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The Six Sigma Way

A Look at Six Sigma for the


corporate team

1
Who am I?
Dick Kelbaugh; President Route Six Sigma, LLC
 BS INDM Purdue 1965
 MBA Roosevelt University 1974
 US Navy 1965 – 1975: Surface Warfare Officer
 GE Appliances 1977 – 2001
 Manufacturing Engineer
 Manager Range Fabrication
 Coordinator GEA Quality Circles
 Continuous Process Improvement; Process Mapping; Workout
 Certified Master Black Belt
 Six Sigma Training Manager
 Bloomington IN Plant Six Sigma Start up
 Senior Member of ASQ & Certified Quality Engineer
 Board of Directors AQP; Region Director Ohio; Indiana; Michigan and
Kentucky; Chairman, ASQ Louisville Section

Copyright Route Six Sigma, LLC 2003


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Would you roll the dice on your
Business Success?
Because processes and
their outputs vary,
running your business
without a means for
understanding that
variation and controlling
it is like playing the craps
tables at Caesers’.

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Can we win by rolling the dice?

What about the probability that the next roll is a 7?

Probability is 16.7% or odds of 1:6. You only win 4:1 if 7 comes up.

Gamblers will tell you that if you are going to play the
game, you need to first learn the probabilities.
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How Does Rolling the Dice Vary?
7
Chance of rolling “snake eyes”
is pretty small.
6
Rolling a “seven” is pretty high.
5 In fact, with “fair” dice, we can
actually predict that a roll of
4
“seven” will take place about
3 16% (1/6) of the time. An
“eleven” will only be rolled
2 about 5.5% (1/18) of the time.
1 Knowing the probabilities of
rolling a particular number in
0 craps is important to managing
2 3 4 5 6 7 8 9 10 11 12 the bet.
Likewise, effective use of data in business decision making
helps understand how the business process is performing 5
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Winning Corporate Models
include Six Sigma
 Motorola – The “Father” Corporation of Six Sigma
 Business future in jeopardy in early 1980’s.
 $14 Billion in savings booked since 1987
 Kodak - $85 Million savings by early 2000
 Honeywell – 6% Productivity improvement and record profit margins
 Allied Signal Teams reduced Aircraft Engine design to Certification time
from 42 months to 33 months
 $600 Million Annual Savings in 1999
 GE – Making the difference for the “Most Admired Company”
 $200 Million Investment in 1996 training GE people yields $170M in
savings
 6000 projects “At the Customer, For the Customer” in 2001; 18,000 target
for 2002
 Appliances focus on OTD span reduction has yielded a 70% reduction
 Others include Bombardier; DuPont; Dow Chemical; Federal Express
and American Express
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Six Sigma as a Corporate
Strategy
 Slightly less than ½ of American companies use Six Sigma.
 About ½ of the Six Sigma using companies are manufacturing.
About 40% consider themselves Service companies.
 Slightly over 50% of the Six Sigma using companies employ less
than 5,000 people. About 33% have fewer than 1000
employees.
 Only 25% use Six Sigma as the primary Quality Management
System. 84% use it to improve performance.
 Approximately 22% of the respondents using Six Sigma were
from outside the USA

* Data from survey conducted globally by DynCorp through Benchnet.com to their global
customers. 492 responses from over 170 companies of every size.

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Does the strategy work?
Benefit to cost ratio

Benefit to cost Ratio


2.5
2.0
1.5
1.0
0.5
0.0

00 00 00 00 00 00 00 00 ne
,0 0 ,0 0 ,0 0,0 ,0 0 ,0 5,0 0,0 No
0 0
00 00 50 25 10 -$
5
-$
2 1
1, $1, -$ -$ -$ -$
$ - 0 0 0 0 1
>
0 00 00 00
0 00 00 $
00 0, 0, 0, 2 5, 1 0,
, 5 0 5 $ $
00 $2 $1 $
$5
Amount Spent on Six Sigma

 About 77% of surveyed companies measure cost savings and/or profit


increases.
 Six Sigma is used more often for Cost Savings than Profit Increase.
 Benefit claim rate is nearly double the cost for businesses investing over
$100,000.
 Respondents not using Six Sigma as a program use many Six Sigma
Tools, either as stand alone tools or as part of another QMS.

