New Economy, Old-School Rigor
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G.E.'s Management Methods Are Put to Work on the Web.
It seems intuitively obvious: anyone who is buying a new refrigerator or washer wants it delivered as soon as possible. So, an appliance manufacturer setting up a Web-based order-and-delivery system would put next-day delivery high on the list of lures, right?
Right — if the Web designer was trusting to Intuition. But one thing that the folks at General Electric have had drummed into them the last four years — or, ever since the company embraced the quality-control regimen known as Six Sigma — is that they act on gut instinct at their peril.
No matter mat the Six Sigma sensibility evolved out of old economy rules; it is informing every aspect of G.E.'s push into new economy mode.
Consider what happened when GE Appliances decided last year to set up a Web-based system to arrange delivery of G.E. products to people who bought them at Home Depot. GE Appliances used focus groups, what-if scenarios and other Six Sigma methodologies to discern how much value customers placed on having new appliances show up hi 24 hours.
Shock one: The answer was, not much value at all. "Six Sigma eliminated any perceived need for evening deliveries, next-day deliveries, Sunday deliveries, all sorts of costly things that we had wrongly thought would be important to customers," said Michael P. Delain, GE Appliances' quality manager for local delivery service.
Shock two: If the delivery people had a professional, soothing demeanor, customers would tolerate just about anything, even late deliveries or damaged products.
"Sure, customers cared that we accommodated their choice of a delivery date, and that we showed up in the window that we promised," said Steve LeClair, program manager for e-business at GE Appliances. "But Six Sigma studies showed that they cared most about the softer, less measurable skills."
The resulting system, which is operating in about 600 of Home Depot's 980 stores, lets sales representatives enter a customer's order onto the Web, and arrange for delivery to the customer's home directly from a G.E. warehouse. GE Appliances, meanwhile, now trains Installers and delivery personnel on people skills.
Six Sigma, of course, is the quality program that big companies including Motorola, Honeywell and G.E. have credited with squeezing billions of dollars in costs out of products and processes, without losing quality or service. It is a statistical method of breaking a customer's requirements Into tasks or steps, and setting the optimum specification for each part of the process, based on how the parts Interact.
It means taking nothing for granted, checking out even those things that seem intuitively obvious, and running countless what-if scenarios to see what kind of cascade effect changing even seemingly innocuous variables can have on the result. When GE Medical Systems designed its Lightspeed diagnostic scanner for example, Six Sigma studies showed that widening a few tungsten wires could increase the machine's accuracy — something that the de sign team had thought would require a costly tube redesign.
And Six Sigma means having all G.E. departments, from accounting to production to customer service analyze the impact that their ways of interacting with each other could have on a customer's total experience with G.E.
Since 1996, at the dictum of G.E.'s chairman, Jack F, Welch Jr., Six Sigma has been a way of life at G.E. The company has applied it to pretty much every aspect of its business — designing products, interacting with customers, fine-tuning delivery.
So early last year, when Mr. Welch said he expected every G.E. business to have an e-commerce strategy up and running by the spring of 1999, it took just nanoseconds for most to realize that Six Sigma was a natural for guiding G.E. onto the Web, particularly if they thought of a Web page as a product and of e-business as a process. All the G.E. businesses met Mr. Welch's deadline.
"Six Sigma processes let us demystify the whole concept of e-business," said Piet C. van Abeelen, G.E.'s vice president for Six Sigma Quality. "They let us get organized without handing off pieces of the process among 55 people."
Industry experts say that G.E. is way ahead of other old economy companies in embracing the Web. Indeed, it is turning its Web savvy into a business itself. Just last week, G.E., announced a joint venture with Cisco Systems that would help manufacturers use Internet technology to tie their factory data systems in with their office systems. G.E. also introduced a host of new Web-related services for small businesses.
"They've figured out how to transfer their brand identity to the Internet," said Geri Spieler, an e-business analyst with the Gartner consulting firm. "They grab people with depth and breadth of services, and keep them with multiple opportunities to click for more."
Indeed, GE Lighting, GE Appliances and others have Web-based programs that let architects and builders design lighting systems and kitchens from a list of specifications. Most G.E. businesses have self-help sites that give users step-by-step guidance for fixing or maintaining products. And all of them give browsers a chance to buy things.
"Each of their businesses is transactional on the Web, and no other old-line company can say that," said Nicholas P. Heymann, an analyst at Prudential Securities. "Six Sigma was a real turbocharger for them."
Examples abound. Through Six Sigma analyses, many G.E. businesses concluded that customers, given a modicum of extra information, would willingly handle a lot of repair work themselves. Other studies showed that if information about optional features was easy to find, many customers — businesses as well as consumers — would configure their own products, without wailing for a sales representative to call.
For G.E., that meant saving a fortune on service personnel and "selling" to customers who are either geographically remote or too small to warrant sales calls.
