The Quest For Quality - Applying Six Sigma Principles To Marketing

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Information about The Quest For Quality - Applying Six Sigma Principles To Marketing
Business & Mgmt

Published on February 4, 2009

Author: siddharth4mba



The Quest For Quality - Applying Six Sigma Principles To Marketing

The Quest for Quality: By Yvonne Tocquigny Applying Six Sigma Principles to Marketing CEO, Tocquigny 3 Define 6 Measure 8 Analyze 9 Improve 10 Control 11 The New Marketing Organization

The Quest for Quality: Applying Six Sigma Principles to Marketing Yvonne Tocquigny Six Sigma principles prescribe an organization- return on every $100 invested in marketing. wide set of processes, standards and The Marketing Science Institute reports that a CEO, Tocquigny motivations to improve performance, create 100 percent increase in marketing expenditures efficiencies, decrease defects and reduce yields just a 1 percent increase in sales. Yvonne Tocquigny is variability. While these principles are And Nielsen reports a 95 percent new product founder and CEO of traditionally associated with industrial failure rate. Tocquigny, a unique blend environments, their application need not be of consultancy and Measurement of performance is one of the limited to that realm. This paper will five fundamental phases of Six Sigma marketing firm. Tocquigny specifically explore the potential for applying methodology. And once a company begins to specializes in providing Six Sigma principles to create efficiencies in measure marketing performance, it may measurable integrated marketing. This is critical at a time when find, as the preceding statistics suggest, that marketing solutions marketing is likely to perform poorly in large the results data indicate a negligible return that drive proven results. organizations, to wield little influence within or even a negative return on the marketing Over the past 25 years, them, and to be held in relatively low investment. This information can be so regard among their leadership. Less than 50 Yvonne has grown the firm surprising and disturbing in an environment percent of Fortune 1000 companies even into a nationally recognized of rigorous inspection and control that the have chief marketing officers (CMOs). And in agency that specializes marketing group may be tempted to sweep organizations where there are chief marketing in delivering measurable this bad news under the carpet and stop officers 32 percent cited their relationship marketing, as well as measuring altogether. with the chief executive officer (CEO) as the one developing proprietary tools that most needed to improve, according to Increasingly, marketing departments are to deliver metrics to clients. survey results published in the September 2005 finding that if they do not take steps to measure She can be contacted at issue of their results and create greater efficiencies, the finance group will be more than willing to By applying a Six Sigma approach, marketing do it for them—and may very likely respond has the opportunity to lay a solid foundation for by cutting the marketing budget. This should improving what has, by any measure, been come as no surprise, given that finance is the astoundingly poor performance. It is not unusual area that has access to a great deal of today to see marketing investments that spending-related data, is focused on tracking produces a negative return on investments and cutting costs, and is constantly working to (ROI), or have a success rate that is close to discover where resources could be better zero. According to the June 2005 issue of deployed. From the perspective of the marketing Harvard Business Review, citing data from department, it would be far preferable to seize Copernicus Marketing Consulting: the opportunity to set and execute on an • 84 percent of programs are second-rate, agenda for improvement and thereby restore leading to a decline in brand equity and its tarnished reputation within the organization. market share As Tocquigny Chief Marketing Officer (CFO) Pedro Laboy puts it in the white paper “Why • 4 percent is as good as it gets for advertising ROI Marketing Has Lost Its Clout… and What It Can Do to Get It Back, it is time for marketing ” • 74 percent is the less-than-stellar figure for to “step up to the plate” and prove its value to customer satisfaction the larger organization. Other measures are consistent with these With that in mind, let us look at the current findings. The Marketing Measurement problematic state of, and potentially brighter Association, for example, reports only a $58 2