* Data from survey conducted By DynCorp globally through


Copyright Route Six Sigma, LLC 2003 Benchnet.com to their global customers. 8
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Reduced Cost of Poor Quality is
the Bottom Line Effect
Quality Cost (% Gross Sales)

60%

50%
% Gross Sales

40%

30%

20%

10%

0%
2 3 4 5 6
Sigm a Level

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Agenda
 What is Six Sigma?

 Why Do It?

 What makes Six Sigma different from other quality


improvement programs?

 What have we learned about doing Six Sigma?

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What Is Six Sigma?

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What is Six Sigma

“Six Sigma is a business system for achieving and


sustaining success through customer focus, Process
Management and Improvement, and the wise use of
facts and data.”
The Six Sigma Way; Peter S Pande; Robert P Neuman;
Roland R Cavanaugh; McGraw Hill

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What is Six Sigma
 A business strategy
 A philosophical approach to business
 That focuses on improving critical features of
business products and service to near zero
defects.
 That uses a structured problem solving
methodology with data as an integral part of the
process.
 That focuses improvement on customer defined
needs.
 That recognizes a link between bottom line
results and customer focused improvements.
 A measure of process quality
 A roadmap for business improvement

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What is Six Sigma
 A Business Strategy
 Driven from top business
leadership
 Long term / Short Term Plan
 Broad corporate application
 Bottom Line focused
 Competitive environment focused
 Measured

“Quality . . . is the next opportunity for our


Company to set itself apart from its competitors . . .
Jack Welch, CEO, GE 1995

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What is Six Sigma
 A strategic approach to business that focuses on
improving critical features of business products and
service to near “zero defects”.
 Instantaneous process quality measurement (1.25 per billion)
 3.4 defects per million opportunities (long term
 3 sigma is equivalent to one defect in 15 pages of text. Six
Sigma would be equivalent to one defect in 300,000 pages.

Excellent
Poor Process Process
Capability Capability
Very High Very High Very Low Very Low
Probability Probability Probability Probability
of Defects of Defects of Defects of Defects

LSL USL LSL USL

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99%- Personal Excellence;
Corporate Failure
 99% on a test is a sure fire winner.
 99th percentile is considered world class in most
everything we do.
 But 99% means
• 3,000 misdeliveries for every 300,000 letters delivered
• 1.7 million pieces of first class mail lost each day.
 No electricity, water, or heat for about 15 minutes each
day.
• At least 200,000 wrong drug prescriptions would be given
out each year.
• Out of every 100 takeoffs and/or landings there would be
one failure.
Could you live comfortably in an environment
where satisfaction rate was only 99%?
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Six Sigma: A Goal

30.85% 1 691,500
69.15% 2 308,537
93.32% 3 66,807
99.38% 4 6,210
99.977% 5 233
99.99966% 6 3.4
* Defects per million opportunities

Defect levels decrease exponentially as process


capability, measured in values of sigma, increases
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Six Sigma Example -- GOLF
Y = Par Golf Game
Defect = Three putts or greater on any hole
1 Round = 18 holes
Two sigma 3 -putt < 6 holes each round

Three sigma 3 -putt ~1 hole per round

Four sigma 3-putt 1 hole every 9 rounds

Five sigma 3 -putt 1 hole every 240 rounds

Six sigma 3 -putt once every 16,400 rounds


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What is Six Sigma
 A flexible system of gaining, and sustaining,
business improvement that uses structured
problem solving processes with data.
 What data or information do we really need?

 How do we use that data or information to maximize


the bottom line benefit?

 How do we structure our problem solving to enable


us to find proactive opportunities for process
improvement.

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What is Six Sigma
 An philosophical approach to business that focuses on
customer defined needs.
 Let the “Voice of the Customer” define what “quality” is.
 Customers generally feel variation in process output as well as
average.
 Focus on who pays the bills and what will delight them.
 Being “good” doesn’t bring loyalty.
 Customer requirements change.

