Case Study The Evolution of Lean Six Sigma at 3M, Inc.
On January 1, 2001, 3M announced that W. James McNerney Jr. was elected the chairman and chief executive officer of the firm. At the annual shareholders meeting in May 2001, McNerney announced that -at the top of my agendasis a headlong and companywide implementation of the Six Sigma approach to process and business improvement . . . I've seen firsthand how Six Sigma can energize an organization, increase sales and cash flow, satisfy customers better, and strengthen management development.-
McNerney initiated a massive training program for hundreds of senior executives. Senior executives were charged with leading the training efforts for all of middle managers and coming up With a list of 100 key six sigma projects.
According to some sources, McNerney had already -sold- 3M's board of directors on the concept before he took the position.
Historically, 3M competed primarily on product leadership and quality—and almost never on price. Many 3M managers believed that the firm was already a quality company, with many high-quality products such as Post-it Products and Scotch tape commanding very high market shares in their respective markets. However, 3M's financial performance was -flat- and was not expected to improve unless some major changes were made. The decision had already been made to deploy a Six Sigma program. The question for the senior management of the firm was how to use the Six Sigma program as a key lever for transforming the firm to become more competitive.
3M was founded in 1902 at the Lake Superior town of Two Harbors, Minnesota. Five businessmen agreed to mine a mineral deposit for grinding-wheel abrasives. But the deposits proved to be of little value, and the new Minnesota Mining and Manufacturing Company quickly moved to nearby Duluth to focus on sandpaper products.
Years of struggle ensued until the company could master quality production and a supply chain. New investors were attracted to 3M, such as Lucius Ordway, who moved the company to St. Paul in 1910. Early technical and marketing innovations began to produce successes and, in 1916, the company paid its first dividend-6 cents a share.
The world's first waterproof sandpaper, which eased the health problem of sanding dust, was developed in the
1 Source: htto://www.3m.conVorofile/lookingigianceptrul. May 15, 2001, and the 3M annual report for 2000. early 1920s. A major milestone occurred in 1925 when Richard G. Drew, a young lab assistant, invented masking tape—an innovative step toward diversification and the first of many Scotch brand pressure-sensitive tapes.
In the following years technical progress resulted in Scotch' Cellophane Tape for box sealing. Customers began to find many additional uses, including consumer applications. Drawing on expertise in bonding mineral grit to sandpaper, 3M brought out new adhesives to replace tacks in bonding upholstery, and sound-deadening materials for the auto industry's new metal-framed cars.
The roofing granule business (ceramic coated bits of rock) was developed in response to a need to make asphalt shingles last longer. In the early 1940s, 3M was diverted into defense materials for World War ll, which was followed by new ventures, such as Scotchlite'- Reflective Sheeting for highway markings, magnetic sound recording tape, filament adhesive tape, and the start of 3M's involvement in the graphic arts with offset printing plates.
In the 1950s, 3M introduced the Thermo-Fax' copying process, Scotchgard- Fabric Protector, videotape, Scotch-Brite- Cleaning Pads and several new electromechanical products.
In the 1960s, dry-silver microfilm, photographic products, carbonless papers, overhead projection systems, and a rapidly growing health care business of medical and dental products were introduced.
Markets were further expanded in the 1970s and 1980s into pharmaceuticals, radiology, energy control, the office market—and globally to most every country in the world.
The 1990s set new sales records of over $15 billion annually, and about 30 percent of sales came from products created within the past four years. 3M's growth has come through a desire to participate in many markets where the company can make a significant contribution from core technologies, rather than be dominant in just a few markets_
In 2000, 3M was a diverstfied technology company with leading positions in electronics, telecommunications, industrial, consumer and office, health care, safety, and other markets. It had 2000 sales of $16.7 billion, a 6 percent increase. During 2000, 3M generated $5.6 billion (nearly 35 percent of sales) from products introduced during the previous four years, with sales over $1.5 billion from products introduced in 2000. Under McNerney's tenure, sales continued to increase, as shown in Exhibit 1. International sales constituted over 50% of total sales.
This case was written by Professors Arthur Hill, Kevin Linderrnan, and Roger Schroeder of the Curtis L. Carlson School of Management at the University of Minnesota. The case was prepared as the basis for class discussion rather than to illustrate either effective or ineffective handling of a business situation. All of the content for this document was taken from public sources. Copyright © 2007, 2010, and 2016. Reprinted with permission.
442 Part Seven Case Studies
EXHIBIT 1 3M sales history.
96 97 98 99 00 01 02 03 04 05 06
Sales ($ billion)
Headquartered in St. Paul, Minnesota, the company had operations in more than 60 countries and served customers in nearly 200 countries. 3M was one of the 30 stocks that make up the Dow Jones Industrial Average and was also a component of the Standard & Poor's 500 Index.