future for, marketing—within the context of the The Marketing Finance Connection and five phases of Six Sigma methodology: Beyond. With the CMO under increased pressure to demonstrate the validity of • Define goals and deliverables marketing expenditures, the marketing function • Measure current performance is inching closer and closer to the one area • Analyze the reasons for defects from which, ironically, it has traditionally • Improve the process to eliminate defects maintained perhaps the most distance: finance. • Control performance Historically, marketing organizations have had rather adversarial relationships with finance teams, who have cut budgets and held the Define purse strings. However, finance is the one department within a corporation most likely to Today’s marketing organization faces the have the data that marketing needs to challenge of defining its role within the larger demonstrate the validity of its efforts and organization in an entirely new way. Only by expenditures. It is ultimately the definition of doing so may it begin to provide the scope of this data and the standardization of data disciplined processes that will ensure consistent, across organizations that will quantify the value reliable data is available for evaluation in the of the marketing organizations of the future. quest for improved efficiency and performance. And high-quality data will only be obtained This redefinition of marketing within the through an aligned vision and collaboration organization comprises two important shifts in “ with other company functions. the positioning of marketing: the shift from functioning as a discrete component to working Marketing departments There is the rub: Marketing groups have as an integral part of the organization, and the traditionally operated independently within the shift from playing a tactical role to taking on one are finding that if they larger organization, according to their own ad of increasingly strategic importance. hoc styles; asking them to form closer, more don’t take steps to integrated relationships with other departments From Discrete Component and groups is bound to meet with resistance. measure their results and But there is no escaping the fact that to be to Integral Role successful, marketing departments will have to Marketing has traditionally been perceived as create greater efficiencies, become allies with finance. It is the only way a discrete function within the corporation, but they will be able to get the quantifiable data its role is really far more encompassing than the finance group will they need to prove their worth. that. When you consider that brand perception encompasses everything a customer knows This new need for cross-functional “ be more than willing to do about a brand, then it follows that everything collaboration and deeper knowledge is a new that touches that customer is, essentially, challenge for the CMO. Finance is not the only it for them. marketing. While that may make it a challenge function blending with marketing. Sales, to define exactly what marketing is, this much is customer service and even traditionally inward- certain: There is a growing agreement among facing departments such as product C-level executives that marketing should create development and operations are finding the predictable streams of revenue growth. As part lines between their responsibilities and of the enterprise-wide effort to increase marketing increasingly indistinct. It is no longer customer value and reallocate capital to its possible to define the marketing function using most effective use, marketers must set the clear boundaries of the past. Metrics new goals for quantifiable success and find new must now be clearly tied to business goals, and ways to achieve them. In this new environment the use of metrics must be standardized of accountability, they must prove marketing across the organization, with the primary goal operations represent a value center rather than being to provide insight and drive decisions, a cost center. not to justify marketing programs. 3

The Groundwork for Six Sigma. Companies department of three (all trained to do little more than produce spec sheets and trade that hope to apply Six Sigma principles to show materials) should be able to achieve. marketing must first overcome an array of “ structural barriers: • The marketing function tends to be siloed into multiple groups—whether according to The first order of • Many marketing departments that have region, product line or other differentiator— been performing a simple “marketing that operate independently of each other. communications” role are at a loss as to business… is to begin to Each works as an individual power unit with how they can fill the broader, more strategic its own set of defined goals, processes and marketing role that is required to meet the shift marketing’s role standards, and each measures different things goal of quantifiable achievement. They are in different ways, making it virtually staffed with employees trained to create from that of a discrete impossible to get consistent data or tactical selling tools, which points to the implement enterprise-wide controls. disconnect between the traditional marketing component in the skills of the past and those that are needed • There is no mechanism in place with which to fulfill results-oriented expectations. to communicate marketing’s goals to the “ organization to a widely company at large or to seek its alignment • Even when marketing’s role within the with and support for achieving them. organization remains limited to providing integrated function. materials to support sales or customer The first order of business, then, is to begin services, the larger organization may have to shift marketing’s role from that of a discrete unrealistic expectations of what marketing component in the organization to a widely ought to be able to accomplish within that integrated function. This will require role and with existing available resources. overcoming existing preconceptions about Figure 1, below, shows one company’s wildly ambitious vision of what its marketing the role of marketing, as well as replacing the Defining the Role of Marketing: Matching Expectations to Resources One of the challenges for any marketing group attempting to redefine its role in the larger organization is the disjuncture between what may be expected of it and its ability to meet those expectations. Here is what one company surveyed said it expected of its three-person marketing team: 1 gather customer/market segmentation intelligence 2 understand the voice of the customer and voice of the business 3 maintain expertise in regulatory issues, industry certifications, etc. 4 develop pricing strategies 5 help negotiate pricing with customers 6 attend sales meetings 7 develop state-of-the-art tools to effectively sell all products 8 work with customers to report on customer satisfaction 9 work with customers to determine product requirements 10 communicate customer product requirements to engineering 11 create a process for sharing information 12 develop and implement efficient, easy-to-use marketing processes The moral? High expectations of what marketing should achieve must be accompanied by a commitment to the resources, skills and training required to fulfill those expectations. Figure 1 4

