Can Six Sigma Kill Your Company?

It can according to Clayton Christensen, author of the Innovator's Dilemma. He found that: "management practices that allow companies to be leaders in mainstream markets are the same practices that cause them to miss the opportunities offered by 'disruptive' technologies. In other words, well-managed companies fail because they are well managed." And he offers many case studies from disk drive manufacturers and other industries that support his findings. What are the hallmarks of good management that cause companies to fail?

  1. Listening to customers (Your current customers want more of the same from you. The emerging market doesn't know what it wants in the next big thing. It just wants simpler, cheaper, more convenient products and services.)
  2. Seeking higher margins and larger markets, not smaller emergent ones.
  3. Relying on market analysis to find new markets (Markets that don't exist can't be analyzed, they can only be explored through trial and error.)

Recently I was asked to consult with a company that had been acquired by a larger company that was obsessed with Six Sigma. The acquired company started training black belts and green belts and project teams. They required every employee to have their own Six Sigma project. Every project started asking everyone else for data in all kinds of formats and layouts and selection criteria. The company literally became paralyzed doing Six Sigma and forgot to take care of customers and continue their efforts at innovation, which they were known for. Smaller companies were eroding their market share with simpler, more convenient and cost effective tools.

As Joel Barker said in his book, Future Edge, you "manage" within paradigms and you "lead" between paradigms. Six Sigma is a great methodology and toolkit for managing and improving your product and service. Companies who do this continue to succeed as long as the underlying technology doesn't change dramatically. But when it does change, your company will most likely be incapable of recognizing and taking advantage of it.

Why? Because it means entering smaller markets with products that generate smaller margins until they become mainstream. IBM, for example, ignored minicomputers. DEC, who succeeded in minicomputers, ignored microcomputers. Apple computer started the microcomputer market, but IBM jumpstarted personal computers by creating a skunkworks to develop the first prototype. And none of these companies succeeded at developing the Palm Pilot, although Apple tried with the Newton.

Intel may be the only company that consistently rides the curve of new technology by using the strategies outlined in Christensen's book:

  1. Set up a separate organization small enough to get excited by small gains with customers who want the new technology.
  2. Plan for failure. Make small forays and tailor the product or service as you learn what your emerging customers want. How many companies start down one path only to discover the big market is a derivative of the original idea?
  3. Don't count on breakthroughs. Many next generation technology markets emerge from re-combinations of existing technologies. Smaller disk drives use the same technology as larger disk drives. So why didn't the large-disk drive manufacturers spot the need for smaller drives in PCs, and why didn't PC-disk drive manufacturers spot the need for still smaller drives for laptops?

Is Six Sigma making you too complacent? Are you ignoring the tug of the emerging markets in your industry? Don't let Six Sigma kill your company. Balance your efforts to improve the existing business and innovate for emerging markets.

Stop the insanity. It's not either-or: improve OR innovate; it's both improve AND innovate. Otherwise, your future is in jeopardy.

Rights to reprint this article in company periodicals is freely given with the inclusion of the following tag line: "© 2008 Jay Arthur, the KnowWare® Man, (888) 468-1537,"

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