As you may know, if you're a baseball fan, Major League Baseball is holding its All-Star Game on July 15 at Yankee Stadium.

You may also know that you can create your own "fantasy" baseball team, on-line, by selecting players and assigning them to your team. Then, as the statistics build up week after week, the organizers compile the results and figure out who has the best team roster and therefore the best record in stats and games won.

Now, I think we could have a kind of fantasy all-star game of our own, based on outstanding Lean and Six Sigma accomplishments. What do you think?

THE STARTING LINE-UP

1 Pitcher: Taiichi Ohno

2 Catcher: Shigeo Shingo

3 First Base: Eiji Toyoda

4 Second Base: Sakichi Toyoda

5 Third Base: Kiichro Toyoda

6 Shortstop: Genichi Taguchi

7 Left Field: Bill Smith

8 Center Field: Jack Welch

9 Right Field: Bob Galvin

Designated Hitter: Henry Ford

Manager: W, Edwards Deming

I'd be interested in hearing whether you'd like any other "team members" to play on your all-star roster!

I was recently perusing Time magazines “Top 100” list for 2008, and came across this entry for Peter Pronovost. I had never heard of Pronovost. Here’s part of what profiler Kathleen Kingsbury had to say about him:

“A critical-care researcher at Johns Hopkins University, Pronovost may have saved more lives than any laboratory scientist in the past decade by relying on a wonderfully simple tool…”

I know what you’re are thinking, but no, Six Sigma is not the tool. Before I tell you what it is, consider that after implementing it in hospital ICUs in Michigan, hospital-acquired infections dropped from 2.7 per 1,000 patients to zero. That means more than 1,500 lives were saved in the first 18 months.

So what is this ingenious invention? What critical breakthrough occurred? What fancy bit of science and statistics produced these stupendous results? Which process improvement methodology was put to work?

A checklist.

That’s right, Pronovost provided physicians with a list of steps as a reminding them how to complete routine procedures. 1500 lives were saved over 18 months in one state by writing down the steps for procedures, photocopying them, and handing them out. Pronovost estimates he could roll his system out across the entire US for three million dollars. Which, I think it’s worth noting, might be comparable to the annual budget for a corporate Six Sigma deployment in bigger companies.

One of the reasons I was so captivated by this story is that more and more, I find myself returning to the basics and fundamentals of process improvement methodology. I read the primary literature and wonder at the complexity of current process improvement methodology. I wonder where the power of elegance of simplicity has gone.

For example, one of my favorite books is Kaoru Ishikawa’s “Guide to Quality Control”. It’s long out of print, but you can still pick up used copies online and elsewhere. You might not know Ishikawa by name, but if you’ve ever done a fishbone diagram, you know his work. He introduced his now-eponymous diagram along with six other quality tools in the Guide. Each was elegant and simple. Things like check sheets, Pareto charts, scatter plots, basic control charts - simple tools explained concisely. It’s a slim volume, but everything is there. Every time I read it, I wonder to myself how on earth we’ve allowed the continuous improvement world to become so complex and unapproachable. I’m at a loss to explain what value Six Sigma and similar methodologies add to Ishikawa’s approach. Sure, they provide the sizzle that sells programs to organizations, but it’s quite possible that that’s all they do. Which is worrisome.

Ishikawa and Pronovost have proven that very clear and simple approaches can yield stunning results. Much as Deming and others did before them. Modern Six Sigma is anything but simple. Most Black Belts take four week to train. But I can get through Ishikawa on a flight from Chicago to Denver, and I’m guessing Pronovost can train his folks in about five minutes.

Have we taken a wrong turn?

Deming proposed his famous “Red Bed” experiment more than half a century ago. These days, videos and descriptions circulate freely via the web, and there are many books and other publications that describe the experiment. But even for those who are familiar with its lessons, the applicability of the experiment and what it teaches are as striking today as they must have been the first time it was run.

If you aren’t familiar with the Red Bead experiment, there’s a pretty good overview here. Briefly, the Red Bead experiment can be summarized like this...

Workers are asked to “produce” red beads by dipping a dimpled paddle into a large container full of beads. Management has set up “the system” such that the container is filled with a mixture of mostly red beads, but also a small fraction of white beads. Thus, when workers pull out their paddle, they inevitably pull out some white beads along with the red ones. Regardless of how workers try (and if you’ve ever done this experiment live, you’ll know that they do try), their paddles always pick up some white beads. In fact, the red bead experiment is set up such that there is very little that can be done by the worker to influence the results. The point, to paraphrase Deming, is that all workers perform within a system that is beyond their control.

