The iup journal of business strategy

The IUP Journal of Business Strategy, Vol. XIV, No. 2, 201740

Six Sigma Deployment in Sales and Marketing: Enhancing Competitive Advantages

Six Sigma deployment can bring a valuable process discipline and emphasis on performance measurement to sales and marketing activities. Six Sigma approach adds measurable value to sales and marketing performance and helps in increasing market share and top line revenue in targeted product/markets. These are external objectives as opposed to the internal objectives of defect reduction and cost cutting for Six Sigma deployment in production and operations. For successful deployment of Six Sigma in sales and marketing, there is a need for removing departmental silos; developing a passion for measuring company performance; investment in training at all levels; and active role of senior management. The benefit of Six Sigma deployment in sales and marketing includes better information sharing to make improved decisions and ultimately sustain the growth as it reduces the uncertainty inherent in sales and marketing. This paper emphasizes importance of Six Sigma deployment in sales and marketing and provides various tools and frameworks for its successful deployment.

Pankaj M Madhani*

* Associate Dean and Professor, ICFAI Business School (IBS), Ahmedabad 380060, Gujarat, India. E-mail: pmadhani@iit.edu

© 2017 IUP. All Rights Reserved.

Introduction Organizations face constant competition to attract and retain customers, hence, revenue and profitability of some of the organizations are at risk. One method of reducing this risk is to increase the customer satisfaction and overall customer value by streamlining sales and marketing efforts. Six Sigma is well-suited to contribute to and support these efforts of sales and marketing due to its focus on problem identification, process improvement, and its emphasis on the customer. Organizations can use Six Sigma in the reengineering of sales and marketing operations to increase customer satisfaction by increasing the speed, quality and efficiency of its services.

Six Sigma deployment in sales and marketing will depend on its ability to change and adapt to the organizational needs, as sales and marketing require a disciplined and strategic approach for value creation and market-share growth. Six Sigma approach helps sales and marketing in increasing market share and top line revenue in targeted product/markets by providing superior value. These are external objectives as opposed to the internal objectives of defect reduction and cost-cutting for Six Sigma deployment in production and operation. In short, Six Sigma is a disciplined, data-driven approach and methodology for eliminating defects in any process—from manufacturing to transactional and from product to service. This paper focuses on deployment of Six Sigma in sales and marketing and provides various frameworks and methodologies.

41Six Sigma Deployment in Sales and Marketing: Enhancing Competitive Advantages

Literature Review Six Sigma is a business improvement program that targets process variation. Traditionally, Six Sigma has been used in the manufacturing for reducing defects. Krishna et al. (2008) conducted a case study illustrating how a multinational Indian corporation was able to successfully implement Six Sigma principles to improve its manufacturing operations. Six Sigma problem-solving methodologies in manufacturing process were studied by Kumar et al. (2007) to identify and control the parameters causing casting defects.

Six Sigma is not only for manufacturing, but any process where an opportunity exists for error and hence can be used in diverse business areas to improve on time delivery; reduce cycle time for hiring and training new employees; improve sales forecasting ability; and improve quality of customer service (Mehrjerdi, 2013). Kumar et al. (2008b) presented a case of implementation of the Six Sigma approach for improvement in service system by a major consumer electronics and appliance retailing company in the USA. Six Sigma practices share common quality principles of customer-focus and continuous improvement. Six Sigma benefits are related to various areas such as reduction in process variability, increase in profitability, reduction of operational costs, and increase in productivity, reduction of customer complaints and improved sales (Antony et al., 2007).

Li et al. (2008) studied a specific case on implementation of Six Sigma approach to improve the capability of the solder paste printing process by reducing variations in thickness from a nominal value. Six Sigma methodology was also applied to specific case of thermal power plant for conservation of energy (Kaushik and Khanduja, 2008). They implemented Six Sigma project recommendations to reduce the consumption of Demineralized (DM) make-up water from 0.90% to 0.54% of Maximum Continuous Rating (MCR) resulting in a comprehensive energy saving of 0.305 mn per annum. Kumar and Sosnoski (2009) studied the potential of Six Sigma in realizing the cost savings and improved quality by using the case study of a leading manufacturer of tooling.

