Six Sigma For Small Business
Can Six Sigma for Small Business Really Work!
The mystery about how to apply Six Sigma for small business is shrouded in some disbelief and some belief in getting the breakthrough results. Generally, Six Sigma is believed to be a technical and statistical methodology that requires a lot of statistical analysis and analytical thinking and that is one of the reasons that there are several six sigma practitioner trainings in place, starting from white belt, yellow belt, green belt and black belt certification.
Generally speaking, perception tends to become an individual reality. But actually the ‘perception’ is only ‘perception’, it is not the absolute reality out there. Perception may be a part of your own brain processing, not more than that. Similar is the case with Six Sigma for small business. It has varied perceptions in the small business sector.
Six Sigma started from big companies, including Motorola, General Electric, Honey Well, Bank of America and hundreds of more in the Fortune 500 companies in both manufacturing and services industry. But as it gradually started moving forward, it dawned upon the experts that it is more of a business improvement science, it is not a discriminatory or racist science between big companies and small companies. The same Six Sigma methods can be equally applied in medium, small and micro companies as well. Therefore, Six Sigma for small business holds the same weight as it has in any other big company.
Nowhere in the Six Sigma curriculum, it is specified that for what size of company it should be applied on. Therefore, the core spirit and core methodology of Six Sigma DMAIC is equally good to be applied on the small business as well.
Let’s Understand The Six Sigma DMAIC First...
Define the problem exactly with numbers
Measure the problem by taking the past data
Analyze the problem for the root causes of the problem
Improve & fix the problem by eliminating the root causes of the problem
Control and sustain the fixed improvement for long term
This DMAIC methodology is basically so simple to understand, even you can apply it in your daily personal issues as well.
Let’s Take An Example Of Applying Six Sigma For Small Business
I will take one hypothetical example of a Real Estate consultancy – Nexus Estate for the purpose of showing the application of Six Sigma for small business.
This example is only for the purpose of showing how to plan and apply the most basic tools and techniques of Six Sigma on some of the identified problems. This example may not be in comprehensive detail in this article. However, the purpose is only to provide you some preliminary insight that it is doable and applicable to apply Six Sigma for small business.
Define: (Define the problem)
Problem Brief
Due to the real estate slump in the market, sales leads for Nexus Estate have declined by 50% to 10 leads a month, earlier it was 20 leads a month. The sales conversion is now 10%, where it was 20% earlier.
Can Six Sigma solve this problem?
Let’s begin this journey with Six Sigma for Small Business example
Measure: (Measure the problem by taking the past relevant data)
Let’s take the last 12 months’ data to validate the problem.
- Jan: Leads: 25; Conversion: 5; CVR: 20%
- Feb - Leads: 15; Conversion: 2; CVR: 13%
- Mar - Lead: 18; Conversion: 5; CVR: 28%
- April - Leads: 10; Conversion: 1: CVR: 10%
- May - Leads: 15: Conversion: 5; CVR: 33%
- June - Leads: 18: Conversion: 3: CVR: 17%
- July - Leads: 16: Conversion: 3: CVR: 19%
- Aug - Leads: 10: Conversion: 0: CVR: 0%
- Sept - Leads: 8: Conversion: 0: CVR: 0%
- Oct - Leads: 11: Conversion: 1: CVR: 9%
- Nov - Leads: 9: Conversion: 1: CVR:11%
- Dec - Leads: 8: Conversion: 0: CVR:0%
Analyze: (Analyze the root causes of the problem)
After taking the data, now you have to analyze the data with some tools, and charts, and past trends. What is mean, standard deviation and Z score (Six Sigma level).
For Upper Specification Limit (USL) or the tolerance level, you will have to define the internal desired sales level as business standard or USL (not the customer specifications), since it is an internal metric.
Suppose you need to have 30 leads and 30% conversion rate, So anything below 30 leads is not acceptable.
Let’s calculate the 3 core metrics.
