Six Sigma Overview

October 13, 2003Don CarlsonTechnology & OperationsEnterprise Solutions

• What is Six Sigma?

• Why Six Sigma?

• Why Six Sigma at Bank of America?

• Connection to Strategy.

Agenda

• Metric• Benchmark• Vision• Philosophy• Method• Tool• Symbol• Goal• Value

The Many Facets of Six Sigma

• Six Sigma Was Developed at Motorola in the 1980’s As a Method to Improve Process Quality.

• It Was First Used to Improve Manufacturing Process Capability and Then Migrated to Business Processes Capability

• Companies That Have Deployed Six Sigma: Bank of America, Motorola, GE, IBM, Kodak and Many More

• The Basic Premise Is, All Processes Have Variation. Variation Is the Enemy.

More About Six Sigma

SSciencecience

AArtrt

MMagicagic

Six

Sig

ma

We don’t know what we don’t know.

If we can’t measure it, we really don’t know much about it.

If we don’t know much about it, we can’t control it.

If we can’t control it, we are at the mercy of chance.

What is the Six Sigma Philosophy?

Focus on the Customer!Focus on the Customer!

Process Philosophy

Know What’s Importantto the Customer (CTQ)

Reduce Defects (DPMO)

Center Around Target (Mean)

Reduce Variation (Standard Deviation)

?

GE Company Proprietary

November 1998

What Is Six Sigma?

2

3

4

56

308,537

66,807

6,210

Defects per

Million opportunities

Defects per Million

opportunities

233

3.4 .

ProcessCapability

ProcessCapability

Sigma is a statistical unit of measure whichReflects process capability.

Six Sigma as a Goal

99.99966% Good (6 Sigma)

• 20,000 lost articles of mail per hour

• Unsafe drinking water for almost 15 minutes each day

• 5,000 incorrect surgical operations per week

• Two short or long landings at most major airports each day

• 200,000 wrong drug prescriptions each year

• No electricity for almost seven hours each month

• Seven articles lost per hour

• One unsafe minute every seven months

• 1.7 incorrect operations per week

• One short or long landing every five years

• 68 wrong prescriptions per year

• One hour without electricity every 34 years

99% Good (3.8 Sigma)

Six Sigma -- Practical Meaning

Dissecting Process Capability

Defects

Process Capability

Inadequate Design Margin

Inadequate Process

Capability

Unstable Parts & Materials

Defects Acceptable

• Premise of 6 Sources of variation can be:– Identified– Quantified– Eliminated or Controlled

LSL USL

• Characterize

• Optimize

• Breakthrough

USL

T

LSL

USL

T

LSL

T

USLLSL

USL’LSL’

The Strategy

Customer Focused - Both Internally & Externally

• What is Six Sigma?

• Why Six Sigma?

• Why Six Sigma at Bank of America?

• Connection to Strategy.

Agenda

What is Cost of Poor Quality?

• In addition to the direct costs associated with finding and fixing defects, “Cost of Poor Quality” also includes:

– The hidden cost of failing to meet customer expectations the first time

– The hidden opportunity for increased efficiency– The hidden potential for higher profits– The hidden loss in market share– The hidden increase in production cycle time– The hidden labor associated with ordering replacement material– The hidden costs associated with disposing of defects

• For most companies today, the cost of poor quality is likely to be 25 % of sales.

• In almost every company where the COPQ is unknown, the COPQ exceeds the profit margin.

Which Business Function Needs It?

As long as there is a process that produces an output, whether it isa manufactured product, data, an invoice, etc…, we can apply the

Six Sigma Breakthrough Strategy. For these processes to perform to a customer standard they require correct inputs!!!

6 Sigma

Methods

MFG.

DESIGNSERVICE

PURCH.

MAINT.

ADMIN.

QA

Marketing

Why Six Sigma?

“Six Sigma will enable Bank of America to make the breakthrough improvements in customer satisfaction and shareholder value that we must achieve to reach our goal of becoming one of the world’s most admired companies. That’s why I’m committed to using it as a performance management discipline throughout our company.”

Ken Lewis, Chairman and Chief Executive Officer Bank of America

Ken Lewis’ “Vision”

• What is Six Sigma?

• Why Six Sigma?

• Why Six Sigma at Bank of America?

• Connection to Strategy.

