In the last post, we talked about how 82% of Fortune 100 companies currently use Lean Six Sigma to scale and innovate their processes. You do this using DMAIC (Define, Measure, Analyze, Improve and Control) – the iterative cycle of data-driven improvement.
We’ve already defined our process as:
And defined our process’s performance gap as:
21.1 – 15.2 = 6.0 net IRR
Resist Mediocre Insight
Humans are innately poor problem solvers because we’re biased to our own experiences and opinions. In addition, most corporate cultures incentive you to fall in love with solutions, instead of falling in love with the problem.
There are two types of corporate cultures:
- Type 1 – does not use data to solve problems.
- Type 2 – graphs data to define and measure gaps in performance.
STEP 1: Analyze Performance Gap Overtime
This insight is incredibly important but often overlooked by problem solvers because they break the link between defining the gap and analyzing it. They stop letting the data lead them which means they’re sub-optimizing with opinion-based solutions.
If you skip to solutions, you miss out on what the data are telling you about your gap over time. Nothing is static in your business so even if you haven’t been paying attention, your data has hidden insight waiting for you. The key takeaway from seeing how your gap behaved over time, is when the gap has gotten better or worse without your intervention.
The answer is to drill into June. Why? Because the gap, between our target and actual performance, is the largest.
STEP 3: Keep Drilling
Normally you can start to drill down from the monthly data view to a weekly, daily or even hourly views to further analyze. In this case, that’s not going to work. Your IRR measures how well you’re sourcing investments, performing due diligence, growing and exiting your investments.
STEP 4: Drill, Drill, Drill
You’re going to keep drilling until you stop gaining insight. From the company slice, you’ll dig into companies B and D to understand the extreme gap behavior here. You’ll dig into the specific facts of these companies, looking at CRM data, emails, interviewing the process owners, customer, etc.
Return on Investment
We already mentioned, your gap should be tied to a statement of operations line item so you know how it’s affecting your bottom line. For now, ask the people who were involved in the process what they saw as financial consequences of this gap.
We’ve hit on a few common mistakes but it’s important to understand these are so common it’s almost a guarantee. This shouldn’t stop you from trying but empower you to create countermeasures to minimize the damage. You can’t avoid it because the root cause is that you’re emotionally invested in the problem.
Even the most advanced Lean Six Sigma professional hires other professionals as countermeasures to this problem because you can’t see what’s in front of your face when you’re blind to it.
PRIVATE EQUITY SOFTWARE
Software is just a process that’s been branded and sold to you in one package. In order to define your gap you’re going to need the tools
- Industry or market research software to grab target for benchmark performance data
- Private equity accounting software to get your actual performance data
- Excel or Google sheets
At the highest level, all you need to do this is data and a way to scrub and graph it.
Better Tomorrow Than Today
Continuous improvement means progress over perfection; being better tomorrow than you were today. So what can you do today to ensure you’re better tomorrow? Start creatively slicing your data.