Journal of Modern Accounting and Auditing, ISSN 1548-6583 June 2012, Vol. 8, No. 6, 900-906

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Six Sigma in Service Organizations∗ Maruf Hasan University of New South Wales, Sydney, Australia

Six sigma was developed as a managing tool for the manufacturing industry to eliminate defects. However, it has received considerable attention over the last five years in service organizations. The paper will point out the advantages of implementing six sigma in service organizations through case study analysis. Benefits and challenges of implementing six sigma in service organizations are indicated. Keywords: quality, management, service, six sigma

Introduction The popularity of six sigma in service organizations is growing exponentially, especially in banks, hospitals, financial services, the airline industry, and utility services (Antony, 2004). The majority of businesses in Australia are service organizations, service experts represent 71% of Australia’s gross domestic product (GDP) and four out of five Australians are employed. Traditionally, six sigma was employed in manufacturing industry, but service industries have taken note of the benefits that six sigma can deliver. A service organization functions differently for the reason that the main core of it is based on customer requirements and swift responses from the customers. When service is provided, the customer immediately conveys satisfaction or dissatisfaction. In a service process, the aim of six sigma approach is to recognize and pinpoint how defects occur and then plan process improvements by reducing defects which will improve the overall customer experience and also improve customer satisfaction. In contrast to this, the six sigma strategy in a manufacturing organization which is based on an established base of measureable processes and quality management programs. Due to the nature of service organizations, it is often difficult to develop and apply measurements of quality in any service organization. Most service organizations operate at sigma levels between 1.5 and 3.0 which is a defect rate between 455,000 and 66,800 per million opportunities (Breyfogle, Cupello, & Meadows, 2000). This is due to the fact that service organizations have been ignored, when it came to quality improvement efforts. The objectives of this research paper are to analyze and discuss the benefits of six sigma in service organizations, by completing literature review and involving research of Australian service organizations that have implemented six sigma quality management. It will also evaluate the feasibility, challenges, and benefits of implementing six sigma projects via case studies. The benefits of such will be via monitoring certain variables such as bottom-line objectives, reduction of waste, and savings of both time and money. This research paper will also determine if these variables have a direct link to the implemented six sigma projects and efforts. ∗

Acknowledgement: The author wishes to acknowledge that an earlier version of the paper was published in the Proceedings of the 1st International Conference on Logistics and Transport, Thailand, in 2009. Maruf Hasan, Ph.D., lecturer, School of Mechanical and Manufacturing Engineering, University of New South Wales.

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Literature Review This section will compare appropriate literature with examples from cases of actual service organizations that have implemented six sigma. Many different sources are used in this review, including journals, annual reports, books, and the Internet. The main focus of the literature was the methodology of six sigma along with its implementation in the service industry in general. The literature review will lay the focus of this research study on the implementation and its performance of such six sigma quality programs. Six sigma is a business approach that uses the aid of certain tools, methodologies, and business techniques to allow for great reductions in defects, errors, or mistakes in service processes (Antony, 2004). Repercussions of improvement to processes are mainly improvement in customer satisfaction, productivity increase, market share increase, and business profit increase. In spite of the large number of six sigma’s success in manufacturing organizations, many service organizations have not yet been persuaded of the benefits from the introduction, development, implementation, and deployment of six sigma within the service industry. Six sigma methodologies improve performance due to factors that all six sigma projects undertook within any organization proceeds through a defined series of steps, including quantified targets of cost reduction and profit increase (Ahire & Golhar, 1996). Due to its customer-focused methodology, six sigma appears to be very appealing. Throughout the world, six sigma has been implemented successfully in a large range of service organizations, such as hospitals, banks, and hotels etc.. It is the manufacturing companies that are applying their experience and knowledge of six sigma to the service operations. Six sigma allows for improving the effectiveness and efficiency of a service. An example of this includes the cleanliness of a hospital environment and the waiting time to be admitted into an emergency room. The cleanliness is a measure of service effectiveness and the waiting time is a measure of service efficiency.

Methodology The three main research strategies are survey, experiment, and case study. Case study approach was chosen for this research. A case study is “a strategy for doing research through empirical investigation of a contemporary phenomenon within its real life context using multiple sources of evidence”. This approach based on a “real world” context which has more flexibility than other research strategies. Case studies were selected on the basis of variation of the type of service organizations. The case study methodology of research is essentially inductive which is based on “fact”, but also needed “maximum variation” sampling for analytical and general purposes. An initial study of six sigma in service organizations worldwide was conducted. Then a focus on Australian service organizations was made. A vast number of literatures were examined on the particular subject of six sigma. The literature reviews were on existing documents in the form of journal articles, research papers, annual reports, and the Internet.