Agenda

Prioritization & Root Cause Counter Measures & Activities Who When Process CapabilityExpected

Benefits/ImpactTarget Achieved?/Impact

1. Value for Money1. Declining market perception compared to competition. 1. Increase customer perception of value provided CI, KPRO, EI, HI thru

2. Inadequate margins, discounts, profitability, promotions, as perceived by customers/channel partners

2. Offer simplified/competitive price/payment plans CI, KPRO,EI, DI

3. Offer differentiated leadership products KPRO,D&AI,CI 12 pp.4. Improve effectiveness of promotions, advertising CI,DI

5. Improve operating costs and efficiencies C&GS 2000

2. Customer Service/Technical Support1. Process not customer-focused 1. Re-structure/re-engineer org. to meet needs; customer focused integrated process improvements KPRO,D&AI,DI,HI thru

2. Lack of closed loop process to correct customer problems 2. Additional technical support HI,D&AI,GCSS

3. Unsatisfactory response time, problem resolution 3. Customer escalation process; problem resolution; technical training EI 2000

3. Product Performance1. Products/services do not perform to VOC requirements 1. Improve product performance and reliability; drive to six sigma quality standards CI,KPRO, C&GS,D&AI,

DI,EIon-going

2. Product/service performance monitoring vs. VOC does not occur 2. Institute post-launch monitoring for all major product introductions CI,KPRO thru 2000

3. Products/services performance are not easy to use 3. Focus on ease of use aspects for product design D&AI,CI on-going

4. Sales/Marketing Support1. Insufficient business growth support 1. Redesign/restructure SF, training, target key, customer relationship management CI,EI,KPRO, DI,HI, thru

2. Inadequate contact-new product/program information, merchandising, IM

2. Expand alternative vehicles of delivery CI,HI, KPRO 10 pp

3. Insufficient knowledge: Bus.-Tech. 3. Customer training EI

4. Customer communications DI, EI,C&GS 2000

5. Ease of Doing Business1. Cuts across performance areas (Sales, O&D, Billing & Credit, Cust. Svc., Tech. Support)

1. Improve supply chain management (see ISC MBF for details) All BU's (&Regions) thru US&CR order transaction surveys show ~9pp improvement (1Q00)

2. Unresponsive, lack of follow-through, functional silos with limited scope

2. Responsibility/accountability, Training, Communications DI,CI,EI,GCSS

3. Unsatisfactory problem resolution 3. Re-engineer, re-structure organization to meet customer needs CI,KPRO,US&CR, EAMER

11 pp

4. Simplify/improve processes, include problem resolution, contracts, accounts management HI,DI,US&CR,EAMER,GCSS

2000

6. Product Availability1. Non-integrated supply chain results in sub-optimal order/delivery 1. See ISC MBF for details All BU's thru 2000

PROBLEM STATEMENT: Kodak's aggregate corporate customer satisfaction is at 76%, which is lower than world class benchmarks of 90%+. This gap of 15-20 pp represents a $1B-2B revenue opportunity for the company.

Benchmark: 90%+

72%69%

0%

50%

100%

YE99 1Q00 2Q00 3Q00 4Q00

% S

ati

sfa

cti

on81.0%

0%

50%

100%

YE99 1Q00 2Q00 3Q00 4Q00

% S

ati

sfa

cti

on

NotPlanned

Overall Customer Satisfaction (Key Drivers)

0%

25%

50%

75%

100%

Value

/Pric

e

Cust

.Sv

c./T

ech.

Supp

.

Prod

. Pe

rf.

Sales

/Mkt

g.Su

pp.

Ease

Doin

gBu

s.

Prod

. Av

ail(O

&D)

Per

cent

of

BU

's

78%

0%

50%

100%

YE99 1Q00 2Q00 3Q00 4Q00

% S

ati

sfa

cti

on

NotPlanned

Overall Product Quality/Perf. Overall Service QualityOverall Customer SatisfactionWt. 0.50 Wt. 0.25

Customer Satisfaction Benchmark

69% 68%

76% 77%

50%

60%

70%

80%

90%

100%

EK 97* EK 98* EK 99** EK 1Q00

Perc

ent

Sati

sfac

tion

*Old Metric: Overall Custom er Sat

**New Metric: Custom er Satisfaction Score

Opportunity Gap

Wt. 0.25

Benchmark Benchmark Benchmark

79.7%71.3%

65.1%

93.2%

64.6%70.4%

81.6% 76.5%80.0%71.8%

65.5%

93.2%

64.9% 70.4%82.5% 76.9%

0%

50%

100%

CI HI KPRO EI DI D&AI C&GS EK Overall

% S

ati

sfa

cti

on

YE99 1Q00Improvement

Nordstrom, Lexus 92%

BMW Mercedes 86%Coke 84%

Customer Satisfaction Score

Customer Segment MBF

Prioritization & Root Cause Counter Measures & Activities Who When Process CapabilityExpected

Benefits/ImpactTarget Achieved?/Impact

1. Value for Money1. Declining market perception compared to competition. 1. Increase customer perception of value provided CI, KPRO, EI, HI thru

