Economic Downturn & Lean Six Sigma

Does Lean Six Sigma deployment make sense for companies during the economic downturn?

During an economic downturn, the economic activity is shrinking and as a result revenue for the companies is also declining. Companies can focus on improving market share by aggressively investing in marketing or reducing the prices to attract more customers. This may be successful in the short term but this only invites a similar tit-for-tat move from competitors, which again results in more price pressures and further loss in revenues. This cycle of cutting prices can only be sustained to some extent and companies whose cost structures are not competitive will no longer be able to compete with companies that are able to reduce their prices because their cost structure is lower. If the prices fall below the costs incurred, companies will start losing money and start consuming operating cash. A company that runs out of cash will find it hard to survive in the long run.

Thus the only option for companies is to cut costs to remain competitive. How does a company go about cutting costs? The easiest approach is to cut headcount in areas where the companies' products are not very competitive in the marketplace. However, companies have to avoid the urge to cut headcount to such an extent that their long-term viability is impaired. One example of this was a company that reduced headcount to conserve costs and as a result the remaining employees were so overworked that they made more "errors" in purchasing contracts that cost the company more money than what they saved. A company that entrenches itself by cutting costs such as in R&D may be able to show profits in the short term but its long term growth would be impacted. It has been shown that companies that played the downturn smartly by investing in the right areas, re-tooling the company workforce and technology were the ones that reaped huge benefits when the economy turned around. A case in point in Kelloggs company which overtook its competitors during one of the economic downturns in the past.

So, how is a company to cut costs wisely? The answer to this is through the power of Lean and Six Sigma. Lean and Six Sigma help focus the company's improvement efforts to elimination of non-value added activities and reduction of variation. Both of these tools will help reduce the company's cost structure in the right areas which not only reduces the company cost structure but will also improve customer satisfaction. This can best be leveraged by companies that are already using Lean and Six Sigma - they would just have to reinforce these tools and reap the benefits. For companies that are new to these tools, they would have to spend some resources in training but these expenses are well worth the effort in the long run.

So, why do all companies not want to use Lean Six Sigma during these times? One reason could be lack of awareness among the managers on the power of Lean Six Sigma (which is hard to believe in this day and age - but we have found this to be true in some cases). A second reason could be due to resistance to change - it is a lot easier to cut costs and hope for the best than to sell the idea of a small investment in the beginning that will reap rewards in the long term. They would have to really believe in the power of Lean Six Sigma if they have to sell this concept to their top management. Third, there is a mistaken notion that Lean Six Sigma projects take too long to reap the benefits.

What can we expect to see during the economic downturn? The companies that are already using Lean Six Sigma should see an increased focus in these areas and there will probably be more companies joining the Lean Six Sigma bandwagon. So, my prediction is that there should probably be more job opportunities for people with Lean Six Sigma background during a downturn. Even if there are fewer jobs to go around, the people with Lean Six Sigma skills will be preferred as they have what it takes to help the company face the economic downturn in the short term.