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What is Six Sigma
 A roadmap for business improvement
 Focus on key business processes and key customers
 Define customer driven “Critical to Quality” elements
 Measure current performance against customer
ROUTE
requirements.
 Analyze process to determine critical inputs and controls
which most influence the quality of the output.
 Determine how to improve the process output by
changing the critical inputs
 Implement improvements and define a system for
sustaining the process at a new level.
 Seek opportunities for extending the six sigma lessons
learned to other processes

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The Link Between Six Sigma and
Lean Manufacturing
 Lean manufacturing focuses on reducing
the time from customer order to
delivery.
 It does this by elimination of non-value
added waste in the production stream.
 Reduction of cycle time and removal of
waste and non-value added operations
are not primarily associated with the Six
Sigma process, rather defect reduction is
the focus.
 In the commercial Six Sigma project, a
common project goal includes cycle time
reduction, or cycle time variation
reduction.
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An Integrated Approach Is Best
The prime differences in Lean and Six Sigma include focus and tool
complexity.
 Focus
 Lean Manufacturing focuses on process cycle time or process
throughput efficiency.
 Six Sigma focuses on the interrelationship between process inputs
and the process output.
 Six Sigma projects commonly focus on improving process output quality.
 Six Sigma projects can include projects with a process cycle time or throughput
efficiency.
 Tool Complexity
 Lean Manufacturing commonly uses team problem solving and
process logic to identify possible solutions.
 Six Sigma commonly uses data and data analysis methodologies to
prove system interrelationships.

The Six Sigma approach taught by Route Six Sigma is an


integrated approach using Lean and Six Sigma methods
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for process improvement. 25
Cycle Efficiency Improvement
Benefits
 Increasing process cycle efficiency from 5 – 25% will allow
reduction of overhead and quality cost by 20%.
 Benefits of high process cycle efficiency include reduced
WIP, ease of identifying defects, reduced labor, associated
with the non-value added activities.
 Other benefits may include reduction in space committed to
process, reduced inventory, reduced touches and reduced
distances.
 Focus on the 20% of the process steps responsible for 80%
of the cycle time delays (Pareto Principle).
 Use Process Mapping and Six Sigma methods for understanding and
eliminating these delays.
 Seek out the time traps, the points where non-value added steps are
involved or the process is in a delay status.
 Project Y is Cycle Time

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The Six Sigma Change
 Six Sigma uses a mix of familiar and new improvement
methods
 Six Sigma is flexible to adapt to the organization culture if
the organization culture is flexible enough to adapt to Six
Sigma
 Six Sigma focuses on three internal targets
 Lowering cost
 Increasing Productivity
 Increased Profitability
 Six Sigma must impact the needs and wants of the loyal
customer.

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Why Six Sigma?

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Why do Six Sigma?
 Improved process understanding
 Competitive process output quality
 Customer satisfaction
 Productivity
 Profitability

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Why do Six Sigma?
Inputs (X) Outputs (Y)

Process

Y  f (x)
 Improved process understanding
 Shifts focal point for control of process from process output to
process inputs.
 Helps develop clearer definition of customer related outputs.
 The process is the key vehicle for business success.
 Develops definitive relationships between inputs and outputs.

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Understanding the process
 If all we ever look at is
the output, we miss Inputs Outputs
gaining the knowledge
needed to permanently Products,
change the output. services or
 If we are going to tasks
improve the output, we Process
must first understand Inputs, together
the process. with effort to
achieve the
 Deming called it desired output
“profound knowledge”.
 To gain that knowledge,
we need to be able to
measure the process and Inputs include materials, method,
know how to interpret machinery, manpower, policies and the
the measurements. environment.

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The Process Approach of Six Sigma

Y= F(x)
Output Input

Effect Cause

Dependent Independent

Capability Variation

Focus on understanding the input rather than just the output


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Process Outputs are a Function
of Inputs
 Mean Stack Ups Inputs (X) Outputs (Y)

 Variation Stack Ups Process

 Transfer Function
Y  f (x)
Gas Mileage = f(speed;idle time;engine tune,…)

While not basic statistical practices these are well


within the grasp of even the non - technical graduate
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Why do Six Sigma?
 Set the competitive benchmark for your
business.
 What are the features you offer that if done at world class
levels will differentiate you from your competitors?
 This isn’t a single performance, just as winning the
Kentucky Derby Winner doesn’t guarantee long term horse
racing prominence.
 Customer needs and expectations are dynamic.
 Secretariat will be remembered in the racing business as
much for the colts he sired as for winning the Triple
Crown.

