Feb 27, 2010

The Six Sigma way to identify what to change

Six sigma practitioners have been pointing out six sigma also provides approaches to decide what requires change in an organization.

If one were to look at what Stephen A. Zingraf says in 'Six Sigma-The first 90 days' (2006,Prentice Hall) six sigma methodologies provide a quantitative understanding of the relationship between the process outputs and the process inputs. The output of a process is a function of a set of inputs of a process (Y=f(x's)). where Y is the output and X's are the inputs. This understanding can be translated into the strategic planning process

Y Return on investment =f(Profits, Investments)
    Y Revenue =f (Quantity Sold,Average Selling Price,Discounts)
         Y Profits = f (Revenue,Product Cost, Business Costs)
              Y Cash Flow = f( Profits,Working Capital)
                   Y Economic Value Add = f(Profits,Capital Charges)

The process of six sigma is designed to identify the most important inputs,optimize those inputs and then control them. In Six Sigma parlance the critical Ys  (big Ys) are a function of inputs.Projects improving those inputs will improve the performance on the outputs.

So an organization attempting to identify what needs to change can use an analysis of x's and Y relationship to decide what to change.
But how does one decide the big Y's that require focus. Do organizations stumble by picking wrong areas to concentrate improvement actions?

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