International Journal of Quality & Reliability Management Developing a Six Sigma framework: perspectives from financial service companies Ayon Chakraborty Michael Leyer
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To cite this document: Ayon Chakraborty Michael Leyer, (2013),"Developing a Six Sigma framework: perspectives from financial service companies", International Journal of Quality & Reliability Management, Vol. 30 Iss 3 pp. 256 - 279 Permanent link to this document: http://dx.doi.org/10.1108/02656711311299836 Downloaded on: 07 December 2014, At: 07:03 (PT) References: this document contains references to 72 other documents. To copy this document:
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256 Received 11 July 2011 Revised 21 May 2012 Accepted 24 July 2012
QUALITY PAPER
Developing a Six Sigma framework: perspectives from financial service companies Ayon Chakraborty Faculty of Science and Technology, Queensland University of Technology, Brisbane, Australia, and
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Michael Leyer ProcessLab, Frankfurt School of Finance & Management, Frankfurt am Main, Germany Abstract Purpose – Six Sigma is considered to be an important management philosophy to obtain satisfied customers, but financial service organisations have been slow to adopt Six Sigma issues so far. Despite the extensive effort that has been invested and benefits that can be obtained, the systematic implementation of Six Sigma in financial service organisations is limited. As a companywide implementation framework is missing so far, the purpose of this paper is to fill this gap. Design/methodology/approach – This paper presents a conceptual framework derived from literature and evaluated by experts, with a focus on financial services. Findings – The results show that it is very important to link Six Sigma with the strategic as well as the operations level. Furthermore, although Six Sigma is a very important method for improving quality of processes, others such as Lean Management are also used. This requires a superior project portfolio management to coordinate resources and projects of Six Sigma with the other methods used. Research limitations/implications – The developed framework provides a new contribution to the theory of applying Six Sigma in financial service institutions. Practical implications – Beside the theoretical contribution, the framework can be used by financial service companies to evaluate their Six Sigma activities. Thus, the framework grounded through literature and empirical data will be a useful guide for sustainable and successful implementation of a Six Sigma initiative in financial service organisations. Originality/value – The paper contributes, by empirical research through expert interviews, to develop a Six Sigma implementation framework for financial institutions. Keywords Six Sigma, Financial services, Framework, Qualitative research, Expert interviews Paper type Research paper
International Journal of Quality & Reliability Management Vol. 30 No. 3, 2013 pp. 256-279 q Emerald Group Publishing Limited 0265-671X DOI 10.1108/02656711311299836
1. Introduction Among financial service organizations, the idea of implementing Six Sigma is becoming more and more popular. This holds especially true in European countries. However, many banks and insurance companies have problems applying Six Sigma within their organization. Various reports from German insurance companies and banks show that these companies struggle with implementing Six Sigma companywide Both authors contributed equally to this work and should be considered co-first authors.
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(Moormann et al., 2009). A major challenge is its implementation at an organizational level, in addition to problems within the projects (Heckl et al., 2010). As a result, the application of Six Sigma is often restricted to certain areas within banks and insurance companies. But to fully exploit the benefits of Six Sigma, the methodology should be established as a quality philosophy across the whole company. Such an initiative is understood as a continuous, long-term application of Six Sigma (Coronado and Antony, 2002). The implementation of such an initiative requires a huge amount of organizational support. This has been shown by empirical evidence from the German financial service sector (Bo¨rner and Leyer, 2010). However, to date, no theoretical approach has been developed to cope with this challenge effectively and to implement a companywide Six Sigma program (Wurtzel, 2008). Thus, the aim of this research is to explore how financial service companies can implement a Six Sigma initiative at a company level. A well-founded implementation plan should define what an organization is doing, what it is trying to do and how it is going to do it. Therefore, it is important that each step builds on the previous one (Struebing and Klaus, 1997). Thus, our goal is to translate Six Sigma theory into practice through systematic means. In short, a framework defining the major cornerstones for implementing a Six Sigma initiative in financial service companies is developed. A framework is a set of fundamental principles of intellectual origin, or basic assumptions in which actions and discussions can proceed (Popper, 1994). The framework here will make organizations more aware of Six Sigma, and enable its elements to be introduced in a more controlled, timely and comprehensive manner (Aalbregtse et al., 1991). The remainder of this paper is organized as follows: Section 2 presents a literature review, identifying the research gap concerning a framework for implementing Six Sigma in financial service organizations. The research methodology applied to fill this gap, i.e. the development of a framework based on expert interviews, is described in Section 3. Section 4 then pictures an initial framework based on theory. The interview process, including the questionnaire used, is presented in Section 5. This is followed by the results of the expert interviews, i.e. a revised framework in line with the empirical evidence in Section 6. The paper closes with a discussion in Section 7, and also provides an outlook on further research. 2. Literature review According to Shina (2002), before January 15, 1987, Six Sigma was solely a statistical term. Since then, the Six Sigma crusade, which began at Motorola, has spread to other companies that are continually striving for excellence. Six Sigma has a number of different meanings and interpretations (Henderson and Evans, 2000, p. 261). Its origin comes from statistics, wherein sigma represents the amount of variation within a process average. From a business point of view, Six Sigma may be defined as “A business strategy used to improve business profitability, to improve the effectiveness and efficiency of all operations to meet or exceed customer’s needs and expectations” (Kwak and Anbari, 2006, p. 709). Within literature, four major streams of understanding Six Sigma, which are not exclusive from one another, can be identified (Tjahjono et al., 2010): (1) a set of statistical tools with the aim of process quality improvement; (2) a philosophy for operational management that can be shared beneficially by every stakeholder of a company;
