Six Sigma Return on Investment - Correlation to improved stock performance?

[Tim Folkerts]

Over on another discussion board there was a list of companies that had implemented sig sigma. Just for fun I checked returns on these companies. I was able to find stock reports on 42 of the 115 organizations (some were government bodies or privately held companies).

The average 1 year return was 29.5%, with a standard deviation of 38% and a corresponding standard error of 5.8% and 95% confidence interval of 11.7%. This compares to about 21% return for the NASDAQ, 15% for S&P500, and 14% for Dow. (My impression was that most of the companies were NASDAQ rather than NYSE, but I didn't record that data.)

It appears that 6S is correlated to improved stock performance, but since the confidence interval overlaps the NASDAQ, we cannot reject the null hypothesis that the difference is due to random chance.

I took the list provided at face value, didn't check how long the companies had been doing 6S, and each company was weighted the same, no matter what the market cap was. More details are available if people are interested.

Tim F

[Wes Bucey]

Yes. More detail, please, Tim.
maybe some of our Covers can provide some insight on a few of the companies.

Some stock market changes have nothing to do with the fundamentals of a company (sales, profits, industry segment, maturity, etc.) and everything to do with stockholder perception. I am reminded of the hype that surrounded some high flyers for several years, only to see them crash in flames when the fundamentals cut their legs out from under them. (Lucent, for one that had no fraud attached unlike Enron, et al.)

[Sam]

Actually I would prefer to see what difference was made in the bottom line. Also it might be interesting to see the progress of Motorola from the time they first implemented 6s in the early 90's.

[Jennifer Kirley]

There are scads of factors that influence profits. Some may have been happy results of 6S. I also want to know long-term results, though, and in "soft" metrics like customer and employee satisfaction with the tinkered programs.

How are the 6S programs and their initiatives reassessed? I imagine this is done with great variation, but it should be done with dedication and care.

Dell's outsourcing project comes to mind. This was not likely a 6S initiative, as I am not aware Dell is using 6S, but it is an example of a possible initiative. The profit-enhancing endeavor turned sour when their tech support for business clients was outsourced to India. After great outcry and teeth-gnashing, Dell moved their corporate support back stateside. Private users still use Indian tech support, with a wide variety of success--or not. I would be deeply interested to examine the losses of that slapstick "improvment" in actual expenditures, but has anyone measured Dell's loss of confidence during this, um, initiative? Are other such lessons learned through 6S? Do the lessons lead to a gradual, organization-wide focus on good practices for best performance?

My point is that, once again, we must be so cautious in assigning value to a system that focuses, in fact or even just in practice by hacks, on financial returns.

[Tim Folkerts]

For those who are interested, here is the list of organizations. Again, I didn't compile the list, so I can't vouch for it. It came from the iSixSigma forums. I found a financial web site a couple days ago and copied the 1 year return rates for all the companies I could find. The rates varied from about +130% to -50%.

I also won't claim that the 6S programs are responsible for the higher return rates. There are any number of other variables that could impact the return rates. Ideally the analysis should include how long 6S has been in place, how that market sector is doing, how big the company is, etc. But I'm not going to invest the time to do analysis that has so many other potential flaws.

Anyway, here is the list:

3M 33.25
A.B. Dick Company
Abbott Labs 62.15
Adolph Coors 24.71
Advanced Micro Devices 132.36
Aerospace Corp
Airborne
Alcoa 19.7
Allen Bradley
Allied Signal 73.3
Ampex
Apple Computers 72.9
Applied Magnetics
ASQC
Atmel 99.64
Baxter Pharmaseal
Beatrice Foods
Bell Helicopter
Boeing 38.17
Bombardier
Borden
Bristol Meyers - Squibb -4.87
Bryn Mawr Hospital
Campbell Soup -0.31
Cellular 1
Chevron 19.92
Citicorp 6.81
Clorox 16.58
Cooper Ind 40.48
Dannon
Defense Mapping Agency
Delnosa ( Delco Electronics in Mexico)
Digital Equipment Corp
DTM Corp
Eastmen Kodak -16.96
Electronic Systems Center
Empak
Florida Dept. of Corrections
Ford Motor Company 38.74
GEC Marconi
General Dynamics -23.81
General Electric -9.09
Hazeltine Corp
Hewlett packard 2.85
Holly Sugar
Honeywell 27.88
Intel 31.04
Junior Achievement
Kaiser Aluminum
Kraft General Foods -8.24
Larson & Darby
Laser Magnetic Storage
Lear Astronics 55.45
Lenox China
Littton Data Systems
Lockhee Martin 5.32
Loral
Los Alamos National labs
Martin Marietta 18.34
McDonnell Douglas
Merix 79.85
Microsoft 9.12
Morton Int'l
Motorola 18.82
NASA
Nat'l Institute of Corrections
Nat'l Institute of Standards
Nat'l Semiconductor 92.46
Natural Gas Pipeline Company of America
Northrop Corp 22.04
PACE
Parkview Hospital
Pentagon
Pharmacia
PRC, Inc
Qualified Specialists
Ramtron Corp
Rockwell Int'l 33.5
Rohm & Haas 18.41
Seagate
Society of Plastics Egineers
Solar Optical
Sony 24.31
Star Quality
Storgae Tek
Symbios Logic
Synthes
Technicomp
Tessco 135.3
Texaco 19.92
Texas Commerce Bank
Texas Dept. of Transportation
Texas Instruments 35.88
Titleist
Trane
TRW 19.87
Ultratech Stepper -16.12
United States Air Force
United States Army
United technologies 22.17
UPS 14.44
USAA
Verbatim
Walbro Automotive
Walker parking
Woodward Governor -47.24
Xerox 28.5

[Al Dyer]

Motorola long range stock

Nice trend line for the last 20 or so years (although I wonder what happened after 2000, maybe Motorola has a pareto?). 6S would be one of many factors, but who is to say if it's a decisive factor or ancillary.

Al...

[KMAAA]

Tim,

I applaude your efforts, but with so many variables in play, and most of them outside the analysis, I doubt we can make a valid conclusion. I do like your intermediate time frame concept though(another thread).

In light of recent discussions on the topic I do have to reflect on the sheer number & caliber of the many companies you've cited. Truly a collection of blue-blooded American & Canadian businesses looking to improve, or at least making a concerted attempt, to improve their product or service Quality & thereby their bottom line. Complete success might be fleeting in some cases, but the key is that the subject is on the table & an organized effort is being made.

To think that these companies employ thousands of very skilled, and very educated, scientists, engineers, and Quality professionals, having a combined tens of thousands of person-years of experience, and they're all being duped by the "fatally flawed" 6S myth. The entire concept is...well...stunning.

[Tim Folkerts]

KMAAA (et al)

I absolutely agree that the data analysis is quite suspect. It was just to satisfy my curiosity.

Besides the questions about fluctuations in the stock market in general and particular sectors in specific, there are all sorts of problems with "self-selection". Companies companies that try 6S and show a profit are likely to announce it to the world, credit it to "the CEO's leadership and 6S vision" and make it onto the list. Companies that don't show a profit will quitely drop the program and "fly below the radar" of whoever made the list to begin with.

Tim F