Lean Six Sigma Solutions
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Studium przypadków Lean Six Sigma
Case study #5 Value Based Management
Organizing for Success
With such high stakes, the first step that ITT CEO Lou Guiliano took was putting together a deployment team to investigate Six Sigma approaches in the marketplace, select one that would work for ITT, find external partners who could provide needed Six Sigma expertise, and develop an implementation plan.
Nori Morimoto, the Director of Value-Based Development in ITT's Motion and Flow Control group, says the choice of external partners was particularly critical. "It's not just that we wanted to put our own stamp on Six Sigma. We wanted to get an approach that could work for ITT," he says. "That's why it was important that our partners be able to build on prior improvement initiatives, not just bring in a prepackaged program."
Morimoto notes there was one other key criteria used to select external partners: their training and coaching had to go beyond technical issues to include leadership and teamwork skills. The result, he adds, is a unique initiative known as Value-Based Six Sigma (VBSS) within ITT.
Once the approach and partners were selected, the next step was preparing the infrastructure, deciding both how it would be structured and training the selected candidates.
Integrating the Six Sigma Infrastructure
On the one hand, ITT knew they wanted to integrate VBSS into the corporate culture and operations, which would argue for having the dedicated resources reporting directly to line management. But they also wanted to create a strong VBSS network, where Champions and Black Belts could support and learn from each other.
They resolved this challenge by combining direct- and dotted-line reporting relationships between the dedicated VBSS resources and managers with P&L responsibility. "ITT is divided into four divisions, each of which is comprised of six independent companies that we call Value Centers," explains Morimoto. The champions all report directly to their P&L manager: the corporate VBSS Champion reports directly to the CEO, the division Champions report directly to the top divisional executives, and the value-center Champions report directly to their President or General Manager.
The situation with Black Belts is slightly different. "They still have links to P&L management by reporting to the value-center champions," says Morimoto. "But they are the only people pulled out of their original functional responsibilities." In essence, that means the Black Belts can be deployed anywhere in the company, such as having an engineer looking at inventory reduction from an entirely different perspective. Adds Morimoto, "We've found this is important in creating a rich learning environment and facilitating the transfer of knowledge."
"These are very powerful reporting relationships that we set up from the beginning," Morimoto says. "It helps ensure that VBSS is used to help meet corporate objectives, but also provides the Six Sigma resources with a lot of support." In addition, a strong network of dotted-line relationships is maintained among the VBSS resources, linking company Champions and Black Belts ultimately to the corporate Champion.
Training
Initially, says Morimoto, a consultant had advised them to provide both leadership and technical skill training for everyone involved in deploying VBSS, from Champions and Black Belts to the P&L managers. That plan was scaled back eventually to include only Black Belts, but that decision was soon revisited...
"The first week of our five-week training program is something we called Increasing Leadership Effectiveness (ILE) where participants learn about and improve their own leadership skills," Morimoto explains. Because the ITT deployment team was aware of the need to monitor internal as well as external customers, they had a plan to regularly survey each group of trainees. After the first group of Black Belts had completed the ILE training, they said, "We need the Champions to go through this." So the Champions received the ILE training.. and in their evaluations, the Champions said, "We need our value-center management to go through this."
Having a leadership component in their program has proven unexpectedly useful. "It's easy to get good strategy and poor execution, or poor strategy with good execution. By having good leadership skills, we're in a better position to have good strategy and good execution," says Morimoto.
Integrated Deployment
The plan for Six Sigma deployment at ITT included several tactics that build on interaction or behavioral principles to closely align strategy and execution.
For example, before any of the newly trained Champions and Black Belts are deployed into projects, ITT takes the innovative step of performing a diagnostic in each independent company (value-center). The diagnostic team consists of the value-center Champion plus two outsiders: a Champion from another value-center (one that serves a different customer) and an external consultant. "Getting an outside perspective is important in helping us identify opportunities for improvement," Morimoto says.
The diagnostic team reviews strategic and operating plans, pulls currently existing financial reports, and conducts interviews at all levels of the value center. They go out into the offices and plant floors to observe the work and ask questions such as, "What does your customer want?" and "What is this inventory here for?"
Out of this diagnostic comes a laundry list of improvement or strategic opportunities, which are then put through a Benefits and Effort (B&E) analysis. Part of the Benefits discussion includes deciding how to evaluate the potential impact on operating income, capital, revenue, and business strategy. Effort is a prediction of how much time and investment it will take to achieve those benefits.