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(3) a business culture which is implemented top-down; and (4) an analysis methodology using scientific methods for continuous process improvement (CIP). A companywide framework has to cover every aspect, but its core is in research streams 2 and 3. In terms of the differences and commonalities of services and manufacturing, scrap and rework exist in both. Expenses arise due to inconsistent and out-of-specification processes, for instance the need to re-contact a customer to verify an order, provision of an incorrect or substandard service, or even over-servicing or provision of more than required. Examples of well-known success stories of service implementations include Bank of America, Citibank, GE Capital Corp., GE Medical Systems, Mount Carmel Health System and Virtua Health. Limited applications can also be found in call centers, human resources such as Du Pont de Nemours (Bott et al., 2000; Wyper and Harrison, 2000), and product support services such as Caterpillar (Schmidt and Aschkenase, 2004). The literature (Hahn et al., 1999; Harry and Schroeder, 1999; Rucker, 2000; Sehwall and De Yong, 2003; Schmidt and Aschkenase, 2004; Antony et al., 2005; Hensley and Dobie, 2005; Brady and Allen, 2006; Inozu et al., 2006; Lee-Mortimer, 2006) on Six Sigma application in manufacturing and services mainly discusses critical success factors (CSFs), critical-to-quality factors (CTQs), key performance indicators (KPIs) and sets of tools and techniques (STTs). Regarding the transfer of Six Sigma to services in general, Does et al. (2002) found that this can be done with minor adaptations, whereas McAdam and Lafferty (2004) reported little success of Six Sigma in services. Therefore, it is necessary to investigate this issue further (Nonthaleerak and Hendry, 2008). The literature review in this paper was conducted with a focus on financial services. The keywords used were “Six Sigma”, in combination with “financial services”, “banks” and “insurance companies”. The publication dates of articles range from 1999 to 2012, with the articles relating to services started around 1999. In order to cover a broad range of potential articles, the keywords were put into the typical databases of ABI/Inform Complete, Business Source Premier, ScienceDirect and JStor. Only peer-reviewed journals were considered, to ensure the high quality of the articles (Rowley and Slack, 2004). The review of the literature revealed that, compared to manufacturing, Six Sigma is relatively new in services, and the literature is still dominated by authors with a manufacturing affiliation. For financial services in particular, only five articles could be identified. The articles cover a period from 2000 to 2012. Two articles describe the introduction of Six Sigma within a case study. The combined application of Lean Management and Six Sigma (Lean Six Sigma) within GE Money is analyzed by Delgado et al. (2010). The authors use semi-structured interviews to gather evidence from the national (GE Money Portugal), as well as the international level of the company. The results show that CSFs are related to the commitment of top management, the skill-based selection of team members, major investments in training, and a change in the entrepreneurial culture. In terms of the project level, Kumar et al. (2008) describe the application of Six Sigma to improve a credit initiation process within a bank. Within the project, the DMAIC method was applied, focusing especially on cause-and-effect diagrams and poka-yokes. The results are mainly focused on the evaluation of which tools are most applicable to identify and address areas in need of improvement.
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An article by de Koning et al. (2008) also focuses on the project level, but covers 65 Lean Six Sigma projects within five companies. The authors’ aim is to classify these projects into categories and to identify the typical procedure for successfully defining projects for each category. In analyzing the commonalities, the authors assign most of the projects to at least one category. Furthermore, the typical CTQs and data required for measuring these CTQs is derived from the respective projects. One article focuses on the development of a conceptual approach to using Six Sigma for both goods and services (Johannsen and Leist, 2009). The authors focus on the defining phase of projects and provide a standardized procedure. Finally, an evaluation is performed on a financial services company which offers leasing services within the automotive sector. The last article presents empirical evidence from a broad standardized questionnaire (Heckl et al., 2010). The sample covers 145 financial service companies from Germany, Switzerland, Austria and Great Britain. Overall, Six Sigma has not been widely used. One-quarter of the respondents have already used Six Sigma, of which most organizations’ experience is limited to pilot projects. A lack of resources, missing support from top management, and insufficient data quality and quantity are the major causes of problems in using Six Sigma. The literature review shows that there is little evidence thus far with regards to a companywide introduction of Six Sigma in financial services companies. This suggests that there is a necessity to build a theory of how and why Six Sigma works in financial services. The major focus of this research is to develop a framework based on the aspects of Six Sigma implementation and its performance in financial service organizations. Thus, it is intended to overcome the existing gap in theory, and furthermore to facilitate the wider applicability of Six Sigma in financial service organizations. However, due to the lack of theory in this area, we also searched for frameworks concerning Six Sigma implementation in manufacturing, as well as other approaches of quality management. For total quality management (TQM), several frameworks are available. Most of them are assessment frameworks, such as the one discussed by Senapati (2004). In reviewing TQM literature it is observed that many researchers have used the term “TQM implementation”, without actually defining it. There also seems to be no mention as to whether or not a TQM model is equivalent to a TQM implementation framework. According to Yusof and Aspinwall (2000), a model answers the question of “what is TQM?”, with reference to the overall concept or elements as a whole, whereas a framework answers “how to” questions and provides an overall way forward. In this vein, there is limited framework development on Six Sigma implementation for manufacturing, and no evidence can be found for services – we could only find one framework based on business process change theory, but even this does not address a companywide application (Antony et al., 2004). 3. Research methodology Management research is mainly based on deductive theory testing and positivistic research methodologies (Alvesson and Willmott, 1996). These methodologies incorporate a more scientific approach, with the formulation of theories and the use of large data samples to observe their validity. However, these approaches mostly fail to give deep insights and rich data regarding Six Sigma practice within service organizations. Schroeder et al. (2008) state the need for more theory grounded and contingency-based research, rather than being
