Abstract - on Account of the Fact That Service Has Become One of the Main Focuses of Worldwide

Using Six Sigma in New Service Development

Atarod Goudarzlou*, Tan Kay Chuan** Industrial and Systems Department, Faculty of Engineering, NUS, 10 Kent Vale Crescent, Singapore 119260 *[email protected] **[email protected]

POMS 19th Annual Conference La Jolla, California, U.S.A. May 9 to May 12, 2008

Abstract – The service industry has become a leading factor in economies worldwide, and great deals of studies have been conducted to facilitate and Using the six sigma approach in new service or improve the management of new service development new product development has been defined as designing (NSD). This research investigates the use of six sigma for six sigma or DFSS. DFSS is a systematic approach tools and techniques in service organizations and that can enable organizations to design products or examines its effect on NSD performance. The results services that meet or exceed customer expectations using of the research illustrate that by using the six sigma well-established tools and techniques [3], [4]. DFSS is methodology in new service development, firms can used in new product development to deliver products or experience greater efficiency in their development processes at a six sigma level of quality [3], [5]. This is processes with regards to improved financial results an upstream strategy through which firms can meet their and higher customer satisfaction. customers’ expectations and deliver high quality outcomes at the beginning stage [6].

Keywords-New service development, Six sigma, Design For Six Sigma II. Conceptual Framework of the Study

The literature on six sigma refers to DFSS as I. Introduction more of an approach than a defined methodology which tries to manage the development process more effectively. The service industry has become a dominant Different organizations use different kind of DFSS factor in worldwide economies and has been a large approaches depending on their objectives. The most source for employment providers since the 1980s. common acronyms for DFSS are DMADV, IDOV, Economics and job growth are deemed to be dominant by DMADOV, ICOV, DCCDI, and DMEDI. Although the service organizations through to the 21st century [1]. methodologies are different in the number of stages and Consequently, service organizations are coping with a terms, they all use the same tools and techniques with the growing pressure to offer new services, especially with same objectives and deliverables. In order to propose a service globalization and rapid technological progress [1]. model that could embrace the key elements of DFSS, we This issue has brought the management of new service break down the approach into the following two sections: development (NSD) into focus. However, in the service infrastructure, and tools & techniques (see Fig. 1). The management literature, NSD is one of the least studied infrastructure section introduces the principal activities topics [2]. Through investigating the literature, we find that should be carried out during implementation of six that there are no generally accepted processes and sigma for NSD. It targets mainly the managerial aspects procedures for NSD. New services are mostly developed of the approach and focuses on project management, through an unsystematic and unorganized process, unlike employee-related procedures, customer-related new product development. This results in inefficient and procedures, and business-related procedures under-designed outcomes [1]. The use of an overarching methodology that could overcome the current concerns in NSD, with the focus on both managerial and technical aspects, is essential for service-based organizations. The aim of this research is to investigate the impact of using the sigma methodology in NSD. e

r Project Management u t c e u c r t

Employee-related n

s + a A.2. Employee-related procedures a

r procedures m f r n o

I Customer-related f

r By using six sigma, organizations can utilize the procedures e P

highest level of technical knowledge in their projects [10]