Beyond that fundamental message, there are many, many things to be learned from the Red Bead experiment. Deming, for example, famously tracked the performance of various paddles over time, noting that even paddles that were “the same” regressed to different averages and standard deviations over time. Thus different workers in the same system who are ranked according to the defects they produce are being ranked on random differences attributable to the system, rather than on their own individual performance. This is just one example - Deming and others have taken the basic lessons of the Red Bead experiment in scores of directions to illuminate all sorts of lessons.

In my experience, the most common reaction to seeing, playing, or reading about the Red Bead experiment is this: so what – isn’t that obvious? And it is, of course. The genius of Deming’s set up is that it is completely, blindingly obvious what will happen. The genius is that is strips away all the smoke and mirrors of real life situations and makes the conclusions obvious. But even so, the lessons of Red Bead still haven’t sunk into general consciousness. Even for those of us who study it and ruminate on it, the lessons are easy to forget and hard to implement. This must be the case, because the experiment keeps repeating itself over and over again in real life, and we keep trying to blame the workers for the failings of the system.

Consider the recent foibles of trader Jérôme Kerviel and French bank Société Générale, described here in an account by the New York Times.

SocGen and Kerviel’s story has been smothered n coverage – a $7 billion USD loss will do that – and virtually all of the articles (including the one cited above) describe Kerviel as a “rogue trader”. In fact, a Google search combing the terms “Kerviel” and “rogue trader” turns up no less than 700-800 results.

But was Kerviel’s behavior really “rogue”, as in aberrant, different, or going against the usual behavior at SocGen? To be perfectly honest, I don’t have any sort of informed opinion of the answer to that question. I’m not well versed in the general area, and I had never heard of Société Générale before this story broke. But I do have a hunch. I can tell you that all the accounts and interviews I have read, including comments by other employees, indicate that the far from being rogue, Kerviel’s behavior and practices were encouraged and expected. My reading is that he was a classic manifestation of a system carefully crafted and maintained over time by SocGen. All of which makes the a classic case of the Red Bead experiment.

Let me be clear that this hypothesis did not require and special cleverness on my part. In fact, the New York Times article makes the same point:

While management depicts the 31-year-old Mr. Kerviel as a lone operator who spiraled out of control, interviews with current and former Société Générale employees suggest that he was also the product of an environment where risk taking was embraced, as long as it made money for the bank.

To put it in Red Bead terms, Kerviel was doing nothing more than sticking his paddle into the container and pulling it out. For a long time, he had seen a normal number of white beads come out. One day early this year, he stuck in his paddle like he had been taught to do (heavily rewarded for doing, in fact) and got a few more white beads than normal. Random variation is like that. But for Kerviel on this day, voila, he became an instant pariah. SocGen built the container, added the red and white beads, designed the paddles, and taught Kerviel how to put his in and draw it out. Kerviel what he was expected to do. In December he was up $2 billion. In January he was down $7 billion. Like I said, random variation is like that. So who should be made the pariah?

If you don’t like Red Bead, you can think of it in control chart terms. Standard six sigma control limits mean that normal variation will fall within the control limits 99.99967% of the time, right? Which means that one out of every 300,000 will fall out of the control limits with no attributable cause. Now, are there 300,000 folks like Kerviel out there? Or maybe 3000 who perform strings of trades 100 times in a year? If there is, then sooner or later one of them is going have results that fall outside the limits, just like Kerviel did. If that happens to go in the right direction, they get a huge bonus (like Kerviel probably did in years past). If it goes in the wrong direction, they get to be the subject of an uncomfortable article in the New York Times. Even though it is all normal variation, even though it is all the Red Bead experiment, playing itself out again and again.

Now, I certainly don’t mean to absolve Kerviel of guilt. What he did was clearly wrong; it threw up a number of warning flags and violated all sorts of rules. But it can’t be called unexpected in any way. It was a logical output of the system that SocGen built. Punishing Kerviel isn’t going to do a thing about that. Red Bead.

Many of you have recently heard about the tremendous loss to the Quality profession. There is a press release from Juran Institute and a forum discussion.

I had an email forwarded to me from the leaders of the Joseph M. Juran Center for Leadership in Quality. Below is the email:

Reacting to the last several months of turmoil in the capital markets, I want to discuss an area where Lean Six Sigma professionals who work in banking and financial services should focus their attention, acquire new skills, and start having an impact – enterprise risk.