The calculated Mean = 13.58
The Calculated Standard Deviation is 14.7052
The Z Score = 2.0400
(Please note that I have used the MS Excel sheet for calculating the above three core metrics)
Metrics Interpretation
The 'Mean' shows that the last 12 months average monthly leads are 13
The 'Standard Deviation' shows that the average deviation from the mean is 15 leads.
The 'Z Score' shows that the current Six Sigma Level (Z score) is just 2 Sigma. It means it is far less than Six Sigma performance of perfection. 2 Sigma level is only providing the 69% yield. The remaining defective variation is about 31%. That requires to be addressed and fixed.
In addition to the above core 3 statistical metrics, you can also use 3 more analytical tools
Scatter Diagram – It is a simple graph which shows the relationship between two variables. In this case, we test the different sets and graph it on the chart. E.g. Winter months leads and summer months leads. Vacation months leads and busy month leads.
Fishbone Analysis - It is to find the root causes of the low sales (less yield).
For ease of developing the fishbone, put the outcome (less sale leads) at the head of the Fish, and then divide the body of the fish into relevant categories i.e. man-made causes, machine-made causes, environment related causes, economic policies related causes, processes related causes, and more.
Six Sigma Breakthrough Equation Y= f(Xs) +e - It is to find out the causes of the defective outcome (low sales).
Some of the Xs (inputs) can be: weak advertising, weak networking, weak advertising message/copy, weak sales staff training, lack of transparent processes, office location disadvantage and more.
I am not elaborating the above additional 3 tools /techniques in more detail here due to the brevity and less of the quantitative analysis, since the purpose of this article is not to develop the full blown case study of the Nexus Estate Agency, but to provide you enough insight that how the basic six sigma for small business with its tools and techniques are helping to solve the core business performance issue of the small real estate agency.
This 'Analyze' stage is the most important stage in the Six Sigma journey as well as Six Sigma for small business. Here actually you try to use all the possible statistical tools. But please be aware, that statistical measures are not used because someone is just trained extensively. But it is always preferred that less should be more. Based on the complexity and the depth of the problem, you should only use the required statistical tools in Six Sigma for small business. In many small businesses, it may be rather much easier to use the Six Sigma with just a few tools and techniques and you can come up with the problem fixing plan sooner than in the big company.
As I specified above, in this example, the 3 statistical metrics (Mean, Standard Deviation and Z score) and 3 additional analytical tools (Scatter Diagram, Fishbone Analysis and Breakthrough Equation) can help you discover the root causes of the low sales.
Improve (or fix the problem)
Once your core statistical metrics as well as Fishbone Diagram, Scatter Diagram and Breakthrough Equation provide you the narrowed down causation, you can move forward to improve or fix the problem with Six Sigma for small business.
Suppose, it clearly shows that in the last few months of real estate slump period, your marketing effort was the same as it was in good times. You only advertised 2 times in a month. You called 10 people in day. And you sent no emails to new prospects.
Earlier your marketing budget was USD 1000
The application of Six Sigma for small business statistically showed that if you increase the budget by 50% - USD 1500, you can get 100% ROI.
- The increased budget can help you to advertise 3 times a month
- Send emails to new prospects every week
- Advertising in Facebook every week
- Improving the advertising copy in every Ad
The above measures can help to improve the leads by 50% more and similarly, better improved conversion up to 50%. And increasing the profitability from 50 -100% every month.
Though in the above example, there can be many more causes which can surface during the Fishbone analysis. For instance, in the economic policy you got to know that recently, the Government has increased the property transfer rates and eventually the investors' interest in buying and transferring the properties have evaporated. This insight can also lead you to a different direction and a different solution.
Therefore, the three tools though are very simple sounding but they have enough power to uncover many facets which any business may not have easily identified earlier. Therefore, never ignore the hidden power of these six sigma tools and techniques. And interestingly, Six Sigma for small business may not require many advance techniques. The simpler the better for the small business.
Finally, after going through all these drills, which may have taken some time, it becomes easier to find the real root causes which were causing the low sale leads. And once you have it, the business owner can look for many options of improvement or elimination of the culprit factors.