A case study on improvement of the Sigma level at the screening process, which is regarded as the most critical process in Printed Circuit Boards (PCB) manufacturing was conducted by Tong et al. (2004). Chen et al. (2005) presented a case study in the context of automobile industry in Taiwan. The study used Six Sigma to measure the performance of customer requirements. Dreachslin and Lee (2007) designed a case on application of Six Sigma techniques in determining the effectiveness of diversity initiatives in healthcare management in the USA. Taner et al. (2007) conducted five case studies in healthcare to show the performance improvement accomplished by Six Sigma presenting a road map for problem-solving and service/process improvement. The research outcome showed that the healthcare organizations gained a greater ability to address challenges across the system; maximized resource utilization; reduced redundancies, waste and rework; diminished bottlenecks related to scheduling; and improved working conditions for healthcare personnel. The findings showed that healthcare organizations are able to increase their market share in the long run after Six Sigma implementation.

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Many organizations have adopted Six Sigma to develop and strive for excellence in quality standards and innovations. Six Sigma is a total quality system developed by Motorola, a US- based company to identify tools, methods and best practices for generating innovation and driving revenue growth (Creveling et al., 2006). Six Sigma focuses on variation and defect reduction (Naslund, 2008; and Kumar et al., 2009), process improvement (Buch and Tolentino, 2006; and Lee-Mortimer, 2006), customer satisfaction and financial enhancement (Kumar et al., 2008a).

Six Sigma is described as a business excellence strategy (Antony et al., 2007); customer- driven (Nakhai and Neves, 2009), a project-driven (Assarlind et al., 2012) or a business- driven (Savolainen and Haikonen, 2007) methodology, which focuses on decision making based on statistical and non-statistical tools (Manville et al., 2012), to lead towards improving the organization’s product, process and service (Savolainen and Haikonen, 2007) or financial performance (Nakhai and Neves, 2009).

Six Sigma is a powerful strategy that enables companies to use simple and powerful statistical methods to drastically improve their performance (Nabhani and Shokri, 2009). Six Sigma-based methodology is used to reduce cost of poor quality by improving already existing processes, reducing costs, eliminating defects, raising customer satisfaction and significantly increasing profitability of organizations (Tong et al., 2004). A major difference between Six Sigma and other quality approaches is that Six Sigma aims to achieve 3.4 defective parts per million (Smith et al., 2002). According to Antony and Banuelas (2001), Six Sigma focuses on reducing the number of opportunities that could result in defects by shifting the emphasis from fixing defective products to making perfect products.

The deployment of Six Sigma in the manufacturing and supply chain arena has led to next-generation supply chain solutions (Keene et al., 2006; and Yeh et al., 2007). The impacts of aligning supply chain and quality management strategies with manufacturing goals and business performance have been investigated by Kanji and Wong (1999) and Tan et al. (1999). According to Wang et al. (2004), improving the quality of all supply chain processes leads to cost reduction, improved resource utilization and improved process efficiency. Yeung et al. (2005) and Yeung (2008) have studied quality-based supply chain strategies. Six Sigma metrics has been used as a framework for evaluating and benchmarking the performance of supply chain (Dasgupta, 2003).

Using Six Sigma methodology, quality management can be employed in Supply Chain Management (SCM) to improve the performance of various components in the whole supply chain network (Wang et al., 2004). Six Sigma does have something novel to offer organizations over the contribution of existing approaches to supply chain improvement (Knowles et al., 2005). Wei and Yi-zhong (2013) proposed a framework based on Six Sigma metrics to measure and improve supply chain performance.

