Case in Point: General Electric (GE)

The Toughest Stretch Goal

Jack Welch, the CEO was told that Six Sigma, the quality program pioneered by Motorola, could have a profound effect on GE quality. Although skeptical at first, he initiated a huge campaign - in the GE Way, a way that had never been done before - to infuse quality in every corner of the company. Welch called six sigma the most difficult stretch goal GE had ever undertaken. Within four years, "we want to be not just better in quality, but a company 10,000 times better than its competitors," he announced. "We want to change the competitive landscape by being not just better than our competitors, but by taking quality to a whole new level. We want to make our quality so special, so valuable to our customers, so important to their success that our products become the only real value choice."

The Biggest Opportunity for Growth

Welch made an official announcement launching the quality initiative at GE's annual gathering of 500 top managers in January 1996, He called the program "the biggest opportunity for growth, increased profitability, and individual employee satisfaction in the history of our company." He has set itself a goal of becoming a six sigma quality company - producing nearly defect-free products, services, and transactions - by the year 2000.

Setting Individual Performance Standards

In his letter to all Corporate Executive Council attendees in 1997, Jack Welch described what he felt should be the five characteristics of the people who steer the quality program through its rigors:

1. Enormous energy and passion for the job - a real leader - sees it operationally, not as a "staffer."

2. Ability to excite, energize, and mobilize organization around six sigma benefits - not a bureaucrat.

3. Understands six sigma is all about customers winning in their marketplace and GE bottom line.

4. Has technical grasp of six sigma, which is equal to or bettered by strong financial background and capability.

5. Has a real edge to deliver bottom-line results and not just technical solutions.

Everyday Six Sigma

In bringing Six Sigma quality to GE, Jack Welch recognized that the program was not only for engineers and technical minds. Indeed, it can be used in a variety of situations in which a company’s best and brightest are engaged in this quality program, among them the following:

• Plant managers can use Six Sigma to reduce waste, improve product consistency, solve equipment problems or create capacity.

• Human resources managers can use it to reduce the cycle time for hiring employees.

• Regional sales managers can use it to improve forecast reliability, pricing strategies or pricing variation.

Virtually anyone — from plumbers to car mechanics to gardeners — can use Six Sigma to better understand their customers’ needs and tailor their service offerings to provide customers with the things they want. Welch does admit, though, that he cannot think of a way Six Sigma could be used by lawyers. He thinks this is because they make a living off variance — the very thing Six Sigma is best at eliminating.

Impact of Six Sigma Implementation at GE

Results achieved over the first two years (1996-1998):

• Revenues have risen to $100 billion, up 11%

• Earnings have increased to $9.3 billion, up 13%

• Earnings per share have grown to $2.80, up 14%

• Operating margin has risen to a record 16.7%

• Working capital turns have risen sharply to 9.2%, up from 1997's record of 7.4

Five Corporate Measures

1. Customer satisfaction: Each business performs customer surveys, asking customers to grade GE and the best-in-category on critical-to-quality issues. The grade is a five-point scale, where 5 is the best. A defect is defined as either less than best in a category or a score of 3 or less. GE measures defects per million survey responses. As with all measures in the project, the results are reported on a quarterly basis.

2. Cost of poor quality: There are three components: appraisal, which is mostly inspection; internal costs, largely scrap and rework; and external cost, largely warranties and concessions. GE tracks the total as a percent of revenues on a quarterly basis.

3. Supplier quality: GE tracks defects per million units purchases, where the defective part has either one or more CTQs out of tolerance and therefore must be returned or reworked, or the part is received outside the schedule.

4. Internal performance: GE measures the defects generated by its processes. The measure is the sum of all defects in relation to the sum of all opportunities for defects (CTQs).

5. Design for manufacturability: GE measures the percent of drawings reviewed for CTQs and the percent of CTQs designed to six sigma. Most new products are now designed with CTQs identified. GE hopes to begin designing products and services to six sigma capability. This measure is very important, since the design approach often drives the defect levels.

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