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The Rest of the Story – Part 2 : ICMS – Success is NOT Logical
The Rest of the Story – Part 2
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10 August 2013 - 23:20, by , in Customer Profitability Analysis, No comments

Do you need a green belt or a black belt to get promoted?  The answer is “yes” at a growing number of Fortune 500 companies.

The September 14, 1999 Wall Street Journal featured an article on the Six Sigma programs of AlliedSignal, General Electric, Citicorp, Johnson & Johnson, Black & Decker, Weyerhaeuser and a growing number of worldwide organizations. The primary goal of Six Sigma is to achieve no more than 3.4 defects per million products or processes.

Six Sigma is not just a “factory floor” goal, it is also an “office floor” goal. I was first introduced to Six Sigma during my mid-80’s stint as a controller with Motorola.  For example, at Motorola Six Sigma means no more than 3.4 defects per one million cell phones, no more than 3.4 defects per one million accounting system journal entries and no more than 3.4 defects per one million purchase orders.  Six Sigma applies to every product and process.

To accomplish the Six Sigma target requires many new skills and disciplines.  Jack Welch, chairman of GE, tells his young managers to “master the Six Sigma discipline that leads to black belts if they want to move up at General Electric.”  To master the Six Sigma discipline begins with business analysis and measurement sciences training.  If you apply the training effectively to improve products and processes with measurable results, you become a Green Belt.  Additional training coupled with repeated successful applications of the newfound skills qualify managers for a Black Belt.  A few select managers achieve Master Black Belt status.

What best practice method are these Six Sigma organizations using to expose the labor and overhead waste of poor quality?  What kind of cost system would mirror and measure a business process?  What measurement would be both practical and precise enough for such an important commitment as Six Sigma?

The Wall Street Journal did not name the cost measurement tool that is being used by the Six Sigma organizations to quantify the savings of Six Sigma improvement projects.  But phone calls to GE, AlliedSignal and Motorola confirmed my intuition…it’s Activity Based Cost Management (ABM).

And as Paul Harvey says, “And now you know the rest of the story.”

Send your comments to TomPryor@icms.net.

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Tom Pryor
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