Increasing Firm Value Using Six Sigma
Marjorie Green & Mischa Dick
Six Sigma Systems, Inc.

Increasing the value of the firm typically involves three steps shown in Figure 1. First, executives determine a strategy that will increase the value of the firm. Secondly, they identify a methodology, or infrastructure to best support the strategy. Lastly, the methodology or infrastructure aligns the organizational activities and resources by using the methodology to support the strategy.

To this end a number of strategies can be employed. The common strategies address profitable revenue growth and lowering business cost structure. Examples of strategies address decreasing operating costs, increasing key customer retention, increasing customer value through product enhancement, reducing cycle time of manufacturing or service delivery, leveraging economies of scale, etc. The methodologies to accomplish these goals have been plentiful in the past 30 years. Most recently, we have seen a wave of industry consolidation primarily through mergers & acquisitions to capture the benefits of economies of scale. Financial engineering has reached new levels of sophistication, and the arrival of financial derivatives has brought new opportunities to many organizations and their trading partners. Prior to that, Re-Engineering was used extensively to capture the opportunities with regard to organizational structure and agency costs. Total Quality (TQ) and Cost of Quality (COQ) were implemented throughout the 80ies to address quality related issues. In the end all methodologies focus on increasing firm value.

In the past ten years a fundamental methodology has emerged and rewarded business leaders with measurable results to the bottom line while simultaneously improving organizational culture. The methodology, Six Sigma¹, improves the processes that constitute the business engine. The approach has been so successful that companies like Motorola, AlliedSignal and General Electric have used it to substantially improve stockholder value. It has been recognized at Wall Street as a sound business initiative. Six Sigma eliminates cost and increases value like few other process improvement methodologies have, in part because it forces quantitative measurements on the results of organizational activities. It has been utilized in manufacturing as well as in service and other non-manufacturing environments. It is successful because non-value added expenses often represent up to 50% of an organizations cost structure, thus providing savvy leadership a veritable goldmine of quantifiable opportunity.

¹Six Sigma is a registered trademark of Motorola Inc.

First Published in Asia Pacific Magazine, April 2002.

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