Introducing and Demystifying Lean Six Sigma

Even for those familiar with it, introducing Lean Six Sigma to your organization can mean different things to different people depending on the situation. Sometimes, it indicates a manufacturing technique designed to reduce waste and improve yield. Sometimes it refers to a quality department tool set. Sometimes, it seems like just part of the latest “fix-it” hype, consulting mumbo-jumbo or management flavor of the month type stuff.

Please enjoy this excerpt from Lean Six Sigma for Government: An Introduction for Government Accountants and Auditors – a self study CPE course available at https://yellowbook-cpe.com

If you are reading this publication, we assume that you are looking for some sort of meaning in, with, or through Lean Six Sigma. This text is intended to provide that insight, as well as a foundation for introducing Lean Six Sigma immediately within the accounting function of an organization–specifically, a government accounting organization. If you are a government auditor, you will find this book is full of fancy, impressive names (sometimes exotic-sounding Japanese names!) for things you already do, but it may also add a few techniques to your bag of tricks.

Introducing Lean Six Sigma

At the most basic level, Lean Six Sigma is a way of working and of viewing the world that allows all of us to DO THINGS BETTER. Lean Six Sigma provides a framework, a methodology and a wide array of tools and concepts to help people in large and small organizations alike find the value of, and increase the value of the activities in which they are engaged… and who is not interested in that?

In manufacturing, Lean Six Sigma CAN lead to reduced waste and improved yield. That means a better production process, with less scrap, less need for rework, and therefore a better cost picture. For the quality department it CAN represent a set of tools. These help determine what factors influence quality and how to control for them. To others, especially business managers, it CAN appear to be a “flavor-of-the-week” consulting offering–BUT IT WORKS–to drive process improvement and to make things better (that part of process improvement is increased control–something that often appeals to those skeptical program managers!).

Lean Six Sigma can apply to an assembly line function in a manufacturing environment, to a transactional environment (another way of describing a non-manufacturing environment) where the end product is service, or to a virtual environment where collaboration and knowledge transfer is the goal. As an accountant, you may have contact with all of these functional areas or environments in the course of doing your job!

Much of Lean Six Sigma is just organized common sense–like minimizing activities that waste time and don’t lead to a desired outcome and like trying to do things right as often as possible to have a better overall result. In the course of everyday work, however, we sometimes lose sight of these basics. Deadlines, politics, conflicting priorities, and multiple demands on our time and energy can cause us to merely react and sometimes to deflect, instead of really thinking about what we are doing and how we are doing it…or better yet, to reflect on how we could be doing it better.

As it pertains to making things better, the list of areas where Lean Six Sigma can be applied is endless. Below is a sample of typical accounting-focused jobs or functional areas that can benefit from Lean Six Sigma practice. You may have more to add to this list!

• Auditing
• Budgeting and forecasting
• Cash management
• Credit Analysis
• Contracts management
• Compliance assurance
• Cost accounting
• General ledger accounting
• Financial planning
• Fraud investigations
• Grants management
• Information technology implementation
• Inventory control
• Financial analysis
• Financial reporting
• Performance management
• Program management
• Purchasing
• Risk management
• Strategic planning
• Tax accounting
• Treasury management

Pardon the ad nauseam repetition–we really want you to remember this point. As said before, each of these functions or roles can benefit from Lean Six Sigma because Lean Six Sigma can help us do things better. Breaking it down a little more, Lean Six Sigma in accounting and elsewhere equates to:

• Doing it faster (reducing cycle time)
• Doing it more accurately (minimizing errors and re-dos)
• Doing it to the customers’ satisfaction (meeting customer specs)
• Doing it more cheaply (do more with less)

Lean Six Sigma can help with all of those desires and can lead to any of those benefits. No, it isn’t a cure all, or silver bullet. You will have to work and use your brain… but hey, that’s why they pay you the big bucks, right?

