Margaret Townsend explains the application of the Six Sigma Quality initiative at GE.

It is likely that you have already read about GE's philosophy of using the Six Sigma Quality initiative to meet customer needs: Six Sigma is not a special purpose tool, but rather simply the way we work.

At Employers Reinsurance Corp, a GE business, we are serious about making Six Sigma a core part of our business culture. That means we inject the quality tools and processes into our language and into everything we do.

Key concepts
Six Sigma is a quality program that uses a disciplined methodology of defining, measuring, analysing, improving and controlling the quality in every one of the company's products, processes and transactions. The ultimate goal is to virtually eliminate all defects.

In 1984, Motorola launched a Six Sigma approach that included four steps: measure, analyse, improve and control. The benefits resulting from the statistically-based rigour were immediately demonstrated and shortly after, Six Sigma was developed into a business strategy. In 1995, GE added `define' to the process and launched Six Sigma throughout its diverse businesses. After initial success in the more traditional manufacturing applications, GE further developed the Six Sigma methodology to improve transactional processes and predict design performance.

Today, Six Sigma has changed the DNA of GE so that it is now the way we work in everything we do and in every product we design. Focused on real business impact, Six Sigma provides incremental financial results, $3.4bn in 2001 alone, through improved processes, dedication to customer expectations, and enhanced employee satisfaction.

So how does Six Sigma drive process improvement? Let's use the Post Office as an example. Management and employee experience may keep a branch office performing 99% defect-free, with a defect being defined as any result not meeting customer expectations. The initial impression may be that this sounds reasonable, but it typically represents the loss or misdirection of 20,000 pieces of mail per hour, and corresponds to a quality level of only 3.8 sigma. Application of Six Sigma methodology to define the customer needs, measure the variation in results, analyse the handling process to identify the causes of variation and improve the processes can, in repeated cycles of improvement, affect true Six Sigma performance. This would represent a 99.99966% defect-free process or only seven pieces of lost or misdirected mail per hour.

At GE ERC, Six Sigma allows us to drill down into our areas of pain to identify issues, measure process capability and implement improved processes to meet customers' needs.

Applying it to reinsurance
At GE ERC, we are consistently asked one key question by people who have read about Six Sigma but have not experienced it with the same intensity that GE expects: `I understand Six Sigma applies to manufacturing process improvement, but how does it apply to our business when we deal with processes, not parts?'

The key to applying Six Sigma to the reinsurance industry is to understand that Six Sigma is rooted in the definition of a defect from the customers' perspective and not in the product itself. With this concept firmly ingrained, we can apply Six Sigma to transactional processes as readily as manufacturing processes. Where a manufacturing business may measure part variation, GE ERC measures how effectively we adhere to our underwriting guidelines, how quickly we respond to a request for a quotation, or how effectively we pay claims.

We have divided our Six Sigma approach at GE ERC into three key initiatives: `At the Customer for the Customer'; `Customer Repeatable Processes'; and `Design for Six Sigma'. To better understand how Six Sigma applies to the reinsurance industry, we have outlined these initiatives, highlighting projects that demonstrate the impact to our customers and processes.

Six Sigma has natural application in the reinsurance business and offering Six Sigma support directly to our customers is a natural extension. After all, we have a unique advantage at GE ERC in that our customers' business processes are very similar to our own.

This is why GE ERC's `At the Customer for the Customer' (ACFC) initiative makes great business sense. ACFC is a growing company-wide initiative that takes Six Sigma to our customers by working on joint Six Sigma projects. The goal is to bring the entire GE toolkit to customers, helping them realise greater efficiency and positively impacting their bottom line by working with them to solve issues that they have identified as critical to their businesses.

On a company-wide basis, as part of its ACFC program, GE has dispersed more than 200 of its highly-trained Six Sigma employees to the offices of select customers to help them identify projects. To date, more than 6,000 projects have been completed since the program started in 1998.

As part of its ACFC initiative, GE ERC's quality team launched the program with an initial group of strategic customers, including Marsh Inc.

Managing director and chief quality officer Lloyd Reid, who heads Marsh Excellence, Marsh's quality discipline, said he saw it as an excellent opportunity for Marsh to form a close relationship with ERC. "I was very impressed with the rigorous analysis and mathematical quantitative formulas used to document and determine root causes of our defects. I've sat in far too many meetings where anecdotes caused the decision, and it's powerful to have methodology where we can base decisions on indisputable facts and figures."

Marsh is currently in the final part of the analysis stage of its project to improve its process of matching incoming premium checks to the correct invoice.

In analysing this process, Marsh realised incoming cash was mismatched at a rate of 30%, causing a high degree of manual labour to correct the defect. By applying Six Sigma, Marsh is identifying the defects to improve the process and increase customer satisfaction, productivity and ultimately the bottom line. Mr Reid commented, "It is very exciting to have reached this point in this project. I'm delighted to see facts replacing suppositions."

Although Marsh is still awaiting the final outcome of this project, Mr Reid said that as a result of the approach taken in this initiative by the ERC team, it may be recommending additional future projects.