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restricted to deductive approaches. Antony et al. (2007) and Nonthaleerak and Hendry (2008) emphasize this point by stating that there is a paucity of systematic and rigorous evaluation in many Six Sigma studies. Given the limited research and theory regarding Six Sigma implementation in financial service organizations, we have chosen a qualitative research approach, following Strauss and Corbin (1990), in which we use in-depth interviews as our primary qualitative information-gathering method. These aim to gather the data needed to develop the Six Sigma implementation framework. Figure 1 shows the research phases necessary to achieve our revised framework. First, we analyzed articles and books to develop an initial framework based on theories from strategic, organizational, portfolio and project levels. In the next phase, we gathered expert opinions about how different linkages in our framework work, and whether there are some missing links in the existing framework. Practitioner involvement is an important aspect in Six Sigma research. The sharing of insights between researchers and practitioners provides increased opportunities for creativity, while questioning the traditional norms and assumptions (Strauss and Corbin, 1990; Carson and Coviello, 1996). This results not only in rigorous theory about Six Sigma in service organizations, but also improved the applicability of Six Sigma in organizations, because of increased reflectivity and reflexivity among practitioners. Thus, Six-Sigma-based qualitative research methods should encourage and develop practitioner involvement, and reflection and reflexivity, to enhance both theory and practice (Leonard and McAdam, 2001). Another aspect regarding practitioner involvement is that of knowledge about Six Sigma. Knowledge and experience about the topic area (in this case Six Sigma) is a must for people involved in qualitative research (Carson and Coviello, 1996). The competencies of knowledge and experience are also implicitly mentioned in Glaser and Strauss’s (1967) original research. In-depth interviewing is ideally suited to gaining understanding of people’s behavior, its context, and the meanings they make of that behavior (Hickey and Davis, 2003). Johnson (2002, p. 105) states that in-depth interviews are the best approach if “the knowledge sought is often taken for granted and not readily articulated by most”, as in this case, wherein experts often rely on tacit knowledge to decide on Six Sigma Theory from strategic level
Theory from organisational level Initial framework for financial services Theory from portfolio level
Figure 1. Process of research
Theory from project level
Gather expert knowledge
Revised framework for financial services
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implementation (Polanyi, 1966). Based on the information gathered from our interviews, we refined the framework and developed and improved tentative relationships among the constructs of the framework. 4. Initial framework Due to the limited stage of Six Sigma implementation in service organizations, our framework is largely academic based. Academic-based frameworks are mostly developed due to academic research and experiences in the field (Yusof and Aspinwall, 2000). The focus of our framework is on companywide implementation in an organization, i.e. from the strategic level down to the project level, including CSF, KPI, CTQ and critical to business (CTB) characteristics and portfolio management. CSFs are the basis for determining the information needs of managers (Rockart, 1979). Thus, the starting point for the proposed framework is the CSFs, which are necessary for the successful implementation of Six Sigma within an organization (Coronado and Antony, 2002; Antony et al., 2007). There have been many studies concerning the CSFs of Six Sigma so far. One of the earliest was conducted by Harry (1998), who discussed six success factors including management leadership, belt systems, etc. Later on, Antony and Banuelas (2002) mentioned 12 success factors, which include management involvement and commitment, linking Six Sigma to business strategy, etc. For a detailed overview of several other studies Chakrabarty and Tan (2007). All of these studies have at least one common CSF, which is top management commitment. Once top management buys into the decision to implement Six Sigma, they also have to involve themselves to ensure the success of the program. This is highlighted by the respondents of a study by Chakrabarty and Tan (2009) during interview sessions. The respondents feel that the occasional involvement of top management during team meetings will motivate team members. This will also help in solving certain problems which the team members cannot solve at their own levels. Concerning financial service companies, Heckl et al. (2010) are unique in analyzing CSFs. Besides top management support, the results of their survey reveal a cluster of five major CSFs for the financial services industry: (1) Sufficient staff is necessary to conduct Six Sigma projects. This has to be assured for every Six Sigma role. (2) Sufficient data concerning quality and quantity has to be available, as Six Sigma projects rely heavily on data. As processes are implemented on heterogeneous IT systems, the gathering of data is often not easy in financial services companies. (3) As customers are directly integrated in the delivery of financial service products (Sampson and Froehle, 2006), the focus on customer requirements is decisive. Thus, financial service processes should aim at raising customers’ satisfaction by being highly customer-oriented. (4) A continuous monitoring of goal achievement is important to assure an alignment with the defined project plans. Otherwise, projects tend to take too much time without anyone noticing. (5) Integration of a Six Sigma initiative within the overall business strategy – by this means, the commitment of top management towards the Six Sigma initiative is also ensured.
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Based on this discussion and findings from the literature review and data collected through surveys and case studies (Chakrabarty and Tan, 2009), CSFs are included in both the organizational and project portfolio level of our framework. The proposed framework aims to define the relevant elements necessary for an implementation of Six Sigma in a financial services company. Figure 2 shows an overview of these elements. The specific CSFs identified for financial services guide the design of the framework. At the center there is portfolio management. This is based on the KPIs, which are also included in benefit management via a backward link. Portfolio planning, which is the first task of portfolio management, is grounded on CTQs, as well as CTBs. This is followed by the inclusion of a framework for the execution of Six Sigma projects. The whole portfolio management of Six Sigma is embedded in the organizational level. Here, organizational supporting conditions, such as changes in management for implementing a sustainable Six Sigma initiative, have to be implemented. The composition of the elements is described in the following sections. 4.1 Key performance indicators As argued above, the strategic goals of an organization should be aligned with the Six Sigma initiative. By this means, the concept of KPIs can be best applied (Kaplan and Norton, 1992). To ensure alignment, the relevant KPIs for Six Sigma should be measured and controlled continuously. The metrics also form the basis of benefit management. KPIs are not well defined in the literature, and there exist different interpretations of the term. In general, the literature discusses KPIs as performance metrics, i.e. as measures of performance in terms of cost, quality, yield, and capacity (Hahn et al., 1999; Basu and Wright, 2003). A few of the suggested definitions of KPIs are provided in Table I. Key Performance Indicators (KPIs)
Portfolio management Customer CTQ
Planning of project portfolio
Framework for Six Sigma project execution
Figure 2. Initial framework for implementing a Six Sigma initiative in financial service organisations
Benefit management
Organisational conditions Organisation CTB
Author(s)
KPI definition
Hahn et al. (1999)
Performance metrics are established that directly measure the improvement in cost, quality, yield, and capacity KPIs are measurements of a performance such as asset utilization, customer satisfaction, cycle time from order to delivery, inventory turnover, operations costs, productivity, and financial results KPIs can be termed as performance metrics of Six Sigma KPIs are statistical measures of how well an organization is doing in a particular area. A KPI could measure a company’s financial performance, or how it is holding up against customer requirements
Basu and Wright (2003)
