I teach that by itself Lean is a way to redesign a value stream according to certain principles to improve flow in a value stream, thereby reducing cycle time and achieving a number of other benefits quickly. Six Sigma has two modes: project and operational. The project mode involves a framework such as DMAIC or DfSS. The operational mode employs Six Sigma principles (management by facts and data, statistical thinking, systematic identification of root causes of outcomes, etc.) to achieve stakeholder goals. Lean Six Sigma can be used to provide a framework for kaizen bursts, or to solve other problems preventing continuous flow in an organization or value stream.

Hmmm…Upon re-reading this it strikes me that it’s full of jargon. Let’s try putting it into layman’s terms.

Lean helps you make things with minimal waste and delay. Six Sigma helps you find out why things vary and how to reduce variation. Lean Six Sigma helps you solve challenging problems causing waste and delay.

Johnson & Johnson says pallets to blame

NEW YORK (CNNMoney.com) – More than a week after a big recall of tainted Tylenol and other non-prescription drugs, a battle has erupted between drugmaker Johnson & Johnson and makers of a shipping component the company blames for the problem.

An undisclosed number of containers of Tylenol, Motrin and other over-the-counter drugs were recalled earlier this month after consumers complained of feeling sick from an “unusual” odor.

Johnson & Johnson officials are now saying that the problem was caused by the wooden pallets used to ship the products. Pallet manufacturers take exception to this. National Wooden Pallet and Container Association (NWPCA) president Bruce Scholnick points out that there are 1.2 billion pallets used each day in the USA and that industry experts have no knowledge of pallets ever being responsible for release of either of the two chemicals that Johnson & Johnson blame for the problem.

“We also insist that you provide technical and scientific theory as to how this chemical could spread from a tertiary packaging component to a primary packaging component through various layers of cardboard and plastic packaging surrounding the primary product,” said Scholnick.

Regardless, it is obvious that the incident is causing image problems for the company. The Christian Science monitor reports that, unlike the proactive approach taken by the company in its voluntary 1982 recall of tainted Tylenol, Johnson & Johnson dragged its feet in the current episode. According to a FDA spokesman, McNeil Consumer Healthcare, the business unit responsible for the products, didn’t respond to the problem quickly. “While McNeil has cooperated with FDA in recent weeks, their initial response was unsatisfactory,” says Christopher Kelly, an FDA press officer. “We repeatedly pressed them.”

Slow to respond. Quick to point fingers at others. A root cause that sounds a bit far-fetched and which is, according to NWPCA spokespersons, “factually unsupported.” This doesn’t sound like the same company that we all came to know and admire in 1982. I hope subsequent actions by Johnson & Johnson prove me wrong.

In a letter published in the journal Nature (Nature 463, 527-530 (28 January 2010)) entitled “Ensemble reconstruction constraints on the global carbon cycle sensitivity to climate” the authors discuss the processes controlling the carbon flux and carbon storage of the atmosphere, ocean and terrestrial biosphere. These processes are likely to provide a positive feedback leading to amplified anthropogenic (i.e., human caused) warming. But the magnitude of the climate sensitivity of the global carbon cycle and thus of its positive feedback strength, is under debate, giving rise to large uncertainties in global warming projections. The paper describes a study designed to quantitatively estimate the feedback parameter, γ, based on pre-industrial CO₂ estimates based on “proxies” such as ice cores.

The authors conclusion:

“We find that γ is about twice as likely to fall in the lowermost than in the uppermost quartile of their range. Our results are incompatibly lower (P < 0.05) than recent pre-industrial empirical estimates of ~40 p.p.m.v. CO2 per °C, and correspondingly suggest ~80% less potential amplification of ongoing global warming.” (italics added.)

In short, the cabon cycle feedback effect is weaker than formerly thought by climate researchers. This will require a revision of the simulation models used to forecast climate change and will, in all likelihood, lower the projected impact of human activity on the climate. An amplification reduction in the 80% range could result in dramatically lower projected impact.

All models are wrong, some models are useful. Corollary: apply models with care and always temper their interpretation with sound judgment.

