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?

In a recent blog at Harvard Business School Press Online, Tom Davenport challenges the applicability of Six Sigma. You can read his post at http://discussionleader.hbsp.com/davenport/.

Coming from anyone else, a statement that Six Sigma "should only be used in product manufacturing, where the idea of reducing defects to one in six standard deviations really makes sense" might be dismissed out of hand. But Davenport has credibility as an expert on business process management and information technology.

Perhaps he’s right, and Six Sigma should be viewed as one among several toolkits to embed statistical methods and scientific thinking in managerial practices.

In his Rough Type blog, Nicholas Carr -- contrarian author of the book, Does IT Matter? -- comments on Microsoft's plans to build a data center in Siberia and upcoming completion of the world's largest data center in Chicago. Construction of these facilities costs hundreds of millions of dollars, and each will hold tends of thousands of servers. Microsoft's Chicago data center will employ only 35 to 50 people. Apparently, climate in Chicago and Siberia were prominent in these sites being selected because their colder weather makes it cheaper to cool the data center equipment. Large server farms built for environmental efficiency and staffed by just a few people -- is green physical and virtual platform design a new frontier for Design for Six Sigma? Microsoft is a big proponent of Lean Six Sigma.

My last blog discussed elevating the strategic relevance of Lean, Six Sigma and process excellence. My view is that 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. The first thing mature Process Excellence Organizations do well is informing strategy setting and implementation (beginning with their own understanding of their enterprise’s strategy).

The most successful process improvement professionals are proactive rather than reactive about understanding and discussing strategy. Executive level process excellence leaders share in common an understanding of the competitive position of their companies, options to shape competitiveness, and critical factors for success. Further, these individuals understand the mechanics of a strategic management process and dynamics of organizational behavior that affect managerial commitment to change, execution against a plan, and responsiveness to opportunities and threats.

Positioning of the Process Excellence Organization determines its access to inform strategy setting and implementation. Commitment from the COO to deploy best practices, for example, is more likely to result in Lean and Six Sigma becoming strategic levers, embedded in an organization’s culture and practice, than localized, bottom-up advocacy by a business unit executive, shared services leader or plant manager. Yet unless market pressure, a crisis or some other impetus motivates a senior executive team to broadly rely on Lean and Six Sigma, Process Excellence Organizations must demonstrate credibility through their recommendations to improve performance and their track record of delivering returns to their companies.

Lean and Six Sigma professionals may ask how they are to shape strategy setting and implementation, if they lack access to regularly advise and influence senior leaders at their companies—the CEO, COO, CFO and especially the senior vice presidents in charge of business units, operations and technology. Starting from their current base of deployment, Process Excellence Organizations should position themselves to identify and focus on strategically aligned opportunities for Lean and Six Sigma.

My assertion may not be fruitful in bureaucratic organizations—such as government institutions where the pace of change is slow, and status quo prevails. At other companies the Process Excellence Organization can influence strategy. There is the annual planning cycle, where Lean and Six Sigma can inform the definition of change initiatives and funding of these projects, as well as progressive reduction of sales, general and administrative expenses. Second, Process Excellence Organizations can bring a unique perspective to dialogue about longer-term strategies and programs.

Process Excellence Organizations can influence strategy because the strategic decision-making is ambiguous, dynamic and often chaotic. Academics frame strategic planning as a formal process of answering three questions: (1) What does the business do? (2) Form whom does it do these things? (3) How does the business excel? And the process has stages: evaluating the current situation, defining goals, mapping a route to achieve these goals, and monitoring implementation. In a formal sense, the stages of strategic planning are not unlike the Deming lifecycle of planning, doing, studying and acting. In practice, though, strategic planning is a communicative process, and strategies emerge from the habits and behaviors of organizations and their managers. Executive dialogue, shareholder concerns, customer interactions, supplier dynamics, labor relations, information technologies, managerial fads all interact to form the content of strategy and direction of execution.

As an aside, I encourage anyone interested in sociological and behavioral approaches to strategy to look into research focusing on strategy as practice. Over the last three decades, strategy research has tended to focus increasingly on organizational strategies as opposed to the activities of people in organizations as they define, elaborate, and implement strategies. In contrast, strategy as practice is concerned with issues of practice within organizational contexts. Lancaster University’s Management School is a good source of information about strategy as practice.