The Accounting Focus

The focus of this book is on Lean Six Sigma within the accounting function, regardless of the type of overall enterprise. You may work in accounting within a manufacturing company like John Deere; within a distribution or retail company like Wal-Mart; within a service business like Mabel’s Plumbing or Al’s Restaurant; or within a small government organization such as a city or school district. You might work within a not-for-profit organization; within an environment with lots of daily transactions like USAA (insurance) or with just a few–think McMansion sales. Whatever your organizational focus and structure, be it government, corporate, private, or non-profit, the accounting function is ripe for introduction of Lean Six Sigma and the benefits it can bring.

When I was in college, an accounting professor at University of Texas (UT) gave a very simple lecture that made a big difference to me. The professor, Dr. Courtland Huber, said that accounting majors had a choice when entering the working world. They could be compliance and transaction-oriented police officers and paper pushers, or they could become part of the management team. He had studied the career paths of accountants over time and noticed a 40% pay differential for those who made the choice to lead and to see a broader picture. “Improvement pushers” triumph over paper pushers–and who doesn’t want more salary!?! Lean Six Sigma is an approach for doing this. Let’s see why…

TOP TEN Factors Making Accountants Ideal Users of Lean Six Sigma:

1. Accountants and auditors see more.

• Accountants often have a bird’s eye view of operations. Other departments may have a more myopic viewpoint–only dealing with their part of the organization and with those that help them achieve their own immediate goals. In comparison, accountants often collect data on a variety of functions and are in a great position to see where change is most needed across a chain or network of operations. Auditors perform risk assessments of the entire organization and often understand its workings better than program managers.
• Accountants may be well positioned to initiate, drive, and implement the needed changes because they can or should be able to see things across business units and across functions.

2. Accountants and auditors have the data.

• A key part of Lean Six Sigma is having the ability to measure. “If you can’t measure it, you can’t improve it,” so the saying goes. Having the data gives the ability to measure and improve something.
• Having the data, or the access to the data, also allows accountants and auditors to measure the improvements in various meaningful ways. While financially, this is ultimately in dollars, operational measures may answer questions like “how fast,” “how long,” and “how many.”
• Before an engineer implementing Lean Six Sigma in a manufacturing operation can declare success, he has to put a dollar figure with his efforts. Where does he get the dollar figure? Accountants may already have the information at their fingertips to calculate a valid return on investment of any Lean Six Sigma improvement process. They can also talk return on investment and money better than anybody else– including the engineers!

3. Accountants are often players in strategic planning … or should be.

• Accountants’ ability to see the big picture allows them to link the results of Lean Six Sigma to results that have meaning for the organization.
• Participants who operate at the strategic level have a better ability to tie operational and tactical improvement projects to corporate goals and to bring in that oh-so-important element of aligning projects to strategy. And although auditors shouldn’t be part of the strategic planning process, they are intimate with it, as they often evaluate the results of the entity against its plans.
• Planning improvement projects (using Lean Six Sigma) should be part of the strategic planning process, in which accountants SHOULD participate.

4. Accountants and auditors naturally value accuracy, timelines, and CONTROL!

• While other departments may need convincing that good controls to create accurate, meaningful results are important, accountants and auditors are already sold! Part of a successful Lean Six Sigma project is having the ability to sustain and control improvements.
• Lean Six Sigma helps to clarify and improve business processes. This leads to more transparency and easier governance–increasingly important these days! A well-documented process makes an auditor’s life dreamy!
• Lean Six Sigma can help you understand when things get “out of whack” and provides tools for correcting systems, processes and procedures to increase compliance and decrease the chance of fraud.
• Programs that have undergone a process improvement project using Lean Six Sigma have thought about controls before the auditor gets there.

5. Accountants and auditors are good at structure.

• Even before SARBOX, accountants and auditors knew how to define clear objectives and tasks and to create policies and procedures to achieve those objectives. The terminology of Lean Six Sigma may be new to many accountants and auditors, but the underlying concepts will be familiar and comfortable for them.
• Lean Six Sigma provides a framework for decision-making that is rational, orderly, and hard to argue with. People who like structure like Lean Six Sigma.