siloed mentality with expectations of integrated to embrace functions such as business operations, and implementing mechanisms to intelligence, research, customer satisfaction, connect marketing and its goals with the rest of database modeling and data analytics in the organization. Only by doing so may the marketing organization. The increasing marketing begin to realize a strategic role of availability of Six Sigma marketing training measurable value within the organization. will also help to provide marketing with the skills to successfully shift its role to increase its “ strategic importance within the organization. From Tactical to If marketing is only Setting—and Supporting—Expectations. Strategic Importance Before positive performance improvement Many people today still think of marketing responsible for can be achieved by marketing, both the as research, communications and sales support. expectations to be placed on marketing and This is not the type of marketing department communicating the value the methods of measuring the fulfillment that will fulfill the expectations of a Six Sigma of those expectations must be defined. Only organization. The function of marketing within of a product to customers, then can the marketing organization meet organizations must expand beyond traditional, the needs of the company and be viewed as tactical roles. If marketing is only responsible it is not operating at adding value. For instance, rather than for communicating the value of a product to producing marketing materials that customers, it is not operating at full potential full potential and it will communicate what the product team dictates, and it will fail in producing the process the marketing function must grow into improvements that Six Sigma seeks. fail in producing the an organization that understands what the customer values most, then help determine Figure 2 shows the existing competencies of “ process improvements what price that customer is willing to pay. a sample Six Sigma organization’s marketing Marketers must ask how much it would cost department, while Figure 3 shows the that Six Sigma seeks. to deliver that value. And finally, they must expectations that the rest of that organization help determine what the final product or had of the same marketing department. This innovation to be delivered to the customer obvious lack of alignment, coupled with the shall be. absence of skill sets to fulfill expectations, must inevitably lead to a painful failure of the Too many times, it is engineers who define the marketing organization. It is important to see best product they believe they can offer to the this as a failure to organize the right people customer based upon what they are capable of in the right roles. creating—and who then determine the product To expand marketing’s role, analytical and cost based upon what they think it would cost process-oriented skill sets must be available to to manufacture it. Marketing is left trying to marketing staff. That may mean restructuring create value for the customer and justify the Sample Existing Sample Optimal Marketing Structure Marketing Structure • Provide • Conduct • Provide business • Help develop • Create marketing competitive case and value value marketing • Create research analysis, pricing analysis models propositions, communication marketing analysis, cost (What are the understand tools to assist • Understand communication analysis benefits to our the Voice of sales force with product features, tools to assist customers in Customer and direct and functionality • Determine sales force with using our assist in pricing indirect sales and customer market elasticity, direct and products?) strategy for values well plot product indirect sales. products enough to guide price vs. quality new product by region and development by segment Figure 2 Figure 3 5