While we work to improve quality and efficiency, our leaders manage our organizations into oblivion. Literally. Something is terribly wrong. Leaders of major corporations in virtually all industries do things that causes them to, either accidentally or deliberately, destroy billions of dollars in value in a breathtakingly short time. What could be behind this phenomenon? I’d like to explore a few possibilities.

Business Education

This subject has been the topic of many an article lately, and even a few scholarly papers. Most of these place the blame on one or more of the following:  inexperienced professors focused on academic pursuits; failure to teach ethics/social responsibility; lack of practical experience opportunities for students. Professor Henry Mintzberg warns that business school academics pursue the arcane just to achieve academic publication. For state-funded institutions, being published means points and points bring prizes in the form of additional government funds.

“We need more innovative ways of teaching,” Professor Cary Cooper of Lancaster University’s Management School admits. “MBA courses, case studies and knowledge transfer are not the whole answer to what management education should be about. We need more strategic management experience related to front line management. Managing change in technology, ethics, leadership and management skills is what dictates the success or failure of companies today. I don’t think management education is enough about the skills of management – the skills of managing other human beings.”

Dr Peter Hahn, a banker turned academic, points out that too much of business academia maintains a two-tiered universe, with those doing most of the central business teaching lacking business experience, and those leading and administering often lacking academic experience. Those with business backgrounds could add so much more. “Business schools need to entice more experienced men and women to gain superior academic credentials,” Hahn says. “The economics of teaching will assure that this is never going to be a large group, but it should be a vital one to keep business schools viable and relevant.”

Progressive Education and Pragmatism

Not only is the content of business education irrelevant and the faculty in business schools inexperienced and unqualified, the method of teaching and the underlying philosophy are also flawed.  The most popular approach to teaching business students is the case method. In essence, the case method replaces textbooks and lectures with disguised historical data about a (usually disguised) company and discussions among students and professor about how to respond to the data. Truths and right answers are not only not taught, proponents of the case method do not believe that universal truths exist and faculty often disagree among themselves on the answer. Teaching students business principles is thought to be “dictatorial.” Instead, learning is considered a social venture (not an individual accomplishment) and the emphasis is on acting rather than knowing.

With few exceptions, students who are taught using this approach are not able to think for themselves. According to Jerry Kirkpatrick of Northwestern University, “The case method of instruction does not enable students to think for themselves; rather, it teaches students to become arrogant, emotion-driven, critics who do not have any knowledge to think about even if they could think.”

Can you think of any managers in your company who might fit this description?

Governance

Warren Buffett lists the following guidelines for good corporate governance:

• Minimal Board Compensation: The board is the lowest paid of all Berkshire employees.
• No Stock Options: Buffett believes stock options should not be part of executive compensation and resigned from Coca-Cola’s board when the beverage giant insisted on paying stock options. Berkshire directors get no stock options and instead must buy stock on the open market, or “pay to play.”
• No Indemnity: Although Berkshire is an insurance company, it doesn’t provide professional indemnity insurance for directors and officers, unlike 93% of US companies. This forces management to better identify, assess and manage risks.
• No Retirement: Directors and officers are asked to serve for a lifetime, with no term limits, enabling the company to seamlessly tap accumulated experience and knowledge, especially of the owners-turned-managers running the family businesses acquired by Berkshire. There are no management contracts, and managers are free to leave at any time.
• Transparency: Buffett explains his principles on values and investing in the Berkshire Hathaway Owner’s Manual. These include treating shareholders like partners, not taking on debt, preferring to buy family-owned businesses, and being free to talk about anything except the stocks that Berkshire is buying or selling, which would create investing competition.

Assuring good governance, Buffett points out, is the responsibility of all stakeholders, not regulators.

Incentives

President Barack Obama believes that the cause of the financial meltdown was greedy bankers. Indeed, we are all conditioned from childhood on to believe that selfishness is bad and that it is immoral to be “greedy.” But all living things pursue their own self interest, plants and animals alike. All of us are “greedy” in the sense that we would like to improve our lot or that of our loved ones. Are bankers (or big businessmen, or stock brokers, etc.) as a group more prone to this than the rest of us? I seriously doubt it. Instead I believe that the incentive structures allow and encourage business leaders to act in ways that jeopardize the interests of investors and employees while enriching themselves. For example, the 2002 Berkshire Hathaway annual report includes this insight in the discussion of derivatives:

“The parties to derivatives also have enormous incentives to cheat in accounting for them. Those who trade derivatives are usually paid (in whole or part) on “earnings” calculated by mark-to-market accounting. But often there is no real market … and “mark-to-model” is utilized. This substitution can bring on large-scale mischief.”