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Antony (2006) ASQ Glossary (2010)
KPIs show actual data regarding a particular outcome. The outcomes of Six Sigma projects are usually required to be expressed in financial terms. This leads to a direct measure of achievement which is easy to understand (Goh, 2002). The majority of the KPI literature on Six Sigma in services talks about financial benefits. Other KPIs include expressions in terms of efficiency and customer satisfaction. It is observed that there is ambiguity about KPIs (Chakrabarty and Tan, 2007). The concept is often used synonymously with CTQ, which practitioners perceive as a key process input/output variable, than as a KPI. KPIs are more like performance metrics, as mentioned in some literature, and are strategic in nature. Hence, KPIs are included in our framework on the strategic level. As financial benefits or bottom-line results are the most common performance metrics for Six Sigma (Goh, 2002), a feedback loop from benefit management to the KPIs is included. 4.2 Portfolio management Within an organization, there are usually several projects which compete for resources (Archer and Ghasemzadeh, 1999). To coordinate this and to ensure the support of the companies’ strategy, projects cannot be managed independently from each other (Payne, 1995; Ghomi and Ashjari, 2002). Hence, project portfolio management should be conducted to coordinate all Six Sigma projects in line with the KPIs. This includes the selection and prioritization of projects, the allocation of resources and a continuous monitoring of projects conducted (Blichfeldt and Eskerod, 2008). These items can be bundled into three major tasks. Planning of the portfolio. This is a major topic for financial service providers, as one-third of financial services organizations questioned reported problems with choosing the right projects at the start of a Six Sigma initiative in Heckl et al.’s (2010) survey. The planning of a portfolio (also termed “project portfolio selection”) includes strategic considerations, individual project evaluation and portfolio selection (Archer and Ghasemzadeh, 1999). A major focus of research has been on the selection and prioritization of appropriate projects for a portfolio (Blichfeldt and Eskerod, 2008). These tasks are mainly influenced by the strategic goals (KPIs), and the methodology (Six Sigma) used for conducting the projects. Also, external and internal business factors should be taken into account (Archer and Ghasemzadeh, 1999). This is reflected in the inclusion of customer (external; CTQs) and organizational (internal; CTBs) requirements; it should be incorporated into the whole task of portfolio planning, and not limited to strategic considerations.
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Over time, the planning of a Six Sigma portfolio changes. At the beginning of using Six Sigma, when few resources in the form of trained staff are available and experience has not yet been gained, ad hoc approaches are most suitable. Here, projects with so-called “low hanging fruits” – i.e. those that are easy to conduct in a short time and with a visible impact – should be chosen (Antony, 2006). In a more mature state, scoring models, portfolio matrices and optimization models are more suitable, as more data is available (Archer and Ghasemzadeh, 1999). As Six Sigma focuses on measuring the success of projects, in a more pronounced manner than other methodologies for process improvement, this can be integrated into the portfolio planning. In addition, data from the conducted projects can be used to better calculate cost-benefit estimations, and to apply advanced tools for selecting projects (Chakrabarty and Tan, 2009). Application of the portfolio. The core of Six Sigma activities is the execution of projects, as these actually improve processes in a company. For the project level of Six Sigma application (Chakrabarty and Tan, 2009), a framework for service organizations based on surveys and case studies already exists. As this framework highlights the same critical issues, it fits perfectly into the proposed framework in this paper. The execution of projects should follow the commonly applied DMAIC, including the project phases define, measure, analyze, improve and control (Antony, 2004). Here, three barriers while executing projects based on the DMAIC should be taken into account (Chakrabarty and Tan, 2009): (1) Inclusion of CSFs before the execution of projects. Problems can occur in terms of missing incentives for successful Six Sigma projects, lack of employee involvement, or a resistance to change. As described earlier, this issue is addressed by the proposed framework. (2) There should be an adequate choice of measurable process parameters. Service companies often have problems in identifying relevant process parameters and collecting the necessary data. This holds also true for the financial services industry (Heckl et al., 2010). (3) Within each project phase, adequate tools and techniques have to be identified. Some tools and techniques might not be applicable, or may be too complex to use. Service processes, for example, are rarely characterized by normal distributions, which are a basic assumption for several statistical tools applied within Six Sigma. Thus, the proper set of tools and techniques has to be identified, and the relevant training given. Among the most popular and suitable tools identified for the financial services industry are project charters, SIPOCs and CTQ-matrixes (define), histograms and statistical representation tools such as scatter plots (measure), process analyses and cause-and-effect diagrams (analyze), creative solution techniques such as brainstorming and SCAMPER (improve) and control and monitoring charts (control) (Heckl et al., 2010). Controlling of the portfolio. A major aspect of Six Sigma is the data-driven approach. The attempt is intended not only to measure the effect of the project’s execution, but also to consider the level of project evaluation. Thus, the benefit of projects should be evaluated quantitatively as well as qualitatively on a portfolio level. These measurements should be conducted in the same way for each project, in order to ensure a comparison and impact ranking of the projects conducted (Archer and Ghasemzadeh, 1999). Prominent examples for such benefit management include net present value (NPV),
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return on investment (ROI) or internal rate of return (IRR) (Remer et al., 1993). However, there is no clear benefit management in many service companies, as different methods for evaluating and comparing Six Sigma projects are applied in parallel (Antony et al., 2007). Here, a survey in the German financial services industry shows that results of Six Sigma projects should be assessed more effectively (Bo¨rner and Leyer, 2010). Therefore, a quantitative measurement based on predefined methods has to be performed. The tracking of a project’s success should cover a 12-month period after project termination. In an ideal case, benefit management should be set up to cover aspects like technical utility, improvements in productivity, cost savings and project costs. Measurement at the portfolio level allows for the consideration of general costs such as those relating to a Master Black Belt, which are not easy to allocate to specific projects (Chakrabarty and Tan, 2009). 4.3 Characteristics of CTQs and CTBs CTQs are derived from critical customer requirements and assigned as characteristics for product or service processes. The following example (adapted from Frings and Grant (2005)) will illustrate how a CTQ measure can be derived from a customer statement: A call center scenario. Customer quote: “I consistently wait too long to speak to a representative”. CTQ definition: representative responsiveness; CTQ measure: time on hold (seconds).