Eventually, this Six sigma for small business project may have helped in achieving the 30 leads a month target and putting the process output equivalent of 6 Sigma performance.
Control (Maintain And Sustain The Improvements)
After having gone through the fixing stage, now you may know the new ways of doing things in the slump time, where you have increased the budgets, and increased the marketing efforts including the digital media as well as improving the advertising copy to attract more prospects. In the control stage, this new SOP has to sustain for the long term to reap the good rewards.
If you reduce the budget and effort mid-course, you may go back to your previous bad results.
However, it also happens that when the good times come back, with same improved methods your sales can further skyrocket to new heights.
The 'Control' stage is the final stage of the Six Sigma for small business project. But it is the most overlooked stage as well, because all the celebrated achievement done in the 'Improve' stage can easily make the business owner a bit relaxed. This success hangover can easily prove to be short-lived if the ‘control’ stage is not properly and seriously taken. This is the stage which cements the success for long term.
The proper maintenance, responsibility and accountability for the new ways of doing things should be fixed in the company with close supervision. Though the Six Sigma for small business helps to provide many tools for that.
The most famous and simple Six Sigma tool is the ‘Run Chart’.
This can keep on showing the future sale leads of the company for the next months and hoping that it should stick close to 30 leads in a month. But if you disregard such monitoring, you may invite some more new causes which can again seep in and affect your future sale leads to go down. Therefore, keep your hand on the outcome pulse to maintain and sustain it for long term.
Summing up
In this example of applying Six Sigma for small business, it gets clear that the mindset of 'DMAIC mentality' is actually a mindset of a problem solver. It is not limited to big companies. It can be applied on literally anything, even your personal life.
Six Sigma for Small business means every kind of small business; real estate consultant, small accounting firms, small law firms, fashion boutiques, salons, restaurants, cafes, grocery stores, retail stores, import expert business, online business or whatever you may think of.
Once you get to know the DMAIC, you will be armed with such an interesting weapon that it will become your business shooting weapon wherever you go.
The Benefits Of Six Sigma For Small Business Are Not Limited
As you may have observed that the old perception of Six Sigma as being very technical and statistical has been broken largely. However, you may have seen that the above Six Sigma implementation on the small real estate consultancy was almost like common sense approach, which could also have been solved with some better insight. That is correct too. But the habit of using the Six sigma DMAIC methodology makes the common sense more structured and disciplined.
The concept of ‘business improvement’ is a different mindset and goal. When anyone starts a small business for the purpose of only earning a livelihood, this will develop a different mindset, which will be mostly trying to do what others are doing, and repeatedly doing the same things again and again. And when you see something is not working, you get frustrated and leave early.
My point of view is that when you start your small business, the concept of earning a livelihood is already built-in, but the problem starts when you think this is the only objective. When you combine the livelihood purpose with something bigger and meaningful like having an intensive interest in the work or passion or aptitude and desire for the greater good, then the work behavior differs. In that case, the entrepreneur mostly becomes open minded, and actually wants to do things differently or will always be open to listen to new ideas for improvement.
Such mindsets certainly will also be open to listen to Six Sigma and apply Six sigma for small business. They will not leave any stone unturned to get the best benefits that may work better.
You can also read another article Growing Your Business the Six Sigma Way especially from the small business perspective.
Examples of Six Sigma for Small business
“Whoever admits that he is too busy to improve his methods has acknowledged himself to be at the end of his rope. And that is always the saddest predicament which anyone can get into” —J. Ogden Armour
Few examples are mentioned by the Six Sigma consultant and author Greg Blue in his famous book Six Sigma for Business.
These few small business examples provide some direct and some indirect usage of Six Sigma for Small Business techniques.
Valet Parking
Tom Little presented the idea of valet parking service at the airport, and when he got into that business, it was full of difficulties in the staffing operations, the Six Sigma concept helped him to overcome the staffing with the help of aligning staffing operations with the airline scheduling.
