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Steven Ouellette

Six Sigma

Six Sigma in Hard Economic Times

Have your cake and eat it too.

Published: Tuesday, December 16, 2008 - 12:57

What purpose, if any, does Six Sigma serve in economic downturns? Full disclosure: I teach and consult in Six Sigma and related areas, and you’re reading this article because you’re interested in Six Sigma, so we may not be the most objective people to assess this, but in this article, I will do my best to find the truth.

I remember when I was working as an engineer for a company that made aluminum for aerospace and commercial applications. One of the apparently inevitable downturns in aerospace was occurring and the company was looking to cut costs, critically eyeing headcounts. At the same time, there was a consulting team training and implementing the technology that would one day be called Six Sigma.

Of course the talk around the table in the lab revolved around the uncertainty of the times, and sooner or later someone would begin to complain that the company was spending enough money on consultants each year to avoid laying off four full-time employees. I was torn in what I thought. On the one hand I was a recent hire, and thus first in line for the chopping block, but on the other, I also knew that the benefits the company and employees were accruing from what the consultants had to teach us was enormous.

Well, I survived that round and the ones after it (once due to the generous sacrifice of a coworker on sabbatical who requested to be laid off rather than one of the active engineers). It really wasn’t until I began consulting that I could form a more data-based opinion.

Let me start out by saying that, except in rare circumstances, my experience is that headcount reduction ends up costing a company far more in the long term than it saves them in the short term (and analyses by researchers Kim Cameron and Wayne Cascio seem to confirm my observations). Headcount reduction should be the last recourse for a company, not the first. In fact, for many companies, employee costs are pretty minimal compared to other costs. This is even worse when companies use the faux-fair “across the board” layoffs mantra. When looking across the company, does anyone really think that all departments contribute equally to profit? If not, then why should layoffs be evenly distributed?

No, across-the-board layoffs in the interest of fairness isn’t fair, it’s only a symbol of management taking an easy out when what’s called for is a more difficult assessment of where profit is generated or supported, and where it isn’t. Remarkably, managers make layoff decisions without this type of information. And, by the way, decisions about layoffs are generally made by the people who made the decisions that are now leading to layoffs.

Managers outside of Dilbert aren’t evil people and I know layoff decisions can be personally devastating for those who have to make them. But doing an across-the-board layoff in the absence of data on each department's contribution of profit, strikes me as a pretty random way to try to save a company.

I often wonder what businesses would be like if we could place the past, present, and future value of our employees on the balance sheet. As it is, when managers make cuts it looks like a net positive, when we all know that there’s a real cost that isn’t accounted for in the numbers. Armed with this data wouldn't we be even more loath to fire our coworkers?

Layoffs are a prime indicator of poor strategic planning and policy deployment. (Read my article on policy deployment for more on that.) Not so much that the strategic plan should have accounted for an unexpected economic downturn, but that if you have done a good job of deploying your resources to achieve a strategic plan, you know what layoffs will cost you in your long-term competitiveness. Because everyone is working on something related to achieving your plan for business success, anyone you lay off means that portion of the plan won’t be completed, thus throwing into doubt your business’ ability to succeed.

I won’t deny that layoffs may be needed when companies have a real misalignment between how they are staffed and their strategic vision. But this is a conscious decision made regardless of economic crises, not because of them.

When confronted with a difficult situation, I like to question the premise behind it. So, is it possible that your people, rather than threaten it, can actually enhance your company’s viability?

Consider what the common reaction is to bad economic times. “We have to circle the wagons, cut out the fat, stop the bleeding…” All of these bad metaphors point to retrenchment, and frequently the issues that are left behind are related to understanding and improving the process. What if all your competitors were digging in while your business plowed forward? (Yikes, another bad metaphor!) Where would that leave your company when the economy turned around again? Perhaps companies should consider difficult economic times as a challenge with opportunities for process improvement, as opposed to a challenge to shrink your way to success?

The benefits of working on improving your business process are clear. Understanding and improving your processes leads to lower costs through reduction of inspection, scrap, rework, waste, and errors. This is the area where lean and Six Sigma are designed to function. Improving your meta-processes, such as strategic planning and policy deployment, product or process design, capital provision and validation, and continuous improvement, lead to even greater savings through cost avoidance. These are areas where define, measure, analyze, improve, control (DMAIC) is less helpful, but other technologies, such as business performance excellence, design for Six Sigma, statistical start-up, and daily management exist to show the way.

When times are hard, forward-looking companies should take those people who might otherwise be laid off and invest their time and expertise in understanding and improving the business, so that when times turn around the business is positioned to take advantage of the better business climate. If times stay bad for a while, at least the business is becoming more efficient so as to minimize the effect on its workforce.

When I talk to people about all these improvement activities in good times, they say something like, “Where am I going to get all the manpower to learn how to do business right? I barely have enough to do business as messed up as we do!” Well, maybe this is an opportunity to take those well-trained, experienced, and hard-working “most important resources” and continue to have the business benefit from them, instead of turning them away into the labor pool of our competitors.

And keep them on not just to do Six Sigma. The limitation of Six Sigma, a problem-solving technique that uses advanced statistics, is that it is, by its nature, limited to a relatively small cadre of Black Belts—maybe 5 percent of a company. And (dirty secret here) it should be limited to a few, because you don’t want a large proportion of your workforce fixing problems, you want them avoiding problems and running the processes that make you money. However, Six Sigma gives the impression that improvement is concentrated only in the anointed few. What do the other 95 percent work on? If we also include the other areas that can be improved that I listed above, then understanding and improving the business, reducing and avoiding costs, saving the business becomes goals to which everyone can contribute.

So I guess I want you to have your cake and eat it too, while your competitors eat ashes. Don’t lay off people that you could be using to save your company more money than they get in salary and benefits. If you can, when the economy turns around you will be ready to aggressively expand in your market, while your timid competitors are still trying to figure out how to uncircle their wagons with half the people they used to circle them.

Discuss

About The Author

Steven Ouellette’s picture

Steven Ouellette

Steve Ouellette, ME, CMC started his career as a metallurgical engineer. It was during this time that his eyes were opened to find that business was not a random series of happenings, but that it could be a knowable enterprise. This continues to fascinate him to this day.

He started consulting in 1996 and is a Certified Management Consultant through the Institute for Management Consulting. He has worked in heavy and light industry, service, aerospace, higher education, government, and non-profits. He is the President of The ROI Alliance, LLC. His website can be found at steveouellette.com.

Steve has a black belt in aikido, a non-violent martial art, and spent a year in Europe on a Thomas J. Watson Fellowship studying the “Evolution, Fabrication, and Social Impact of the European Sword."

 

 

Comments

Priorities

Steven, insightful column as usual. From my high horse, I submit that if companies did everything you suggest during flush times, they could skate through the downturns - and still do what you suggest, but from a position of strength. I imagine that's what Toyota does.

Also, why not deploy non-BBs to solve problems? If they are preventing problems rather than solving them, that suggests that all the processes are value-added and stable in which case you don't need any problem solvers - lay off the BBs!