Twenty years ago, no company was flying higher than General Electric. In early 2000, GE passed Microsoft to become the world’s most valuable company. The sprawling conglomerate, which sold everything from jet engines to mortgages to advertising on Seinfeld, was directed by a dynamic CEO, Jack Welch, and his unwavering faith in the power of Six Sigma.
Six Sigma, at its core, is a system for eliminating defects in manufacturing. The name refers to a statistical model, based on deviations on a bell curve, that dictates the number of acceptable defects per million manufacturing steps. Achieving Six Sigma means an organization tolerates just 3.4 defects per million steps, insisting that 99.99966% of its products or services are without flaws. Historically, most industrial companies operate between three and four sigma, making them between 93% and 99.3% defect-free (these figures can vary slightly depending on the statistical model).
GE adopted Six Sigma from Motorola in 1995, and under Welch it became corporate religion. The company invested more than $1 billion in training thousands of employees, and the system was adopted by every GE business unit. Tools designed to streamline the making of widgets were adopted for every company process, from accounting to customer service to hiring.
With GE as its poster child, the gospel of Six Sigma was spread by management consultants to companies everywhere. Its statistical sheen and rankings borrowed from martial arts—newbies were “green belts,” masters were “black belts”—was tailor-made for a business world that loves jargon and management pseudo-science. Soon, Six Sigma was the must-have credential, appearing on countless resumes and feeding a cottage industry of training institutes. Other quality-oriented systems proliferated in Six Sigma’s shadow: Lean, Total Quality Management, and ISO 9000 all jumped from the specialized world of process engineering to the broader business world.
But as GE began a long, slow decline, so did the popularity of Six Sigma. Once synonymous with management excellence, GE’s reputation in the business world plummeted in concert with its share price. The business press, once effusive in its praise, began asking “What the hell happened at GE?” In the latest blow, accounting expert Harry Markopolos, who tried to warn the world about Bernie Madoff’s Ponzi scheme, has accused GE of disguising the depths of its problems. (The company, in turn, accuses Markopolos of working for short-sellers who would profit from its decline.)
The company’s market cap, which reached a high of nearly $600 billion in mid-2000, sank to around $60 billion late last year.
And as GE’s fortunes diminished, so has interest in Six Sigma.
According to Google, searches for “Six Sigma” peaked in 2004, and have fallen steadily since. LinkedIn data reveal a similar story, with fewer and fewer of its 630 million users adding Six Sigma as a skill to their online résumés. It’s since been surpassed by Agile, a management process that emerged from the world of software development.
Out of fashion
Was Six Sigma’s decline inevitable?
Eric Abrahamson, a Columbia business professor who studies management trends, distinguishes between fads and fashions. While fads bubble up organically, management fashions are manufactured and promulgated by consultants and business schools who profit from their adoption. Six Sigma was a classic management fashion, Abrahamson says, and GE was its leading model, a high-performing company touted by consultants eager to help other firms implement the system. As a result, it spread widely.
“The merchants of Six Sigma wanted to keep expanding the market,” Abrahamson says. “You don’t want to just sell it to manufacturing firms, you want to sell it to service firms, to financial firms, to government agencies, to nonprofits.”
And as with all fashions, once Six Sigma was picked up by the masses, fashionable companies lost interest and moved on to the next big thing. “These things have a life cycle: They get popular and then people start looking for something else,” says Art Swersey, a professor emeritus of operations research at the Yale School of Management. “These things run their course, and it has run its course.”
Six Sigma’s decline was also a symptom of a broader change in the corporate world, where innovation became more valued than efficiency, and technical precision was no longer a differentiator. Silicon Valley’s culture of “move fast and break things” meant business leaders were less concerned with reliability and more focused on game-changing discoveries. An obsession with efficiency, researchers have discovered (pdf), can come at the expense of invention.
“When I get up on an airplane, I’m very glad it went through a Six Sigma process—there’s a certain comfort in that,” says Mike Pino, a technology strategist at PwC who spent three years at GE. But at organizations built around Six Sigma, he says, “disruptive innovation is discouraged.”
Made in Japan
Six Sigma was born out of the theories of a small group of mid-century engineers who became apostles of quality control. Chief among them was W. Edwards Deming, an American statistician who traveled to Japan to teach manufacturing techniques in 1950. Japan, in desperate need to reinvent its industry in the aftermath of World War II, was eager to learn, and the companies that adopted his techniques of statistical process control saw enormous gains. Deming became a hero to Japanese industry and the Deming Prize is still awarded by the Union of Japanese Scientists and Engineers to companies that master his methods.
The key to Deming’s techniques was the close observation of manufacturing processes and the meticulous recording of data. Only by closely studying outputs could managers understand if defects were the product of random chance, or flaws in manufacturing equipment or raw materials. The process was applied continually to narrow the variability in finished products.
Deming believed quality control was an organization-wide imperative, and insisted on involving CEOs when he worked with companies. He pushed corporations to break down barriers of communication between workers and managers, and to eliminate production quotas and targets that could compromise the process.