3M was applying many of the standard approaches to Six Sigma that had been developed by Motorola originally in 1985 and then extended to Allied Signal and GE in the mid-90s. Since then many other companies had also adopted Six Sigma, as indicated in Appendix 1.
The 3M approach to Six Sigma included two different improvement models.
1. For existing processes, the five-step DMAIC model was used.
2. For new product development DFSS (Design for Six Sigma) was used.
For existing processes Six Sigma was aimed at making significant improvement in processes that were strategically selected by upper management. After selecting a process for improvement and assigning a senior executive to act as the -Champion,- a Black Belt was assigned to lead a process improvement team. The Black Belt was assigned full-time to project improvement and trained in the methods of Six Sigma and Statistics. The project team, under the Black-Belt's guidance, then worked on process improvement using the following DMAIC model.
The Six Sigma -DMAIC- improvement model
D Define Requirements, goals, problems, scope
M Measure Validate problem, inputs, key steps, efficiency data
A Analyze Develop/validate hypothesis, identify root causes, assess process design
I Improve Remove root causes, standardize • solutions, implement new process
C Control Establish standard measures and
reviews to maintain performance
A typical Six Sigma project lasted six months and was expected to make significant improvements both in customer satisfaction (internal or external customer) and in cost savings. The improvements were standardized and reviewed periodically to insure continuing benefit to 3M. The savings from the project were also carefully tracked by the financial organization in 3M.
The second use of Six Sigma was to design new products using the Design for Six Sigma methodology. This process started with identification of the customer's requirements and then translated those requirements eventually into product specifications. The process included not only designing the product, but reducing the inherent risk in the design processes by verifying the design with potential customers. Various tools such as Quality Function Deployment and Computer simulation of design characteristics were used during the design process.
THE SIX SIGMA PROGRAM AT 3M
3M's 2000 annual report included the following para-
graphs praising the virtues of the Six Sigma program:
Process Improvement: Process improvement means nothing if it doesn't lower costs, increase sales, satisfy customers, develop managers, increase cash flow and make the whole organization faster. 3M is quickly moving from multiple quality-management systems within the company to one: Six Sigma. A uniform, companywide approach shared by employees, customers and suppliers will both advance our competitiveness
and improve our efficiency. •
3M Acceleration: This initiative targets generating even greater returns on our over $1 billion investment in R&D. The senior management team will be applying Six Sigma tools• to drive time out of product development and commercialization cycles. Further, we will work as a team to sharpen our corporate focus on growth areas with the greatest returns for our investors.
The Evolution of Lean Six Sigma at 3M, Inc. 443 111
Under the direction of our new Chairman, Chief Executive Officer, W. James McNerney Jr., 3M has begun the task of implementing initiatives that will lead 3M to provide a better service to its customers. Today's changing and demanding world demands the best of each element in 3M, always keeping in mind our real reason for being, our customers. These initiatives are focused towards long-term and short-term competitiveness because we are interested in making our clients think of us as the agile company that we are, always willing to provide the best products and services.
Six Sigma—Implemented in our company, it strengthens all aspects of our business. Pursuing quality improvement'under one single program, Six Sigma, 3M has been an excellent supplier to the various markets in which we participate by providing new and innovative products. Our customers demand and deserve that we do it even better and faster through 3M Acceleration.
E Productivity—The future of commercial activities through electronic media is already present. We are changing the way we work to be more efficient, productive and to render better service as support to our customers. To achieve this we must have the tools to be better connected, and this allows us to be ready in the rapidly growing -new- way of doing business.
Supply—If we purchase in smarter and more systematic ways we will obtain cost reduction for 3M. Taking this in mind, our presence and strength in product purchasing will be translated to the generation of accessible and beneficial products for our customers.
Indirect Costs—Good management of costs is critical for a sound and successful business plan, especially in critical times. At 3M, now and in the future, we seek adequate indirect cost reduction on many levels to be able to still be the preferred supplier to our customers.
JEANNE O'CONNELL'S TALK TO THE CARLSON SCHOOL OF MANAGEMENT
In a talk that Jeanne O'Connell, Director of Six Sigma Operations at 3M, gave at the Carlson School of Management in November 2001, she provided the following definition of Six Sigma at 3M:
Six Sigma is a methodology for pursuing continuous quality improvement and reducing inherent variability.
2 Source: http//www.3m.com/intl/mx/englishver/rnexico/quienes. htm, September 8, 2001.
tt requires a thorough process and product under-standrng and is clearly focused on customer-driven expectations.