2. Inadequate margins, discounts, profitability, promotions, as perceived by customers/channel partners

2. Offer simplified/competitive price/payment plans CI, KPRO,EI, DI

3. Offer differentiated leadership products KPRO,D&AI,CI 12 pp.4. Improve effectiveness of promotions, advertising CI,DI

5. Improve operating costs and efficiencies C&GS 2000

2. Customer Service/Technical Support1. Process not customer-focused 1. Re-structure/re-engineer org. to meet needs; customer focused integrated process improvements KPRO,D&AI,DI,HI thru

2. Lack of closed loop process to correct customer problems 2. Additional technical support HI,D&AI,GCSS

3. Unsatisfactory response time, problem resolution 3. Customer escalation process; problem resolution; technical training EI 2000

3. Product Performance1. Products/services do not perform to VOC requirements 1. Improve product performance and reliability; drive to six sigma quality standards CI,KPRO, C&GS,D&AI,

DI,EIon-going

2. Product/service performance monitoring vs. VOC does not occur 2. Institute post-launch monitoring for all major product introductions CI,KPRO thru 2000

3. Products/services performance are not easy to use 3. Focus on ease of use aspects for product design D&AI,CI on-going

4. Sales/Marketing Support1. Insufficient business growth support 1. Redesign/restructure SF, training, target key, customer relationship management CI,EI,KPRO, DI,HI, thru

2. Inadequate contact-new product/program information, merchandising, IM

2. Expand alternative vehicles of delivery CI,HI, KPRO 10 pp

3. Insufficient knowledge: Bus.-Tech. 3. Customer training EI

4. Customer communications DI, EI,C&GS 2000

5. Ease of Doing Business1. Cuts across performance areas (Sales, O&D, Billing & Credit, Cust. Svc., Tech. Support)

1. Improve supply chain management (see ISC MBF for details) All BU's (&Regions) thru US&CR order transaction surveys show ~9pp improvement (1Q00)

2. Unresponsive, lack of follow-through, functional silos with limited scope

2. Responsibility/accountability, Training, Communications DI,CI,EI,GCSS

3. Unsatisfactory problem resolution 3. Re-engineer, re-structure organization to meet customer needs CI,KPRO,US&CR, EAMER

11 pp

4. Simplify/improve processes, include problem resolution, contracts, accounts management HI,DI,US&CR,EAMER,GCSS

2000

6. Product Availability1. Non-integrated supply chain results in sub-optimal order/delivery 1. See ISC MBF for details All BU's thru 2000

PROBLEM STATEMENT: Kodak's aggregate corporate customer satisfaction is at 76%, which is lower than world class benchmarks of 90%+. This gap of 15-20 pp represents a $1B-2B revenue opportunity for the company.

Benchmark: 90%+

72%69%

0%

50%

100%

YE99 1Q00 2Q00 3Q00 4Q00

% S

ati

sfa

cti

on

81.0%

0%

50%

100%

YE99 1Q00 2Q00 3Q00 4Q00

% S

ati

sfa

cti

on

NotPlanned

Overall Customer Satisfaction (Key Drivers)

0%

25%

50%

75%

100%

Va

lue

/Pr

ice

Cu

st

.

Sv

c.

/Te

ch.

Su

pp

.

Pr

od

. P

erf

.

Sa

les

/Mkt

g.

Su

pp

.

Ea

se

Do

ing

Bu

s.

Pr

od

. A

vail

(O

&D

)

Per

cent

of

BU

's

78%

0%

50%

100%

YE99 1Q00 2Q00 3Q00 4Q00

% S

ati

sfa

cti

on

NotPlanned

Overall Product Quality/Perf. Overall Service QualityOverall Customer SatisfactionWt. 0.50 Wt. 0.25

Customer Satisfaction Benchmark

69% 68%

76% 77%

50%

60%

70%

80%

90%

100%

EK 97* EK 98* EK 99** EK 1Q00

Pe

rc

ent

Sa

tis

fac

tio

n

*Old Metric: Overall Custom er Sat

**New Metric: Custom er Satisfaction Score

Opportunity Gap

Wt. 0.25

Benchmark Benchmark Benchmark

79.7%71.3%

65.1%

93.2%

64.6%70.4%

81.6%76.5%80.0%

71.8%65.5%

93.2%

64.9% 70.4%82.5% 76.9%

0%

50%

100%

CI HI KPRO EI DI D&AI C&GS EK Overall

% S

ati

sfa

cti

on

YE99 1Q00Improvement

Nordstrom, Lexus 92%

BMW Mercedes 86%Coke 84%

Customer Satisfaction Score

Deposits Golden Thread MBF

Green Belt Project Application Problem Definition (What is the Defect? What is the magnitude of the defect? What is the improvement goal (at least 50% improvement) and timeframe for this project?):

Primary Metric (measure of defect): Secondary Metric (counterbalancing measure):

