Business Services correspondence with Mr. Burritt, August 3,
2006.
5
“The Gartner Fellows Interviews: Ku-taek Lee, Chief Executive Officer,
POSCO.” Gartner, Inc. April 12, 2005. http://bvit2.gartner.com/research/
fellows/asset_140300_1176.jsp.
6
Because POSCO launched its transformation efforts before the term “Lean
Six Sigma” came into common use, it continues to refer to it as Six Sigma.
7
Brooke, James, “Korean Steel Maker Finds Strength in Flexibility,” New York
Times, August 5, 2003.
8
Ibid.
9
IBM Corporation. “Optimizing production scheduling helps POSCO to meet
new customer demands and reduce costs.” http://domino.research.ibm.
com/odis/odis.nsf/pages/case. 2.html
1
10
Brooke, James, “Korean Steel Maker Finds Strength in Flexibility,” New York
Times, August 5, 2003.
11
Ibid.; Keun-min, Bae. “POSCO World’s Most Competitive Steel Firm.” The
Korea Times. June 20, 2004.
12
“The Gartner Fellows Interviews: Ku-taek Lee, Chief Executive Officer,
POSCO.” Gartner, Inc. April 12, 2005. http://bvit2.gartner.com/research/
fellows/asset_140300_1176.jsp.

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Driving Operation Innovation Using Lean Six Sigma

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