A couple of years ago, one of my former colleagues investigated the contribution of Lean Six Sigma to shareholder value at a small group of well-known banks. He researched public statements by these companies to quantify their self-attributed savings. He then developed a crude expected shareholder value multiplier based on price-to-earnings ratio. Multiplying self-attributed savings, which he assumed flow to the bottom line, by the shareholder value multiplier led my former colleague to conclude that Lean and Six Sigma created at least $4-6 billion in shareholder value for these banks.

Conventional wisdom leads me to believe that recent turmoil in the credit markets wiped out these gains. The stock prices of many investment banks, asset managers, commercial banks, mortgage finance companies, monolines, and other major participants in structured finance are trading new two-year lows. While each firm and industry segment has its own unique issues, weak risk management is a common storyline.

Looking ahead to the trends for 2008 and 2009, strengthening risk management practices is an imperative and a mammoth challenge for banking and financial services companies and their executives. The global interconnectedness, complexity and volatility of capital markets necessitate a holistic, innovative approach. Conventional practices do not stand up to the challenges in 2008 and beyond.

Exogenous Pressure

Curing the current ills will depend on fortifying balance sheets, and regulatory intervention will increase the pressure on business and operating models. Banking and financial services firms can look forward to:

• Economic uncertainty: Recent economic data and interest rate cuts by the Federal Reserve Bank in the U.S. indicate an economic slowdown has begun. Its severity and duration cannot be predicted, but banks will feel the effects of a lingering mortgage-market crisis, rising consumer credit defaults, and disruptions affecting commercial lending, structured finance products, and securitization. Some forecasters predict future shocks, such as a decline in commodity prices or downturn in commercial lending, that further threaten banks.
• Capital boosting and cost cutting: In response to economic pressures, banking and financial services executives will continue to seek capital to fortify their balance sheets, increase their safety and soundness, and weather the economic downturn. Many banks will pursue cost savings as part of restructuring operations, becoming more efficient, or both. Cost cutting may be mild or severe, if a bank is facing adverse circumstances like insolvency.
• Increasing regulatory scrutiny: Regulatory are reacting to the turn of events in the capital markets in 2007. Scrutiny of capital adequacy, liquidity, credit risk, and management practices will pick up. Supervisory actions and matters requiring board attention will grow in number. Contingency planning and quality assurance for safety and soundness will receive new attention, as regulators push banks to find and adopt industry best practices that safeguard against future crises.
• Questions about information and systems for risk management: Over the last decade, many firms began initiatives to implement systems that address credit, financial, and operational risk, as well as compliance with laws and regulations. Broadly speaking, these systems are designed to ensure compliance failures are prevented or detected and managed. The capability of these systems – looking at risk through an integrative lens – may be called into question. Banks may be required to rethink their information systems strategies and redesign their applications for managing risk. Likewise, information asymmetries in the capital markets may receive new attention, leading firms to question what they thought they know about collateral underlying securities, concentration risk, economic and valuation models, and accounting practices.
• Investigations, lawsuits and jawboning in the town square: The effects of mortgage defaults, credit-card delinquencies, public outcries about banking practices, stock-price volatility, and growing losses foretell banks facing a new wave of investigations by state attorneys general, shareholder lawsuits, and pressure from consumer advocates. Stories in the press bear this out. The open question is how loud and deafening the trends will be over the next two years.

My own background has convinced me of the need to extend the disciplines of Lean Six Sigma to processes for creating governance structures, compliance monitoring, and managing operational risk. Perhaps banks will benefit from a higher degree of knowledge integration (e.g., transplanting gauge methods to credit risk management).

Endogenous Defense Starts with Dialogue and Knowledge

In many respects, the current state of banking and financial services is the product of thousands of decisions about risk taking. Clearly, reward seeking won out, and we now face a period of living through the consequences of risks not being properly managed. Lean and Six Sigma are proven tools for optimizing reward by eliminating waste, creating capacity, and reducing variation. Resilience and reliability are a new frontier for Lean and Six Sigma, and the focus is squarely on transforming how risk is managed.

How Lean and Six Sigma contribute to the field of risk management is a story waiting to be told. For starters, I encourage Lean Six Sigma professionals to build the relationships, internal networks, and critical mass necessary to transplant their best practices to the risk management and compliance functions at banks and financial services firms. In conjunction, I recommend seeking new knowledge about relevant aspects of credit, financial and operational risk, as well as regulatory trends that will weigh heavily on operating models and expenses.

Lean and Six Sigma is a knowledge-based profession, and its value comes from connecting best practices to problems, so performance can be improved. Clearly, for banks and financial services firms, enterprise risk is a huge problem to be solved in 2008.

Gianna Clark notes that several hundred companies began their Six Sigma journeys about seven years ago.