Start with the basics

Much is written about Lean and Six Sigma as tools for cost reduction. More recently, the exploits of Starwood, Procter and Gamble, Capital One, and others highlight their relevance to innovation. In terms of basic strategies, companies have three options, according to Michael Porter and others: low-cost production, differentiation, or some combination of the two.

Low cost production is a familiar paradigm among Lean and Six Sigma professionals in manufacturing, consumer products, healthcare, retail and service, and financial services industries. Every industry has its favorite measures of efficiency: funding costs as a percentage of portfolio size for a mutual fund, percent of seats sold per airline flight, gross margin for product categories, etc. Lean and Six Sigma professionals are familiar with the notion that reducing defects or eliminating cycle time can improve operating metrics, and these metrics contribute to the enablers of low cost production (e.g., economies of scale).

Differentiation is less familiar, especially for those of us who have focused on reducing variance of a distribution instead of shifting a mean. Innovation is one way to differentiate. Apple Computer is the most interesting, popular case study of innovation in the business literature today. Another example is Proctor and Gamble’s shared services business unit. After four years of successful cost cutting, Proctor and Gamble is now focused on managing its shared services as a business—figuring that exploiting core competencies in brand management and aligning delivery with marketing strategies can create sources of differentiation. Whereas efficient production and processes are appropriable, strategies of differentiation are hard to craft and implement.

Corporate strategies are never as simple as low cost production or differentiation. Rather, they emerge from the structures, habits and power in industries and at companies. A few companies do well at managing strategy. Most other are stuck in the middle—including companies with a significant investment in Lean and Six Sigma training and deployment.

A process excellence paradox highlights why understanding strategy is important—starting with the basics to develop a perspective on an enterprise’s current competitive position and future outlook. The paradox goes something like this: Lean and Six Sigma have potential to raise any company to industry leader status, but too often returns on investing in process excellence are measured in six and seven figures instead of payback multiples greater than 20:1. Pulling process excellence out of a rut and companies ahead in their industry has to be an exercise in strategic execution.

Institute disciplines to understand strategy

Efforts to understand strategy need to be disciplined, more than informal or one-off conversations. Depending on the potential of the process excellence organization, many tools are available to understand strategies and their implementation at companies. If formalizing disciplines to understand strategy is new, my advice is to start with a brown-bag discussion of your company within the process excellence organization or among its professionals and key business partners. Things to cover include the economics of your firm’s industry, the external environment in which your company operates, and the internal capabilities of your firm.

The discussion should focus on understanding current state and future direction of the company at three levels of strategy: enterprise, business units and functions. Leverage of Lean and Six Sigma tools is most often part of functional strategies, such as a multiyear plan to transform the operations and technology of a company or expand plant infrastructure in an overseas location. Finding opportunities to have strategic impact depends on plans for the company and its business units.

These discussions do not need to produce a specific deliverable, but should factor into deployment planning and performance measurement for process excellence. A number of frameworks can assist strategy discussions and create segues to efforts to evangelize, measure and govern process excellence. One of my favorites is McKinsey’s “Star” or “7S” framework because it offers a holistic context in which to examine strategy implementation.

Accumulate knowledge from staff and line functions

By signaling its interest in understanding strategy, process excellence organizations may accumulate sufficient knowledge of strategy from their own professionals, colleagues in business areas and executive sponsors. In my experience, Lean and Six Sigma advocates are willing to share knowledge and generous with information. Though it never hurts to cast a wide net for knowledge and reach out to unlikely sources.

Here are a few places to look:

