Implementing six Sigma at GE

Journal for Quality and Participation, The, Jul/Aug 1998 by Hendricks, Candace A, Kelbaugh, Richard L

General Electric turns false starts and execution issues into opportunities for continuous improvement rather than finger-pointing.

Over the past 15 years, General Electric (GE) has pursued business-performance improvement and corporate profitability using a wide range of programs. In the 1980s, these programs resulted in a reduction in GE's total work force from 400,000 to 300,000 and an increase in net profit from $3 to $4 billion annually. And, at this time, GE had an operating margin of just under 10 percent.

But more work was needed, and in 1995, General Electric CEO Jack Welch directed the company to undertake Six Sigma as a corporate initiative, with a corporate goal to be a Six Sigma company by the year 2000.

What is Six Sigma?

For those not familiar with Six Sigma, it is first and foremost a philosophical approach that demands the effective use of data to analyze business issues. Key decisions about business activities now beg the question, "How does the available data support that decision?" Whether the decision is a make-buy decision, a productchange question, a new-modelintroduction question, or a manufacturing-process decision, the decision on how to proceed is dependent on the available data.

Six Sigma is a measurement. A more illustrative explanation can be found in a 1997 letter Welch sent to GE stockholders: "The Six Sigma quality initiative, very briefly, means going from approximately 35,000 defects per million operations, which is average for most companies, including GE, to fewer than 4 defects per million in every element in every process that this company engages in every day."

GE was not the first large corporation to undertake the Six Sigma discipline. In the ten years prior to 1995, a number of companies began Six Sigma: Motorola, Texas Instruments, Eastman Kodak, and Allied Signal. Their discoveries and successes were well documented. When embarking on their own process, GE adopted many of the concepts and disciplines of Motorola's Six Sigma methodology.

Motorola's involvement with Six Sigma began in 1982, when it implemented a quality-improvement program that later became known as Six Sigma. Motorola's CEO asked corporate managers to cut quality costs in half that year. He repeated the charge in 1983. By 1984, the cost-reduction efforts were beginning to point to the need for improved analytical methods and product design for continued process improvement-and the Six Sigma discipline answered this need.

Motorola's emphasis was on designing for Six Sigma quality, and a number of advanced quality tools were used. Because effective application of these tools was essential, Motorola developed its extensive Six Sigma tools curriculum and created Six Sigma practitioner qualifications. Motorola's early efforts led to winning the Malcolm Baldrige Award in 1988.

GE expects to leverage lessons learned from both the Six Sigma pioneers and a 1989-initiated program, "Workout," to reduce the time needed to achieve Six Sigmalevel improvements-from ten years to five. Welch has directed that every exempt employee at GE be trained in Six Sigma methodologies by the end of 1998.

Putting Six Sigma to work

As both philosophy and measurement, Six Sigma focuses on gaining full-process understanding, including thorough analysis of how the key process inputs affect the process output. Data about output alone is not the defining parameter, but rather that information is analyzed together with the input data to confirm the "root cause." Once the key inputs are identified, assuring sustainability of any process, improvement is simplified by linking the control plan to controlling the input rather than controlling the output.

Why go through all of this? In most businesses, data on process output is available in some form, but data on process inputs is commonly missing. The business question is, "Why generate the additional cost to gain this information?"

Corporate profitability must be the driver of such an effort. If it doesn't deliver dollars to the bottom line, don't do it. Over the last 15 years, GE has initiated a number of programs focused on driving cost out of the business. Business leaders today continue to expect any significant effort to contribute to reducing bottomline costs.

The reported operating margin for 1997 was 15.7 percent, up from 14.8 percent in 1996. At this margin level for a diverse corporation, continued growth demands a more intense effort. In 1997, the GE Six Sigma effort contributed $700 million in corporate benefits. In 1998, GE expects to see benefits of $ 1.2 billion. At this point, unpeeling the next layer of the onion requires a different set of investigative tools and a new methodology. If done well, using Six Sigma tools will allow GE to continue to reduce business costs relative to income.

Six Sigma roles

When Welch communicated his intention for GE to become a Six Sigma in 1995, GE Appliances nominated a team of full-time Master Black Belts to lead the process change. The Six Sigma position, Master Black Belt-a new position to GE Appliances as well as other GE businesses-took on the role of training and mentoring Six Sigma Black Belts and leading the change of the business culture.