One problem, the Six Sigma studies showed, was that customers often could not find the model numbers on their appliances or machines. So, several G.E. businesses put "how to find your model number" sections on their Web pages.
And, several G.E. businesses have given their Web sites so-called configurators and vizards — electronic guides that enable customers to customize their own systems, be it a redone kitchen or a lighting system for a new plant, and even help customers fix them in the future.
Six Sigma analyses also showed that house builders — prime customers for GE Appliances — want to give their own customers a way to design their homes at one Web sitting. So G.E. is designing Web sites for major builders that enable the builder's customers to configure what GE Appliances they want in their homes, but that also help them explore what's available in cabinetry, carpeting and other essential home items that G.E. does not sell itself. One such site, called Selection-center.com, ³ç being tested at the U.S. Home Corporation, and GE Appliances hopes it win be fully operational In a few months.
"It's going to be an important site for builders, and for distributors like us," said Joe Dumstorf, president of Trend Technologies, a distributor of building products that helped G.E. design the site.
Almost every G.E. business can point to ways that Six Sigma forged a path to the Web. When G.E-'s CNBC unit first put up a Web site last year, for example, the home page seemed to take an awfully long time to load. Instead of blaming traffic or Internet glitches outside G.E's control, analysts used Six Sigma methods to deconstruct the page; they discovered that one of the page's distinctive features, the trafling stock ticker at the bottom, was slowing up the loading time. The site designers gave viewers the option of loading without the ticker, which cut the upload time in half, to four seconds. They have since whittled it down to 2-46 seconds.
And when GE Appliances wanted to lure consumers to check out new products on its Web page, the company performed a Six Sigma analysis to determine what kind of information customers wanted, how many mouse clicks they would be willing to make to get it and whether they would settle for schematics of appliances that could be loaded quickly rather than full-color digital photos that might take forever to load.
"Intuition told us the bigger and more detailed the picture, the better," recalled Joseph J. Deangelo, vice president for e-business at GE Appliances. "Six Sigma analysis showed that customers preferred speed to detail when they were first comparing models, and were only willing to wait for detailed pictures when they were close to a decision." Six Sigma has also played a role as G.E.'s consumer businesses have set up Web-based help desks. G.E.'s telephone help centers had been through their own Six Sigma rigor, which had led to a computerized body of knowledge that operators could consult to answer any question. Now questions that come in by e-mail, by direct query on a. Web site, or by phone, all receive answers from that same database within 24 hours.
"A tenet at Six Sigma is chat you take variability out of results," Mr. Deangelo explained, "and this enabled us to get rid of an entire category of potential defects, which is wrong, incomplete or late answers."
There was another Six Sigma tenet at play with the help sites: running what-if scenarios on how to convert questioners to self-help mode-enabled G.E. to fine-tune the information offered through self-help mechanisms on the Web.
For example, owners of G.E.'s new Advantium Oven, which cooks with combination of light and microwave energy, often write in with questions on how to translate recipes for use with the Advantium. GE Appliances refers such questions to home economists on Its staff, e-mails answer to the questioners, and then Includes the information on, its self-help sites, where anyone hoping to try a similar recipe can find it.
All told, Six Sigma means approaching every problem with the assumption that it has a data-oriented, tangible solution in the end. The process does not yield perfection; but it provides a handle on how much variability from a standard, be it a product specification or a delivery time, customers will tolerate before they perceive it as a defect.
The collaboration between GE Appliances and Home Depot is a case study. Until this year, G.E. shipped small assortment of appliances to Home Depot, which kept them in inventory until they were sold and then delivered them to customers. Home Depot wanted to offer more items but to stock less inventory.
So GE Appliances and Home Depot worked out a Web-based model whereby Home Depot sales representatives could use a kiosk at the store to enter a customer's order for any G.E. appliance. The kiosk transmits the order the nearest G.E. warehouse via the Internet, and the item can be shipped from the warehouse to the customer's home! "This lets us offer quicker delivery of a wider assortment of products, without maintaining big warehouses full of products," said Donald E. Galloway, Home Depot's national product manager for appliances.
The concept was simple, the economics were not. Home Depot wanted to offer the service to every customer; G.E. used Six Sigma analyses to discern how wide a geographic radius around each warehouse it could economically serve.
Both G.E. and Home Depot finally agreed that it made sense to forgo servicing a handful of customers in order to guarantee stellar service to the vast majority. For customers who do not fall within the delivery radius, Home Depot resorts to the old methods — it places an order with G.E., which ships the appliance to the store, which arranges delivery to the customer's home.
The process of applying Six Sigma continues, as G.E. moves toward being ever more Web-centric. According to Gary Reiner, G.E.'s chief information officer, G.E. has dedicated about 1,000 employees to its e-commerce effort. And 80 percent of those e-business mavens are home grown most old-economy companies their Web expertise from the tech world.
"It was essential that our Web sites reflect out customer's needs, not our organizational structure", Mr. Reiner said, "That kind of customer focus is an underlying principle of Six Sigma".
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