cost. Great marketing begins with creating value • Which services will be outsourced and which will be handled in-house? for which the customer will be willing to pay. • How does the data from one group dovetail This gathering of “Voice of Customer” is one of with the others? the highest uses of the marketing function, • What are the processes for evaluating that data because it will lead to more relevant allocation and turning it into actionable intelligence? of resources. Yet few marketing groups are These are all hard questions to answer for the trained or prepared to handle this task. typical marketer. A close alliance with the IT and Developing—and documenting—data and finance groups will be crucial. The Brand Value decision-making processes. Marketing Formula executives must develop and support a major Measure IT competency in their organizations in order Brand value = to share information and integrate intelligence Customer value = Marketing needs the right data to show that it across different groups. They must be able to Shareholder value is generating a measurable revenue stream. As demonstrate proof of performance in marketing. part of the process of identifying which data Marketing’s value rests on In order to do this, they must have the ability should be measured and how it will be its ability to create value to report on “closed loop” processes. They need measured, the CMO must, as described in the for the organization. In this standardized data so different products and preceding section of this paper, seek alignment quest, it is important to functions within the organization look at the both across the marketing groups and with remember that brands and same information in the same way. customers, not products the other corporate functions. All of this and services, generate constitutes, to put it mildly, an enormous task. Marketing departments must gain an long-term shareholder But ultimately, it amounts to figuring out what understanding of what the rest of the value. This is why it is so to measure, measuring it accordingly across corporation expects of them, and especially important for marketing to the enterprise and getting accurate results. what the CEO needs, in order to help set acquire the mindset and overall expectations so that if they are met, the skillset to go beyond corporation will see positive business growth The Key Question: playing a products/services and success. Any disparity between desired What to Measure? sales support role. functional capability and the ability to deliver In its effort to begin measuring and improving can be addressed by redefining the marketing performance, marketing faces the challenge of organization to have fewer boundaries, defining which data exists, where it resides, developing a collaborative culture that embraces which data is needed, and how or if the data can other functions in a defined way, and adding be obtained. Across organizations, the quality the skill sets and technology tools needed and consistency of data usually varies. This can to perform the tasks expected. A clear make it difficult to assemble a baseline of past understanding of and alignment on the spending and performance across the enterprise, processes that the marketing function will follow because spending and performance have likely must be in place. The processes by which been measured differently, if at all. Marketers can marketing will share information and collaborate begin to address this by identifying appropriate with other groups must be clearly defined. metrics that relate to meeting goals for: Once the marketing function has defined how • revenue growth and gross margins it can best serve the corporation, and once it • customer lifetime value (CLV), profitability has gained the strategic role and capability to and cost perform at that level, it is ready to develop • brand awareness and perceived brand quality and document the processes for handling data • customer satisfaction and making decisions. • relative purchase frequency • How will data be managed? • acquisition rate and conversion rate • How will data be shared so that collaboration and efficiency are enhanced? Redefining the metrics. Traditional marketers • What are the tools needed for doing this? have an abundance of metrics already. The 6

problem is that most of these are measures because a significant loss of customers that relate to what the marketing effort can make a marketing campaign that gains amounted to in cost or effort rather than actual new customers irrelevant. results. When collected data is a ratio of cost Long-term metrics represent a shift from and effort to results, you have a greater degree transactional marketing to relationship of intelligence. The issue should not be what marketing—in which the value of the customer was paid for the marketing efforts themselves, relationship is a more valuable metric than but how those efforts contributed to achieving the knowledge of a single transaction. This is the overall company goals and to generating a more complex metric to determine. There new revenue. is a valuable role for Six Sigma processes to play in controlling the quality of the analysis. ROI used to be the measurement every manager It is that quality of analysis that will determine wanted. However, this can be a relatively the degree of real intelligence gained and shortsighted way to view marketing progress, ultimately affect the quality of the decisions and other more enlightening views are made to execute continuous improvement emerging. In measuring ROI, a marketing in marketing. program is given a time window that defines the start and finish of the effort. Measurement The Importance—and the Difficulty— takes place in this window, and this is what “ of the Benchmark is reported as ROI for the program. Usually, program results are reviewed quarterly. Long-term metrics If marketing is to be measured, there must be This practice of program ROI measurement past data against which to compare current and misses opportunities. For instance, if the goal represent a shift from future activity. Given that there is frequently of the marketing program is to acquire not sufficient or reliably accurate data on past customers, then the acquisition of a customer transactional marketing to activities and past results within marketing has a greater overall value than the amount organizations, creating a benchmark can be of that customer’s first transaction, even though relationship marketing— difficult. The task of creating truly accurate we may not see the payoff for acquiring a and reliable data is exponentially more costly customer for some time. in which the value of the than creating “approximate” data. Short-term metrics versus long-term metrics. Therefore, unless there is a great deal of customer relationship By focusing on measuring the lifetime value discipline in the data recovery process, a Six of a customer instead of the revenue gained Sigma-driven marketing team may begin is a more valuable metric from that customer’s first purchase, marketing with less-than-accurate data and thus produce will get a better idea of the true return on measurements of dubious quality. In some “ than the knowledge of a the marketing effort that gained the customer. very large global organizations in which the CLV metrics make it possible to determine marketing organizations are “siloed, there are ” single transaction. the maximum a company should be willing to few accurate and consistent records of exactly pay for a customer, enabling marketing to what the enterprise has spent on marketing. gauge its related costs in a more accurate and There is also no common understanding forward-looking manner. of exactly what defines a marketing expenditure for a group. Another example of a long-term metric for marketing to report is the defection rate Getting around these obstacles starts with asking of customers. Given that a 5 percent increase some tough questions: Where do marketing in customer retention can add as much as a costs stop and sales costs begin? Is the internal 25 percent increase to the bottom line, gauging dissemination of product knowledge to defection is well worthwhile. Marketers must engineers, sales people and management develop processes to measure it and define its considered the role of marketing or IT, or both? cause. To borrow from Six Sigma terminology, Whose budgets should bear the load of the what is the defect in the customer experience new, more subtle forms of marketing that bleed that results in defection? It is important across an organization, or the costs of research 7