Basic CTQs or measurable process characteristics for financial services organizations are time, cost, and quality. However, most Six Sigma projects are concerned with a reduction of cycle time (Chakrabarty and Tan, 2007). When differentiating between service strategies, minimizing wait time is critical for professional service organizations (e.g. private banking), while cycle time is an important CTQ for mass service organizations (e.g. retail banking). Regarding cost reductions, a critical CTQ is the cost of transactions. Most important for the quality aspect is an improved accuracy in information provided to customers, and improved reliability of service systems. As the importance of process parameters varies across service types, it will be useful to position service organizations as professional service, service shop or mass service (Silvestro et al., 1992). Measures that are CTB are also very important. Although high quality is the primary goal to satisfy customers, cost effectiveness should also be considered. This includes minimizing cycle time in critical processes, removing non-value-adding processes, and reducing errors in processes (Antony, 2006). The CTBs should clearly aim at a positive impact on the KPIs, i.e. they should be in line with the KPIs defined earlier. The consideration of CTBs is especially important for the financial services industry, wherein the trend is to automate services before improving processes, i.e. simplifying and standardizing them (Heckl et al., 2010). 4.4 Organizational conditions Specification of the right organizational conditions is of great importance for a successful companywide application of Six Sigma; as such, a program has to be embedded in the whole organization (Larson, 2003). Basic conditions include the type of general management (top-down or bottom-up), the hierarchical coordination (whether Six Sigma is integrated into the existing hierarchy, or there exists a separate Six Sigma hierarchy), and the availability of and incentives for employees (Coronado and Antony, 2002).
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The latter condition is absolutely necessary to motivate employees for active participation and to ensure a continuous education (Coronado and Antony, 2002). Incentives can be, for example, promotions due to Six Sigma activities, annual objectives for employees, and defined concepts for careers. However, studies such as that by Buch and Tolentino (2006) show that such incentives do not exist in many companies. This holds especially true for direct incentives regarding Six-Sigma-related activities. With respect to the financial services industry in Germany, Bo¨rner and Leyer (2010) conducted a study using an empirical survey. Although the study is not representative, the results deliver helpful insights as most of the participants have practical experience with Six Sigma. The goal of the study was to analyze how much organization is reasonable while implementing Six Sigma. For this purpose, central issues of organizational structure and process organization have been analyzed. The key results are as follows: (1) Six Sigma should be implemented in a companywide initiative. (2) Six Sigma should be integrated into the organizational structure as a parallel hierarchy. This result is in line with theory suggesting a parallel structure, which is also described as a meso-structure (Schroeder et al., 2008). Experience shows that such a hierarchy improves the success of Six Sigma projects. Since the respondents in this survey have not yet realized the need for such a hierarchy, it is necessary to make involved managers and employees aware of this correlation. (3) Participation of employees in Six Sigma activities should be fostered in the future. Employee involvement can significantly improve the success of Six Sigma projects. According to the participants of the survey, improvements in the following fields are required: . amount of employee time allocated to Six Sigma projects; . inclusion of Six Sigma activities in target agreements in annual staff appraisals; and . inclusion of Six Sigma roles in job descriptions. Due to the nature of Six Sigma as a methodology for improving an organization, the induced changes have to be taken into account. A companywide implementation of Six Sigma can only be successful if the culture, structure and processes of a company change accordingly (Larson, 2003). Thus, a supporting management, training and salary system is necessary (Shani and Docherty, 2003). The majority of financial services companies are still function-oriented (Heckl et al., 2010), a point which is also valid for companies in general (Vergidis et al., 2008). Thus, several departments are usually affected by Six Sigma projects which aim at improving cross-functional services. As a consequence, these projects are hampered as several managers (e.g. department managers) with differing interests have to be considered. To reduce this effect and to ensure the success of projects, there should be a clear assignment of the managers who are responsible for a process (i.e. process owners), as well as for Six Sigma projects. Furthermore, there should be a Champion or a (Master) Black Belt leading the Six Sigma initiative, thus resulting in a parallel-meso structure (Schroeder et al., 2008). Furthermore, a process-oriented view, as proposed by Six Sigma, requires different knowledge compared to a function-oriented one (Kugeler and Vieting, 2003). To ensure this knowledge acquisition and enable the change, the involved employees have to be
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trained and informed about the changes. In an ideal case, trained employees will act as internal change agents, spreading the transformation throughout an organization (Proctor and Doukakis, 2003). In addition, education and training in Six Sigma will be useful to overcome the fear of rigorous statistical and quality techniques (Nonthaleerak and Hendry, 2008).
Developing a Six Sigma framework
5. Data collection 5.1 Design of the questionnaire The aim of the expert interviews was to revise and ground the initial theoretical framework in practice. For this purpose, we developed a structured survey consisting of four sections. The first two sections cover general demographic aspects to classify the participants and the organizations they are working in. The last two sections focus on the framework as a whole, and the details of the respective elements. Within Section 1, participants were asked to provide some data concerning the organizational overview. This section consists of three closed questions covering the role of the participant, the number of full-time employees in the organization, and other typical business process improvements used. Section 2 contains closed questions on the status of the Six Sigma initiative in the organization. Here, participants were asked to provide information on how many projects have been finished so far, as well as the percentage of successful ones and the reasons behind unsuccessful projects. In Section 3, the initial framework (Figure 2) was presented to the participants. They were asked to either confirm the elements of the framework, or come up with changes (i.e. removing an element or changing its name), as well as new elements if necessary. The participants also assessed the connections between the elements. In case of a disagreement, we required more details with respect to whether connections should be deleted or changed, or if new connections should be added. At the end, each participant was required to provide us with the elements and connections for the framework from his/her point of view. Section 4 contained open questions regarding the details of the implementation of the Six Sigma methodology in a financial services company. Here, we asked the participants to provide us with information on the current status on the one hand, but also on ideas for an ideal situation on the other. The aim was to get an idea of how the respective company is applying Six Sigma, and what is missing so far. The questions covered a broad range of topics, including initial preparations regarding introducing the methodology; the training approach, tools and techniques applied for the management of Six Sigma activities; the procedure for assigned projects; the performance indicators used; and the method to assess Six Sigma activities.