6. Accountants and auditors like the fact that Lean Six Sigma is bottom-line driven.

• Lean Six Sigma projects are often evaluated against whether they contribute to bottom line financial results–and who knows the bottom line better than accountants?
• After you use Lean Six Sigma to improve the bottom line, you can also use it to improve the top line–generating additional revenue through focusing on the Voice of the Customer (VOC) and designing processes that ultimately provide what the customer values. Accountants who cannot only control costs, but can also increase revenue are GODS! (They are paid more too, just like the professor said.) Sometimes they later get to be called “Controller.”
• Auditors sell their own department’s worth (and hence increase staffing and prestige) through quantifying audit recommendations and results.

7. Accountants end up getting involved anyway.

• Probably somewhere along the way, another team within the organization will try to implement Lean Six Sigma and when they do, they will have to involve accounting to get the data they need. How cool would it be to be able to beat these operations managers to the punch with your own Lean Six Sigma analysis of critical organizational processes? This again gets back to my professor’s comments about taking the lead instead of just taking a supporting role.
• Being involved in Lean Six Sigma helps with continuous learning about other areas of the organization. This is a good thing and can help generate good opportunities for advancement as well as for beefing up the resume.
• Government auditors are often expected to have the latest techniques and tools at their disposal–at least they don’t want to be caught by surprise when an innovative program manager implements Lean Six Sigma.

8. Accountants and auditors will appreciate the holistic approach.

• Because accountants and auditors are so aware of all the players in the organization and how each impacts the others, accountants will appreciate how Lean Six Sigma does its best to avoid turfs or silos when diagnosing and resolving problems. Accountants appreciate that Lean Six Sigma will integrate people, process, and technology.
• Lean Six Sigma is a good approach for bringing cross-functional teams together to support a holistic approach. Often some of the greatest good comes from just getting people out of their silos for a while.

9. Accountants and auditors are increasingly held to non-financial performance metrics.

• Are you under pressure to create more timely data or more accurate data or to shorten cycle time? Is the department concerned with reducing costs and maintaining a knowledgeable workforce? No matter what the organization expects of you and your department, Lean Six Sigma can help you do what you are doing more efficiently and more effectively.
• By clarifying processes and discerning what is ultimately important to the customer, Lean Six Sigma pushes people to choose metrics that are relevant to the government and its citizens–not just the metrics that are easy to produce (but don’t help anybody to improve anything).

10. Accountants and auditors sometimes need an image makeover.

• By bringing Lean Six Sigma techniques into your organization, you can demonstrate your ability to think in an innovative, bigger way. Would you prefer to stick with what you know making a smaller salary, or are you willing to involve yourself in issues of a broader significance to the organization?
• Have you ever taken the Myers-Briggs test for personality type? I have been through a lot of those trainings, and invariably there is an example that says people in accounting and auditing are “introverts” (or maybe I am just sensitive to that). In our society, being an introvert has a negative connotation. I find that what we usually call “introvert” is more like “relatively risk averse”. Lean Six Sigma doesn’t change personality types, but it can help people who are more careful in their decision making to meaningful changes with diminished risk. This is possible because there is a methodology and a system that makes sense.
• Lean Six Sigma gives people a platform to do things and to stand out. Sometimes you need a vehicle to use in order to bring attention to yourself. Accountants and auditors ROCK!

Lean Six Sigma at Work

As an accountant and auditor, it seems clear that Lean Six Sigma should appeal to you at some level. Remember, the core of Lean Six Sigma is about doing things better. In Lean Six Sigma-speak, we call this “identifying and increasing value.” (As an aside, a friend who was reviewing this text told me that instead of “value” I should put “money” because Lean Six Sigma is used to improve the bottom line. He was right on one point–Lean Six Sigma is undertaken in business to improve the bottom line; however, the value we refer to above is more like “benefit”–a more broadly defined “value” that includes more than just monetary wealth. In government, value is often defined as service to our constituents. We will see how value within Lean Six Sigma is determined a bit later on.)

Throughout the rest of this chapter are some examples of how Lean Six Sigma methodology works in real organizations and business situations. This should give you a flavor for how it might work in your organization!

A University’s Experience

During the 1990’s, many rural and small town universities in Texas were absorbed by either Texas A&M or the University of Texas. The Texas legislature wanted more consistent control over these smaller universities and the smaller universities wanted to share in the wealth of the two largest universities in the state. So, Pan Am University became University of Texas at Brownsville, for example. As you can imagine, the usurped universities experienced a bit of a culture shock.