“Greed,” aka self-interest, is a constant. It didn’t just appear in the fall of 2008. Blame the system that caused leaders in entire sectors of the economy to act in ways that harmed their major stakeholders, and the economy. Structure incentives such that the interests of all groups are in harmony. Make sure that business leaders’ fortunes rise and fall in the same way as those of their constituencies.

Solutions

Assuming that the problems of incentives and governance are addressed as recommended, the Lean Six Sigma approach can then be used to remedy the problems with management education. Lean Six Sigma is more than a set of technical tools that can be used to solve specific problems. Over the decades since WW II it has evolved into a complete system for managing an enterprise. Rather than a haphazard approach to leadership based on a social consensus, we begin with fundamental principles of leadership and deploy these principles using a rigorous approach. The approach can be summarized as follows:

1. It all begins with the vision of the founder. This foundation establishes the purpose of the enterprise and it doesn’t change. Deming calls it “Constancy of purpose.”
2. Next, leaders identify stakeholders, learn their voice, and translate these voices into broad strategies for achieving long-term success.
3. The strategies are operationalized with specific balanced scorecard metrics that are sorted into those metrics that represent requirements which must be competitive and those requirements that must be world-class.
4. Selected metrics (we have a process for making this selection) are displayed on leadership dashboards. This provides leadership with a focus and a way to measure progress.
5. The dashboard is used to identify improvement projects and plans. Some of the projects will be “just-do” projects, others will be lean six sigma projects.
6. The feedback provided by the dashboards will be used to determine if the plans and projects are successful in terms of implementing the strategies. Strategic plans will be modified accordingly. Thus, strategic planning becomes an ongoing activity rather than an annual exercise in futility.

Unlike the approach taught in business schools, our approach is based on a vision of a new and better world resulting from the enterprise’s existence. We look to harmonize the interests of all stakeholders, rather that pitting one group (shareholders) against all others. We believe that there is an objective reality and that we can know it, albeit imperfectly, through models, facts and data. We believe that facts and data can help us make better decisions, and we have tools which help us glean information and knowledge from the data. Finally, we understand that our strategies and plans are a model of reality and that our actions have an impact on this reality, i.e., our plans are a transfer function that connects the root causes we address with the outcomes we desire. We believe that although all models are wrong, some models are useful. We use objective feedback to help us determine how to make our models more useful.

Will Toyota's Image Suffer Permanent Damage?

One Wall Street Journal headline shouts Toyota Sales Halt Raises Quality Questions and a WSJ blogger opines that this incident could be a crippling blow to Toyota’s mystique. Certainly this episode is one of the darkest in Toyota’s history. The scope of the shutdown is staggering and includes suspending sales of eight of its most popular models in the U.S. due to potential accelerator problems. The extraordinary step follows a recall last week of 2.3 million vehicles in the U.S. and an earlier recall of 4.2 million vehicles — both due to similar issues. Clearly, it is hard times for Toyota, which has lost more than $7.1 billion in the past two years. In addition to the immediate financial impact there is a concern that Toyota’s reputation for quality will suffer long-term damage.

It is well known that a reputation for quality allows companies to charge premium prices. High quality also leads to lower costs and greater efficiency, both of which are negatively impacted by quality problems. In addition, a reputation for quality means lower advertising and marketing costs and free word of mouth promotion. In terms of customer loyalty, Toyota was No. 1 last year in the U.S., according to R. L. Polk & Co. It remains to be seen where Toyota will come in this year. It’s doubtful that they will remain on top.

This being said, I am unwilling to write Toyota off as dead. Their action demonstrates a commitment to quality that is sharp contrast to other automobile manufacturers, who often fight prolonged legal battles before agreeing to recalls. And keep in mind that Toyota’s production shut down is voluntary and unprecedented. It shows that Toyota leadership is willing to sacrifice short-term profitability (and even to take huge short-term losses,) to defend the integrity of their brand. It just may be that the current crisis will be viewed in retrospect as yet another boost to Toyota’s reputation. Only time will tell.