She went on to share the following ideas:
Six Sigma Has a Focus on Processes
Six Sigma is an orderly and consistent approach to a recurring significant business activity. Examples of a significant business activity include new product introduction, lab experiment, handling a customer call, approval of documents, manufacturing a product, filling an order, etc. All of our business activities involve a process—recognized or unrecognized, efficient or inefficient. The better our business processes, the better able we are to consistently and reliably keep our promises. Excellent business processes are essential for sustainable growth.
Ms. O'Connell described 3M's method for selecting processes for improvement as follows:
Processes selected must be linked to the Strategic Business Plan.
• Selection is prioritized based on value to the business, resources required, and timing. Factors considered in selection include growth, cost reduction and cash savings.
• All improvement processes are approved by management.
• They are formally tracked for savings and defect reduction.
• The team leader and management are held accountable.
Exhibits 2 and 3 show slides that 3M uses to communicate their simple approach to Six Sigma. Exhibit 2 emphasizes that a strategic perspective drives project selection. Exhibit 3 suggests that the right results are a function of getting the previous steps right
In answer to the question of -why Six Sigma: Jeanne O'Connell responded with the following four reasons:
• Common approach with common goals.
• Institutes a common language.
• Develops transferable skills.
• Most effective way to increase and accelerate our business performance and customer quality.
Ms O'Connell noted that 3M is moving aggressively to drive process improvement across the company. We started at the top with 3M senior leadership and are building on 3M's commitment to improvement. More than four thousand people will have been trained by end of year 2001.
444 Part Seven Case Studies
EXHIBIT 2 3M's simple approach to Six Sigma.
Strategic and annual business objectives and targets
Select the Select and Develop and Manage for Sustain the
right projects train the implement excellence in gains
right people improvement operations
Make the numbers
EXHIBIT 3 3M's simple approach to Six Sigma.
The Right Project
+ The Right People
+ The Right Roadmap and Tools
+ The Right Support
=The Right Results
At one point in her talk, she said that we want to change the DNA of the organization- and she even hinted that they plan to make it a requirement for all executives to be black belts.
Six Sigma was off to a good start at 3M. After four years of implementation, 3M had 30,000 employees trained and all salaried employees had completed Green Belt training. Over 11,000 projects were completed and 12,000 more were underway. The 2003 annual report credited Six Sigma with increasing operating income by $500 million in 2002, and an additional $400 million in 2003 with a similar projection of $400 million for 2004. McNerney said, -3M is in the midst of a transformation ... Six Sigma, 3M Acceleration and our other corporate initiatives are now integrated into every business, every function and every subsidiary of 3M, and we expect they will generate both productivity improvements and revenue growth for years to come.-3
However, Some companies have not embraced the Six Sigma approach. Skeptics in these companies point to the following issues in using Six Sigma.
• We can't afford to improve our processes to 3.4 parts per million defects as implied by Six Sigma. Also, our customers don't need this level of quality.
3 Press Release, February 18, 2005.
• Six Sigma is too complicated and involves too many statistics for our people. We need a simpler approach to process improvement.
• Six Sigma doesn't work very well for service processes or transaction-based processes that have intangible outputs and are difficult, if not impossible, to measure. Six Sigma is better suited to manufacturing.
• Six Sigma is just the latest quality fad—it too will pass.
LEAN SIX SIGMA
In 2004 3M expanded its program to Lean Six Sigma (LSS). The expanded program was documented in a 200-page manual used for training purposes.4 The idea behind the LSS program was to bring four approaches together that teams could use to improve processes. Teams were encouraged to choose among these approaches based on choosing the right approach, for the right project, at the right time. Each approach had its own purpose, tools and outcome. The four approaches are:
• Six Sigma: This approach is best suited to reduce variation in the process and improve the yield while reducing the cost. The process is flowcharted and often, but not always, sophisticated statistical tools are used for the analysis.
• Lean is used to eliminate nonvalue added activities from the process. It improves the speed of the process, the throughput time, and often reduces inventory. Lean uses value stream mapping, Kaizen events, visual control and the 5S tools for process improvement.
• Process and Product Understanding (PPU): This approach is based on the need to gain a deep understanding of the customer and the process. It begins with a need to understand customer requirements. It then proceeds to flowcharting, measurement analysis
The Evolution of Lean Six Sigma at 3M, Inc.
and control of the improved process. Using this approach the process should be made statistically capable of meeting customer requirements.
• Business Process Redesign (BPR). This approach is used when the process is cross-functional and completely broken. A swim-lane process flow chart is used to identify disconnects across functional boundaries. The current -as is- process is defined and then the ideal -to be- process is designed. Often processes are completely redesigned as a result of this approach, with the old process thrown out and a new process designed that stretches across multiple functions in the organization.
