Debate: Six Sigma vs. Innovation

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They define an ambidextrous organization as one with structurally independent project teams that are still integrated into the existing management hierarchy. They say the separation is best orchestrated through a tightly integrated senior team responsible for making sure that the activities of the right hand don't work at cross-purposes to the goals of the left hand. Both the traditional business and the fledglings report to the same executive team but are managed under a very different set of rules, depending on where each is in its maturity cycle.

The Case for Simultaneous Efforts

Remarkably, in their study of 35 attempts at breakthrough innovation, ambidextrous structures were successful 90% of the time, whereas other cross-functional teams, unsupported Skunk Works–style groups, and other models were successful less than 25% of the time.

Jim Burnick, senior vice-president for quality and productivity at Bank of America (BAC) and leader of the bank's innovation efforts, couldn't be more enthusiastic about the commitment the bank has made to its simultaneous Six Sigma and innovation efforts. The Six Sigma Black Belt, trained at GE Finance, says that if managed properly, Six Sigma and innovation can go hand in hand, especially in a business such as banking.

"Our business favors consistency. Because of our success and the significant changes we can make within our system it is now possible for us to think as one organization across fiefdoms and business units to improve every type of customer's experience. This ends up looking like business model innovation, which in the banking business is very uncommon."

Starwood Hotels (HOT), which is widely known for both its Six Sigma and innovation prowess, notes that similar cross-business unit success has added significantly to its top line. Management at several of its Atlanta hotels used Six Sigma principles to develop a system to redirect conference customers to one of its nearby sister hotels when the original hotel was full or too small. Dawn Truemper, director of sales and marketing at the Westin Buckhead, said as a result, "the group's lead conversion rate jumped from 8% to 33% during the first month of the new sales system's operation."

No doubt this is innovation, but of an incremental nature. The conclusion here is, for large-scale systems that share customers across business units, Six Sigma can have a big impact when it comes to innovation. In systems that that don't share the same customer base and operational backbone, the use of Six Sigma in an innovation context can be a waste of time.

Rules of the Road

There is much to learn about how to successfully manage simultaneous continuous improvement and innovation initiatives. Here are some of the big themes associated with successful strategies:

Communicate a compelling mission. For employees, understanding the big picture and how leadership aims to achieve its strategic goals is critical to readying the organization for change. It's when management doesn't link the big picture with a credible implementation plan that valuable people are driven "nuts"—and often go elsewhere.

Separate the efforts. Don't expect people running mature businesses to behave the same as those running startups. The ramp-up phase for newer efforts is especially tenuous due to the inherent instability of rapidly evolving enterprises.

Appoint an "ambidextrous" senior manager to oversee both efforts. Staff the position with someone who has the ability to understand the needs of very different types of businesses. It helps if that person possesses deep organizational knowledge. A general manager with responsibility for both the traditional and new businesses will foster efficiency by sharing functional resources (HR, marketing, finance, e.g.) and promoting integration of the initiatives when the time is right. This is particularly critical in businesses that are being disrupted at a rapid rate. If what happened to AOL (TWX) is any indication, traditional business models can find themselves dead in the water almost overnight. Experienced leaders at the helm who are intimate with the innovation effort can weather the storm best when a new business model must carry the company forward.

Support both teams appropriately. Don't shortchange one effort over another. Innovation methods and processes may be lesser known than Six Sigma but that doesn't mean they don't require an equal level of investment in training, resources, and know-how. It kills me to see so much investment in reengineering, training, and employee time being poured into Six Sigma initiatives in the name of cost savings when innovation gets starved for critical research requirements like white-space analysis, ethnographic research, or prototyping. It's as if leadership teams truly believe their companies can shrink their way to greatness. Or is it ignorance or fear that accounts for so many companies, particularly in the services sector, underinvesting in their futures?

Change the incentive system. The best systems reward overall company performance to keep everyone focused on the larger mission. If there is one way to foster employee empathy and support for company initiatives, especially in light of the inertia so commonly associated with change, it's through their paychecks.

Innovation and Six Sigma are different methods that beget different types of results and require different management styles. Companies don't have to choose between the two—innovation and Six Sigma can coexist.

Rae is the co-founder and president of Peer Insight, a research and advisory firm focused on service innovation and customer-experience design for S&P 500 firms. When not researching, consulting, or writing, she teaches executives in client companies and MBAs at Georgetown University's McDonough School of Business how to structure and manage innovation.