In today's marketplace, increased globalization, constant technological advances and other competitive pressures are accelerating the pace of change CEOs face. The resulting opportunities and threats have placed innovation near the top of CEOs' priority lists. And yet, for many, innovation success has been sporadic at best. Our research and experience shows that the right operations strategy can help companies make innovation a regular occurrence. Such a strategy, if focused not just on efficiency but also on growth, can serve as a foundation for innovation throughout an organization – far beyond operations to products, services, markets and even a company's underlying business model. Simply put, this sort of strategy is not about doing things better; it is about doing better things. As part of our analysis, we examined several leading companies that are doing just that. They have implemented operations strategies based on a relatively well-known management philosophy which we will call here Lean Six Sigma. It is also sometimes referred to as Six Sigma Lean. And at some of the companies we studied, leaders still label their initiatives as Six Sigma or 6 Sigma even though, from our perspective, they have moved beyond Six Sigma's original definition and scope by incorporating Lean features as well. Regardless of the term, the companies that have used this overall approach have established disciplined working environments focused on customer needs, detailed data analysis and facts, not theories. The results are remarkable: - At Caterpillar, stagnant revenue growth prompted the company to undertake a massive transformation in January 2001. Through its 6 Sigma initiative, the company developed a strategic vision that outlined a roadmap for change based on fact-based analysis. Caterpillar's initiative also led to product innovations like its phenomenally successful low-emissions diesel engine and to redesigned processes including a streamlined supply chain. By 2005, revenues had grown by 80 percent.
- Coddled by decades of government protection, Korean steelmaker POSCO faced fierce competition as it privatized in 2000. But with the help of Lean Six Sigma, the company staged a dramatic turnaround. This approach helped POSCO escape its low-margin business as a regional low-cost provider and elevate itself to the global stage as a premier provider of innovative steel products and services. Fact-based analysis surfaced high-potential markets and unmet needs that led to differentiated products with entirely new applications. In just a few short years as a private enterprise, POSCO has become the world's third largest steelmaker.
- In a newly deregulated market, ScottishPower was losing customers who now had the power to choose their electricity provider. Determined to reverse the trend, the company used a Lean Six Sigma approach to reinvent its customer service function. By innovating based on facts not assumptions, the company was able to halt a steady decline in its customer base and increase market share by 60 percent in just four years.
As we analyzed the companies that used Lean Six Sigma to achieve broad-based innovation and superior financial performance, we identified several distinguishing characteristics of their approaches that set them apart from those with a traditional operational improvement mindset. Successful innovators had: - An innovation vision based on factual customer and market insights – Leaders crafted a compelling vision based on a keen understanding of market demands and their own capabilities. Their objectives were explicit and few in number to enable focus.
- Leadership committed to perpetual innovation – CEOs and business unit leaders played active, enthusiastic roles. They were clearly committed to making an indelible organizational change, not just launching another initiative.
- Alignment across the extended enterprise – The strategic innovation vision was used as a unifying force to align disparate business units and influence supplier and customer relationships.
- Organizational capabilities that made innovation habitual – At the outset, these companies' Lean Six Sigma initiatives involved an intense period of training, dedicated resources and an initial bubble of projects to jumpstart their transformation. But over time, as the mindset became more mainstream, these companies established enduring processes that helped drive continuous innovation throughout the organization.
Although CEOs might instinctively think of management approaches such as Lean Six Sigma in terms of process improvement and cost reduction, our research suggests that this perspective is shortsighted. The successful companies we studied acted in a more visionary manner. They deliberately expanded the scope of Lean Six Sigma, using it to surface significant innovation opportunities that impacted much more than their operations. And in the process, they were able to improve business performance and establish organizations that now have an inherent inclination toward innovation. To read the full report, download the PDF file at the top of this page |