One small rural university called me after they had been audited by the University of Texas internal audit shop. The University of Texas auditors criticized the rural university’s accounting and purchasing department for having weak internal controls. The lead compliance officer at the rural university asked me to help her explain to her accounting managers and staff what ”internal control” meant. They were wounded from being so strongly criticized, but they had no idea what to do in response.

After explaining that internal controls are simply steps you take to make sure you achieve your goals, we talked about what their department was trying to achieve.

As part of that seminar, we created several flowcharts–one for each arm of the accounting and purchasing department–showing what happened when one of the departments made a routine purchase. We used athletics as our example. Each accounting and purchasing department worked for a few minutes to post a flowchart on the wall using post-it-notes.

After everyone had a chance to look over the Post-It-Note flowcharts, I reviewed what was on the wall, asking the managers and staff to identify any redundancies. Comments such as “I didn’t know you did that–I do that, too!” and, “Why are we doing that?” flew! Just the visual presentation of the process made a difference.

The most meaningful conversation started when one of the ladies commented on one of the flowcharted activities, “That little process works every day but Friday!” She was referring to the trip approval and cash advance process. Each person in the room knew that you threw the whole process away on Friday because various groups–like the football team and the band–waited until the students were loaded on the bus to process the paperwork necessary to start the trip.

Even though accounting had repeatedly asked the athletic and band directors to plan ahead, they consistently failed to do so. One of the accounting clerks–who wore very high-heeled shoes, by the way, because she was under five feet tall–walked the transaction all over campus. Everyone teased her about her tennis shoes–and resulting reduced stature–on Fridays. In addition to creating more manual effort, all controls were scrapped and the accounting department wasted major portions of their day doing the wrong thing.

“Ahs…” flowed abundantly around the room. The need for controls had hit home. Through creating and analyzing processes using a flow chart, the group had a technique for diagnosing their issues and for resolving them. Previously they had just done what needed to be done in the moment–“BAU” or the Business As Usual syndrome–and had gotten in the habit of doing the wrong thing. By using a Lean Six Sigma tool (the flow chart), they were able to make improvements and gain greater internal control.

Why Is It Called “Lean Six Sigma”?

Lean Six Sigma is a combination of two separate disciplines or bodies of knowledge originally associated with quality improvement and manufacturing. Those two disciplines are Lean and Six Sigma (who would have guessed?). Today, both separately and combined, Lean and Six Sigma are viewed more broadly as systems of business process management and improvement, in addition to still being used and regarded as quality systems.

We address Lean Six Sigma here as a holistic topic–the synthesis of the two previously named systems. Lean Six Sigma is a breakthrough business methodology used to drive change within an organization. That’s our definition! We believe the two approaches to be better together than apart because of the complementary parts of each, especially in business process improvement. As such, Lean Six Sigma has evolved as a newer, better mousetrap–good news for those in the consulting business as well as for those seeking a new approach to driving business improvement and excellence!

To backtrack a little, though–if you are really into knowing why Lean is “Lean” and “Six Sigma” sounds like something out of an engineering textbook or a sci-fi movie, here’s the reason. “Lean” signifies a streamlined process–where there’s not a lot of excess… like “lean and mean.” “Lean” is already a word that is within most native English speakers’ vocabularies, so it is fairly easy to get an intuitive sense of the concept. “Six Sigma,” on the other hand, is a term with its origin in statistics–not highly intuitive for a lot of us.

Sigma is the Greek letter representing standard deviation of a process around its mean or average. The standard deviation shows how much variation there is in the process. (In the world of business process improvement, the goal is to reduce variation. Variation = defects = waste = bad!) In a process with a normal distribution (sorry–another statistics term), 99.73% of the measurements are within +/- three sigma. To you and me, this means that the result of what you are doing or measuring is only defective (not what you intended or “bad”) about 3 times out of 1000. For some accounting processes, this is already very good!

“Six Sigma” refers to a process that is essentially defect-free. From a strictly technical standpoint, it means that you will have a mistake or a defect only 3.4 times out of one million… just about as close to perfection as you can get. However, for our purposes, “Six Sigma” is used more generically to refer to a methodology for reducing errors and improving the chance of getting the intended results.