Six Sigma has been applied in the context of supply chain design to analyze mitigation of container security risk (Kumar et al., 2008c). Researchers have emphasized the importance of the concept of Six Sigma as an effective methodology for monitoring and controlling supply

43Six Sigma Deployment in Sales and Marketing: Enhancing Competitive Advantages

chain variables (Yousef et al., 2008). Chang and Wang (2008) presented a case study to show the benefits of Six Sigma improvement model on replenishment forecasting. Liu (2006) offered an application of Six Sigma to reduce cycle time and defects in clinical report entry. Nabhani and Shokri (2009) used a case study to highlight reduction of the delivery lead time with the implementation of the Six Sigma methodology. Chang et al. (2012) applied the Six Sigma to improve the performance of the production planning procedures.

Six Sigma is gaining recognition not only in a product and manufacturing environment but also in transactional activities. Six Sigma is flexible enough to be applied to different challenges throughout business, also in diverse areas such as sales and marketing. Six Sigma can and should be applied to sales and marketing processes with the ultimate goal being customer satisfaction (De Mast and Bisgaard, 2007; and Redenbacher, 2009c). Morgan (2006) has identified three key elements in achieving Six Sigma performance related directly to the customer: focus on the customer and identify their Critical to Quality (CTQ) factors; ensure that processes are designed to meet the CTQs; ensure there are measurements to understand how well the customer requirements are being met and the customers’ perception about how well they are being met. In CTQ concept, only process, outcome, or service characteristics vital to customer satisfaction are investigated for improvement (Black and Revere, 2006).

Companies deploying Six Sigma company-wide have also realized efficiencies in their marketing processes (Maddox, 2004b). Applications of Six Sigma to sales and marketing are not common, but the potential for huge benefits exists (Pestorius, 2006 and 2007). Six Sigma can lead to improved customer relationships by improving the process that delivers the product or service to the customer, and the key is for companies to recognize the entire system, and not to focus on optimizing individual departments such as advertising, sales, or operations (Donath, 2005).

With Six Sigma deployment marketing program, yields can be improved, sales cycle times can be reduced, and service can produce better results (for example, reduced customer defections). Young & Rubicam Brands is an example of a firm that has successfully deployed Six Sigma in the following sales and marketing applications:

• The fulfillment of customer responses to a mail-in promotion,

• Ensuring that shipments to distributors are timely and accurate,

• Efficient responses to customer warranty claims, and

• The proper completion of market research interviews.

At Young & Rubicam Brands, new metrics such as process cycle time and rework levels were introduced and the organization benefitted. The company achieved reductions in both process cycle time and rework of between 25% and 40% (Quelch and Harris, 2005). Dow Chemical Co. and Honeywell have realized efficiencies in marketing processes by applying Six Sigma concepts. GE Healthcare Technologies has applied Six Sigma to sales force effectiveness and customer research as critical components of developing marketing excellence (Maddox, 2004b).

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Six Sigma deployment in sales and marketing is important for overall performance and growth of business as it leads to improved market performance, competitiveness and superior value creation. While Six Sigma is popular in manufacturing and services, its use in sales and marketing has not received much attention in academic literature. This paper works in this direction, explores the potential for applying Six Sigma principles in sales and marketing and provides insights of sales and marketing process improvement in terms of efficiency and effectiveness and the resultant business value created.

Six Sigma Concept and Evolution: An Overview

Six Sigma Concept The central idea behind Six Sigma is that if organizations can measure how many ‘defects’ they have in a process, they can systematically figure out how to eliminate them and get as close to ‘zero defects’ as possible. For customer-oriented organizations, defect is anything that caused customer dissatisfaction. The Six-Sigma quality level is equal to 3.4 Defects Per Million Opportunities (DPMO) and can be shown as 3.4 DPMO. An ‘opportunity’ is defined as any chance for nonconformance or not meeting the required specifications. This reduces waste and hence saves money whilst improving customer satisfaction. Sigma is a statistical term that measures how far a given process deviates from perfection. The name of the Six Sigma methodology is derived from the Greek alphabet symbol sigma () utilized in statistics for standard deviation; a measure of the variability within a population around the mean, a measurement to quantify variation and process inconsistency (Pande et al., 2000). Six Sigma focuses to obtain the same result every time and utilizes the well-defined problem-solving approach via statistical tools.

