Lean Kano Tools for Finance

Six Sigma Black, Green and Yellow Belts are trained to be change agents across the entire scope of a business, not just in selected areas. Yet quality programs, particularly those with manufacturing or engineering roots, sometimes stop at the final frontier - the office door. It is a common criticism of Six Sigma that it is best applied to automated, repetitive or low-value activities and falls apart in the highly fluid, adaptive and complex world of management.

Management is characterised by theorists such as Mintzberg as an adaptive, reactive and almost alchemic process. He defined the core management skills as interpersonal, informational and decisional. Where does this leave room for a rigorous quality system?

The elevation of management into a mysterious art, as opposed to quantifiable science, reached its peak in the bull run of the late Nineties and the cult of the celebrity CEO. So how can we introduce lean thinking to this most fluid of discplines?

Let us start, as all lean thinking must, with the customer – internal and external. One of the best ways of understanding customer satisfaction is the Kano model.

The Kano model of customer satisfaction is one of the best ways of defining what really matters to your customers. For those unfamiliar with this groundbreaking 1980s theory of Professor Noriaki Kano, this divides performance attributes of any product or process into four quadrants. These are the “must-be”, the “delighter”, the “one-dimensional” and the “indifferent”.

• DELIGHTER - Cause happiness when met (surprise and delight) but if they are NOT present, no satisfaction
• MUST-BE - Taken for granted; Cause active dissatisfaction when not met
• ONE-DIMENSIONAL - These cause satisfaction when they are met and dissatisfaction when not met. These attributes stretch along a continuum e.g. leg room on an aircraft, so more is generally better.
• INDIFFERENT - customers do not care about these features.

Over time customer perceptions will evolve,and therefore continuous improvement or kaizen thinking is built into the process. For example, in car manufacturing side-impact bars and passenger airbags were a surprise and delight feature when these technologies were introduced; now they are an essential feature. Touchscreen technology on smartphones was a surprise and delight factor when it was first launched. Now for many it is an essential attribite.

Six Sigma analysis, using the DMAIC, or Define, Measure, Analyze, Improve and Control, methodology, should start by stating the customer CTQ, or critical element that matters to the customer from their perspective. An ambitious program, having achieved consistent stability and accuracy in the correct “must-be” fundamentals, would then work on stretching the continuum in the customer's favor.

The Kano model is a good starting point for analyzing office based functions such as finance simply because the deliverables are complex and multi-faceted, the customer requirements varied and perhaps contradictory, and true customer satisfaction is a mutable and shifting goal.

The Finance function in any company traditionally view themselves as guardians of accuracy, order and ruthless efficiency. Yet in fact, in the words of the McKinsey Quarterly (April 2006), “Waste never sleeps in the finance department – that bastion of efficiency and cost-effectiveness”. Reports may be endlessly re-written for different audiences. Data may be cut and re-cut; forecasts may be inaccurate. Data may often be manually entered and poorly scripted macros can and do break. In the financial analyst community, the focus is often on complexity rather than robust simplicity; an over-engineered VBA-based cash flow model might be viewed as a badge of honour, regardless of whether it actually fits the purpose it is designed for.

So a Six Sigma focus would start with identifying the customers, and the deliverables, of a Finance function.The internal and external customers could be:

1. Senior management and the board, who require accurate sales, production, cash flow, and asset/liability forecasts to make strategic decisions.
2. Line management who make daily production and commercial decisions
3. Investors
4. Auditors

The deliverables in a typical company could be:

1. Accurate forecasting of sales, production and cash flow
2. Costing analysis – use of accurate marginal, ABC or absorption costing to determine the cost-volume-profit equation
3. Timely financial close and accurate financial reporting.

Start with a lean process and project management mind-set and then review the entire work flow. Process analysis is key and the first stage should be flowcharting and Yamazumi analysis. As with all Six Sigma projects, the focus should be on the cause or input (the “X”) that drives the output or result, known as the “Y”s. Introduce a lean 5S approach that ensures an orderly and efficient working environment and clarity of thinking. Even complex projects such as structured finance transactions can benefit from this kind of systematic approach.

Root cause analysis and a“Five Whys” questioning approach can be deployed and fish-bone (Ishikawa) diagrams can be put in place to determine cause and effect. Quite often techniques that are old hat in engineering can be a breath of fresh air in finance or office based areas. So the scope for dramatic and sudden improvement – seizing the “low-hanging fruit” to use that dreadful consultancy cliché – is huge.

(c) D Belize 2010

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