Introduction The economic success of any organization is
measured by their net profit. Organizations seek innovative
approaches for continuously improving their product and service
quality to survive in the global competitive market (Kumar, Antony,
Madu, Montgomery, and Park, 2008). In order to yield higher levels
of profitability and organizational performance, various techniques
such as zero defects, quality circles, total quality management
(TQM), and business process re-engineering (BPR) have been widely
implemented (Jarell and Easton, 1997). These techniques have their
own uniqueness in terms of the development of construct, research
methodology, quality management treatment as single or multiple
constructs, performance measurement in one level or multiple
levels, and data analysis. These differences in techniques have led
to mixed results in the correlation of quality management and the
organization’s performance (Ittner and Larker, 1977; Kaynak, 2003;
Molina, LlorensMontes, and Ruiz-Moreno, 2007).
- Six Sigma Methodology and Impacts on Organizational Performance
Six Sigma is a popular management methodology that encompasses both
management and technical components in a standardized framework of
DefineMeasure-Analyze-Improve-Control (DMAIC) for process and
product improvement (Snee, 2000). Due its successful implementation
in major companies in more than two decades, the benefit of Six
Sigma is very well documented (Kumar, Antony, Madu, Montgomery, and
Park, 2008). The explicit objective is the key success in a Six
Sigma project. Six Sigma explicitly states that it enhances the
‘sigma level’ of performance measures that reflect customer needs
and requirements. This objective yields the ultimate reduction in
process variation through sustained effort (Harry, 1998; Hahn,
Hill, Hoerl, and Zinkgraf, 1999). Other quality improvement efforts
that are similar to Six Sigma such as the quality awards, quality
certification, and other quality initiatives on the stock prices
have been published as well (Goh, Low, Tsui, and Xie, 2003;
Przasnyski and Tai, 1999). Likewise, the response in stock price
returns for Total Quality Management companies has been extensively
studied (Hendrics and Singhal, 1996; Adams, McQueen, and Seawright,
1999; Jarell and Easton, 1997). Wilson (2004) addresses the
quantitative benefits of the ISO 9000 and the Baldrige awards. He
evaluated the financial data of organizations with ISO 9000 and
found that the costs were greater than the benefits.
- Critical factors for Quality Implementation Bullington, Easley,
and Greenwood (2002) developed a genesis-maintenance framework to
understand the critical success factors in the initiation and
maintenance phases of quality improvement processes. The theory of
genesis-maintenance classifies the critical success factors into
early success factors versus maintained success factors. There are
some factors that happen to be detrimental to success. In a similar
fashion, the framework used in this paper focuses on whether there
are factors that contribute to the success or failure of Six Sigma
in an organization. By studying organizations that have been
successful and continue to be successful in their use of Six Sigma
processes, the critical success factors can be identified and the
proper emphasis of these factors can be determined. The critical
success factors identified during research are management
commitment, customer focus, quality culture, supplier
relationships, and the other factors listed in Exhibit 5. Hirtz,
Murray, and Riordan (2007) report a lack of literature on the
importance of leadership on quality advocated by Deming and Juran
for successful quality management. Further investigation by the
authors on the correlation between leadership style and perceived
level of quality management revealed that transformational
leadership is positively related to the successful implementation
of quality management in administrative/service area, and passive
styles of leadership negatively impact efforts to implement quality
management.
Phase 1: Identification of Six Sigma Companies
In this phase, 65 Fortune 500 companies were selected from
different industrial sectors including finance, healthcare,
conglomerates, technology, services, basic materials, consumer
goods, and industrial goods. The Six Sigma implementation dates and
the stock performance from 5 years prior to the implementation and
10 years after implementation were collected. Due to challenges in
retrieving the stock performance data prior to Six Sigma
implementation, the list was reduced to 43 companies
Phase 2: Economical Analysis of Six Sigma Companies
One of the methods to establish average minimum attractive rate
of return (MARR) is to use the rate of return actually achieved
over past particular number of years (White, Case, and Pratt
237,278-295). The financial performances of the 43 companies
selected in Phase 1 were evaluated by calculating the future value
using the MARR while taking into consideration the inflation rate
for these time periods. An initial investment of $1,000 five years
before the Six Sigma implementation and a second investment of
$1,000 during the year of Six Sigma implementation were assumed