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Why do Six Sigma?
 Customer Satisfaction
 Businesses are measured by customers everyday.
 Customer Satisfaction comes through sensing the
significant improvement in, or excellence of, those features
the customer explicitly considers prior to selecting your
product or service.
 Focusing on Critical to Customer process characteristics is
the only way to manage customer satisfaction.
 You likely cannot improve customer satisfaction through
reactive problem correction.

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The Customer View Defines
Outside-In Thinking

We understand and view the internal process


but
The customer understands the product or service as it satisfies their need
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Why Do Six Sigma?
 Productivity
 As you move from reactive quality assurance to
proactive process management, there are significant
reductions in demand for inspection, rework and
product over production.

 In service businesses; cycle time reductions and


reduced touch time are prime contributors to
improved business productivity.

 In GE Appliances, productivity gains have been critical


to maintaining profitability in an appliance marketplace
where prices have been flat to falling over the past
decade.

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Why Do Six Sigma?
 Profitability
 Properly planned and implemented, Six Sigma benefits
will improve bottom line results in both the short term
and long term.
 Short term benefits are realized through cost reductions.
 At 3 Sigma quality levels, quality costs often run in the
range of 25 - 30% of Sales Revenue.
 At 6 Sigma quality levels, experience shows that this cost
can be expected to decrease to about 5%.
 GE’s experience has been that the cost of doing 6 Sigma
is free, because the bottom line benefits exceed the
implementation and training costs.
 In every year since 1996 (Six Sigma’s first year), GE Six
Sigma related cost reductions have outpaced Six Sigma
related costs.
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What Makes Six Sigma Different
From Other Programs?

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What Makes Six Sigma Different From
Other Quality Improvement Programs

 Focus
 Active Corporate Leadership and Participation
 Visibility
 Investment in Resources
 Technical Skills
 Communications / Expectations
 Customer Focus
 Bottom Line Contribution

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What Makes Six Sigma Different
 Focus
 Specific Project scope versus default business wide application

 Customer Needs
 Specific and Measurable

 Bottom Line Contribution


 Specific and Measurable

Let “Customer Needs” drive.


Do what makes the best sense for the business.
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What Makes Six Sigma Different
 Active Executive Leadership and Participation
 Active involvement in establishing and achieving goals
 Bob Galvin – Motorola
 Jack Welch – GE
 Championing
 Cheerleading
 Clearing Barriers
 Personal Commitment
 To Learn
 To Demand
 To Reward

Experience shows that this is the hardest part,


and the most important to success.
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What Makes Six Sigma Different
 Visibility
 Executive engagement in Project Reviews

 Executive recognition of Associate Achievement

 Executive leadership and championing

Visibility is where the rubber meets the road


between the executive office and the trenches.

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What Makes Six Sigma Different
 Investment in Resources
 Training in Skills
 Methodology
 Project Management
 People
 Infrastructure / Systems

This is the bottom line challenge. Balance the benefits


of doing Six Sigma with the cost of doing Six Sigma.
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What Makes Six Sigma Different
 Communications
 Targeted to include all associates at the needed level of
understanding
 Repeated
 Energized
 Expectations
 Success must be defined in measurable terms and included in the
business performance measures.

Communications and Expectations will be the


fuel to keep the culture moving.

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Implementing Six Sigma

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Where Do We Start?

 What should we be working on?


 Scrap and Rework in general?
 Inefficiency in General
 Return?
 Dissatisfied Customers

 Start at the heart of your business and focus externally.


 What is your core business process?
 Who are your key customers?
 What do you want to accomplish with Six Sigma?

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What Is Your Core Process?
 What are the major activities through which we provide
value to our customers?

 How would we describe or name this process?

 What are the primary outputs of this process? What


product or service do we deliver?

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Who Are Your Key Customers?
 Key Customers are those whose needs must be met for
this product / service to be successful.

 For our core process, who are the Key Customers?


 External Customers – Customers from outside the business
 Internal Customers – Customers within the business
process

 Which external customers will drive business achievement?