Six Sigma provides a quantitative, statistical notion of quality useful in understanding, measuring, and reducing variation. Let U and L be the upper and lower specification limits, respectively. In the case of a supply chain process, they represent the maximum and minimum lead times tolerated for an individual business process or the overall supply chain process. Let Cp measure the potential of a process to meet the requirements. Then,

Cp = U – L / 6

The numerator above represents the specification width whereas the denominator captures the total width of the 3 sigma limits of the process distribution. Assume that the process is normally distributed; the denominator then represents 99.73% limits for the process distribution.

The Six-Sigma method allows firms to reduce things to a common denominator—defects per unit and sigma and hence provides a common language and the ability to benchmark themselves against like products, processes and practices (Harry, 1997). Most organizations produce at a level of two to three sigma, meaning that between 66,807 and 308,537 defects occur with every one million opportunities; this means between 6.7% and 30.9% of everything produced contains a defect (Table 1). There are actually an infinite number of sigma, with each higher sigma representing an exponential improvement in quality. A sigma quality level offers an indicator of how often defects are likely to occur, whereby higher sigma quality

45Six Sigma Deployment in Sales and Marketing: Enhancing Competitive Advantages

levels indicate a process that is less likely to create defects as the quality level also increases accordingly (Madhani, 2016).

Table 1: Sigma Level – Defects Per Million Opportunities

S. No. Sigma Level Defects Per Million Yield (Error Free)

(Capability of Process) Opportunities (DPMO) (%)

1. 1 690,000 31

2. 1.5 500,000 50

3. 2 308,537 69.1

4. 3 66,807 93.3

5. 3.5 22,750 97.725

6. 4 6,210 99.38

7. 4.5 1,350 99.87

8. 5 230 99.977

9. 5.5 32 99.997

10. 6 3.4 99.9997

In mathematical terms, Six Sigma defines a transfer function in the following way:

y = f (x1, x2, ..., xn)

Hence, Six Sigma gives relationship between the output metrics of a product or process quality and the inputs that define and control the product or process. It focuses on two things:

• Understand which inputs (x’s) have the greatest effect on the output metrics (y’s); and

• Control those inputs so that the outputs remain within a specified upper and/or lower specification limit.

Six Sigma Evolution The initial focus of Six Sigma was the rigorous process of variance reduction leading to the design of business processes that produce 3.4 DPMO. This emphasis on defect reduction is termed as Generation I of Six Sigma (Harry and Crawford, 2004). Later many companies, including Motorola, GE, and Bank of America applied Six Sigma to service processes, including accounting and finance and experienced bottom-line benefits (Krehbiel et al., 2007). This

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Figure 1: Six Sigma Evolution – Various Generations

Generation

III

(Sales and Marketing)

Generation

I and II

(Manufacturing and Services)

6

Evolving

Established

Cost Reduction Revenue Generation

Si x

Si gm

a Pr

og re

ss io

n

Six Sigma Focus

phase of Six Sigma, where the focus is on cost reduction and economics is termed as Generation II. In manufacturing processes and services, usually there are very high correlations between the quality of process inputs and the quality of process outputs, thereby making operation easy, predictable, fact-based and thus making Six Sigma deployment smooth (Figure 1).

Generation III focuses on value creation and includes application of Six Sigma to sales and marketing (Carnell, 2010). Generations I and II are both about cost reduction, i.e., the bottom line (Figure 1). The transition from I to II is easy, but Generation III is about increasing top- line revenue. Sales and marketing people will avoid and even resist anything that they see as an attempt solely to squeeze costs, however, they will adopt anything that will help them increase revenue. Hence, it is important to emphasize that Six Sigma in sales and marketing projects should focus on driving the top line of the business more so than driving down costs (Figure 2). As Six Sigma Generation III is still evolving, its deployment in sales and marketing is not widespread.

