Debate: Six Sigma vs. Innovation

The system for boosting quality may seem to run counter to disruptive change—but companies can have it both ways

by Jeneanne Rae

"I can't stand this," said a senior manager of a Standard& Poor's 500 company recently. "One minute the management team is telling us to innovate, and the next minute they are giving us our marching orders in deploying Six Sigma. It's crazy to tell people they should be focused on becoming more efficient while at the same time you want them to explore untapped growth potential. This is making me nuts."

An outgrowth of the quality movement, Six Sigma was first applied in manufacturing—the greater the sigma number, the fewer mistakes—but has since found its way into service businesses and functional areas such as human resources and finance. According to Mario Perez-Wilson, a former manager of statistical methods at Motorola (MOT), the average defect rate at most major companies hovers around four sigma—6,000 defects per million (or 1/200). At the Six Sigma level, there are 3.4 defects per million, a significant step up in efficiency that is hard for any organization to achieve.

Six Sigma has therefore become management shorthand for "continuous improvement." Ask anyone who leads these efforts and they will be quick to add, "continuous improvement with goals, a defined process, and with metrics at its core."

Low Tolerance for Risk

The objectives of Six Sigma seem noble enough for any organization. So what's the rub with simultaneous efforts to innovate?

Six Sigma is designed to inject more efficiency and productivity into a company's systems. It focuses the organization on operational excellence and on "doing things right." By its very nature, Six Sigma fosters a very low tolerance for risk because risk increases variation.

Innovation, on the other hand, seeks to brave undiscovered, uncertain territory. Such fledgling efforts are inherently inefficient as they ramp up. To be in the game, innovation requires a tolerance for failure and risk-taking. Especially when design methods are deployed to reframe the problem, innovation seeks to "do the right thing."

Innovation Equals Change

A corporate culture dominated by Six Sigma management theory will be primarily inclined toward inwardly focused, continuous improvement types of innovation activity—process, customer service, systems, operations, and so on. The objective is small, incremental innovations that add up.

A culture that fosters disruptive innovation is going to be more entrepreneurial, more outwardly focused on new markets, technologies, and business models. The objective is to find big new growth platforms that add significant chunks of revenue and profit.

The obvious conclusion for many companies is, "We need both!"

The Ambidextrous Organization

Given the different change management implications inherent in either approach, it would be pure folly to launch both efforts at the same time. Most organizations, like General Electric (GE), for example, get grounded in one, then attempt the other. In GE's case, Six Sigma came first. The trouble is that the business culture that emerges once the former has taken root is hostile to the growth of the latter.

In their Harvard Business Review article, "The Ambidextrous Organization," Charles O'Reilly III and MichaelTushman, business-school professors at Stanford and Harvard, respectively, acknowledge the paradox of exploitive vs. explorative efforts. Their conclusion is that smart companies separate the more ambitious efforts at innovation from ongoing efforts at continuous improvement, allowing for different processes, structure, and cultures to emerge within the same company.