In a report released today the organization healthGrades identifies hospitals in the top 5% of the nation for clinical excellence. Healthgrades estimates that 150,132 Medicare lives could potentially have been saved and 13,104 Medicare inhospital complications could potentially have been avoided if all hospitals performed as well as the top 5%. Lean Six Sigma practitioners know from experience that such improvements are not impossible, if the organization commits itself to process excellence.

HealthGrades assesses the quality of care provided at the nation’s 5,000 nonfederal hospitals. It looks at 26 diagnoses and procedures and requires that hospitals have star ratings in at least 19 categories to be considered for recognition as a HealthGrades Distinguished Hospital for Clinical Excellence™ (DHA-CE.) The Healthgrades process for recognition is quite transparent:

After creating a list of hospitals that met the above criteria, HealthGrades took the following steps to determine the DHA-CE recipients.

1. Calculated the average star rating and average z-score for each hospital by averaging all of their MedPAR-based ratings and the corresponding z-scores.
2. Ranked hospitals in descending order by their average star rating, with ties broken by average z-score.
3. Selected the top 269 hospitals on the list (which represents the top 5% of all hospitals).
4. Designated the hospitals as recipients of the 2010 Distinguished Hospital Award for Clinical Excellence.

If you’ve worked in the quality profession for any period of time, you probably know the name Spencer Hutchens, Jr.. Spencer is a Past President of The American Society for Quality (ASQ,) a Past Chairman of the International Academy of Quality (IAQ,) and the namesake of the ASQ Spencer Hutchens, Jr. Medal for Social Responsibility. But to me Spencer is a long-time close friend, mentor, and personal and professional role model.

I first met Spencer 30 years ago. Spencer worked for a company, Intertek, that was a supplier to my employer, Hughes Aircraft Company. We had some interactions as customer and supplier. When I started my own consulting practice in 1983 I began working with Spencer as a contract trainer and consultant for Intertek’s clients. We did a fair amount of work together in that relationship.

Lessons in Leadership

I learned a great deal from watching Spencer’s leadership style. I attended a meeting while working with Spencer in Hong Kong with a disgruntled supplier to the client Spencer and represented. The meeting was quite intense. I was focused on the technical content of what was being said by the supplier. On a break Spencer took me aside and commented that some of the supplier’s people were sitting quietly and that different people were playing different roles in the meeting. One fellow, “Bill”, was doing most of the talking. He complained about the relationship, pushed for price increases, and made demands of our client (and his customer.) However, Bill’s boss said very little. Instead she would observe others at the meeting and if client personnel seemed to be getting upset with Bill she would interject comments designed to smooth ruffled feathers and she would sometimes take the meeting in a new direction. Spencer was able to create a dialog with her and through this dialog he was able to achieve the goals of our client. Without Spencer I would not have recognized this dimension of the meeting, but it taught me the value of understanding more than just the words being said or the facts being presented.

Mentoring

Of course, the above example is a great illustration of mentoring. But Spencer taught me to be more than just a “facts and data” person. Instead you must try to look at things from the other person’s point of view. What challenges do they face? What are they actually trying to achieve? This helped me see that the other person’s reaction was more than thick-headed resistance to reality, it was a natural response to the situation they faced. The ability to do this has helped me in my personal as well as in my business life.

Working with Spencer

As mentioned earlier, Spencer is a Past President of ASQ. I have been very active in ASQ activities for many years and Spencer’s insights into the people and activities at ASQ have helped me be more effective in working with ASQ to promote the cause of quality and the quality profession. Spencer’s membership in the IAQ gives him a global perspective of quality that is reflected in his discussions of quality related topics. Spencer is an ambassador who builds bridges of cooperation among various quality constituencies and makes it easier for them to work together. I often call Spencer and catch him in distant corners of the world. I’ve traveled with him on some of these trips and learned that he knows how to relax and enjoy life as he sees new places and meets new people.