Case Studies This section discusses the current state of six sigma implementation in service organizations. The current state of six sigma service organizations is concentrated in few services, namely health care and banks (Buck, 2001). This may be due to the fact that many service processes are intangible and even immeasurable. However,

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it is this fact that has allowed health care, banking, and call centre services to apply six sigma tools and methodologies. Other services, such as education and hospitals, are also applying six sigma projects. This interest to six sigma has been sparked by high profile companies which have success with the implementation such as General Electric (Adinolfi, 2003). The interest is also due to the well-published financial benefits of six sigma in manufacturing. General Electric’s health care and financial units are what encouraged hospitals and banks to follow. Some well known successful implementations of six sigma in service organizations include GE medical systems, Mount Carmel Health System, Virtua Health, GE Capital Corp, Bank of America, and Citibank. The main service industries that implement six sigma are North America and Europe, whereby many of the successful implementations are also within large organizations. However, Australian service organizations are taking note of six sigma’s success. Case Study 1: Six Sigma in Hospitals and Health Care Six sigma was first fully implemented into a health care organization⎯Commonwealth Health Corp. (CHC). The implementation of six sigma for CHC has allowed for an improvement in radiology by 33% and a decrease in cost per radiology procedure of 21.5% (Porter, 1996). Most six sigma projects in healthcare are involved in improving existing processes and retraining systems. Six sigma projects in health care are focusing on direct care delivery (Does, Van den Heuvel, De Mast, & Bisgaard, 2002). When implemented correctly, six sigma in a health care service can produce benefits in terms of better operational efficiency, higher process quality and cost effectiveness. It can also directly impact clinical areas, such as infection control and medication delivery (Does et al., 2002) and medication administration and laboratory processing (Barry, Murcko, & Brubaker, 2002). Case studies were conducted in three health care organizations, one in the USA and two in Australia. One of the case-study organizations in Australia was The Hills Private Hospital Australia in Sydney. It is a hospital in Sydney’s northwest with 186 beds, an emergency service, and on site diagnostic services. In 1998, the CEO, Mr Gary Dorahy, pinpointed many defective non-clinical issues. These included poor physical performance of the facility, asset deterioration with deferred maintenance and maintenance requests, and increasing budgets. It was estimated that almost 20% of Dorahy’s management time was spent on maintenance issues. This created the issue of less time being spent on managing clinical and revenue related issues. Honeywell was then contracted to improve conditions. Honeywell provided an experienced team of on-site technicians to allow for on-site maintenance with swift. Honeywell also provided the Hills Hospital with 75 mobile technicians. Internal surveys show a marked improvement in patient perceptions of the environmental conditions. Maintenance requests to the theatre suite have been reduced by 95%. Goldratt stated that: The theatre suite is the lifeblood of our activities and Honeywell have provided us with the ideal environment platform required to ensure peak performance from our surgeons and staff. The Honeywell solution has allowed me to focus my efforts on the critical areas for a CEO, such as patient care, Visiting Medical Officer (VMO), employees, health solutions, and quality (Goldratt, 1994).

The Hills Private Hospital received praise for effectiveness and innovation by the Australian Council of Healthcare Standards officers. Honeywell also provided a program in which every cost was cut by 10% and the savings could therefore be used to fund equipments and provide positive cash flow to the hospital. Six sigma can benefit healthcare with successful implementation throughout the world which is proven

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very recently in Australia.. The beginning stages of six sigma initiatives in healthcare start with the goal of improving internal process which develops into an indication of future performance and growth. The benefits of such successful implementations include operational efficiency, cost effectiveness, and higher process quality. In conclusion, six sigma can benefit the healthcare service organizations and the training of employees to six sigma will result in both short-term and long-term benefits (Lee, 1998). Case Study 2: Six Sigma in Financial Service Organizations Very recently, finance and credit department need to reduce cash collection cycle time and variation in collection time in order to remain competitive. For many six sigma projects with the financial sector, the scope of them have been to improve accuracy of allocation of cash and reporting in order to reduce bank charges, automatic payments, reducing collection defects, and variation in collector performance (Challis, Samson, & Lawson, 2005). Case studies were conducted in three financial institutions⎯two in the USA and one in Australia. In general, it was observed that six sigma in financial institutions has allowed those that have implemented it to take full advantage of six sigma in its use of data for measuring quality. This gives the bank a competitive advantage and allows for the improvement of quality. In Australia, it has only come into effect since 2001 and is still evolving. Six sigma can help reduce time and energy in many banking processes and applications. Six sigma has given banks the ability to monitor and respond to customer complaints and the delivery of such services to customer. It has also given them the opportunity to reduce risks and improve customer satisfaction.

Analysis of Findings The case studies show that six sigma, when correctly implemented, has significant improvements in quality and an increase in savings and customer satisfaction. Also it has enabled many organizations to save on both cost and time. The case studies also show the limiting range of six sigma within service organizations. The case studies also show that the main challenge met with implementing six sigma is the resistance to cultural change with the organization. It has also created a continuous improvement shield with the implementation of control tools such as control chart to monitor the improvement of the six sigma project. Six sigma seen as a business management philosophy is recognized as an imperative for both its excellence and operations (Welch, 2001). Much of the global businesses have embraced it as a management strategy. The case studies also show that six sigma in Australia is still in its infancy (McQuarter, 1995). In Australia, it is also taking the global approach of six sigma and predominantly implementing it with the health care and financial sectors of its service industry. Australian and global organization that have implemented six sigma have also benefited from it, and its customers as well in terms of customer satisfaction and reduction in time. Australian service sectors still have far to go in terms of investigating and researching as to how six sigma can be implemented and if it is feasible to do so within its organizations. From the case studies, it is shown that six sigma is seen as an overall business improvement methodology (Harry & Schroeder, 2000) rather than achieving a quality level with the focus of reducing defect rates in processes. The six sigma methodology is to reduce variation with the specified limits of those service performance characteristics (Basu, 2004). It shows the determination to strive to achieve almost perfect processes within an organization. Taken into account the fluctuations in workloads, the days of the week and