Business-related D

S not only by teaching people the many tools of quality procedures N measurement, but by also ensuring that everyone in the Tools & Techniques project has an absolute and in depth knowledge of the processes being undertaken [10]. The belt system hierarchy ensures that organizations use the experts and Fig. 1. Proposed framework qualified personnel in their projects. In a broader regard all employees in the company are involved [11]. The selection of team members and defining their role also A. Infrastructure play an important role in the success of DFSS [12]. The six sigma approach emphasizes highly on using A.1. Project management multidisciplinary teams where experts from different areas work focus on similar problems but from different Six sigma uses a project-driven approach [3] which vantage points. The work environment is both provides firms with a systematic and step by step competitive and cooperative [13]. The following framework for quality improvement and business attributes are part of this methodology which refer mostly excellence [7]. It places emphasis on clear project to employee training and teamwork: definition with concrete objectives and precise project prioritization and selection [8]. Moreover, it spotlights P10: The organization applies a structured training the importance of top management involvement and approach for employees who are involved in NSD. commitment for the project in order to deliver the product P11: Employees involved in NSD should be qualified in or service efficiently and timely [9]. Conducting process design and optimization. periodical reviews to examine project status and having a P12: The NSD team comprises experts from different post launch review to understand weak points, are other core activities in the six sigma approach [7]. We functional areas (use of multifunctional teams). highlight the following attributes and procedures of P13: The NSD team is well-qualified in using six sigma DFSS: tools and techniques for process design and quality improvement. P1: Use of formal processes in developing new services. P14: Functional areas have good communication and P2: Use of formal procedures to select NSD projects. coordination when developing new services. P3: NSD projects prioritization should base on objective P15: The firm employs intense training of customer factors rather than subjective factors. contact personnel prior to the service launch to ensure P4: Top managers should have long term commitment to proper delivery process. NSD. P16: The firm spends a noticeable amount of money on P5: Senior managements should show strong support for training. NSD. P6: Use of periodical reporting during NSD. A.3. Customer-related procedures P7: Conduct a detailed risk analysis for the NSD In contrast with DMIAC which introduces a projects. reactive approach to improving quality and satisfying P8: Conduct post launch review and documentation after customers, DFSS proactively looks for inventive ways to satisfy and exceed customer requirements by designing the new service launch. products or processes in line with their actual needs [12]. P9: Use of project management tools and skills. Six sigma attempts to meet customer expectations by identifying the critical to quality characteristics (CTQs) [13] and designing the development process in a way that meets the CTQs [12]. Customer focus is emphasized P28: The firm focuses on measurable and quantifiable constantly in six sigma in terms of CTQs [7]. In brief, we financial returns to the bottom line. can affirm that the following procedures are related to P29: There is the use of a clear set of key performance customer side of six sigma: indicators to monitor service performance. P17: The firm carries out a detailed formal study of the P30: There is use of management tools such as the market on a regular basis to monitor possible changes in balance scorecard. customer demand. P18: The firm conducts a clear segmentation of targeted B. Tools and techniques market. The second part of the approach includes a set of tools P19: The firm obtains a clear set of customer needs and and techniques used in six