to understand the Voice of Customer (research across the organization; and developed methods that will ultimately benefit research & development, to share the measurement data, he or she will marketing and sales)? If data is also segregated have a good start towards developing the into purchase information, billing information, fodder for analysis that is needed to begin to customer service data and other function-driven improve processes. buckets, there may be nomenclature issues to be addressed so that definitions of what is being “ Analyze measured can be made consistent and useful to all. Simply measuring performance will not Unfortunately, many Get at the benchmark basics. The most improve it. Increased marketing effectiveness basic requirements for setting a benchmark and comes from the generation of insight that marketers, even within enhancing the overall ability to measure are: leads to actionable intelligence. Having insight into what works and what doesn’t work can • a database of past marketing and purchase Six Sigma organizations, mean that expensive mistakes are not repeated activity, which will facilitate the calculation of CLV and painful lessons are not relearned. are still using their • data that provides the ability to segment customers and prospects according to instincts to guide major Toward Quantifiable Insights and customer needs and purchase patterns Understanding • key drivers of brand equity, the value decisions such as those A profound understanding of the customer of current brand equity and the value of and the customer’s needs will lead to new relationship equity (this data can be relating to positioning and business-building ideas that improve the ability gained through research and calculations) to achieve company goals. Gaining such • benchmark against competitors “ targeting. This is a Zero understanding requires aligning the goals of the These are all things that can be known. They enterprise organization-wide. To reiterate the Sigma practice. may not be easy to attain, given the tough lessons of preceding sections of this paper, questions outlined in the preceding section, companies can no longer afford for research to but it can—and must—be done. operate apart from marketing, or for branding to operate its own independent silo. Intelligence Live by the integrity of the data. Excellent and data must be easily available for everyone marketing demands excellent product positioning to access. Having a solid process in place and customer targeting. One of the dangers along with the tools to evaluate results will lurking in marketing organizations today is the make this achievable. Then insights will no marketer’s “gut knowledge” of what is true for longer be merely “hunches. ” the customer, who the targets are, what they will respond to and so forth. Unfortunately, many Careful analysis of marketing performance, marketers, even within Six Sigma organizations, inspired by Six Sigma processes, allows the are still using their instincts to guide major company to address many difficult, but decisions such as those relating to positioning necessary, questions: and targeting. This is a Zero Sigma practice. • Which customers purchased before and have When a marketing group “knows” who its best not purchased again? Why? Which continue to potential customers are, what they respond to buy, and why? and what types of media opportunities are the • At what point are leads lost? When do they fail most efficient to reach them, without current to progress to the next sales level and why? measurement through research processes, that • What are the true “lost opportunity is a problem that must be addressed. costs” incurred as a result of less effective marketing efforts? After the marketer has defined what will be measured to show progress towards a common • Where are the “defects” in the marketing goal; cleansed the existing data so that there processes that result in lost sales, wrong is a uniform, true picture of past performance; prospects targeted and customers treated inappropriately? created consistent measurement processes 8