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the emotional conditions of the staff member shows that there are still external and uncontrollable factors, and this is where the 3.4 defects per million opportunities is placed. The important factors in service organizations that a customer perceives are responses to the customer, accuracy of information given, period of responses towards customer, file documentation accuracy, and faults reduced and fixed in a fast manner. The main objectives of the six sigma projects in the case above was to understand the process involved to deliver a efficient and effective service to the customer. All of the case studies focused on the customer needs and subsequently increased in the satisfaction of their customers. After defining the process, the source of defects within that process or sub process was identified, and process improvement methods were chosen to be implemented. The resistance of implementing six sigma within a service environment was shown from some managers as seen in the case studies as it is still perceived as a strategy confined to manufacturing companies (Buck, 2001). The case studies show that many of the six sigma projects have given more efficient and reliable operations leading to great market shares.

Conclusions Six sigma is based on the total quality improvement movements and developed in 1986 by Motorola. It is only recently that service organizations have also taken note of. From the case study, it is seen that many service organizations are still reluctant to implement six sigma initially⎯it is only until six sigma projects succeed that these organizations especially managers embrace it. Many service organizations still perceive it as a manufacturing philosophy. This is mainly based on the challenge that many service processes are intangible to measure. Data are also difficult to gather since it is mainly based on face-to-face interviews and surveys. However, many service organizations are training employees to gain greater knowledge in six sigma. Six sigma has been recently implemented within service organizations and has aided those organizations with improvement programs. These improvement programs have helped to improve business processes by reducing waste, by reducing costs which were resulted from poor quality, and by improving the levels of efficiency and effectiveness of the processes (Basu, 2004). With such improvements, customer satisfaction has also been increased along with profit. In contrast to manufacturing companies, service organizations do not have measurable processes which make it harder for them to establish a baseline and therefore make it harder for them to understand and control. This does not mean that six sigma in service organizations when properly implemented do not produce the same successful results as those in manufacturing. Six sigma has been concentrated on both healthcare and banking services. However, other service organizations are recently also successfully implementing six sigma projects that have improved their quality and customer satisfaction. Six sigma is still considerably a new management philosophy within Australian service companies. After an organization has decided to implement six sigma, data is mainly collected through the means of interviews and surveys in order to identify vital few factors. Also six sigma has allowed customers to become the core focus of such projects (Bhote, 2002). This focus has been proven essential in order to increase customer satisfaction. Six sigma can benefit the service sector by improvement of customer service, expansion of businesses, and developing a greater knowledge about the process that was used to provide the services that

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they bestow. As the main aim of six sigma is to reduce defects, the first step is to pinpoint the defect source. The literature review and case studies have both shown that six sigma, as a data driven management methodology relies on facts and figures to bring success to the organization. This benefits experienced within a manufacturing environment should be transferable to services (Bhote, 2002). To implement such projects should also have consistent and successful processes within those service organizations. The main six sigma projects implemented within service organizations have the aim of reducing delays in completion of work orders and reducing delays in materials acquisition (Breyfogle, Cupello, & Meadows, 2000). Many service organizations that successfully implemented six sigma have won quality awards such as the Hills Private Hospital in Sydney. Service organizations and manufacturing organizations both deliver outputs with certain inputs through a set of processes. These processes may be reposting mail for online banking or providing basic maintenance in health care. Service organization requires more customer contact and interaction than those of manufacturing and which allows the customer to focus six sigma on producing an increase in customer satisfaction. The main constraints of six sigma within service organizations are the challenges of having quality data⎯this is sometimes the largest task in proportion of the project time (Buck, 2001). Also since the solutions are driven by data can be expensive and only a small portion of it is implemented in the end. Many of the project prioritization is still based on subjective judgment, since there are very few tools available for selecting and prioritizing projects with one of the most critical factors for success in six sigma implementation. Other constraints also include that a defect within service organizations are intangible and cannot be measured. A defect within a service organization can be anything that does not meet customer expectations. The assumption of the 1.5 sigma shift for all service processes does not make much sense (Buck, 2001). The initial costs for six sigma projects to be implemented within small and medium enterprises also hinder any possibilities for the implementation and development of six sigma within that organization. Six sigma is expanding in its acceptance by service organizations and some manufacturing organizations have also focused on their service-oriented sectors to implement six sigma projects within them, so that they will maximize return on investment (Challis et al., 2005). The fact that the service sector in itself is diverse many of the measure and control part of the six sigma methodology must be tailored to suit every individual organization.

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