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5.2 Demographic data Using the questionnaire described above, interviews were conducted with 11 experts working in financial services institutions. The experts hold the full range of roles within the Six Sigma methodology. Among the participants there is one Sponsor, one Champion, five Master Black Belts, one Black Belt, two Green Belts and one manager responsible for belt resources. Thus, the different perspectives of stakeholders within a companywide initiative are covered within this selection. The sizes of the participants’ financial service institutions range from 500 to 999 employees, to over 10,000 employees (Table II).
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Thus, the participants represent medium-sized and large organizations, for whom it makes sense to implement Six Sigma. For financial service organizations with less than 500 employees, we were unable to interview partners as these organizations are not applying Six Sigma. A reason for this might be related to the investments necessary to apply the methodology before projects deliver benefits. In addition, the experience of financial services organizations with Six Sigma reveals the full spectrum of stages: three organizations are at the beginning (10-20 projects), two have conducted between 20 and 30 projects, one has run between 30 and 40, and five are quite experienced with over 50 projects so far. The experts reported that the success rate of these projects is round about 90 percent on average, with regards to the respective defined project goals, which differed due to the fact that the projects covered several areas within the organization and had different aims, leading to completely heterogeneous project goals. 6. Results According to Pressman and Wildavsky (1973), implementation means to carry out, accomplish, fulfill, produce and complete. Wheelen and Hunger (1992) refer to implementation as a process by which strategies and policies are put into action. The implementation process must have a starting point: if no action is started, implementation cannot take place. There must also be an endpoint: implementation cannot succeed or fail without goals against which to judge it (Pressman and Wildavsky, 1973). The above descriptions discuss implementation as a set of activities or a process. When considering Six Sigma implementation, a definition which implies that implementation is a process seems most suitable. This is due to the fact that the subject of Six Sigma, according to the focus of this research, is studied at an organizational level, which involves a well-established, top-down structure of various components, and consequently a process of activities is needed. In short, developing a sound implementation framework is crucial and should be one of the first activities conducted before embarking on Six Sigma projects. The framework will make the organization more aware of Six Sigma itself, and be able to introduce its elements and features in a more comprehensive, controlled and timely manner. The revised framework due to the empirical evidence gathered from the expert interviews is shown in Figure 3. The changes with regards to the initial framework, as presented in Section 4, are reported in Table III. A major issue is that of embedding Six Sigma in a financial services company next to other process improvement methodologies. No expert reported the exclusive usage
Number of employees
Table II. Size of the participants’ institutions
500-999 1,000-1,999 2,000-4,999 5,000-9,999 . 10,000 No answer
Number of respondents 2 2 1 1 3 2
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Strategy Strategic Business Objectives
Customer CTQ
Key Performance Indicators (KPIs)
Organisation CTB
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Line management
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Continuous process improvement
Project portfolio management Planning of project portfolio for PI
Six Sigma initiative
Project portfolio of other PI methods
Six Sigma project portfolio
Framework for Six Sigma project execution
Execution of projects
Benefit management
of Six Sigma. Furthermore, an initiative has to be integrated into every management facet – i.e. strategy, line management and project portfolio management – of the company. Only then a Six Sigma initiative can be successful in the long term. The detailed insights of the expert interviews are reported in the following sections. 6.1 Strategy The experts highlighted that the starting point for any process-driven evolution of a company is its strategic business objectives. KPIs are most important for the concrete
Figure 3. Revised framework for implementing a Six Sigma initiative in financial service organisations
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Description
Strategic business objectives KPIs
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Table III. Changes of elements from initial to revised framework
This element has been added as it represents the basis on which KPIs are operationalized This element is derived from the superior strategic business objectives of a company. Additionally, it is influenced by the CTQs and CTBs Customer CTQs The CTQs have been removed from the planning level to the strategic level of the project portfolio. Thus, CTQs are connected with KPIs Organization CTBs The CTBs have been removed from the planning level to the strategic level of the project portfolio. Thus, CTBs are connected with KPIs Process execution The element “process execution” is part of the level “line management”, which has been newly added. Processes are executed in line with the defined KPIs Continuous process Continuous process improvement is also a new element. If problems are improvement detected within process execution, continuous process improvement is implemented within line management. If this is not sufficient, a project has to be set up within the project portfolio management Planning of project This element has been split up. First, the project portfolio planning takes portfolio place independently of the method applied. The applied method is chosen after the required project is identified. Second, the portfolio management for each method takes place on a subsequent level Organizational conditions This element has been renamed the “Six Sigma initiative”, due to the embedding of Six Sigma in the context of the company’s process improvement as a whole Six Sigma project This element represents the subsequent planning of projects specifically portfolio assigned to Six Sigma Framework for Six Sigma The framework for Six Sigma project execution has been removed from project execution portfolio management to the Six Sigma initiative. However, it is still part of managing a project portfolio, as the Six Sigma initiative is part of the overall project portfolio management Project portfolio of other This element represents the subsequent planning of projects conducted PI methods with other process improvement methods, such as lean Management Execution of projects The execution of projects other than those using Six Sigma is represented by this element Benefit management Nothing has changed concerning this element
measurement of changes, but “only” operationalize the objectives set. Typical KPIs mentioned by the experts include quality, productivity and the achievement of service level agreements. Besides the influence of the strategic business objectives, the KPIs should be in line with the respective CTQs and CTBs. This is especially necessary in a situation wherein the strategic business objectives remain vague and KPIs cannot be deduced clearly or even do not exist. This can be viewed from the quote of one of the respondents: “often KPIs [do] not [exist. . .] then CTQs are used”. Thus, in such scenarios, CTQs and CTBs can help in defining KPIs. The experts reported that CTQs are typically gathered directly from customers, by conducting telephone interviews or using questionnaires. One organization even applied the structured approach of “Hoshin-Kanri” – a management system for long-term improvements. According to the experts, the connection between CTQs and CTBs is very close. However, a comparison of both aspects reveals that CTQs play a major role in, and even dominate, some financial service institutions.
