Six Sigma: a new path to perfection: there's buzz today about how the large, national banks are using a methodology called "Six Sigma" to improve such functions as operations and customer service. What exactly is this new approach? And what are its implications for bank marketing?

• Author: Carlivati, Peter
• Position: Quality Management

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Recently there has been talk about the fact that many large financial services companies have adopted a business-improvement methodology known as "Six Sigma." Although the approach is usually applied to functions like operations or information technology, it also has value in other areas, including marketing.

What exactly is Six Sigma? And how can it help marketing? If you answered that question as Casca did in Sheakespeare's play, "Julius Caesar"--namely that "It's Greek to me"--you would be partially right.

In statistics, the lower-case Greek letter "sigma" ([sigma]) is used to indicate the standard deviation, a measure of variability. That's the "sigma" in Six Sigma.

Six Sigma is a quality improvement strategy; specifically, it has been used in businesses to reduce the variation in processes, regardless of whether these processes involve manufacturing or providing a service.

Six Sigma is a "method for reducing variation in manufacturing, service or other business processes," according to the American Society for Quality (ASQ). It applies specific tools and techniques to improve processes that are producing unacceptable products or services from the customer's point of view.

Used by many of the top 50 banks

Motorola was the first large company to implement Six Sigma in the 1980s, with other large companies, including General Electric, adopting and popularizing the methodology. Today, Six Sigma applications are commonplace in manufacturing, health care, and financial services, with many large banks, such as Bank of America, pointing to huge successes in deploying the methodology. In banking, as in other industries, Six Sigma projects have yielded multiple returns on implementation costs and contributed millions of dollars to the bottom line.

Early last year, American Banker reported that "most of the top-50 [banks] use Six Sigma in its pure form." Some banks, including National City Corp., Cleveland, however, have begun using variations such as "Lean Six Sigma," that build on the basic methodology by incorporating additional techniques to minimize waste and inefficiencies in processes. More recent research, conducted by ABA, shows that, in several banks, Six Sigma and Lean Six Sigma efforts are being implemented bank-wide, including such areas as marketing.

The original intent of Six Sigma was to reduce the variability of a business process so the likelihood of a customer encountering a product or service "defect" was below 3.4 per million opportunities, which remains the common metric for Six Sigma quality. Today, however, in Motorola and other companies, Six Sigma is evolving to a broader business improvement methodology. Regardless of the orientation, empirical evidence, cited by ASQ, suggests that "improved quality [through Six Sigma efforts] leads to reduced costs, better customer satisfaction, and improved bottom-line profitability."

How Six Sigma differs from other quality techniques

Six Sigma represents the culmination of a series of quality management strategies that have surfaced over the past several decades. It differs from earlier initiatives, such as Total Quality Management, in several key ways. First, Six Sigma factors in customer needs and requirements into the quality specifications of a product or process (known as "Critical to Quality"). Second, unlike many traditional quality initiatives, Six Sigma focuses on improvements across a process...