At 3M all four of these approaches use the DMAIC process originally defined for Six Sigma. After defining a project charter and assigning a project owner, the project improvement team follows the steps of define, measure, analyze, improve and control. Only the tools used and the reasons for process improvement vary across the four approaches.
Lean Six Sigma recognizes that not all processes are alike in their deficiencies and the extent of improvement needed. The Lean Six Sigma program continues to be implemented at 3M until the present time.
THE McNERNEY ERA TO THE PRESENT
After taking over as CEO in 2001, McNerney not only aggressively implemented Six Sigma but also made other major changes. Coping with the recession of 2001 and lagging profits, he laid off 8,000 workers (about 11% of the workforce) and slashed capital expenditures from $980 million to $677 million by 2003. During his tenure, sales grew to $21 billion in 2005 and profits grew at an average of 22% per year. Wall Street liked McNerney's initiatives and the stock price increased.
In 2005 McNerney left 3M to become the CEO of Boeing. The Board of Directors hired George Buckley, former CEO of Brunswick, to be the new 3M CEO in December 2005. Buckley has taken a different approach to improvement at 3M. He continued Six Sigma in the manufacturing and administrative areas, but reduced it in R&D. He also invested more in R&D and new manufacturing plants. Under Buckley, encouraging risk taking has renewed innovation and creativity. His mandate is to bring back the legendary innovative spirit of 3M, while preserving the operating efficiencies that McNerney created. By 2012 Buckley had increased sales to $29.6 Billion and Net Income to $4.3 Billion.
In Feb 2012 Buckley retired from 3M and was replaced by Inge Thulin as the new CEO. Thulin, a native of Sweden, joined 3M in 1979 in marketing and sales, but spent considerable time in international operations. According to Reuters, Feb 8, 2012, Thulin said, -The company is doing very well. Sales outside the U.S. grew from less than $10 billion in 2003 to $20 billion or over 65% of 2012 sales. We would like that to continue noting that pursuing acquisitions, funding product creation, and venturing deeper into emerging markets will remain key priorities.- Thulin told Reuters that Buckley had squarely focused the company on innovation, pointing to the increase in the percentage of revenue generated from new products from 20% of sales to 30% during Buckley's tenure. Thulin said he plans to continue to boost 3M's -innovation machine- in the coming years.5
IS SIX SIGMA ENOUGH?
There have been vigorous discussions in the media and Internet about whether Six Sigma is enough at 3M and other companies.6 The argument is about whether Six Sigma tends to block innovation, creativity, and the development of new products. For example, some claim that during McNerney's tenure at 3M, innovation suffered because Six Sigma was emphasized over innovation, particularly in R&D. McNerney denied this and claimed that Six Sigma did not stifle innovation or replace creativity.' These qualities are still required to develop breakthrough new products. Still there are those who point to the lack of innovation when Six Sigma is implemented because it tends to focus on reducing defects and variance, while innovation requires risk, creates possible inefficiencies, and can increase variance of processes.
The argument is now taking two sides. One side daims that innovation and improvement cannot coexist in the same organization. Others, such as O'Reilly and Tushman, argue that indeed an ambidextrous organization is required to achieve both innovation and improvement through balancing.8 Balancing might be accompished by establishing separate departments or teams• some which are charged with innovation and others with improvement. Even then, top management must also be ambidextrous and carefully balance allocation of resoirces, team assignments, and investment for both innovation and improvement to occur in the firm. The debate is stil raging as to which is the right perspective. Does Lean Six Sigma stifle innovation and is Lean Six Sigma enough?
5 Source: Reuters February 8. 2012 arbde `31M CEO Buddey to retire; Thulin to succeed hire
6 Forbes/Reuters 5/13/04. iSixSgrna.carn 6/1/04, Business-Week 6/1 1/07.
8 C. A. O'Reilly, and At L Tushinan, -The Ambidextrous Organization,- Harvard Business Ik264ew 82 (4) April 2004. 74-81.
I'll' 446 Part Seven Case Studies
APPENDIX 1 Adopters of Six Sigma. •
CHALLENGES AT 3M 3. Do you agree with any of the points made by skeptics about the original Six Sigma program at 3M? Explain why they believe that skepticism is warranted.
As the firm went through this major transformation, many 4. How will Lean Six Sigma affect the innovative culture at 3M, and is Lean Six Sigma enough?
questions went through the minds of 3M managers. 5. How does Lean Six Sigma in 3M differ from traditional TQM programs?
1. What are the benefits and costs of a Lean Six Sigma program and how should they be tracked?
2. How should the various functional areas in the organization be included in the Lean Six Sigma initiative, and what role should senior and middle management play in this change initiative?
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Johnson & Johnson
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RR Donnelley & Sons
Sears, Roebuck &
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