Is Six Sigma the quality equivalent of a stock market bubble? Are we cheerleaders of an irrational exuberance where performance economics do not match the hype we create? Is Six Sigma on the verge of becoming the next TQM - run over by advances in technology and easier approaches to improving performance?

Like many companies in the Fortune 1000, we are planning 2008. At leadership meetings, around conference room tables and in hallway conversations, we are asking big questions: What will our industry look like? How will external trends affect us? How should our business model change? What capabilities do we need? Do we have them? What level of cost savings will boost our stock price?

These conversations can create organizational angst: senior executives worrying about tenure, middle managers fearing loss of their jobs or attrition of star performers, and analysts feeling the effects of declining morale. Alternatively, they can create optimism: drive to succeed at all levels, commitment to company success and drive for big bonuses. Reality is often somewhere in between—a mix of pessimism, optimism and indifference. We fall into the “somewhere in between” crowd.

Deploying Lean or Six Sigma in an organization with strategic ambiguity is no easy task, especially if the Process Excellence Organization has not cemented leadership advocacy (a key success factor for adoption), demonstrated value, and achieved the cultural stickiness that Lean and Six Sigma enjoy at mature, self-optimizing companies. Self-defeating Six Sigma organizations wait for the next round of strategic priorities to be dictated, so they can update their deployment plans and complete new waves of projects. Self-directing Process Excellence Organizations inform strategic debate and shape their utilization—positioning their sponsors (or executives who will become their sponsors) and companies to achieve payback multiples (benefits of Lean and Six Sigma divided by the costs of deployment) greater than 10:1.

Having worked on transformation initiatives and in a champion role, my views of what differentiates effective from run-of-the-mill Process Excellence Organizations are evolving. Analytical rigor, methodological purity and quantitative exactness differentiate process improvement professionals, but critical thinking about strategy, marketing prowess inside a company and a pipeline to talent will set up Process Excellence Organizations to succeed.

With strategic planning in full force, here is the first part of a series to help Process Excellence Organizations think about improving their value and odds of success. Excellence is a process. Executives might think Lean and Six Sigma professionals manage their own activities as a process-centric enterprise within an enterprise. My own experience suggests that we spend so much time improving company processes that management of our own process—deploying Lean and Six Sigma to improve performance (i.e., quality, efficiency, service innovation, customer satisfaction, shareholder value)—does not achieve the right level of maturity. And so a vicious cycle emerges: we work on the wrong projects; deployment does not produce big bangs; executives lose patience; we redeploy, reorient or disappear; companies embark on new quality journeys after forgetting pains of the past.

The hallmark of mature Process Excellence Organizations is their flexibility. A few years ago, a colleague at a well-known consultancy highlighted how Six Sigma can be inflexible. A client engaged his firm to recommend cost reductions. The engagement team identified redundant computer software. Wanting to achieve a quick win, a procurement executive announced retirement of the software in 45 days, unless business lines could justify the cost of redundant licenses and products. A few users complained, but the executive canceled the licenses. My colleague overheard a skeptical Black Belt comment that the executive made a quick decision and should have completed a DMAIC project to understand the true benefits and ensure canceling the licenses would not disrupt business processes. DMAIC projects at the client took 3-6 months. The analysis to identify the redundant software took 2-3 days. The procurement executive determined in a meeting that canceling the software would not have significant effects (besides whining by people who would have to begin using another, comparable product). The savings from the decision were over $1 million per year. The Black Belt showed a lack of flexibility.

If my comments about flexibility seem insensitive to the rigor of Lean and Six Sigma, ask a personal question: Would you rather save enough money to retire over 10 years or 30? CEOs are motivated by returns, and organizations that can grow the top line, shrink expenses and improve the bottom line the fastest enjoy the most credibility.

Methodological and analytical rigor is a prerequisite for any Lean or Six Sigma effort to succeed. Taking a broader perspective, mature Process Excellence Organizations enjoy or achieve credibility and success by executing a flexible performance-improvement process—attacking the top priorities, employing the best tools, selecting the right projects and leveraging organizational momentum.

Mature process excellence organizations address five things. Over the next several weeks, I will discuss characteristics of mature Process Excellence organizations. They are:

1. Understand and inform strategy setting and implementation
2. Create relationships and governance through sales and marketing
3. Facilitate identification of the right mix of quick wins and big bangs
4. Pull people into process excellence and push knowledge to the business
5. Manage the process excellence organization like a consulting business

The five-part series will draw on research, case studies, personal experience and opinions to communicate ideas that Lean and Six Sigma practitioners can evaluate, adopt, reject or deride as whimsy. After a long-term absence from iSixSigma, my goal is to encourage the blog community to raise the strategic relevance of Lean and Six Sigma at their companies.

