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06/12/2007: "Six Sigma in Small to Mid-sized Companies"

What benefits does a Six Sigma deployment offer the small or medium-size company? How does the deployment differ from a larger company?
Alex L., Informations Director


Six Sigma offers the small and medium sized companies the same benefits as larger companies: rapid return on investment from projects focused on internal productivity savings or improved revenue generation. Most companies today operate three sigma and four sigma, where the cost of quality is 15 to 25% of their revenue. As the company moves to Six Sigma Quality Levels, their Cost of Quality decreases to a level of one to two percent. These dramatic cost savings come as their quality costs move from “Failure Costs” (such as handling customer complaints, or re-routing customer inquiries or products to address errors) to “Prevention Costs” (such as designing processes to add value to the customer experience).
The three Sigma organization's wasted Failure Cost dollars go directly to the Six Sigma organization's bottom line, to be re-invested in value-added activities that boost sales. So while the three Sigma organization is forever in “catch up” or “fire-fighting” mode, the Six Sigma organization is able to fully utilize its resources in profit generation. This infusion of capital helps the sales side of the equation, so Cost of Quality as a percent of revenue drops that much quicker.
The deployment strategies are basically the same: top management leads the deployment initiative, providing incentive for mid-management to develop projects aligned with the organization's strategic objectives. Six Sigma team projects, led by well-trained Black Belts and sponsored by managment Champions, are defined for completion in three to six months with agreed upon benefits to cost, quality and/or schedule.
Deployment is scaled based on company size. A good rule of thumb is that the mature Six Sigma organization will have about 1% of their work force in the Black Belt role.
Small and mid-size companies have unique challenges that larger corporations don't necessarily face, particularly in their resource allocation. In smaller organizations, a resource committed as a full-time change agent (in the form of a Black Belt) may be a significant expense in proportion to the total labor budget.
In addition, smaller companies tend to have flat organizational structures, with less highly-trained support personnel. With less "on-site" expertise to pull from, the need for training increases. With no on-site Master Black Belt, projects may stagnate without coaching from consultants, an additional expense.
Finally, employees in smaller organizations learn to wear many hats. Often a good thing, this can distract a Black Belt and the project teams from focusing on project completion. Management, particularly mid-level management, must be committed to keeping the resource allocated to the project to realize its potential. Sometimes, daily operational issues will need to take the back seat to the improvement potential.
Nonetheless, there can also be advantages in smaller organizations. In larger organizations, fear and turf battles can slow progress, unless a concerted effort is made at the onset to identify and address these cultural issues. Often, cultural issues are less entrenched in a smaller work force. There can be greater teamwork, less in-fighting between functional areas, and better appreciation of management simply because people are forced to work with one another in closer settings. These factors help build trust as the organization makes some significant changes, first in initiating change, then in implementation.
Since employees tend to wear many hats in smaller organizations, they can have a better understanding of the internal complexities of the organization. This helps achieve system optimization rather than simple process improvement. Smaller organizations, by necessity as well as design, are often much more agile in responding to changing circumstances. This provides an ideal environment for initiating the Six Sigma approach.
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