Sunday, February 17, 2013
Six Sigma in General Electric (GE)
This week’s topic focuses more on the improvement of the whole process of a company. After reading this week’s articles, I become interested on Six Sigma. Then I found some interesting articles about how GE used Six Sigma to improve the quality to a new level which its competitors cannot achieve.
Jack Welch, the former CEO of GE, decided to implement Six Sigma in GE in mid 1990s. And this action gained a great success in profiting the company. There are four aims of Six Sigma’s implementing in GE: reducing cost, satisfying customers, gaining recognition of Wall Street and improving corporate synergies. Driving by these goals and associating with its own situation, GE combined Six Sigma standards with its service-oriented business (GE Capital Services and GE Medical Systems) and developed its own business process. To implement Six Sigma, GE formed a Six Sigma group to make special strategies and develop the training model. After the revolution of Six Sigma in GE, it produced a lot of benefits. The most direct benefits are the reduction of cost and increase in benefit. The following picture shows the cost and the profit from 1996 to 1999.
From GE’s case, we can see that implementing Six Sigma in a company will bring numerous advantages. First, it is able to enhancing the company’s management by simplifying the management process. Second, it is able to save the cost of company’s operation by reducing the failure rate. Third, it is able to increasing the value of customers because it achieves a virtuous circle from understanding and meeting customers’ needs to maximizing profit. Fourth, it is able to improve service levels because Six Sigma can be used to enhance service process. A Six Sigma management team of GE Lighting sector successfully improved the relationship with its largest customer, Wal-Mart, making a 98% reduction of the wrong notes and disputation so that both can not only accelerate the speed of payment but also harmonize the cooperative relationship. Fifth, it is able to form a positive company culture because every employee knows what he or she should do and how to do it.
Although Six Sigma can bring so many benefits to a company, there still are some defects. In general, Six Sigma is just a method of improving management. For different companies, there is no universal model which they can use. How to develop their models is a critic problem in implementing Six Sigma. From the GE example we can see that it took GE quite a lot of time and money to develop its customized model. Although the benefits were significant, the cost of Six Sigma training is almost 1 billion dollars in the five years. To companies whose scale is not that large, maybe they cannot afford such huge expenditure. But develop an imperfect solution is useless and costly. So how to balance these problems is quite important to small and medium-sized companies.