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A recipe for disaster: Why is the Six-Sigma Management Model Still Praised When It Led to GE's Collapse?

By       Message Dave Lindorff       (Page 1 of 3 pages)     Permalink    (# of views)   4 comments

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By Dave Lindorff

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From army.mil: Army Materiel Command wins 3 Lean Six Sigma Excellence Awards
Even the Pentagon is using Six Sigma corporate management training
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Over a generation ago, engineer Bill Smith, working at Motorola, developed a management system called Six-Sigma, designed to help companies avoid quality problems in their products and business processes. His system caught on and became a catch=word in business schools and in large corporations.

In 1995, Jack Welsh, CEO of GE, made it central to the company's whole management approach. If you wanted to be promoted at that leading Fortune 100 industrial firm, you needed to be certified in Six Sigma. Other companies followed suit and today most large US corporations and many abroad as well as some public organizations (including the US military) claim to adhere to the model, and to promote management personnel based upon their having achieved so-called "black belt" or "green belt" status in understanding its precepts.

Indeed, GE's success in growing rapidly and achieving record profits year after year, made Welsh and Six Sigma (a trademarked term owned by Motorola,, a leading model for top level managers everywhere.

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Jump forward, though, and GE is being called a disaster by analysts. The company famously expanded into banking and services, got caught with its corporate pants down in the Fiscal Crisis that hit in 2007 and is now going through a wrenching divestment and break-up process that has seen its shares fall from a high of $87 in August of 200, when everything was humming, to today's low of $12.88, a level that valued the company at 50% of what it had been worth just a year ago. Last week, in a final indignity, the company, which had been included in the original Dow Industrial Average created back in 1896, was kicked off that widely followed list of Wall Street's largest and most important firms, replaced, in a final indignity, by Walgreens, a pharmacy chain.

Welsh is long gone, and GE has had several CEOs since his long tenure, but Welsh is the one who made the decision to move the company heavily into financial services, de-emphasizing its historical industrial focus -- a move that was central to the company's later troubles. Significantly, in retiring from the company, Welsh noted that his performance as a manager would be judged not by what happened to the company under his watch, but by how it did in the decades after his departure.

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Dave Lindorff is a founding member of the collectively-owned, journalist-run online newspaper www.thiscantbehappening.net. He is a columnist for Counterpunch, is author of several recent books ("This Can't Be Happening! Resisting the (more...)
 

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