Another key focus of GE ERC's quality team is on `Customer Repeatable Processes'. Consistency of behaviour is a key element in process performance. The more predictable we are in our process output, the more confident customers are in the accuracy and timeliness of their critical interactions with ERC.

One of the key premises supporting `Customer Repeatable Processes' is that customers do not feel the process mean, but the variation. Measuring a process in terms of its mean is misleading. Inappropriate prioritisation of incoming documents - either intentional, or unintentional as is more often the case - will result in some customers realising turnaround times that are unpredictably early, while others are equally late. In this case, the mean of the process may be right on target, but 100% of the customers did not receive the expected results. A related concept of `Customer Repeatable Processes' is that `earlys' drive `lates'. This point almost always generates a great deal of discussion. While late is clearly a defect, we sometimes believe that early is acceptable or even desirable. Yet predictability, allowing the customer to set up more efficient workflows, is the most desirable outcome. At an efficient staffing level, time spent processing documents early guarantees others will be correspondingly late.

Robin Royals, GE ERC's customer fulfilment leader, is leading his own Six Sigma project cluster focused on applying the `Customer Repeatable Process' Six Sigma methodology to further ERC's ability to deliver contracts to customers within their preferred timeframe. Mr Royals is currently in the `improve' phase of the project, having segmented the data to understand key drivers of variation including how and where the initial information is entered into our systems. He has demonstrated that by assuring and controlling timely data entry relative to contract agreement, he can ensure consistent contract turnaround.

Not only is his project improving timing on contract issuance to meet customer satisfaction, he is also using Six Sigma to improve process, establish consistency and create a measurable customer repeatable process where before there was none.

Another opportunity to impact `Customer Repeatable Processes' is through separation of knowledge-based processes from simple transactional processes. In the claims processing area, one project addresses document induction for our North America property and casualty business. Using the statistical tools, it was found that 90% of the targeted documents received were unnecessarily reviewed by the adjudicators. As part of the control plan, the team driving the project developed wizards and automated rules-based selection criteria to ensure adjudicators see all documents required to effectively adjudicate the claims while preventing unproductive flow of documents into adjudication.

GE ERC and other reinsurance businesses can take advantage of Six Sigma's more advanced tools to assist in predicting risk exposure. Design for Six Sigma (DFSS) is a tool that helps us analyse and predict the volatile areas of our business, better understand the behaviours of our customers and strategically identify our target markets.

Profitable insight
Advanced statistical modeling tools help us better understand our losses and the drivers of profitability, while pricing tools adequately capture claims exposures. In the area of risk, underwriting and pricing, one DFSS project delivered improved profitability insight into the hospital liability portfolio within our commercial insurance business. The project, based on both industry data as well as ERC data, provided improved resolution of the risk curve we had been using and therefore allowed us to better target underwriting opportunities. The project outcome addressed three key deliverables.

First, a predictive model developed via this project, used in conjunction with our internal underwriting models, allowed our underwriters to better predict both the likelihood of a claim as well as the amount of the claim on an account level. At the portfolio level, this means improved accuracy in predictability. The second deliverable was generated with the pricing team. Based on the predicted risk, the team developed an improved account level risk load measurement to enhance proper pricing of risk. The final deliverable was a prediction of the ultimate loss ratio. This delivered a curve that the reserving team could use to anticipate expected performance of the portfolio at the reserving level.

Imagine all the people
Quality is the responsibility of every employee, and every employee must be engaged if we are to succeed in making Six Sigma the cornerstone of increased customer satisfaction through real business improvement.

At GE, all employees are trained in the strategy, statistical tools and techniques of Six Sigma quality. In addition to the statistical training, every employee must complete a project in order to reach certification in Six Sigma.

When talking to customers about our Green Belt certification process, many find it hard to believe that our employees on average spend three months completing their Six Sigma project. I am often asked how this is possible in addition to regular workloads. The key is to ensure we are using Six Sigma to tackle our biggest deliverables. To maintain focus, I frequently ask the Green Belts selecting a project if those projects they are considering are within their top three customer deliverables. If the answer is yes, we have a hit - that project is part of their regular job. Additionally, as the impact of initial process improvement accumulates, the efficiencies realised provide resources to dig into the next layer of opportunity. We currently have more than 750 active projects, all focused on improving our processes to meet our customer needs. In our view, this is time well spent.

From an employee's point of view, Six Sigma is considered key to career advancement. Achieving Green Belt certification demonstrates an employee has made an investment in mastering the tools relative to their area of expertise. Those who continue training to achieve Black Belt certification use their knowledge to improve operating process across the organisation. Master Black Belts, the highest level in the quality organisation, use their skills and expertise to mentor others in the methodology. Employees who complete Six Sigma training are given significant consideration for many of our key challenging roles because of their demonstrated ability to break down complex business issues and drive significant, customer-focused improvements.

Imagine an entire business of Green Belts, Black Belts and Master Black Belts all focused on improving processes and productivity, increasing customer satisfaction, and reducing unnecessary costs. At GE ERC, we are feeling the benefits of integrating Six Sigma at every level of the organisation. Employees trained in the methodology are asked to consistently examine everyday processes to find areas of improvement. This is why the only way to ensure the success of Six Sigma is to make it the way we work.