Book Review: Lean Six Sigma | AccountingWEB

Book Review: Lean Six Sigma

I wanted to read this book--Lean Six Sigma--by a Master Black Belt (Michael L. George) just to see if Six Sigma, with the addition of Lean, has changed any since the Agricultural Revolution of the late 1800s, the true historical origin of Six Sigma, according to my late mentor, Dr. Sheila Kessler.

I kept an open mind reading this work, to see if you could really apply Lean Six Sigma to what we at VeraSage call Professional Knowledge Firms (PKFs). I came to the conclusion that Lean Six Sigma may have value in a manufacturing environment (and this is debatable, see this and this article), but not in a PKF.

Lean is about speed, not manufacturing. Six Sigma is about quality. Combine them (LSS) and you get "doing quality quickly." The author claims Lean Six Sigma is the "most powerful engine available today for sustained value creation."

He also poses the following question while providing the answer: "Why do you need Lean Six Sigma? Superior speed, quality, and cost are the engines driving productivity and revenue growth and sustained competitive advantage."

Well, that's not exactly correct. Innovation and value drive sustained competitive advantage. Try making a dot matrix printer faster, at lower cost, and higher quality and see how long that lasts.

The author seems to support the view that shareholder value is the number one goal of a business. But shareholder value is a result of customer value, not a cause.

The true purpose of a business is to create wealth outside of itself--that is, value for the customer.

The author outlines the system needed to achieve a Six Sigma culture:

  • Customer centricity
  • Financial results
  • Management engagement
  • Resource commitment
  • Execution infrastructure

This talks a good game, since it all starts with the voice of the customer. The problem--and the devil--is in the details.

LSS breaks everything down into "value-added" production steps and "non-value-added" production steps (with the latter usually outnumbering the former). Fair enough. The costs of these non-value-added steps are like a "hidden factory."

But this suffers from the same overarching error made by cost accountants--that is, the flawed assumption that as something moves through a factory, it becomes more valuable to the customer as costs--or value-added processes--are added to it.

But this is patent nonsense. It's cost accounting on steroids. And cost accounting doesn't understand value.

The customer doesn't buy a bundle of assigned costs, or value-added processes. They buy a finished good, along with all of the experiences that go along with it, including after sales support and service, customer service, etc.

In fact, if you study the Smile Curve, LSS applies to the lowest value point in the manufacturing chain.

Also, the author seems to think innovation comes from customers, but this, too, is nonsense. Customers iterate, they don't innovate. How can a perfectionist culture like LSS innovate?

If your objective is quality faster, where is there room for trial an error? Look at Motorola, always held up as the perennial exemplar of Six Sigma. How's that LSS working out for it? Its last innovation was the RAZOR, and that was short-lived.

Steve Jobs was once told by a reporter that many companies do try to create systems, processes, and methods to ignite innovation, and Jobs replied:

Of course they do. It's like somebody who's not cool trying to be cool. It's painful to watch...It's like watching Michael Dell try to dance. Painful.

Jobs also said this:

We're gambling on our vision, and we would rather do that than make "me-too" products. For us, it's always the next dream.

You won't find that attitude in the LSS toolbox. And that thinking is bad enough in a factory setting, but it's devastating in a knowledge environment.

If you want innovation and excellence in customer service, you better be willing to invest in creativity and great customer service, the opposite of efficiency and LSS.

But this author is smart (which is why I gave this book three stars) because he writes this:

I don't claim that LSS is the last word; I just say it is the best current practice to create shareholder value. Given the rapid state of advance, it is best to remain humble about LSS, as they next generation will no doubt be even better equipped.

And better equipped we are. With what? Value creation, innovation, and Value Pricing. KPIs that are predictive and leading, rather than the lagging indicators the author cites in the book. A focus on effective efficiency, meaning that being effective automatically increases efficiency, but not the other way around.

Ironically enough, the author understands this, especially when it comes to the power of pricing on profitability. On page 294, towards the end of the book, he cites the 1% effect pricing can have on profits compared with increasing volume and cutting costs. Pricing dwarfs savings in material costs by a factor of 2 to 1.

Since that is a fact, PKFs are much better off establishing a Value Council; appointing a Chief Value Officer; implementing Price-led costing, Key Predictive Indicators, Project Management, and After Action Reviews.

Use these tools and you won't have to suffer through a boring LSS course or turgid book, or get a braided belt in various colors, for lean, fat, or skinny.

You will, however, become obsessed with creating customer value, capture a fair share of that value, gain effective efficiency, and create sustainable competitive advantage.

One last thought: I'm still waiting for professional firms that use LSS to get rid of the billable hour and the timesheet.

After all, if they really did listen to the voice of the customer, these two relics would certainly be considered "non-value-added" and would be eliminated.

We won't hold our breath.


This blog

VeraSage Institute is the most revolutionary think tank for professional knowledge firms-we challenge the professions to break free of practice methods that hurt the professions, undermine their purposes, and fail their clients. Among our quests: burying the billable hour and archaic timesheets; pricing on purpose; recognizing that professionals are knowledge workers, not machines; and improving the professions for posterity.

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