• Strategic planning: Many large companies have a strategic planning function, and a Chief Strategy Officer is becoming fashionable. Often staffed by ex-management consultants, strategic planning departments provide analysis and advice to senior management about competitive positioning of the company. While these departments may guard their work, they can facilitate building mind share with senior executives.
• Corporate development: If your company relies on mergers and acquisitions to grow and compete, the team in charge of corporate development may provide a forward-looking perspective on the company, and assist tactical positioning of the process excellence organization. Post-acquisition integration is a driver of strategic risk, and this is an area where Lean and Six Sigma can add value.
• Corporate planning, budgeting and finance: These functions manage the multiyear and annual process of budgeting for programs, initiatives and operations. Corporate planning functions can provide information about the efficiency of the company and performance of internal firm capabilities (e.g., operating metrics and ratios). Information from the corporate planning department can be instrumental and is often necessary to sell a deployment strategy and benefits tracking process to senior management.
• Financial engineering and modeling: Not all companies employ financial engineers or utilize financial modeling outside the strategic planning department. At banks, insurance companies and firms with complex balance sheets, financial engineering disciplines can provide knowledge about the esoteric aspects of corporate finance that impact financial health and shareholder value. Expertise in corporate finance is a weakness for most process excellence organizations that plan to market Lean and Six Sigma to finance departments.
• Market research: Market research departments review secondary data, conduct original studies, and use qualitative methods to understand market and customer requirements. Their work is a sophisticated voice of customer process, so market research managers can provide unique information about how markets and customers perceive a company. Obtaining input from the market research department can assist with framing your understanding of market-facing strategies and opportunities to improve customer-facing processes.
• Information technology: In companies that rely on information (most organizations today), the information technology architecture, program management office and database administration functions can provide useful information about problems with technology that limit internal firm capabilities. In my experience with Six Sigma, data quality is an overlooked area that holds real potential for having strategic impact on cost and customer satisfaction.
• Internal audit: Internal audit departments have a deep understanding of internal capabilities gained from rotational audits of all parts of a company. Reaching out to an internal audit director requires sensitivity to matters of professional independence. An internal auditor’s perspective on planning and control systems can provide useful information about governance, risk and compliance constraints that will impact opportunity identification and project selection.
• Human resources: Many human resources departments cover organizational development and performance management. Human resources managers who specialize in these areas can provide useful information about how raising employee satisfaction, reducing turnover and generally improving human capital will boost company performance.

These are a few areas where conversations about strategy may yield unexpected insight. When reaching out, it’s important to frame discussions with these areas. Asking focused questions, gathering perspectives, and testing impressions of a company’s strategy are the right level for these discussions. If opportunities for Lean and Six Sigma come up, capture them in a pipeline of future projects and carry forward the discussion to deployment when the time is right.

Inform strategy through ideas for process excellence

The most successful process excellence organizations guide themselves with a deployment plan and through a governance process. Some companies charter a management committee to decide where to apply Lean and Six Sigma and monitor realization of benefits. In addition to promoting rigorous project selection, formal governance offers a forum in which to discuss strategies and influence big decisions. Process excellence organizations with a bottom-up or less formal structure may want to pitch senior executives on possibilities for the company – pilot projects that may lead to strategic initiatives or higher impact participation of Lean and Six Sigma in ongoing initiatives.

To prepare for these discussions, the process excellence organization needs to synthesize its understanding of the company’s strategy. One approach is to prepare an aide memoir that documents the following:

1. Industry and company facts
   
2. Key financial and operating metrics
   
3. Industry facts and analysis
   
4. Assessment of internal firm capabilities
   
5. Overviews of key company strategies and initiatives
   
6. Opportunities for process excellence
   
7. Key success factors for deployment

An aide memoir can take on many forms, and it should guide marketing and governance of Lean and Six Sigma deployment within a company. To prepare an aide memoir, opportunities for process excellence need to be defined and mapped to company strategies and initiatives. In this respect, one purpose of an aide memoir is to serve as the foundation of a marketing plan.

Ideation of opportunities is perhaps the most critical and actionable part of understanding and informing strategy. In my experience, the most successful process excellence organizations use tacit or explicit methods to define opportunities to further implementation of strategy through Lean, Six Sigma and other best practices. One approach is to set aside time for brainstorming at key points after conversations about strategy with business partners in a company. The purpose of these sessions is to creatively tackle problems facing the company where Lean and Six Sigma can add value. Another is to use nominal group techniques to structure similar discussions and to conduct a concurrent review of project opportunities in the pipeline.

Informing strategy depends on ideas from the process excellence organization. In fact, informing strategy is continuous, subconscious and played out through the marketing, selling, execution and measurement of Lean and Six Sigma projects. Bringing opportunities to the project selection process that are informed by an understanding of corporate strategy will help the process excellence organization create mindshare with senior management and build credibility through its focus on solving the most relevant problems through Lean and Six Sigma.

The deployment plan is a cornerstone of execution by the process excellence organization. My next blog will cover deployment, starting with the early activities of marketing and selling process excellence.