Lean Six Sigma as a whole is the drive for improvement and ultimately, for perfection. Lean was started by Toyota in the 1950’s and Six Sigma was started by Motorola in the late 1980’s, both building upon ideas about “how to do things better” that have been around for a long time.

What does Lean Six Sigma do?

You can find Lean Six Sigma under many subject headings. I was using the university library catalog the other day and found Lean Six Sigma books and articles listed under Operations Management, General Management, Business Planning, Strategic Planning, Manufacturing, Services, Product Design, Quality Control, and Self Help! From this list, you get the idea that Lean Six Sigma has wide applications and uses, and might even be able to produce miracles–but I was unable to find any reference to it under Religion…yet!

To keep things simple, let’s remember the definition of Lean Six Sigma as a breakthrough business methodology used to drive change within an organization. (It may go without saying, but we will say it anyway; the assumption throughout this publication is that we want to drive for POSITIVE change–i.e., improvement.)

So… to answer the question in the heading, Lean Six Sigma drives change. This change usually starts at the level of discrete improvements in how work gets done (individual projects for making things better). It also works at the macro level when it is used for long-term change in an intentional way. Lean Six Sigma creates change within the heart of an organization–it can change the culture of the business and how things are done, from the top down.

Is it really “breakthrough?”

The term “breakthrough” is linked to the idea of change–change in terms of singular improvements and change in terms of organizational culture or philosophy. Lean Six Sigma can be used to drive incremental change in the everyday way you do your job by focusing on specific areas that need to get better. It can also be used to drive far-reaching fundamental change in the way an organization views its responsibilities to customers, its employees, and all stakeholders.

Driving breakthrough change is not usually an easy decision. As you all know, it is usually easier to “stay the course.” The need for breakthrough change (and corresponding organizational and cultural change) happens when there is a burning platform.

Motivation via a burning platform

Change is difficult to implement in any organization and most are reluctant to embrace new ideas. You have all seen management fads come and go… mostly go. Change is more likely to stick when everyone in the organization recognizes that they are in so much pain or are threatened with so much pain, that they must act… now!

I first heard the term “burning platform” during a presentation by a Caterpillar VP, who explained how Caterpillar had transformed itself by embracing Six Sigma (this was pre-Lean Six Sigma era) because it had “a burning platform.” In order for the business to survive at the time, it needed to take radical, breakthrough action to change the way it did things, and to improve. The reported result of the corporate-wide initiative was a doubling in CAT stock price over a three-year period.

The term “burning platform” supposedly came from a very unfortunate individual who was working on an oil platform, and had to make the radical decision to jump 150 feet down into the sea in order to survive a platform fire. He did survive. Thus, people refer to the burning platform as something that will force change and drastic action, even in the face of great resistance under normal circumstances.

Is Your Platform Burning? – A Starting Point for Introducing Lean Six Sigma to Improve a Process

How well is your operation running? Do your processes run smoothly with minimal error or are you just lucky that anything gets done? Can you even define what your processes are? Can you measure them?

In auditing, the concept of the control maturity model is often used to evaluate an organization or a department’s internal controls. Using Lean Six Sigma, you can evaluate the internal control process and whether the system or process that we have in place is consistently producing desired outputs or results.

Note that the words system and process are used interchangeably: to be more correct, a system is defined as a set of processes. For example, you may have an accounts receivable process, a cash flow process, a general ledger process and a couple of other processes that make up your accounting system.

A process is “a series of interdependent steps through which some end is attained.” (Definition courtesy of the on-line Random House Dictionary.) Lean Six Sigma works by focusing on improving a process to get a better result or outcome. That is why anyone doing work where there is a beginning (input), an activity, and a result can benefit from Lean Six Sigma. Virtually anything can be improved.

Now let’s get back to looking at process and systems in the context of internal controls–the weaker the control (or the poorer the control process), the more the need or usefulness of Lean Six Sigma.

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Leita Hart-Fanta, CPA

Resides in Austin, Texas and can be reached at leita@yellowbook-cpe.com.
512-996-8588
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