Some companies such as GE, Allied Signal, etc., have implemented Six Sigma company- wide and therefore from manufacturing to sales and marketing. Xerox has started applying Six Sigma to their sales and marketing functions and has experienced its effectiveness in manufacturing. In 2006, Xerox had 80 black belts in its sales and marketing group (Calabro, 2004). Dow Chemical, Honeywell and Cummins Engines have saved time and money on marketing tasks and brought overall strategy and discipline to the management of marketing activities (Maddox, 2004a and 2006). Bank of America and National City Corporation have applied Six Sigma to operations and IT functions and also recognized its place in marketing (Carlivati, 2007).

47Six Sigma Deployment in Sales and Marketing: Enhancing Competitive Advantages

Sales and Marketing: Various Performance Indicators Usually, sales and marketing relies on matrices that show that their programs work in terms of their budgets, brands, and jobs. However, in reality their performance is not up to the mark. Copernicus Marketing Consulting has collected performance data on more than 500 marketing programs for consumer and B2B products and services. The firm has found that customer satisfaction averages just 74%; most acquisition efforts failed to reach break-even; no more than 10% of new products succeed; most sales promotions are unprofitable; 84% of programs are second rate, leading to a decline in brand equity and market share; and advertising Return on Investment (ROI) is below 4%.

Similarly, Marketing Management Analytics, a marketing ROI measurement company, has also found that in the short-term, consumer packaged-goods advertising returns only 54 cents for every dollar invested, other product categories return 87 cents—better, but still a losing proposition. A 2004 Deutsche Bank study of packaged-goods brands found that just 18% of television advertising campaigns generated a positive ROI in the short term (Clancy and Stone, 2005). It is not unusual today to see marketing investments that produce a negative ROI, or have a success rate that is close to zero. The Marketing Measurement Association reports only a $58 return on every $100 invested in marketing. The Marketing Science Institute reports that a 100% increase in marketing expenditures yield just a 1% increase in sales (Tocquigny, 2005).

However, sales and marketing are not unhappy because they rely on historical performance matrices such as market share and revenue (i.e., lagging indicators) (Figure 1). They need to

Figure 2: Six Sigma Deployment in Sales and Marketing

Customer

Satisfaction

Revenue

6

Proactive

Reactive

Lagging Leading

Pe rf

or m

an ce

M at

ri ce

s

Sales and Marketing Performance Indicators

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go beyond such reactive performance metrics (Figure 2); take a hard look at why the numbers are so bad; make sales and marketing strategies effective, enhance efficiency of spending and improve sales and marketing ROI. Hence, sales and marketing need to adopt a measurement- based methodology such as Six Sigma in a business function driven purely by relationship building, the strength of their personalities, market knowledge and creativity.

Successful Six Sigma deployment in sales and marketing focuses on ‘leading’ indicators (Figure 2). One way to maintain business growth over time is to focus on ‘leading’ indicators of desired goal. Leading indicators occur before the desired result and hence can be proactive in ‘correcting’ poor sales performance. Leading indicators help sales and marketing to anticipate whether firm will hit the product/market target. Leading indicators are factors that precede the occurrence of a desired result while lagging indicators lead to a reactive response when results fail to meet the target and take a snapshot after the occurrence of an event. Examples of leading indicators are customer satisfaction before a sales transaction such as satisfaction with meeting information needs of customers or the distribution channel’s satisfaction with a product or samples. To drive and sustain growth, performance indicators need to be ‘leading’ and performance matrices need to be proactive (Figure 2).

The implementation of Six Sigma in sales and marketing processes is designed to increase performance and decrease performance variation by focusing on leading indicators, which leads to reduction in imperfection, improved employee morale, increased profits, and a better business environment.

Six Sigma Deployment in Sales

DMAIC Methodology The most important aspect of the Six Sigma approach is its five-step process DMAIC (Define, Measure, Analyze, Improve, and Control) methodology responsible for improving sales performance (Figure 3). Following are various stages of DMAIC:

1. Define: What is it that sales department is seeking to improve?

2. Measure: How is the sales process measured? What is the current capability of the process? How is it performing in terms of variability?