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Concerning CTBs, the experts reported a great variety as these are linked to financial, strategic and regulatory topics. However, for the financial services sector, regulatory requirements dominate, as the financial sector is highly regulated. To gather these CTB aspects, a variety of methods are applied in financial services institutions. They range from utility value analysis, key measures of the company and cause-and-effect-diagrams, to benchmarks with other companies. One financial services company even monitors and reports operational KPIs daily. Furthermore, the voice of the employees is also included in the derivation of CTBs, as reported by some experts. The synopsis of all aspects is typically done using a performance matrix to indicate the importance of business processes. 6.2 Line management The inclusion of line management in a framework for Six Sigma is indispensable, according to the experts. As one participant mentioned, there is an important “link [between] KPIs [and] line organization, and from project portfolio to line organization”. This is due to the fact that the basis for the identification of necessary improvements is the execution of processes by the line management. Here, the process should be measured continuously, in line with the defined KPIs. In case of deviations from the planned values, the experts see a CIP procedure as the first step in any case. The CIP is performed by the line management teams. If the teams realize that the problem cannot be solved, they hand the information over to the project portfolio management team. Such improvements take place in incremental steps, which do not require the setting up of a project, as in the case of Six Sigma. However, Six Sigma is still a suitable method for continuous (“evolutionary”) improvements. Concerning this classification, there is also a separate discussion of Six Sigma being part of a continuous improvement process (Larson, 2003; Senapati, 2004). Bearing this ambiguity in mind, and based on the findings, we think that Six Sigma is part of a continuous improvement initiative in organizations. Nevertheless, we included the view of the experts that there is a lower level of continuous improvement that does not require projects. 6.3 Project portfolio management All of the experts reported that Six Sigma is an important initiative, but that within their organization other methodologies for process improvement are also used. Usually, this topic is bundled into a process excellence program, of which a Six Sigma initiative is part. Besides Six Sigma, Lean management is very prominent (used by nearly all financial services institutions). Further methodologies include quality assurance, quality control and even business process reengineering as a radical process improvement method that is part of the portfolio. Kaizen and TQM were only mentioned by one expert. The selection of the adequate methodology for process improvement mainly follows a fixed procedure. This was mentioned by nearly all experts. As each methodology has a different focus, the aim is to identify at an early stage which one fits best. The planning of the overall portfolio is usually conducted using a project portfolio matrix. Typical indicators on which such a matrix is based, according to the experts, include strategy, gaining productivity for growth, operational stability, probability of success, financial benefits through cost reduction, cycle time reduction, consequences if not done, risk urgency, and qualitative utility. Beyond these indicators, the availability of a project
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sponsor who is willing to provide a budget and resources is a major factor. Having identified the relevant measurements, the prioritization between the potential projects takes place. So far, the experts report that the decision is often taken primarily on “gut feeling”, but the trend is clearly in the direction of assigning quantitative scores to the projects. For this purpose, the individual measures are weighted and summed up. This is followed by the assignment of the best-fitting methodology for process improvement. The result of this planning procedure is a separation of portfolios, i.e. the execution of projects is conducted within the respective portfolio. 6.4 Six Sigma initiative Having assigned a project for Six Sigma, it becomes part of the Six Sigma portfolio. This means that the project enters the “Six Sigma world”, as one expert states. This implies that, from this point on, all resources, budgets, procedures and so on assigned to Six Sigma are relevant for the project. There should be a person responsible for managing all these resources in accordance with the timelines of the different Six Sigma projects, i.e. in the same way as in the overall planning of the project portfolio. The typical procedure for a planned project starts with talking to the sponsor. Afterwards, the necessary employees should be selected and assigned, and a kick-off meeting should be conducted. The execution of the project itself follows theory by applying the DMAIC, as described in the initial framework. A major issue for the acceptance of Six Sigma in the organization is communication. There should be a continuous flow of information to “normal” employees. Some institutions inform about the initiative in general, while some limit the information transmission to the employees affected by the projects. However, in aiming towards the establishment of a sustainable Six Sigma initiative, every employee should be informed about the initiative in general. Regarding employees involved in the actual Six Sigma initiative, a structured training approach should be implemented. The necessary employees have to be selected and trained for the major roles within Six Sigma. Initially, most financial organizations have relied on external partners, however, the aim is to conduct training internally in the main. In addition to project-related meetings, general meetings are often held to share experiences on different levels of responsibility. Organizations operating in several countries also reported on worldwide meetings regarding the different roles within Six Sigma. A promising approach reported for raising awareness towards a Six Sigma culture is to put employees within line management roles again, after having conducted the training and several projects. These employees are trained to seek possible projects that can improve the processes, and also to spread the idea of Six Sigma. To ensure the linkage between line management and the Six Sigma initiative, the so-called business partner model is also used. Here, every functional department is assigned a Black Belt. This person acts as a contact person or consultant with regards to process improvement issues. Overall, financial services institutions aim to set organizational conditions to connect project and line management with regards to Six Sigma. The sustainable benefit management of projects is of high importance, and is absolutely necessary – as confirmed by all experts. Nevertheless, the procedure for measuring benefits is not in a mature stage, as only a few of the institutions have applied a structured measurement approach so far. However, a net-benefit analysis approach is planned for the near future.