sigma. Six sigma stresses the requirements prior to service design. application of statistical and problem solving tools and P20: The customer needs and inputs are carefully techniques in a rigorous and systematic way to improve documented and noticed during NSD. an organization’s process to six sigma capability [3], [9]. P21: The development team defines a clear set of critical By using a six sigma framework, quality tools and techniques would be integrated in logical flow instead of to quality factors during the development process. in a disjointed manner with disconnected sequences [7]. P22: The development team conducts pre-launch test for NSD to ensure success of the project before actual III. Research Methodology launch. P23: The development team uses reliable tools and In order to investigate the impact of the DFSS methods to capture the voice of the customer. approach on new service development, data collection was conducted via a mail survey of 254 companies in the service sector including banks, insurance companies, A.4. Business-related procedures hotels, and healthcare providers. Of the total questionnaires sent out, a usable sample of 48 companies Six sigma is a business strategy with an was obtained. The survey focused on new services which emphasis on understanding customer requirements and have been recently launched in the market. It embraces improving business productivity and financial two sections. The first section measures NSD performance [3]. It aligns projects with a company’s performance according to 10 performance dimensions strategic objectives and business goals [13] and creates a varying from financial metrics (profitability and market culture of visible performance measurement [10]. One of share) to customer relationship metrics (enhancing tools for aligning project objectives with strategic loyalty). Respondents were asked to assess the success of objectives is the DFSS score card which provides a clear their new services by using a 1-5 Likert scale ranging picture of a company’s strategic plan in terms of from “totally unsuccessful” to “totally successful” for improving bottom-line results using accurate metrics [12]. each performance indicator. The aggregate mean scores Furthermore, the outcome of six sigma should be also of the measures were calculated as the overall asserted in financial terms which give an excellent performance indicator for NSD. Section II comprised the measure of the impact of the project in the organization six sigma activities and practices mentioned in the [7]. From business point of view, we can say that six conceptual model. It also investigated the frequency of sigma accentuates following activities: using these activities in the organizations’ development process. Respondents of the survey were selected P24: The firm selects those NSD projects which are according to their involvement in NSD mostly from aligned to its total strategy. marketing or development departments. P25: A detailed financial analysis precedes the design stage. The main purpose of the study was to find out the P26: The firm uses appropriate performance measures to commonality of using six sigma practices and techniques in service-based firms, and to investigate its impact on the evaluate the effectiveness of NSD. success of NSD projects. Towards this end, we P27: Every project has to contribute positively to the contrasted the top-third performers in NSD with the company’s bottom line. bottom third with regards to he 10 performance measures. The results are shown in Fig. 2. Mean Mean Mean Mean Procedures Factor Top Bottom P value Procedures Factor Top Bottom P value Loading Third Third Loading Third Third Project Management Customer-related P (Cronbach alpha: 0.85) (Cronbach alpha: 0.92) P1 .760 3.90 3.18 .020* .600 4.05 3.12 .001* P2 .709 4.10 3.29 .010* P17 .850 3.90 2.88 .003* P3 .481 2.43 3.00 .043* P18 .786 4.14 3.24 .002* P4 .917 4.29 3.41 .003* P19 .692 3.24 2.41 .004* P5 .873 4.10 3.18 .020* P20 .620 3.00 2.35 .020* P6 .794 3.86 3.06 .025* P21 .607 3.81 3.12 .015* P7 .731 3.71 2.88 .007* P22 .727 3.52 2.88 .024* P8 .505 3.19 3.12 .798 P23 P9 .817 3.57 3.00 .065

