“We’re the largest company you’ve never heard of.”
That description of McKesson Corp. by Master Black Belt Bob Gooby underscores the relative anonymity of the organization that is the largest – and also the oldest – healthcare services company in the United States. McKesson has been providing medical products for more than 175 years, yet even though it ranks No. 18 on the Fortune 500 and touches the lives of patients in every healthcare setting, it is not a name most people would recognize.
This article previously appeared in iSixSigma Magazine’s March/April 2009 issue. It profiles the company that topped iSixSigma’s 2008 Best Places to Work list.
In the process improvement community, however, McKesson is establishing a name as a model Six Sigma company. When McKesson deployed the methodology in 1998, it was sitting at a distant third in the healthcare services industry in terms of market share and customer satisfaction. Now it is at the top, in part because of its process improvement program.
An added testament to the strength of the program: McKesson tops iSixSigma’s inaugural list of Best Places to Work. Along with nine other organizations, it was honored for its Six Sigma work environment at an awards ceremony in January.
Building a Long Heritage
Founded in 1833 as an importer and wholesaler of therapeutic drugs and chemicals, McKesson began by distributing medicines via horse-drawn wagon. Today, it delivers information technology solutions as well as pharmaceuticals and medical supplies. The company is focused on developing new technologies and services that will enable healthcare professionals and pharmacists to provide integrated quality care for patients. Its customers are physicians, retail pharmacies, long-term care facilities, hospitals, homecare agencies, healthcare payors, medical-surgical manufacturers and pharmaceutical manufacturers.
McKesson’s process improvement program, called Business Process, reaches across the company’s nine business units. With Six Sigma the company has transformed business from function oriented to process oriented. The methodology is such a vital part of the company’s culture that McKesson has applied the idea of creative problem solving to its hiring practices and to the Six Sigma deployment itself, resulting in a desirable work environment for practitioners.
Nathan Mott, vice president of Business Process, explained the employee satisfaction in pragmatic terms. “Although we’re a big company with over $100 billion in revenues, we make a relatively small margin on that – not as much as GE or 3M,” he said. “So it’s hard for us to compete on salary in order to get the best talent.”
What McKesson does offer, he said, is a company that values process improvement from the top down. “There are not many companies that have done Six Sigma for 10 years, consistently and successfully, with unwavering support from the top.”
Highlighting some pluses about the program, Mott said McKesson provides “tremendous technical training in process improvement and leadership training, along with communication and influence training. In process improvement at McKesson, you have unparalleled career path development and opportunity.”
Additionally, he said the community of Six Sigma people within McKesson is a fun, exciting group working on the cutting edge of process improvement, combining Six Sigma, Lean, Kaizen and Work-out.
Evolving the Program
This blending of methodologies reflects how McKesson’s improvement program has evolved over time. “When we started Six Sigma, it was more pure Six Sigma with a strong emphasis on analytical data evaluation,” said Bernard Martin, senior director, Business Process, who was in the second wave of Black Belts trained.
But many people were overwhelmed and frustrated by the training. The company soon saw a lot of Black Belts falling off of projects, Martin said. “We would start with a full team, but slowly the team members would get tired of working on the thing and we would end up having one Black Belt working on his or her own, staring at a computer screen all day. The cycle time would go on forever.”
In addition, Martin continued, the savings were not as good as they could have been. As McKesson became aware of other approaches, such as Lean, the company decided to expand its improvement program to include more tools and methodologies.
This expansion required an overhaul in the training and laid the groundwork for the fluid way the leaders now approach the program – with flexibility to change it as needed.
“We continue revamping our training today to make it more applicable to our needs,” Martin said. Design of experiments (DOE), for example, is no longer taught in McKesson’s standard Six Sigma classes. Instead it is reserved for an advanced class.
Current training is streamlined to focus on tools that McKesson deems “extremely important for immediate results,” Martin said. “Students leave our regular classes with basic tools to allow them to hit the ground running, which is beneficial on all fronts.”
Enabling Belts to tailor the use of the tools and methodologies to their own business situations has been part of the success of the improvement program at McKesson, according to employees.
Also important is the way the workforce in general has come to embrace Six Sigma. “For the first couple of years, the employee base was skeptical,” Mott said. “They thought it was a headcount reduction program, but we’re over that hurdle now.”
Company name: McKesson Corp.