Formal cross-functional processes and • Where does “variability” occur in qualification criteria for prospects, follow-up, pricing, agreements addressing how and when data contract negotiation and service? will be analyzed are critical to the timely assessment and response to data. When data • How do we distinguish between productive is processed into dashboards, groups can view and non-productive activities? tests to help identify the extent of improvement The difference between true analytics and needed in each function to achieve the target the simple reporting of results is the ability to results. More insightful cause-and-effect identify and answer crucial questions whose scenarios can be developed, risk analysis answers will lead to insight, process changes can benefit all teams and statistical inferences and increased success. can enlighten beyond just the topic at hand. Learning from past performance. Often, the greatest insights come from observing poor Improve performance, then making efforts to improve that The main benefit of measuring marketing performance over time. These lessons are programs and processes is the ability to garner an expensive form of education. In one sense, actionable intelligence which can be used to they become an asset belonging to the optimize, or improve, performance and corporation. However, each insight and lesson processes. As data is analyzed and insights comes with a price. The key is to learn the are generated, possibilities for improvement are lesson once and share the insight so that the presented for many areas. Aside from corporation doesn’t have to continue to pay for improvements in the implementation of each individual or group to learn it over and over. marketing programs, there can always be This approach of learning the lesson once improvements in tools, technology, processes makes the argument for a corporate memory and skills. bank, if you will—a record of best practices “ and brand history, in the form of a marketing Change is Good knowledge database—that is easily shared The main benefit of An agile marketing organization will embrace throughout the organization to provide a shared opportunities for improvement, even when they institutional history of lessons learned. If, measuring marketing are disruptive to individual work groups (as instead, the intelligence gained through analysis they almost always will be) and even though is scattered across the corporation, and hidden programs and processes they may be more expensive than business as in the memories of current and former usual. As analytic insights challenge marketing’s employees, it will inevitably be lost and have is the ability to garner original “Plan A, the staff members who are ” to be regained at great cost. As new staff is flexible, open to new ways of approaching added they should be able to access existing actionable intelligence problems and eager to try the next idea will historical analysis through the marketing quickly rise to the top as the most valuable. knowledge database and build upon that which can be used information, rather than learn old lessons again. To realize true improvements in marketing process, as new ideas are implemented, testing Leveraging collaboration. The process for to optimize, or improve, should be utilized to gauge their value, along analyzing marketing performance within global with modeling of different scenarios. When “ organizations must be collaborative in order performance and approached methodically, marketing tactics can to ensure objectivity and accuracy, as well as to be vastly improved on many fronts. Following realize the full benefit of the data collected. processes. are a few simple examples of how performance The conversations that arise when marketing, can be measured and marketing efforts improved. sales, product development, finance and IT gather to analyze data are infinitely more Customer perceptions (Voice of Customer) productive for the organization than if only regarding brand, product benefits, pricing, marketing was to assess it. Each function customer satisfaction and a number or other can help the others to be more successful in qualities can be measured through survey or this collaborative arrangement. focus group research. If you understand current 9

perceptions, and you also know what you would Targeting efficiency should be studied to like future perceptions to be, that makes it understand which potential targets will make much easier to achieve improvement. Messaging the best customers. How many of these can be improved to make the marketing customers are there? What are they willing to program more relevant or persuasive, or delivery pay for your product or service? How easy mechanisms can be improved for more frequent is it to sell to them? Drastic improvements in or noticeable exposure to the messaging. (If, marketing results can be seen through for example, surveys show that your target does increases in targeting efficiency. not respond to email, the program can be These are just a few of many methods improved by simply finding ways other than “ available for improving marketing email to communicate with the target.) performance. Keep in mind that it may be Controls should be Efficiency can be measured by tracking the necessary to iterate through the Measure- number of responses to a marketing program Analyze-Improve steps until the optimal implemented so that best within a given period of time. For instance, level of performance is achieved. if a direct mail program is implemented to practices are followed promote a product by driving the recipient to a Control Website for the purchase, it is quite easy to “ and improved upon, rather measure the percentage of recipients who went When improvements are achieved, it is to the Website, and whether or not they important to recognize and codify the than reinvented. purchased once they were there. The higher the best practices that led to them. Best practices ratio of purchasers to recipients, the more

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