By the 1970s, Japanese automobiles and electronics surpassed US products in quality and reputation, and American manufacturers took note. (In 1980, NBC aired a documentary on Japanese management techniques titled, “If Japan Can, Why Can’t We?”) Deming became a sought-after consultant by companies like General Motors and Ford.
Deming’s methods became systematized into Six Sigma at Motorola, a consumer electronics company battered by Japanese competition. Bill Smith, an engineer, developed and named it in 1985, and CEO Bob Galvin made it a company-wide initiative.
In June 1995, while recuperating from heart surgery, Welch invited Larry Bossidy, then CEO of AlliedSignal, to talk to a meeting of GE’s senior executives. Bossidy was a Six Sigma convert and Welch was eager to introduce it to GE’s senior managers.
Welch was previously on the fence about Deming’s methods, but a survey of GE employees revealed concerns about quality. After a presentation by Bossidy received an enthusiastic response among GE managers, Welch was ready to take the plunge. A cost-benefit analysis showed that improving GE from three or four sigma to six would save the group between $7 billion and $10 billion annually, or the equivalent of 10 to 15% of annual revenue.
“Once everything came together, I went nuts about Six Sigma,” Welch wrote in his 2001 autobiography Jack: Straight from the Gut. “With that opportunity [for savings], it wasn’t rocket science for us to take a big swing.”
Welch admitted that much of the statistical underpinning of the system went over his head, but he hired the Motorola manager who ran that company’s Six Sigma Academy to make it work at GE. To drive home its importance, Welch determined that 40% of employees’ bonuses would be tied to Six Sigma, and that stock options would be reserved only for managers in black belt training.
In Welch’s telling, fealty to the doctrine of Six Sigma became paramount. No one could be promoted to management without at least green belt training, and candidates could be rejected if their faith wavered. When one internal applicant to run GE’s nuclear power services division seemed less than devoted, he had to fly from San Jose, California, to company headquarters in Connecticut “to talk to us about his Six Sigma qualifications,” Welch wrote. Eventually, the manager “convinced us that he was deeply committed to Six Sigma” and got the job.
By 2001, GE boasted that some 80,000 employees had received Six Sigma training (pdf), and completed 500,000 Six Sigma projects since the system was adopted.
It seemed to produce results. In the five years to 2001, GE’s annual profit increased by 66%, to $13.6 billion. The spotlight turned to Welch, and the countless profiles and articles that trumpeted his management savvy inevitably discussed the central role of Six Sigma.
While not appreciated at the time, Welch’s retirement from GE in 2001 marked both the high point of the company’s position atop American enterprise and of Six Sigma’s status as a preeminent management credential.
Welch’s successor, Jeff Immelt, continued to preach the gospel of Six Sigma, but without the same missionary zeal of its early days. Managers began to complain about employees lost to Six Sigma training, particularly for functions like sales, where there was little obvious benefit, according to one longtime GE manager who asked to remain anonymous. A growing number of Six Sigma projects launched by employees, essential for securing the all-important green belt, were no longer fixing major flaws in the company but instead focused on marginal, or even trivial, improvements.
Perhaps nothing represented the decline of Six Sigma as much as a 2009 episode of 30 Rock—a satirical show running on NBC, then owned by GE as it happens—when Jack Donaghy, the head of NBC programming played by Alec Baldwin, travels to a GE corporate retreat. There, he meets the Six Sigmas, six men, each of whom “embodies a pillar of the Six Sigma business philosophy: teamwork, insight, brutality, male enhancement, hand-shakefulness, and play-hard.” Further mockery of business jargon and corporate training exercises ensues.
While GE hummed along for years under Immelt, its earnings were propped up by its financial services business, which under Welch had become the company’s single-largest segment. That over-reliance proved ruinous during the financial crisis of 2008, almost crippling the company.
After the financial crisis, Wall Street’s frustrations with GE’s complex organizational structure boiled over and Immelt responded by launching a new program dubbed, simply, “Simplification.” At a corporate level, it meant streamlining the business around a few core industries. For managers, it meant eliminating systems and processes that served no obvious function. For many units, that meant jettisoning Six Sigma.
In a 2014 blog post, Immelt tried to summon the old Six Sigma fervor around a new religion, declaring: “we are transforming our culture around what we call Simplification. This is not just management speak, it’s a crusade.”
More management speak followed. In a 2016 conference call with analysts and investors, Immelt touted “additive manufacturing” technology—a process similar to 3D printing—as the latest fix for GE’s woes, and he revealed more than perhaps he intended about his thoughts on Six Sigma.
“If you put yourself in my shoes, additive manufacturing makes a shit-load more sense than Six Sigma did,” he said. “I was there the first day we did Six Sigma, it made no sense to me.”
In the end, no management system could cure what ailed GE. Immelt borrowed to make big bets, such as spending $10.6 billion to buy the power division of France’s Alstom. Those moves backfired, and as debt mounted and earnings dwindled, restless shareholders forced out Immelt in August of 2017. A year later, his successor, John Flannery, was also out.
Ultimately, GE’s problems were not due to the problems of quality Six Sigma was intended to solve, but with a failure to innovate in a global economy increasingly dominated by technology companies. Six Sigma could get the company only so far, according to Jim Clifton, CEO of Gallup, the polling and consulting company. “Jack Welch was the king of process innovation,” said Clifton. “But when Jeff Immelt took over, he had a problem—there was nothing left for him to Six Sigma.”