Headquarters: San Francisco
Number of employees: About 32,500
2008 revenue: $101.7 billion
Primary business offerings: Provider of pharmaceuticals, medical supplies and healthcare information technologies
The key to employee buy-in, he said, lay in demonstrating that Six Sigma was actually a means to avoid making headcount reductions. Six Sigma projects that ensured accurate billing and kept inventory from becoming obsolete resulted in more savings than eliminating a few jobs could have.
McKesson holds informational sessions on Six Sigma as needed – in particular, when deploying the methodology in a new business unit. All associates with a need for, or an interest in, process improvement are invited to attend Green Belt training. Typically, each Green Belt is assigned a Black Belt for support.
“What Six Sigma has done for our employees is to give them a voice in how to make the business better and a chance to step back and really help improve the company,” Mott said.
The effect of this empowerment is priceless. “We have hourly employees, some of whom work nights, who really care about the quality of these orders and about improving someone’s life and health,” he explained.
To underscore his point, Mott told the story of the customer of one of McKesson’s competitors that had requested a proposal from McKesson. The customer performed a Six Sigma audit of McKesson as they considered using the company as their pharmaceuticals wholesaler.
“The reason they decided to go with us was that when they were out in our distribution center talking to the hourly staff, they realized they could take anyone off the line and that person could talk about what they did that impacted the quality out the door and the defects per million opportunities,” he said.
“If we got this picture down to the hourly employee, they wanted to do business with us.”
Mott said McKesson trains customers in Six Sigma when there are opportunities for projects that are mutually beneficial.
Customer engagement is one of the three key goals of the process improvement program. Return on investment (ROI), and repatriation of Black Belts and Master Black Belts are the other two.
McKesson measures engagement of both internal and external customers, Martin said. For internal customers, surveys are sent to the process owners at the end of each project to measure their level of satisfaction with respect to the results and the way in which the project was conducted. For external customers, McKesson measures the impact of a project through either financial savings or reduction in the level of defects.
As for ROI, Martin said that for the first year of the deployment, it was 190 percent; the most recent year saw a Six Sigma ROI of 600 percent. The profit McKesson has recorded because of the program also has been significant.
The third goal, repatriation – or developing leaders – represents another way McKesson creates an advantageous work environment for Six Sigma professionals. The company’s philosophy on career development is one that encourages employees to think about their future path, and explore and develop in ways that will help them get where they want to be.
“How an individual uses our program depends on what their individual career goals are,” Mott said. “Individuals that enter the program as Black Belts experience the full benefit of what we have to offer in terms of career development workshops, technical training and project management experience. They can take those skills to most any role outside the program for the benefit of that department. Green Belt offers many of the same benefits but with greater flexibility as it’s a part-time role,” he said.
“We encourage individuals with a passion for process improvement to stay within the program so they can continue to work projects, mentor new recruits and train [people in] the methodology.”
Moving Through the Ranks
Typically, Black Belts at McKesson work in their Black Belt role for 18 to 36 months before either repatriating or going on to become Master Black Belts. Although traditionally there was a lot of interest in becoming a Master Black Belt, Mott said, not until recently was there a real framework to bridge the gap between the roles.
Martin explained that the company found itself with a number of people who had successfully gone through Black Belt training and certification, and who were very good at analyzing data, but they were missing the management experience they would need as a Master Black Belt.
“Direct reports were not available to them within the existing Six Sigma structure,” he said. “So we modified the…structure and added one layer between Black and Master Black Belt” – part of a roadmap McKesson put in place about a year ago detailing how the Black Belt can move within the Six Sigma program.
The new layer is a role called Senior Black Belt. The Senior Black Belts run projects and have one to three Black Belts reporting to them, Martin said. In addition to giving them reporting responsibility and experience in managing professionals, the role also gives them more opportunities to refine their process expertise, Mott added. Tenure varies, based on interest, business need and learning curve.
“This is an opportunity for Black Belts to grow,” Martin said. “We teach them tools that will help them not only as Black Belts, but also as they go back into the business.”
“Our expectation, Mott added, “is that we will have more, better-qualified internal candidates for the [Master Black Belt] position. With the addition of the Senior Black Belt role, we have a clear career path for those interested in moving up.”
Noting that the revamped structure is one of the ways McKesson’s Six Sigma program has been altered to support the distinct needs of the business, Martin called it a “win-win situation.”
