The Misuse of Six Sigma in Service-based Firms
Over the past decade, there’s been a push in the accounting profession that I find fascinating and a little head scratching:
Firms are adopting ‘Six Sigma’ and ‘Lean Manufacturing’ principles. It’s something that Jason M. Blumer, CPA and I have found in our collective research.
Broadly, these terms refer to a quality-control methodology that businesses use to significantly reduce defects and improve processes.
Now, as someone with…
…I find it interesting that the principles of Lean Manufacturing would be administered to service delivery of knowledge work performed by human capital.
And let me state that I sincerely appreciate all of you who have Green/Black/Master belts in Six Sigma, as you’re pushing operational efficiency in service-based firms across the globe, which is greatly needed.
Defining Lean Manufacturing and Six Sigma
Before delving further, let’s step back for a refresher on the terms.
Lean Manufacturing
In its simplest form, Lean Manufacturing strives to eliminate waste and deliver continuous process improvement.
Six Sigma
By definition, Six Sigma strives (through removing defects) to ensure a well-controlled process (measured by Statistical Process Control charts) that has minimal process variation such that quality defects are <3.4 defects per million opportunities (which corresponds to a defect-free rate of 99.99966%; i.e. Six Sigma).
To further simplify, Lean Manufacturing focuses on waste reduction, while Six Sigma focuses on variation reduction.
What about Lean Accounting?
For Lean Accounting, the goal should be about eliminating waste in the completion of client deliverables (to increase speed of delivery) while minimizing process variation (to increase level of quality) while also measuring continuously over time (in a goal of reaching Six Sigma).
Why we must reconsider the use of Lean Manufacturing and Six Sigma in service-based firms
The principles of Lean Manufacturing and Six Sigma make sense at a high level.
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But, if you drill down to the details of Lean Manufacturing and Six Sigma, things become less clear when it comes to service-based businesses.
Take the 8 wastes of Lean Manufacturing. I have added how they might apply to service-based businesses in the parentheses:
In the context of service-based firms, these terms don’t make much sense.
Why?
Because these terms were designed for a manufacturing environment where processes are defined, results are easily measured, and machines are specific and consistent.
For service-based firms, we don’t have machines. Instead, we rely on humans who are amazing and imperfect.
Our colleagues have good days and bad days. They get sick. They go on vacation. They have life events like having a baby, marriage, divorce, death, etc.
People are predictably unpredictable. They just simply can’t deliver at Six Sigma (and most not even at Three Sigma: 67k defects per million).
So, with that in mind:
👉 Let’s embrace the term ‘Lean Accounting’ and strive for continuous process improvement.
👉 Let’s be thoughtful about what we expect from our staff.
👉 They can’t obtain Six Sigma.
👉 They can’t be at 100% capacity.
👉 They can, will and should have days where they are performing outside our Statistical Process Control charts.
What we are striving for is incremental process improvement, increased process efficiency (through decreased waste), and, ultimately, higher customer satisfaction and employee engagement.
If you achieve that, you’ll have a thriving, positive, and profitable firm.
COO @Sales Innovation - Bringing Software Companies to APAC
1wIan, thanks for the post!
CPA leading a firm for creative consultancies, firms, agencies, service providers, and an expert at team scaling, team structuring, and restructuring.
3moGreat stuff Ian Vacin. While we as firm leaders strive for optimization in our firms (a worthy pursuit), we have to face the fact that we lead with humans. And that requires balance from us as leaders - when to push for optimization in our service-based firms, and when to lean towards the human elements of team leadership. It's not easy, but the leader's mind has to face and manage these conundrums in our leadership. Great post.
GrowthLab CEO | FaaS Pioneer, Strategic Finance for the Entrepreneurial Journey
3moI completely agree Ian with the focus on Lean Accounting and continuous improvement. At GrowthLab, we've leveraged EOS principles, especially scorecards, to drive Lean Six Sigma and continuous improvement across our organization. Our team meets monthly in what we call GL Culture Clubs to review continuous improvement initiatives. We're fortunate to have Lean Green Belt-certified colleagues (mine probably expired in 2015, lol), especially our Director of Continuous Improvement, who also leads AccountingOS for STRMS. This approach helps reduce inefficiencies, increase customer hospitality, and foster employee well-being, contributing to sustainable growth.
Business & Financial Growth Specialist | America Economic Pragmatist | Keynote Speaker | #1 Best Selling Author | News Contributor
3moI agree. Reducing failure is the key, but failure in service based business is very different from manufacturing. Efficiency, redundancy, culture, client experience, a clear understanding of fiscal management and the right use of delegation of authority reign supreme.
Accounting and technology expert providing cloud-based accounting services.
3moWell said Ian Vacin. Lean Accounting is a fair way to describe what we are all striving for. Although we have not tried to implement Six Sigma here at my company, I did go through a Kaizen event where I worked previously. We found that process very useful to identify waste in the workflow. It helped the team members see how their decisions can bottleneck a process. I am not sure how Six Sigma and Kaizen differ or relate to each other but the process if thinking lean was a useful exercise.