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According to the experts, benefit management is a cross-functional task carried out by several departments. The impulse for conducting a project comes from the line management, which also delivers the data for measuring the baseline. During the project, the project management is responsible for investing their expertise to complete the project within a defined time phase. Thus, the project-related data and measures taken during the project phases are gathered and prepared. Afterwards, the experts measuring the success achieved should take over the data gathered so far. Therefore, an important factor is maintaining a link between the financial control department, according to the experts. The control department should be responsible for monitoring the improved processes, and comparing the performance with the relevant KPIs. This should be reported to the financial department, and thus the potential of the project, as well as the realized benefits over time, should be linked directly to the annual budget of the improved process. However, the implementation of this was reported by few financial services institutions thus far. In addition, the period of monitoring after a project is limited to half a year on average, as reported by the experts. Besides this, in terms of consideration for the impact on the regular budget, responsibility for the process should be handed over to the process manager within the line management, as soon as possible. This allows for the detection of potential problems within the process measurement during process operations. Finally, some experts also mentioned the importance of including the human resources department to link the achieved benefits with incentives for employees. 7. Discussion Six Sigma can be seen as a toolkit to be adapted very flexibly by companies in order to enhance process quality. Within the literature, a lot of effort has been put into identifying CSFs to ensure the successful application of Six Sigma. What is missing so far, and what has been picked up in this research, is the question of how to cope with the CSFs identified. The results of this research show that Six Sigma within financial services institutions requires a great deal of organization in order to be applied successfully and thus cope with the CSFs discussed. Therefore, the contribution of this research is to bring together the relevant aspects to be considered in the context of applying Six Sigma in financial services companies. Therefore, a conceptual framework at the organizational level is proposed. Its elements are deduced from relevant CSFs for financial services organizations, and are developed using theoretical, as well as empirical, results. The revised framework consists of three levels, namely strategy, line management and project portfolio management. The strategy level includes objectives connected with KPIs, CTQs and CTBs. This is consistent with both literature and practice. The literature suggests that KPIs are derived from the strategic objectives of the organizations, whereas it emerged in the expert interviews that KPIs can also be derived from CTQs or CTBs. The line management side is primarily focused on managing the process operations, including programs for continuous improvement. This will act more like a decision making body, to decide on improvement programs based on the identified portfolio of projects. Project portfolio management is an important level wherein decisions on Six Sigma are a vital consideration for organizations. It has already been observed by
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Chakrabarty and Tan (2007) that organizations generally prefer Six Sigma if the project is challenging – , i.e. if the problem cannot be solved through other initiatives. We further observed from our responses that, like any other management initiative, Six Sigma is driven by top management, as Six Sigma projects require large amounts of resources, mostly in terms of training personnel. The evidence from the respondent organizations shows that most of these organizations have been involved in the initial training of employees, and have conducted pilot projects before embarking on a comprehensive Six Sigma program. This is understandable, given that all the respondent organizations are involved in quality initiatives such as business process reengineering, TQM, Kaizen, etc. Finally, whatever continuous improvement method is utilized, the outcome will be measured with reference to benefit management. For Six Sigma, the benefits identified are mostly related to financial evolution, and are managed by linking back to KPIs or financial planning. Benefit management also helps organizations to justify the selection of Six Sigma over other continuous process improvement initiatives. Despite the benefits described, a financial service company adopting the framework is very likely to face several difficulties. In any case the implementation of the framework requires the support of top management which is in line with the major CSF identified in previous studies. However, this is not sufficient for a successful application. As a series of changes with regard to the organizational structure of a financial service company will occur, the employees have to be convinced. The challenge is to inspire employees at all levels of the hierarchy. Otherwise, the organizational structure of the framework might be implemented but employees do not behave as expected. In this case, the adoption of Six Sigma is very likely to fail. Therefore, employees have to be informed continuously, the benefits of the introduction have to be highlighted and employees need clear objectives. The challenging aim is to prevent uncertainty and to point out personal goals which are more attractive than the existing ones. Concluding, the time until the Six Sigma framework is implemented successfully might take two or three years but as empirical evidence indicates a higher competitiveness can be expected. 8. Conclusion The developed framework adds a new contribution to the theory of Six Sigma in financial services. Existing literature is mainly focussing on the project level or highlighting general CSFs for companies adopting Six Sigma. However, the organizational conditions needed to perform successful projects in line with the CSFs remain undefined. Thus, a gap exists between the companywide requirements and the detailed descriptions how to conduct single projects. The presented framework fills this gap by defining the organizational conditions to apply Six Sigma on a companywide level in financial service companies. Beside the theoretical contribution of this research, the framework can be used by financial services companies to evaluate their Six Sigma activities. The framework will deliver an overall picture to help identify which relevant aspects have been considered, and which are missing. Thus, the Six Sigma initiative can be made more successful. Future work will concentrate on broadening the empirical evidence, as shown in Figure 4. The idea is also to consider other service sectors, in order to identify critical issues and integrate them within a framework for Six Sigma initiatives for service companies. We plan to validate these relationships through a large-scale web survey, and finally capture the results in a framework that can be generalized for service organizations as a whole.
Theory from strategic level
Theory from organisational level
Developing a Six Sigma framework
Service literature
Initial framework for fin. services
Gather expert knowledge
Revised framework for fin. services
Theoretical framework for services
Validate through survey
Final framework for services
Theory from portfolio level
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in Manufacturing Systems Engineering from BITS, Pilani, India and Bachelor of Production and Industrial Engineering degree from University of Rajasthan, India. He has more than six years of work experience. His work experience includes research, teaching and quality engineering in the electronics industry. His current research interests include Six Sigma, service management and business process management. Michael Leyer is a PhD student and research associate at Frankfurt School of Finance & Management. He studied Economics in Osnabruck, Germany, with specializations in microeconomics, banking and finance (Diploma in Economics). Beside his studies he worked for a major German Bank in the credit management department, focusing on process improvement. His research interests are operational control of service processes, business process simulation, process mining, knowledge management in business processes and Six Sigma in banking. Michael Leyer is the corresponding author and can be contacted at:
[email protected]
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