McKesson currently has four Senior Black Belts, with a plan of getting the number up to nine by the end of the year. Master Black Belts, Martin added, have no time frame for repatriation and can actually stay in their Six Sigma roles indefinitely.
|Master Black Belt Bob Gooby accepted the award for McKesson when the company was named to the No. 1 spot in iSixSigma’s list of Best Places to Work. Research Manager Michael Marx made the presentation at the iSixSigma Live! Summit & Awards in Miami.|
That same flexibility is applied to the positions Black Belts and Master Black Belts have within the company. McKesson is willing to tailor a Six Sigma job to an individual – a significant factor in a satisfying Six Sigma work environment, and one that kept Master Black Belt Gooby from leaving the company when he turned 65.
Part of the equation is simply a matter of starting out with the right people in the right jobs. “One of the keys is being really, really clear as far as what we want from individuals working in Six Sigma,” Mott said, explaining that the company is looking for people who are “ambitious to roll up their sleeves and get things done.”
McKesson spends a lot of time on best practices in hiring, and in vetting who would be successful in the company’s environment. “We have them do case studies of real-life projects to see how they would address and attack the problem and what their approach would be,” he said. “When they get on board, they are the right person in the role.”
Rachel Gustad is a “right person” who was hired by McKesson Health Solutions in 2006, after having worked as a Black Belt for GE Healthcare. She was introduced to Six Sigma in 2001, when she earned her Yellow Belt while working at United Healthcare in Eau Claire, Wis., USA. From there she went on to a job in which she traveled 50 weeks out of 52, going to hospitals and teaching Six Sigma to all hospital staff, as well as managing and executing projects at the hospitals.
When Gustad came to McKesson, she was not the typical Black Belt hire. She knew she was in her element in the classroom, up in front of people, teaching them about something for which she had a passion. “McKesson opened the doors wide for me,” Gustad said. “It’s the one and only place I’ve worked where we had the career path discussion when they hired me. I told them what I wanted from a travel and work-life balance perspective.”
Although McKesson rolled out Six Sigma in 1998, McKesson Health Solutions did not deploy the methodology until 2005. Gustad, along with a full-time Champion for the unit, trained top managers, led “strategically important” projects and sponsored Work-outs to help the business see a different way to solve problems – all of which gained success and momentum for the program.
Today Gustad works from home. She is a Master Black Belt and was recently promoted to senior manager, Business Process.
The Total Package
Gustad’s experience, in feeling supported and mentored by the company and being encouraged to play to her strengths, is all part of the McKesson hiring, promotion and Six Sigma recruiting philosophy.
Mott said McKesson puts together a package for each potential Six Sigma hire that explains why they should come to work for the company. The package spotlights McKesson’s “crossroad opportunities within process improvement” – a career path specifically designed for people in Six Sigma that pinpoints job opportunities, experience requirements, and the training and mentoring the company provides.
“We also give them testimonials from people who joined Six Sigma and have gotten promoted, so they can contact these people and find out what it’s really like here at McKesson,” Mott said.
Included in the promotional package is a page from the annual investors’ report in which the CEO and chairman talk about how important Six Sigma is to the organization.
Mott added that although the company cannot offer the highest salaries in the world of Six Sigma, its salaries are competitive. “We tell [prospects] that if they get certified as a Black Belt and perform projects that create financial savings for the business, [they] will get an increase in salary,” he said. Furthermore, if people choose to repatriate back into the business from their Six Sigma roles, McKesson will give them restricted stock units that vest over time.
The number of Black Belts promoted or repatriated is a core focus for the company. In 2007, that number (Black Belts who were in the role more than two years) was 68 percent; in 2008, 74 percent.
Here to Stay
Six Sigma has helped McKesson stay healthy on many fronts. Not only has the return on investment been considerable, but the contribution to the company’s bottom line also has been significant. Gooby added that if you look at McKesson’s profit growth over the last eight years, all of it has come through process improvement – a third of it from Six Sigma projects.
“Once we started going down the Six Sigma path, the sensitivity to processes and how we manage processes became part of our thinking as a corporation,” he said. “When I joined the company [in 1996] we had $8 billion in revenue. This year we will have $100 billion.”
Gustad said that even in today’s tough economic times there has been no talk of doing away with Six Sigma at McKesson, which she knows is not the case everywhere. Citing McKesson’s passion for Six Sigma and the security she feels within the Six Sigma program, Gustad added, “This is the first place I have ever worked where I have thought about never leaving.”