Treking Nepal

Some years ago I hiked up Tanque Verde Canyon in Southern Arizona. The hike involved navigating some boulders and scrambling up some desert trails that I considered to be at least a little challenging. About the time I was feeling fairly smug a group of very elderly people came walking down the trail from the opposite direction. I knew that they had walked the trail I was on because Tanque Verde Canyon ends at a 100-foot high waterfall surrounded by smooth cliffs. I was considerably less smug as I stepped aside to let them pass. The tee shirt on the last person, a small white-haired lady who looked to be 80-ish, destroyed the last remnants of my smugness. It said “I trekked Nepal.”

Spencer, 87 as of this writing, told me a story of hiking with a group of young people in Nepal. He was, I believe, in his late 70s at the time. The group was setting a brisk pace in the thin mountain air. Spencer makes his home at sea level in Los Angeles so he couldn’t have been acclimated, but he kept up with the youngsters until finally one of the ladies on the hike insisted that they stop for a break. “I was very glad they stopped,” Spencer told me. “But I wasn’t going to be the one to say so!”

Thoughts

Spencer and I have frequent conversations about personal topics, the quality profession, technical subjects, baseball and anything else that friends talk about. It’s great knowing that Spencer is a phone call away to help me with the challenges. Spencer is a gentleman of the old school. My wife keeps hoping that some of his savoir faire will rub off on me but alas, after 3 decades, it isn’t likely that my Nebraska roots will ever stop showing. On the other hand it’s nice to see what true class looks like! Spencer is a real credit to the quality profession.

Public and private universities have largely failed to implement the aims and objectives of higher education, the University Grants Commission (UGC) has observed. The problem may be due to the fact that the term “quality” hasn’t been defined for education. In the quality profession a thing hasn’t been operationally defined unless it includes an objective method of measuring it. The UGC, and The Daily Star article, presume that everyone understands the meaning of “quality education” as they discuss the failure to achieve it. However, those of us working in quality in business have learned that unless an operational definition has been developed, different people have different ideas of what a term such as quality education means. After reading and re-reading the Star article, I must admit that I don’t have a clue as to what the UGC is using as their operating definition. The authors talk about the distribution of the universities and a “concern over the standard of eduction in both public and private universities.

After failing to define just what quality is, and how it hasn’t been achieved, the UGC goes on to identify the root causes. “The reasons for the failure include influence of partisan politics on student bodies, session jam, lack of transparency and accountability in the activities of teachers and students, uncontrolled consultancy and part time jobs of teachers, it said.” They also offer a variety of solutions, such as “Practical steps should be taken on an emergency basis to build a national consensus taking opinion of all political parties. Students and teachers’ politics aimed at protecting their collective interests can be encouraged.”

The poor quality of education has been a political issue since at least the time I became an adult, which was a very long time ago. If analysis such as that in the UGC report is the best we can do it will be an issue for some time to come. I suggest that concerned individuals would do well to take a lesson from the community of quality professionals and define precisely what is meant by the term “quality education.” This will then become what they are solving for, the Y, the response variable, the metric which tells them if they are making progress. Until this step is taken we will continue to see the kind of rambling, pointless analysis

Despite TSA Assurances, their watchlist has its problems

We’ve all heard about the terrorist with high explosives in his pants who got through airport security despite being on the TSA’s watchlist. If the null hypothesis is that the passenger is not a terrorist (innocent until proven guilty,) then this is a case of failing to reject the null hypothesis when it is actually false, a Type II error. As you might suspect,  the other type of error occurs as well, non-terrorists are subjected to additional security. The situation is summarized in the table.

More than one list is involved here. One is the well-known “no fly list,” which includes about 2,500 names, 90 percent of which are not US Citizens. The other is the Transportation Security Administration’s (TSA) “automatic selectee” list — its list of about 13,500 names of people who are not permitted to board an aircraft without being given the once-over by the agency’s machines and uniformed, latex-gloved personnel — is based on people’s names, not on physical factors like age. One such automatic selectee, 8-year old Cub Scout Mickey Hicks, has been on the list, apparently, since birth.  For the Hicks family, which travels a lot, this is something of a hassle.