The great muddle
While GE’s management was hitting the limits of Six Sigma inside the company, outside it the system was spreading far and wide. It quickly became unmoored from its manufacturing origins, and was sold as an instant fix for companies and careers mired in mediocrity.
While reputable schools and institutes offered rigorous Six Sigma training, it fell into the hands of hucksters and snake-oil salesman who peddled Six Sigma to would-be business moguls, like Jack’s magic beans.
There was an explosion of management books featuring Six Sigma, offering everything from study guides to tailored applications for healthcare and accounting to the inevitable Six Sigma for Dummies. There were coffee mugs.
Six Sigma became “ritualistic and cultish” because its practitioners focused on its nomenclature and methods without understanding the theories undergirding them, according to Steven Spear, a lecturer in organization at MIT’s Sloan School of Management.
“You take the tools that help you manage uncertainty and you get rid of the underlying thinking, and you’re left with just the tools,” he says. “That’s how you get to be ritualistic.”
It didn’t help that Six Sigma has no owner, accreditor, or even a commonly agreed upon body of knowledge.
The fluid nature of Six Sigma, and its potential for almost unlimited abuse, was explained by Mikel Harry, a former Motorola executive and colleague of Bill Smith’s who became a Six Sigma evangelist and founder of the Six Sigma Management Institute.
In its first iteration, at Motorola, Six Sigma was about defect reduction, he said. Its second act, at GE, was about cost reduction. “Six Sigma Generation III” was a system of value creation applicable to anyone, Harry explained. He gave an example of a house painter with four employees who wants to adopt Six Sigma:
He reads about Six Sigma and asks, “How can I go do it?” He’s not going to do reproducibility studies, and (statistical analysis). He needs a simpler and more fundamental form of Six Sigma. … And so that person believes he’s practicing Six Sigma. Well, he is. It’s a matter of degree.
The American Society of Quality, or ASQ, a non-profit membership organization founded in 1946, is perhaps the biggest provider of Six Sigma certification, but it is far from the only one. Once limited to green and black belts, white, yellow, brown belts, and “master black belts.” are offered by a bevy of organizations. The rise in popularity of Lean, a parallel system of Japanese-inspired process improvement that focuses on reducing waste, has led to a blending of the two, and an even greater proliferation of courses and certifications.
Pity the Six Sigma novice sifting through offerings that range from ASQ’s 134-hour, $12,649 Lean Six Sigma black belt classroom course to an online green belt course available for $69 (with a Groupon coupon) from the Management and Strategy Institute.
“Six Sigma is like the wild, wild west,” says Marv Meisner, who teaches non-credit Six Sigma certificate courses through Villanova University. “Anyone can do training, anyone can offer accreditation.”
Meisner says his program is rigorous and, at $4,300 for a 160-hour black belt course, it’s not cheap. He said one of his challenges is explaining to prospective students why his product is superior to the budget offerings. And despite the competition and decline in broader interest in Six Sigma, he’s as busy as ever.
“Our business here at the university has never fallen off,” he says. “We have 5,000-6,000 students a year, every single year.”
The continued demand for Six Sigma training speaks to the enduring value of Deming’s principles. When used in the proper context, it works, and for manufacturing engineers, it still holds value. But it is best thought of as skill, not an all-encompassing management philosophy. Spear of MIT compares it to vocational training, like that given to electricians and plumbers.
Six Sigma today
GE discontinued Six Sigma as a company-wide initiative more than a decade ago, but it’s not extinct at its factories and offices around the world. It’s still implemented at various businesses to solve specific problems, said Linda Boff, GE’s chief learning officer, in an email. “Six Sigma is still an important tool in the GE toolbox.”
At GE Aviation, for example, a green belt is still a minimum requirement and the unit is offering refresher courses to employees who haven’t received Six Sigma training in the past three years. But GE is no longer monotheistic, and will embrace whatever system works best, she said.
Elsewhere, interest in Six Sigma has waned in part because it was successful: American manufacturing has reduced its defects, and quality is no longer a top-level concern. “In core manufacturing, you can say we’ve wrung out if it what we can wrung out of it,” says Rob Toole, a partner at Kona HR Consulting. “Now, software drives the process.”
As a consequence, Six Sigma credentials are no longer held in the same regard. “When you see Six Sigma on a resume, it’s like, ‘that’s nice,'” Toole says with a shrug.
Systems like Six Sigma appeal to managers because they are rooted in the pursuit of predictability, and all managers crave predictability, says PwC’s Pino. Knowing a business had been Six Sigma’d was a comfort to business leaders, because it means they have one less thing to worry about.
But simply following the steps of a process is no longer a guarantee of success, if it ever was. Business is increasingly complex and interconnected, and it seems unlikely any single system can tame it. The smart enterprise of the future will need a constantly evolving rotation of systems and skills, employed by adaptable and flexible workers. They will be harder to teach in a course, but they may outlast all the fads and fashions that preceded them.
—with additional reporting by Daniel Wolfe