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Robert Masternak

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Six Sigma

Gain Sharing and Lean Six Sigma

Two highly complementary performance improvement systems

Published: Friday, December 18, 2009 - 16:47

Gain sharing and lean Six Sigma are highly complementary systems that are mutually reinforcing. While both efforts are excellent by themselves in improving productivity, quality, and a variety of other measures, they are much more powerful together. Both systems are based on the principles of continuous improvement, measurement, ingenuity, employee involvement, and teamwork.

Some may mistakenly view these two approaches as competing initiatives. Both approaches focus on change. However, lean Six Sigma’s focus is more related to the technical side of change, and gain sharing’s focus gravitates more to the social side. Another important distinction, unlike the lean Six Sigma concept, gain sharing by definition shares the monetary gains from improved performance with the total work force.

The lean Six Sigma roots

Compared to gain sharing, the two parts of lean Six Sigma—lean manufacturing and Six Sigma—are relatively new. Six Sigma has its roots in the mid to late 1980s. Motorola is one of the more heralded companies to drive its performance initiatives with Six Sigma and a major focus on customer service and product quality. Today’s Six Sigma companies use its structured tools to reduce cycle time, eliminate product defects, and increase customer service. The focus is on “working smarter” and doing things right the first time.

Also in the mid 1980s, a similar approach referred to as “lean manufacturing” brought an intense focus to productivity improvement and cost reduction. The focus was on producing more with less. Similar to Motorola, Toyota has often been recognized as one of the founding lean manufacturing organizations.

In more recent times, we see the two terms Six Sigma and lean manufacturing used together to emphasize “the quality and service” improvement process offered from Six Sigma and the “productivity and cost reduction” tools offered by lean manufacturing.

Regardless of its roots, lean Six Sigma is driven by a close understanding of customer needs, a disciplined use of facts, detailed statistical analysis, and tools to reinvent business processes. Lean Six Sigma, a well-disciplined technical approach, uses specific tools that can be used to make a major breakthrough and large-scale improvements (“big bites”) in the manufacturing process. The focus is on taking big steps and significant innovations in the improvement process rather than concentrating on the many smaller bites in the improvement process. The big steps bring remarkable results, but require more money, technology, and time. On the other hand, if the minor daily improvements are neglected, complacency will overtake the improvement process.

Gain sharing roots

On the other hand, gain sharing’s roots are much deeper, dating back to the 1930s when a labor leader, Joe Scanlon, preached that “the worker” had much more to offer than a pair of hands. The premise was that the person closest to the problem often has the best and simplest solution. Moreover, if the worker is involved in the solution, most likely he or she will make the solution work. Scanlon used a team approach to solicit, review, approve, and implement employee ideas and suggestions to drive the improvement process. Moreover, Scanlon and the gain sharing concept shared the financial gains from improved performance. The Scanlon approach was often referred to as “a frontier in labor management cooperation.”

Gain sharing is a very literal term. In other words, as an organization gains, it shares. The typical gain sharing organization measures performance and through a predetermined formula shares the savings with all employees. The organization’s actual performance is compared to baseline performance (often a historical standard) to determine the amount of the gain. Since gains are measured in relationship to a historical baseline, employees and the organization must change to generate a gain.

The gain sharing system is one that builds ownership and employee identity to the organization. The employee becomes more of a stakeholder.

Gain sharing is focused on social aspects of the organization and looks to make many of the smaller day-by-day changes that drive continuous improvements. The steady and small improvements lead to significant progress over time. The performance bar continues to rise in daily work activities, the employee mindset, and the way people do their work. Compared to lean Six Sigma, the focus of gain sharing is less on technical tools but more on the social and philosophical side of the workplace.

The link between lean Six Sigma and gain sharing

A major problem with lean Six Sigma is that it cannot endure without the longer term commitment, support, and participation of all employees. If only a few isolated individuals develop an innovative “big step,” the improvement will be short term until competition catches up and surpasses the improvement. As previously noted, most companies only have certain select employees involved in Six Sigma efforts, and many are not involved. The problem is that, often, Six Sigma teams need the participation of employees who are on the sidelines to help ensure the successful completion of the project. Clearly the momentum cannot be maintained unless the organization truthfully and sincerely engages the total work force, not just a few. In large part, this is why so many other improvement initiatives have died. This is where gain sharing comes into play. Gain sharing has endured for more than 70 years. Why? Because gain sharing engages everyone at the site. All employees are players in the game.

Rewarding lean Six gain sharing

Many lean Six Sigma companies struggle with trying to reward Black Belts and Six Sigma teams. Should an organization give significant financial awards to the Black Belt and or a lean Six Sigma team? What about employees who were involved in collecting the data, providing advice, and physically implementing the change? What about the people who were not directly involved in the project, but whose workload increased because they covered for the team members while they were traveling or in meetings related to the project? There are many examples where companies have financially rewarded Black Belts at the expense of fracturing the improvement effort. There are cases were the Black Belts refused the bonuses and others where Black Belts have shared their bonus with others in the organization. Some Black Belts have been placed in an extremely uncomfortable position when their bonus award was announced publicly in a town hall meeting. If companies want lean Six Sigma to take hold and succeed, the organization cannot create a system than ruins internal equity and causes employee dissent.

Gain sharing’s reward principle

Gain sharing helps lean Six Sigma address this critical issue: As we make these improvements, what’s in it for me?” Sure, it’s nice to have a job, but don’t executives receive larger bonuses when we help make these improvements? Is that fair? Gain sharing provides the all-important link to this question.

Gain sharing companies believe it is fair to share. Gain sharing’s bonus system provides a common focus, a score. As performance improves by working smarter, everyone shares. Interestingly, it’s not about the money; it’s about the sharing. Sharing and its effect on the sense of equity are very powerful, leading to a significant effect on the principle of identity. As we all know, an owner of a business acts much differently than the workers. Identity speaks to the sense of purpose, belonging, accountability, and ownership. This is what sharing drives. As identity and understanding grow, there is recognition for the need for change. Change leads to improvement, and improvement leads to gains. As identity and the sense of ownership are developed, employees will naturally have ideas on ways to improve performance. Involvement is a means of working smarter, and there are never-ending ways to do so. Involvement and working smarter foster continuous improvement.

Undoubtedly, the most important single principle for any performance improvement initiative is the organization's commitment, particularly management commitment. A strong management belief in people and their value is required. The organization must have a capable management team with a dedication to continuous improvement and the recognition for the need for change. Ongoing communication, training, and education must be a long term focus. Commitment is the key to the total process, and no management initiative can be accomplished without it.

Article Source: EzineArticles.com


About The Author

Robert Masternak’s default image

Robert Masternak

Robert Masternak is founder of Masternak & Associates a specialized consulting firm focusing in gainsharing design, installation, training, and monitoring activities. Masternak is an internationally recognized consultant with more than 22 years of gain share experience and is the author of the book Gainsharing -- A Team Based Approach to Drive Organizational Change (World at Work, 2003). He has installed "tailor-made" plans in well over 200 companies including: chemical, plastics, iron, steel, aerospace, health supplies, health care, pharmaceuticals, machining, lighting, energy, automotive parts, mining, footwear, glass, defense equipment, distribution, aluminum, metal fabrication, printing, paper products, food manufacturing, and furniture. If you are interested in further exploring gainsharing, please call (330) 725-8970.