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.

The Department of Housing and Urban Development ("HUD") released recently a study of Lean adoption at nine manufactured housing plants. HUD’s Office of Policy Development and Research and the Manufactured Housing Research Alliance were sponsors of the study. The study highlights the benefits of Lean to making production of manufacturing housing more efficient and improving the availability of affordable housing. Details of the study are at www.huduser.org/publications/destech/pilotstudy.html.

Please pardon me for ignoring iSixSigma for the last two months. Life took over, and I did not have time to blog. This is a short post consisting of three questions.

1. Would anyone comment on the range of cycle times for DMAIC black belt and green belt projects?
   
2. At your companies, is mastery of a set of tools necessary for a green belt to be certified?
   
3. Does your company tie certification of green belts and black belts to a minimum number of projects with demonstrable hard dollar or soft dollar savings? If you know of survey data covering these questions, let me know.

In two previous blogs, I wrote about intersections between Six Sigma, internal control and data quality. By way of background information, my department performs compliance functions, where we monitor information delivered by third parties and created through internal operations.

For example, we receive property-address information and derive new information like geospatial position through "geocoding" processes. Since we monitor data for compliance, our process inputs are hundreds of data elements, and our output is systematic, timely determination of whether data quality is acceptable or needs improvement. Anyone who works in the "governance, risk and compliance" arenas will appreciate the unique challenges associated with designing and optimizing monitoring processes. Characterizing measurement error is a constant challenge.

In a future blog, I will share our experiences with assessing measurement precision (Gage R&R) and understanding stability and bias. Here I want to focus on an immediate challenge, and request insight on best practices. Our compliance monitoring is very new. We are designing processes that will move compliance to the front end of our value chain, so we measure data quality at the "point of truth" and reconcile these data to points of consumption by risk, control and compliance functions. Our focus right now is on designing, piloting and calibrating our compliance monitoring.

Our approach is highlighted in my earlier blog on Six Sigma and data quality. We are beginning to produce expected-versus-actual defect rate observations for our critical data elements. These statistics are generating lots of interest and questions about how we define an expected defect rate (voice of customer) and determine the importance of a lower-than-expected defect rate (the focus of my writing). Two questions perenially come up:

First, does a lower-than-expected defect rate indicate a high, medium or low level of risk? Some critical data elements are more important than others and more sensitive to variance. Second, how do we come up with a risk rating?

We are now beginning to explore these questions. One approach would determine the financial risk associated with an unfavorable variance in data quality. Our enterprise risk management processes have not matured to the point, where a reliable methodology is available to us. A broader perspective would consider the reputational risk associated with an unfavorable variance in data quality. Other than benchmarking internal data quality against our industry, judgment prevails because methodological scoring for reputational risk is not feasible. In practice, risk assessment frameworks seem to offer broad criteria or rules of thumb, whereby we can draw conclusions about risk exposure.

Another challenge is connecting these criteria to defect-rate observations. We are exploring alternative tools, including FMEA. Your insight about the following will be appreciated:

• Are there best practices for assessing risk or cost of poor data quality? Are these best practices applicable to measurement observations?
• Are there lessons to be learned from manufacturing settings (e.g., techniques to estimate risk of product liability or cost of poor quality from raw-material defect rate observations)?
• How are companies using FMEA to assess process risks, based on process metrics? After all, data quality is a type of process metric.

Your comments are encouraged, or please email me at charles@charlescmckinney.com.

KPMG, the public accounting firm, recently published a survey of outsourcing. Nearly three out of four companies in the survey do not measure the value of their outsourcing arrangements. Yet paradoxically, KPMG concludes outsourcing is working because 89% of their survey participants plan to maintain or increase their use of outsourcing.

The survey leads me to ask a few questions:

• Is satisfaction with outsourcing based on notions of comparative efficiency, or do organizations have performance metrics?
• How do companies apply business process management and integrate control plans into their outsourcing arrangements?
• Not all outsourcing arrangements are created equal. Do companies use Quality Function Deployment or other techniques to (re)design their outsourced processes?
• Are any organizations using Six Sigma in an inter-enterprise fashion to improve overall performance of outsourced processes?
• Do contract terms and conditions create high barriers to leveraging Six Sigma within an outsourced process?

Any insights would be appreciated.