"The diagnostic team works with local management to refine the criteria used to evaluate Benefit and Effort," explains Morimoto. The discussions about how that group defines basic metrics have proven especially useful. "If there are five managers sitting around the table, we often find we have five different definitions of 'quality'," he says. "It is critical that they agree on one definition, otherwise our criteria and measurements will be meaningless."
After the B&E analysis is complete, the diagnostic team and local management continue working together to select which projects to launch. Morimoto says they always look at the selections and ask, "does this feel right?" because it's important to include both a qualitative and quantitative assessment.
Value Center & Project Launches
Once the projects are selected, each value center holds an official launch where senior staff sign off on the projects and on what it will take to get there. "It's important to be explicit so managers know, for instance, that they're giving up 20% of an employee's time over the next three months in order to get this critical project done," Morimoto says. "This way, senior management goes away knowing they are making decisions about their resources, their people, their money. It's not the Champion's people or money."
The value center launch is followed by a formal kickoff for each project that continues building the links from strategy to execution. "The value center's General Manager and Champion meet with the Black Belt and team for perhaps 4 to 12 hours, going over all the details of why the project was selected," Morimoto says. "The purpose is to make sure that team members understand how their effort on this project will contribute to corporate strategies and goals."
Once the projects are launched, senior management continues to be involved through "phase gate" reviews that are conducted between each DMAIC step. "In those reviews, we're asking management to evaluate whether what we know now justifies continued investment in this project," says Morimoto.
For example, sometimes a team learns that the actual benefit is likely to be much less than estimated, or that the project is too large for them to handle within a reasonable timeframe. "Management has to then decide whether to keep the project going as is, rescope or retarget it, or stop it and invest in something better," Morimoto says. "If a project is cancelled, the resources and dollars are reinvested in another project of higher value."
Challenges and Lessons Learned
By any measure, ITT's VBSS effort has been successful. They have created a strong infrastructure that is making significant contributions to the corporate bottom line. But even they have challenges. Three areas that stick out in Morimoto's mind are:
1) Truly gaining management commitment. Changing culture and long-standing patterns of behavior isn't simple. Even with strong CEO commitment and a process designed to involve a large percentage of senior staff, ITT still finds that not all managers fully support the VBSS efforts. "It's gotten better as we conduct more workshops and improve our diagnostic processes and value-center launches," says Morimoto. But it's an area that takes constant vigilance and attention.
2) Measuring the impact. As in most companies, ITT finds it easy to measure some types of results. "If I can deploy two employees to another area because we've reduced complexity, or if I can reduce inventory by 15%-those are the types of savings that I can show directly on a financial statement," says Morimoto.
But, he continues, there are other types of impact that are just as important... and nearly impossible to quantify in P&L terms. Suppose, for example, that a team comes up with a new protocol that allows employees to save 15 minutes a day. They're still doing their regular jobs, but they're more efficient. And over the course of a week they have over an hour they can spend on more value-added work. "Current accounting systems are not capable of reflecting this type of productivity improvement in the P&L statement," Morimoto says.
There is even more to the picture, he continues. "How do you measure the intangibles, like how much better a line worker feels when his or her workspace is clean and well-organized?"
Ultimately, says Morimoto, the projects that promise "soft" savings can be equally or even more important than many of those with "hard" savings. If companies continue to look only at benefits that are easily quantified, they're going to keep doing the types of projects they've done all along and miss a lot of opportunities for innovation. "Some really great projects will languish at the bottom of your list unless you look at different ways to evaluate potential impact," he notes.
3) Knowing what's going on throughout the company. ITT is a worldwide, Fortune 500 enterprise with a lot going on at any given moment. "One of our biggest challenges is to surface the projects that are already going on," says Morimoto. In any company, the managers who try to optimize their own piece of the pie by launching independent projects are missing the bigger picture. "They're sub-optimizing the organization as a whole by using up limited resources on projects that may not have the highest potential for payback or the strongest links to customer needs or corporate strategy," he explains. The project discovery process used at ITT is helping to alleviate this problem, but it's still a challenge identifying and tracking ALL projects that compete for resources.
Of all these challenges, ITT views coordinating and educating its senior management-gaining their commitment-as the most important. "We identified three key strategies for this year-operational excellence, growth, and leadership," says Morimoto. "Lou Giuliano places leadership at the top."
© 2005 Lean Six Sigma Solutions
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