The Six Sigma Plumbing Service
When the customer X found his basement full of knee deep water at 1.00 am and his wife and kids still sleeping, he was perplexed. He called the plumbing service only to find out what the true Six Sigma in plumbing may be like.
The plumber arrived at 1.35 a.m. brought his professional plumbing kit and tools, and ensured that he should not disturb the sleeping family. He cleared the water, fixed the pump and left at 3.30 am. He sent the bill later. What do you think the customer X felt? He just wanted to fly to the place to pay the bill money and was so thrilled and amazed by the service.
Mortgage Loan Company
David Payton left his 20-year healthcare career and finally opened a mortgage loan company. But later the interest rates increased, his business suffered. How did he continue? Coincidently, David was trained Six Sigma expert from the healthcare days. He knew well the power of the process analysis, variation and defects. He started looking inward and using the Six Sigma tools in his small business, he improved the operations, cost savings, and kept his business afloat with profitability only with the help of Six Sigma for small business.
Medical Company
One Six Sigma expert was working for small medical company and trying to do the process improvements. One day, strangely, the team of doctors called the expert for a discussion and asked him that they were facing a problem with anemia patients, many patients were suffering from blood loss disorder but the exact reasons were not in place, they were only treating the symptoms with heavy medication and procedures. Doctors asked, can Six Sigma can do something about it?
The Six Sigma expert assured that he will try to look into it. He started with Six Sigma Breakthrough Equation Y = f(Xs)+e
Y- Anemia disorder
X= Increased breakdown of blood cells, increased blood loss from the body, inadequate production of red blood cell
Sample data of 286 patients were taken, 23 % suffered from Anemia (65).
When more X factors were considered taking their lifestyles, one strange discovery came up.
17 % of the patients’ root cause was simply going to the toilet more often!
Blood was coming out through stools due to hemorrhoids, which was causing blood loss and anemia in the body. It was casually overlooked, unnoticed and felt unrelated at that time. The cost of hemorrhoids surgery was just USD 7K whereas the other treatments for the Anemia were costing USD 78K. The analysis on these patients was a breakthrough discovery, and after treating the hemorrhoids, afterwards they kept living a normal healthy life without any anemia, whatsoever.
Marketing Guru
Small business owner hired a Marketing expert to help increase the sales. The guru made them increase the marketing budget by USD 285k per aurum, but surprisingly, after two years of spending about USD 570k, the sales did not increase as desired rather it decreased by 43%. On the close scrutiny, it got revealed that the marketing guru did not have any disciplined milestones and structured quantifiable road map. He was acting more out of his experience, instincts and guess work.
What the business owner needed was a Six Sigma expert, instead of Marketing guru. The Six Sigma expert could have provided the simple structure of road map to initiate 'root causes analysis' during the low sales period.
Six Sigma For Small Business Really Works if You Work it!
The Six Sigma for small business stories may abound, and also may not be reported that frequently. However, it definitely provides the proof that Six Sigma is not only about the Six Sigma belts and certifications, it is also about using the advance level common sense, simply by using some of the Six Sigma tools and techniques. You can also read this simple article How to Deploy Six sigma in Small Business at SimpliLearn
The power of Six Sigma for small business may be ignored at small business level, but the above direct and indirect Six Sigma story snippets reveal that Six sigma is basically a problem solving methodology and it should be first treated like that. And it can do wonders for the small business to solve their short term and long term problems.
By the way, when you adopt a six sigma mindset, you can use it in your daily life. I went with my family to buy the coke bottles' crates for our monthly use. When we ordered our usual 500 ml bottles, I also noticed that there were 350 ml bottles with 20% less price. With experience we as family knew it that usually we never consumed the whole bottle during our meals and there was about always 20% waste. That made all the sense to buy 350 ml coke bottles. And when we reached home, I announced that we have just completed one six sigma project with 20% savings.
Therefore, don't limit yourself with only big things. Six Sigma is about the mindset. It can give you benefit at many place and in any situation.