Paula Parmeter, a Six Sigma advocate and pioneer, recently passed away. Everyone that knew Paula is tremendously saddened. Below is a tribute, written by Ilona Kirzhner.

Greetings from Detroit, where the North American International Auto Show is in its first full week. I had the opportunity to visit over the weekend, and was mightily impressed with what I saw.

This time, I have to say I looked with different eyes. The last time I attended, a few years ago, my perspective was that of a potential customer. I mostly looked for performance, amenities, and appearances.

Now, I'm still as concerned as anyone with important items such as cup-holder placement, lumbar support, and MP3 player connections. This year, though, my thoughts also concerned quality issues. Not coming from the automotive world, or even the engineering world, I'm sure I'm not appreciative enough about all the hours of effort that my fellow quality-improvers have put in. And, I know it's the culmination of everyone's efforts - designers, prototypers, suppliers, factory workers, all the support departments like purchasing and HR, and - yes - Lean Six Sigma practitioners - that drives the product that appears on the showroom floor.

But I'd like to send out kudos - and thanks - to our fellow quality-improvers in the auto business, wherever they may be. I had a great time at the Auto Show, and if your initials could appear everywhere you had an impact, I'm sure the cars would be covered, inside and out!

For a peek at the Auto Show - go to www.naias.com.

Recently I had a call from a well known training company in England who were planning a Six Sigma Lean Government workshop in February of 2007. He did not ask about successes, or best practices, he wanted to know the major difficulties with our Lean initiative in Maine. Thinking about it, I reached the conclusion that anxiety/resistance that stemmed from organizational change was a potential major barrier to successful implementation of a lean transformation if not the most significant concern. Resistence causes anxiety from both labor and management. Change is difficult, with union/management pressures, budget constraints and significant accountability expectations many government employees are stressed to the max. Some deal well with this through exercise, appropriate time managment and other personal wellness strategies. However, this potential state of mind is not a good situation if management is in denial about this reality. Ultimately the lean government strategy will fail if this important detail is not part of the overall strategy. Measurement of work to reduce waste combined with innovative use of technology is only part of the overall picture. The people part of lean continues to be a critical aspect which can be fogotten in the hype of scientific management, continious improvement, value stream mapping and other process analysis tools. Government exists to serve the people through services and infrastructure coordination and that includes the employees who provide the service.

A recent article in the Public Administration Review * speaks to this dilema. The article "In Search of Prudence: The Hidden Problem of Managerial Reform" by John Kane and Haig Patapan of Griffith University in Austrailia, touches on the accountability and related prudence reform that began in the Reagan years, continued through the Clinton Administration. These authors call this the New Public Management and basically contrast Aristotle’s phronesis (practical wisdom) with Weber’s analysis of government bureaucracy as being best managed as a rational-legal structure with measurable standards that can be objectively evaluated. Lean thinking adds a new dimension to Webers view and includes customer service and the personal transformation that occurs when worker get more work done with the same or less effort. Lean thinking, I would propose, is a metamorphosis of this movement. Lean Thinking has clearer goals and better implementation strategies, but it appears management may be in danger of making some of the same mistakes that are outlined in this article. The article concludes:

"An administration that endorses prudence requires the reconstruction of an ethos in which the public sector is honored as a distinctive realm that is dedicated to the very best public service and in which public servants are honored for their role in providing such service." (Kane, Patapan PAR 2006)*

In the Maine Department of Labor a lean initiative has been ongoing for over two years. More on this is available in one of my previous blogs. One of the great sayings from my home state that I am proud to introduce here is this "As Maine goes, so goes the Nation." At the MDOL employees are honored each year with a employee recognition event. This event counters the potential sinking emotional ship that can occur with any organizational development effort. This years event the planners brought in a wonderful combination of motivational speaker, comedian and juggler, Randy Judkins. The attendees laughed so hard and enjoyed the unique presentation so much, that for a moment at least, nirvana had arrived. I understand that it is not always possible to arrange for this kind of healthy comic release, but the point of this article is that without some strategy for recognizing that organizational change can take its toll on employees ultimately the initiative may fail. Finding a balance between individual creative effort and measured production in conjunction with a strategy for recognizing the human need for recognition and support is the key to successful lean transformation in government.

* Public Administration Review (PAR) Volume 66, Number 5, September/October 2006, American Society for Public Administration, ISSN 0033-3352, Blackwell Publishing 2006 http://www.aspanet.org/scriptcontent/index_PAR.cfm