Benefit Pitfalls

One of the foundations of Lean Six Sigma is its clear link to benefits. Take a look at some of the quoted benefits from the Lean Six Sigma behemoths:

  • GE saved $12 billion over five years and added $1 to its earnings per share
  • Honeywell (AlliedSignal) recorded more than $800 million in savings
  • Six Sigma reportedly saved Motorola $15 billion over the last 11 years

Unfortunately our deployment is by no means as mature; we aspire to reach these levels. Along our journey we have learned just how important it is to get the benefits story right. Here are some of the pit-falls encountered and may be of assistance.

Tangible means financial?
I see people using of the terms tangible and financial interchangeably based on the idea that financial benefits are the only tangible and anything else is intangible. We have a simple rule; if you can measure it it’s tangible otherwise it’s intangible. Simple as that. So for example you can have for tangible benefits covering:

  • Customer – e.g. Customer satisfaction
  • Financial – e.g. Revenue growth
  • Process – e.g.Product defects
  • People – e.g. Increased pay

You’ve got to grab the benefits
We sometimes find we have multiple projects working on a process some being Lean Six Sigma and some not. If the process improves which project bags the benefits? We look to get an agreement between the various projects on the allocations. Looking forward we hope to become more sophisticated based on the Y=f(X) approach and the X’s can always be other improvement projects.

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You’ve got to bank the benefits
Again sounds simple but I have found not all tangible benefits translate into Business Benefits.

For example removing non-value activities in a process makes it more efficient. But if you don’t make use of that improvement by for example increasing the volume or redeploying people to other areas then you haven’t achieved a business benefit.

Another example is we sometimes run DMA projects where we do rapid analysis down to root-cause and identify the benefits available. We don’t do so many of these now as we realized the improvements were not sticking and you can’t achieve a Business Benefit until you have delivered the improvement.

These are a few examples of the pit-falls encountered. What is important is making sure every single project can clearly define andmanage its Business Benefits.

Comments 3

  1. Vincent Chin

    My thoughts on financials:
    When it comes to financial benefits, companies doing Six Sigma need to set out rules on the way financial benefits are calculated so that benefits are line and consistent from project to project; from subsidiary company to subsidiary company. End of the day, companies announcing their benefits will want to have sound credibility or the perception of sound credibility of the their published figures. Not just public view but shareholders’ perception of this initiative rolled-out by the Board. Hence the calculation of Six Sigma benefits, financial and non-financial, should fall under the internal audit department’s scope of work as well.
    Benefits can be broadly categorized into:
    Financial- benefits which has a direct link to the profit & loss account ie a clear cause & effect relationship between the project and revenue or cost increase or decrease in one or more general ledger accounts.
    Semi-financial- explanation mirrors the above, except period in which the benefit falls isn’t very clear; and a few assumptions are needed to reasonably quantify this type of benefit.
    Non-financial- projects on improving guest satisfaction, etc which require substantial assumptions to quantify the p&l impact, benefit period and so on.

  2. Robin Barnwell

    Hi Vincent

    Thanks for the feedback, agree with the need to standardise financial benefits across the business.

    Get the impression that terming guest-satisfaction a non-financial may "de-value" the importance of the metric in some people’s eyes. Does it?


  3. Vincent Chin

    Hi Robin,

    Oops- I meant the guest satisfaction index specifically. My previous company gathers regular structured customer feedback from all areas of its operations. The results of the feedback are represented statistically and not financially, hence this explains the classification of ’guest satisfaction’ as non-financial. Also I must say my examples above are quite company-specific.

    No denying that repeat customers, ’satisfied’ from the last visit, drive up the numbers in terms of revenue, which is quite financial-related.

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