Are all customers equally important?


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Identifying Cost Drivers
 Process
 Rework Operation Yield
 Scrap End of Line
 Inefficiency Rolled Throughput

Output
Returns
Service Data and
Field Repairs
Customer Feedback
Dissatisfied Customers
Lost Customers

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Don’t Over Evaluate Here!!
 Quantifying costs for all problems in your business may be
huge. Use estimates.

 Knowing how much you’ll save will only be a guess until


someone actually starts analyzing the problem.

 External Impact is hard to quantify.

 You won’t be able to work on everything, and the choice of


improvement projects will significantly impact early success
and financial benefit of the initiative.

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What Do You Want to
Accomplish With Six Sigma?
 Problem Solving – Fix problems currently affecting the
business and business customer relationships.

 Strategic Business Improvement – Look for opportunities


within the business where application of Six Sigma can
significantly change business results.

 Business Transformation – Change the business approach


to one that embraces use of data based decision making.

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Expectations for a Successful
Launch
 There is a strong business case for Six Sigma.
 Active leadership participation in implementation
 Leadership vision for Six Sigma and a realistic marketing
plan.
 The business leader is the most powerful advocate of the
process.
 Establish clear, measurable objectives and hold people
accountable for meeting those objectives
 Demand solid, bottom line results.
 Communicate results internally and externally

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There Is a Strong Business Case
for Six Sigma
 Would you invest in Humve’s for your entire staff just
because the Wall Street Journal had an article about
how they are the hot new SUV type car?
 Any decision to invest in a new process, such as Six
Sigma needs to be driven by expected corporate
benefits that most everyone can understand.
 In a tight business market, quality of our goods
and services can be a marketplace differentiator.
 In a cost / price based market, cost reduction is
the next step in increasing margin.
 In a fully utilized factory, increased yield is
needed to maintain output without additional
investment.

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Active Participation by Leader
 The business leader must own Six Sigma.
 He / She has to sell it.
 He / She has to defend it
 He /She will need to be able to modify the plan as times change
 It’s their business
 Clearly, at GE, Six Sigma was Jack Welch’s program.
 Jack delegated authority to run the program to his various
businesses, but business measure accountability for results
linked the businesses to Jack’s plan.
 At ViaSystems, Tim Conlon has committed the corporation
to making this philosophical change in the way of doing
business.

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Establish Clear, Measurable Objectives
and Hold People Accountable

 Measurements of success and performance


screens make expectations clear throughout the
organization and reinforce the culture change.
 At GE, Six Sigma performance is on every
exempt annual review.
 Six Sigma projects have a goal of 90% defect
reduction.
 Every trained GB is expected to deliver two
projects annually.
 Business Leaders and Executives have Six Sigma
results and benefits goals included on annual
variable compensation screens.

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What information is
on the Focus wall of your
corporate war room?

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The Leader Is the Advocate
My job is to find great ideas,
exaggerate them, and spread them like hell
around the business with the speed of light.
Jack Welch

• Jack was the top advocate of Six Sigma at GE.


We felt it every day.
• Over 3400 GE Appliances people trained in Six Sigma over five
years.
• 100% of GE Exempt trained in that period.
• Over 2000 people certified in Six Sigma Tools.
• Six Sigma Savings became part of the standard operational
measurements for cost and productivity.
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Vision and Marketing Plan
 “6 Sigma by 2000” was the GE theme in 1995.
 By 1999, it had changed to “Helping Customers feel the
impact of Six Sigma Quality”
 A vision or “sound bite” about “what the program is”, is
vital to effective communication.
 Not only is the vision important, but having a plan for
marketing it to the company also enables change.
 At the front end of any program, you are in a “sell” scenario.
 A good sell strategy is to make the plan appealing to the team, and
challenging to energize change.
 The marketing plan must be realistic and not seen as sloganeering.

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This Is Just the Beginning
 Improving business processes is an ongoing part of doing
business.
 Sometimes process redesign is the most appropriate
method for improving outputs.
 The driver for significant business change can only be the
business leader.
 The results of business change can be significant if you
define the right focus for change.
 Customer needs are continuously changing and customer
expectations for what they buy are continuously becoming
more demanding.

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