Employee-related P (Cronbach alpha: 0.89) Business-related P P10 .641 3.67 2.94 .002* (Cronbach alpha: .531 4.43 4.35 .702 P11 .719 4.43 3.76 .003* 0.91) .855 4.24 3.24 .005* P12 .370 4.00 3.94 .805 P24 .763 4.00 3.24 .010* P13 .664 3.95 3.35 .011* P25 .567 4.52 4.47 .774 P14 .602 3.86 3.76 .703 P26 .671 4.24 4.12 .636 P15 .674 3.76 3.24 .090 P27 .725 3.71 2.76 .006* P16 .648 3.19 2.41 .002* P28 .702 3.67 3.00 .033* P29 (* Significant at 5%) P30

(* Significant at 5%) conducting risk analysis for NSD, while the top-third Fig. 2. Survey result performers have laid their stress on detailed risk analysis for every project that company undertook. In accordance IV. Discussion with previous research on NSD, this study confirms that management commitment and support affect the development process positively. Furthermore, having A.1. Project management formal a step-by-step approach would provide organization with greater overall performance. To sum up, DFSS activities which are related to the project focus The results show almost all activities for this section section could have positive impacts on NSD performance have a higher mean in the first group (top third) and seven during the development process which could result in out of nine are statistically significant at the 5% level. successful outcomes with regards to both tangible and The results indicate that companies that use a formal intangible metrics. process in NSD and practice project management activities in their developing process, experience better outcomes with regards to financial benefits and customer A.2. Employee-related procedures loyalty enhancement. The least scored activity was conducting post launch reviews and documentation after It is no surprise that those companies that have a service launch for both groups. This suggests that the consistent training program for their development efforts service industry pays less attention to post launch experience more successful projects. The results show documentation and review which are highly emphasized that using employees who are qualified in using tools and in the DFSS approach. Further investigation of the results techniques related to service design and service quality suggests that the bottom-third performers lacked in affect service outcome positively. Another factor which had been considered to separate successful projects from organizations usually skip this step although it is very unsuccessful ones is the use of multifunctional teams with important in connecting customer needs to process design. effective communications among functional areas. Despite the fact that the averages of these two activities A.4. Business-related procedures are higher in top performers, this statistical indicator is not significant at 5%. In fact, both groups claim that they regularly use multifunctional teams in their NSD process The results of this section are quite intriguing owing (with means of 4.00 and 3.76, respectively) which to the fact that both groups set their highest mark for the suggests that using a team of expertise from different business focus activities. Overall, almost all companies functional areas has become commonplace in services. have laid their center of attention to those activities that are primarily related to the financial aspects of NSD. The Further investigation shows the least frequent projects that they focus on should contribute positively to activities being practiced in unsuccessful projects are lack the financial benefits and should be aligned to their total of company investment in training and having no training strategy. However, what distinguishes the top performers programs for personnel working in development. In from bottom third is the approach they have taken conclusion, the results would validate the effectiveness of towards aligning their projects with their strategies. A six sigma employee focused practices in the new service review of Figure 2 shows that top performers pay more development process that will assist organizations to attention in defining clear performance measures and achieve better performance. Indeed, one of the benefits of using management tools such as the Balance Scorecard. the DFSS approach is training and using employees with ”Use of a clear set of key performance indicators” sufficient knowledge in tools and techniques for process received the lowest rank for the bottom third performers. design and process quality at different levels of the belt In conclusion, a detailed financial analysis, setting hierarchy (i.e., Master Black Belts, Black Belts, Green indicators to measure process effectiveness, and using Belts). common tools and techniques such as the Balance Scorecard could lead organizations to a successful development process. A.3. Customer-related procedures

B. Review on Tools and Techniques Although gaining knowledge of customer needs and requirements is well accepted as one of the critical success factors for organizations, many service companies The survey results reveal that benchmarking is the lend insufficient attention to this part of NSD. To bring most practiced technique that companies use in their new the importance of market research into focus, suffice to service development and the least practiced tools is TRIZ. say that all the activities for this section are significantly Further examination of the results show that typical different in the two groups. The results show that statistical techniques in six sigma such as DOE, process companies that carry out detailed market study and further capability analysis and simulation techniques are not very segment their target market, clearly are more successful in common. This supports the common thinking that the achieving their goals. One of the key advantages of six quantitative side of six sigma is still infrequently used in sigma is its focus on customers by defining critical to the service industries. On the contrary, companies are quality characteristics, key measurable characteristics of a using qualitative techniques of the approach more process with exact specification limits and targets which regularly; tools and techniques such as bench marking, have been defined by the customer. The methodology process mapping, Kano analysis and FMEA have received necessitates that the development team define a clear set higher ranks among others. Despite the fact that QFD has of CTQs as their targets. However this step could be the been recognized as one of the most useful tools in six most challenging part in applying six sigma in service sigma which plays a great role in connecting customers’ industries since CTQs are highly intangible and behavior needs to the developing process and gives companies a oriented. They are difficult to quantify. Likewise, the clear view of customer needs and requirements, it is not results show that the least emphasized practice among the commonly practiced in the NSD (see Fig. 3). two groups is “defining a clear set of CTQs during the development process.” This shows that service s e u q i  n Benchmarking h

c  e Process mapping T

d Kano analysis  n a  s

l Project management techniques o o FMEA  T QFD  Balance scorecard  Simulation technique  MGPP*  Pugh concept selection  Axiomatic design  Process capability analysis DOE  Fig. 3. Frequency of using six sigmaTRIZ tools and techniques in NSD

1.00 2.00 [9]3.00 J. Antony 4.00 and R. Banuelas,5.00 “Measuring business .ُSeldomُ SometimesExcellence”, Vol.Of 6, ten4, 2002, pp.Frequently 20-27 Never Frequency of use REFERENCES

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