Statistical risk is unavoidable. Whenever decisions are made there is a chance that the wrong decision will be made. The questions involved are extremely difficult, and extremely important. In this case the question is about the tradeoff between liberty and safety. However, according to the NY Times,

For every person on the lists, hundreds of others may get caught up simply because they share the same name; a quick scan through a national phone directory unearthed 1,600 Michael Hickses. Over the past three years, 81,793 frustrated travelers have formally asked that they be struck from the watch list through the Department of Homeland Security; more than 25,000 of their cases are still pending. Others have taken more drastic measures.

It is one thing to err on the side of safety when adding names to a secret list, but there is room for debate about the correct error rate. Hundreds to one seems a bit excessive, to me anyway.

The problem is exacerbated by the extreme difficulties encountered in getting one’s name off of the automatic selectee list. Thousands of people who aren’t terrorists cannot prevent the list from misidentifying them, causing them delays and embarrassment when trying to board commercial aircraft. In a free country it is incumbent on the authorities to make every effort to correct their errors once they have become known.

Another issue is that the TSA’s list is also used for purposes other than airport security. Sen. Frank Lautenberg (D-N.J.), encouraged by New York City mayor Michael Bloomberg, wants to prohibit anyone on the FBI’s terrorist watchlist from possessing a firearm. Yet, the list and its criteria are secret, and Lautenberg’s bill would criminalize the exercise of a constitutionally protected right while denying a person the opportunity to clear himself of accusations in a fair and open hearing before a court of law. Besides that, one can argue that the tolerable error rates for the purpose of airport security would be different.

Also, it makes me very nervous to hear about lists of citizens being kept by governments. These are not people who have been accused of any crime. They are not being sought to be brought in for questioning or for trial. There are no warrants out for these people. History tells us that such lists will inevitably be misused by those in power, often to terrible ends.

The TSA’s process for doing this is obviously broken and in need of quick and drastic improvement. Six Sigma can help the TSA do this. One can only hope that they take advantage of it soon. Our safety and liberty depends on it.

The Wharton School and Boston Consulting Group (BCG) have released a special report investigating the reasons why the financial services sector is lagging in their adoption of lean tools and practices. The study finds that the attitudes are changing, albeit slowly. Apparently lower costs, fewer errors, improved efficiency and reduced cycle times appeal to bankers. Who knew?

Lean’s manufacturing origins are probably part of the problem. Non-manufacturing organizations have a difficult time making the mental adjustment between manufacturing and services terminology. I recall many years ago teaching a class where I presented a control chart of a manufacturing process. The data showed the diameters of truss rods. This was a public seminar and I had a mix of students from manufacturing, health care, insurance, services and other industries. These students were truly baffled as to how they could make this work with their businesses. Sensing the reason, I though I’d try something. I wrote the first few rows of the data table that was used for the control chart, but I didn’t put a title on the table. Then I went around the room one-by-one and asked the students some questions about their businesses. For the health care student I wrote the title on the table as “Infections per 100 Surgeries.” For the insurance student “Claims Processed per Worker per Hour.” For the service department student “Service Calls Requiring a Follow Up Visit.” As I addressed each student’s particular application, I could visibly see the light come on.

This exercise caused me to be somewhat disappointed in analysis presented by the Wharton/BCG report’s authors. Deepak Goyal, a partner in BCG’s New York office, commented “Finance is just a different kind of factory. It is a processing factory, and there’s a lot of waste.”  Another comment was “Becoming lean involves eliminating the “seven deadly sins” of waste in a process — overproduction, waiting, poor transportation/logistics, over-processing, sub-optimal inventory control, rework, and unneeded movement.” Yeah, sure. But I doubt that people in the financial sector know precisely what these guys are talking about. I suspect that a few specific financial sector examples of each type of waste would go a long way towards improving understanding. I mean, is it supposed to be obvious that sub-optimal inventory control is a problem at a bank?

Still, the report is a wealth of valuable information for those seeking to expand the reach of Lean to non-traditional areas. Those of us who are professionals in this area can glean a lot of useful guidance from the report, because we already understand Lean and Lean Six Sigma. We can add a great deal of value by translating the report into terms that our clients and employers understand so they can see exactly how these important process excellence philosophies and technologies can be applied to the processes in the financial sector.

Then, perhaps, the lines at the teller window and the waiting times for loan approvals won’t be quite so long!