What will be the impact of the improvement from a customer’s standpoint? What is the expected savings or revenue increase? High Level Process Map and Multilevel Pareto are attached. _______ Financial Director Signature: _____________________________________________________________ Date: (Agrees that the potential financial benefits can be achieved and measured) Customer Segment Leader Signature_______________________________________________________ Date: Champion’s Signature: __________________________________________________________________ Date: Complete after project is approved for class enrollment Name of Green Belt Candidate: Project Team Members:

Green Belt Project

Customer Segment Root Cause1. Too many problems (“error free banking”) Assigned to Payment and Deposits Golden Thread Teams

Deposit Golden Thread Root Cause2.1 Complexity of Teller Processes

contributes to processing errors

Green Belt Project Definition Improve number of counter deposit slips presented for processing but did not post in time in _____________ (Mid-Atlantic, Kansas City, or Tampa) from ________% to ______%.

Strategic Alignment - From Strategy to Action

Bank of America

Ken Lewis, Chairman and CEO

1.1 Provide a world-class customer/client experience through easy access and efficient, error-free service

C. Goslee / B. Desoer

1.2 Attract and retain profitable customers/clients…and continuously reward them for keeping and bringing more of their business to us G. Taylor / R. DeMartini / A. Brinkley

E. Brown 1.3 Become the trusted advisor for financial solutions

R. DeMartini E. Brown

1.4 Develop and deliver innovative new products and solutions which make financial services work in ways it never has before A. Brinkley / B. Desoer

E. Brown

“Be Recognized As One of the World’s Most Admired Companies”

VISION

Breakthrough Strategies GOALS

ASSOCIATE

Provider of Choice 92% Customer Satisfaction

Employer of Choice 90% Associate Satisfaction

2nd Draft

CUSTOMER

2.1 Attract and retain a world-class work force S. Alphin

2.2 Define and align Associate roles, measures and rewards to our strategy S. Alphin

2.3 Provide the support and tools Associates need to excel B. Desoer

2.4 Enable Associates to achieve professional growth balanced with personal goals B. Desoer

2.5 Reflect the diversity of the communities and customers we serve in our work force S. Alphin

Hoshin PlanHoshin Strategy

1.1  Provide a world-class customer/client experience through easy access and efficient, error-free service

Six Sigma Change Process

A Common Tollgate ApproachA Common Tollgate ApproachA Common Tollgate ApproachA Common Tollgate Approach

Project Management

Ownership & Commitment

Change Integration

DefineDefine MeasureMeasure AnalyzeAnalyze ImproveImprove ControlControl

Improvement (Current)

Development (New)

• Two approaches to reaching the Six Sigma goal: - Improving existing products and processes- Developing new products and processes

• Different tools and steps, but focus and flow is the same

DFSSDFSS$ $

GB/BBGB/BB

Two Approaches

Master Black Belt

Black Belts

Green Belts

Team MembersQuality Fundamentals/ Kaizen Now

Ch

am

pio

ns

Mentor, trainer, and coach of Black Belts and others in the organization.

Leader of teams implementing the six sigma methodology on projects.

Delivers successful focused projects using the six sigma methodology and tools.

Participates on and supports the project teams, typically in the context of his or her existing responsibilities.

Responsible for supporting the Deployment Strategy within Line of Business/Customer Segment or Golden Thread

DeploymentChampions

Education

• Leadership Commitment, Competence, &

Involvement• Methodology & Tools

• Data Driven• Statistically Validated

• Best People 100% Dedicated to Defect

Reduction • Project Focused

• Aligned to Strategic Goals (Hoshin, MBF)• High ROI Expectations

What Makes Six Sigma Different?

Six Sigma & Leadership

Six Sigma only works when Leadership is passionate about excellence and willing to change. • Fundamentals of Leadership

– Challenge the process– Inspire a shared vision– Enable others to act– Model the way– Encourage the heart

• Six Sigma is a catalyst for leaders

Bank of America Executive Officer team

• Ken Lewis – certified Green Belt

• Jim Hance – certified Green Belt

• Amy Brinkley – certified Green Belt

• Ed Brown – certified Green Belt

• Rich DeMartini – certified Green Belt

• Barbara Desoer – certified Green Belt

• Gene Taylor – certified Green Belt

The Bank of America executive officer team are all certified Green Belts

Executive Commitment

“Sustaining the intensity of our Six Sigma work is critical for Bank of

America to achieve its strategic goals. Six Sigma has enabled us

to generate more than $300MM in first-year productivity

gains for the company. It has also had a significant impact upon

the leadership team with our personal education and certification as

Six Sigma Green Belts. As we look to the future, our leadership charge

is to keep Six Sigma a top priority and use it to produce organic

customer revenue growth.”

Ken Lewis (10/9/02)

Results

Questions?