3. Analyze: What are the most important causes of sales-related problems? How to map the process, and prioritize for action?

4. Improve: How do firms remove the causes of problems? How do they reengineer the process and simplify?

5. Control: How can sales department maintain the improvements? What are various statistical process control tools to monitor performance?

Six Sigma focuses on identifying what customers want/need, translating these into CTQ characteristics and deploying these through specific process improvement stages. These stages are explained in detail below:

49Six Sigma Deployment in Sales and Marketing: Enhancing Competitive Advantages

Figure 3: Six Sigma Deployment in Sales – Various Stages

Improve

Analyze

Measure

Control

Define

Si x

Si gm

a St

ag es

Stage N u m

ber 5

4

3

2

1

Define

The first stage in Six Sigma DMAIC methodology is the define stage. Define stage begins by identifying and prioritizing the products/markets that offer the sales the greatest options for growth. It is mainly because not all market opportunities are worth an investment. The opportunities must be evaluated using a quantifiable approach and not one driven by guesses, agendas or intuition. Define stage identifies the sales problem being addressed, the customers being affected, what they view as important, and what performance matrices will be used. Sales goal, scope, expected outcome, boundaries and project schedules are specified in this stage. Sales problems are defined clearly and as much possible in numerical terms.

After the sales activities are identified, they are assigned to process improvement. The define stage focuses on defining the core business process influencing the customer [i.e., their CTQ issues and Voice of the Customer (VOC)] that have the highest priority for improvement. This stage also identifies and prioritizes CTQ factors that drive the value matrix and motivate buyers. Without this information, few sales efforts can satisfy either the effectiveness or efficiency criteria that are so important in sales success.

By hearing the VOC, sales process performance can be measured as VOC focuses on identifying and measuring each individual customer’s ‘basic requirements’ such as measurable standards of product and service in terms of product benefits, pricing, customer satisfaction and other qualities. VOC is a very valuable way to uncover the stated and unstated needs of customers and can be captured in a variety of ways: direct discussion or interviews, surveys, focus groups, customer specifications, observation, field reports, etc. By working in partnership with the customer to develop strategic growth plans, a company will not only understand

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where its customers are heading and why, but will also create a relationship of trust and loyalty.

Measure

This stage measures the capability of the existing sales processes and focuses on the performance of the core business processes involved. Measure stage determines what processes are potentially contributing to the problem, develops a data gathering plan and system, collects data to determine the types of matrices and validates how the information (data) will be used to drive business decisions and finally establishes the base-line performance level. The purpose of this stage is to measure problem areas and accordingly identify sales performance measures such as cost, efficiency, and service levels. Moreover, this measure can help to identify the deviations of current measurements. This stage focuses on defining value for the targeted markets identified in the define stage.

Because the definition of value changes from one product/market to the other, so does the thrust of Six Sigma approach. It captures the Voice of the Market (VOM), which provides the competitive intelligence necessary to make informed decisions and hence assures that subsequent changes are directed by the contingencies of the specific product/market. Value is created by listening to the market and applying what is learned to increase both the market size and the organization’s market share (Redenbacher, 2009a, 2009b and 2009c).

In order to begin measuring performance, sales must define which key data exists, where it resides, which data is needed, and how or if the data can be obtained. Following are key data points for various product/market categories:

• Revenue growth and gross margins;

• Customer Lifetime Value (CLV), profitability and cost;

• Brand awareness and perceived brand quality;

• Customer satisfaction;

• Relative purchase frequency; and

• Acquisition rate and conversion rate.

This stage helps to create an understanding of the types of performance measures that are currently employed. Some of the measurement matrices in sales are:

• Reliability: It concerns the failure to deliver products;

• Order Accuracy: It concerns the probability of the correct orders arriving at or departing from the warehouse on time;