Six Sigma and more:
Perversity and profit
You may know that I teach Ethics: Assumptions for the Future at Lansing Community College. In that course we explore stories and the ethical implications of the behavior of organizations such as Enron, Arthur Andersen, MCI, and others. We talk about the bottom line, stock prices, the basis for management's belief in the supremely dominant responsibility to maximize profits, and, of course, Myron Tribus' Perversity Principle. I have written about the Perversity Principle before but one of you sent me such a powerful Six Sigma story that I felt compelled to remind us all of it again.
Once upon a time in a real, live U.S corporation, top management decided that Six Sigma would be a good idea. They trained up many Black Belts to lead projects to produce documented savings…at least savings as defined by the existing accounting system. In order to encourage people to take on successful projects, the Black Belts (not the project teams) were slated to receive substantial bonuses for producing these savings.
One such project involved a Black Belt who found that many of the tests on one particularly complex product were duplicates of one another. He eliminated the duplicate tests and was able to claim $800,000 in annual savings. He was a happy man. He got a nice bonus. But here's the rest of the story. It just so happens that the eliminated tests were automatically run in parallel with other tests. Production was based on a constant week-to-week contract, so running an inventory ahead was very risky. So labor was unchanged. Scrap was unchanged. Production was unchanged. Apparently our happy Black Belt got a nice bonus for savings that did not actually occur. Not his fault. Systems error.
Two lessons come to mind. When I was with Ford and we started our Employee Involvement/ Participative Management effort many years ago, we struggled with how to make cost reduction projects really work to improve the bottom line. We could focus on reducing scrap, because then we could purchase less material and really save money. But when we got to labor savings, it got a little sticky. You see, the people who really knew where the opportunities were, the hourly workers, were the very people who would have to be laid off in order to save real money. The dilemma was obvious. No one is going to help save money for the company if it were to result in their own job loss. In those days we had a natural attrition rate of about 6%. We figured if we were willing to retrain the workers whose jobs would be lost from a savings project and simply take advantage of our natural attrition rate, we could get a 6% annual profit improvement rate and a more productive workforce. As a matter of fact, we committed to lay off no one as a result of an improvement project. Well, it worked. But today, the world is different. So the rules we were able to make up may no longer work, but the rules in this Six Sigma story surely aren't working too well. So you better figure out a way for EVERYONE to benefit from your Six Sigma efforts if you want them to work effectively.
The second lesson is a broader, more articulate version of the first. It is Myron's Perversity Principle:
If you try to improve the performance of a system of people, procedures, practices, and machines by setting goals and targets (and incentives) for the individual parts of the system, the system will defeat you every time and you will pay a price where you least expect it.
Be careful how you encourage Six Sigma success. People are complex creatures.
As always, I'd love to hear your comments and questions.
I'm at firstname.lastname@example.org
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