Whatever happened to Six Sigma?

Twenty years ago, no company was flying higher than General Electric. In early 2000, GE passed Microsoft to become the world’s most valuable company. The sprawling conglomerate, which sold everything from jet engines to mortgages to advertising on Seinfeld, was directed by a dynamic CEO, Jack Welch, and his unwavering faith in the power of Six Sigma.

Six Sigma, at its core, is a system for eliminating defects in manufacturing. The name refers to a statistical model, based on deviations on a bell curve, that dictates the number of acceptable defects per million manufacturing steps. Achieving Six Sigma means an organization tolerates just 3.4 defects per million steps, insisting that 99.99966% of its products or services are without flaws. Historically, most industrial companies operate between three and four sigma, making them between 93% and 99.3% defect-free (these figures can vary slightly depending on the statistical model).

GE adopted Six Sigma from Motorola in 1995, and under Welch it became corporate religion. The company invested more than $1 billion in training thousands of employees, and the system was adopted by every GE business unit. Tools designed to streamline the making of widgets were adopted for every company process, from accounting to customer service to hiring.

With GE as its poster child, the gospel of Six Sigma was spread by management consultants to companies everywhere. Its statistical sheen and rankings borrowed from martial arts—newbies were “green belts, masters were “black belts”—was tailor-made for a business world that loves jargon and management pseudo-science. Soon, Six Sigma was the must-have credential, appearing on countless resumes and feeding a cottage industry of training institutes. Other quality-oriented systems proliferated in Six Sigma’s shadow: Lean, Total Quality Management, and ISO 9000 all jumped from the specialized world of process engineering to the broader business world.

But as GE began a long, slow decline, so did the popularity of Six Sigma. Once synonymous with management excellence, GE’s reputation in the business world plummeted in concert with its share price. The business press, once effusive in its praise, began asking “What the hell happened at GE?”  In the latest blow, accounting expert Harry Markopolos, who tried to warn the world about Bernie Madoff’s Ponzi scheme, has accused GE of disguising the depths of its problems. (The company, in turn, accuses Markopolos of working for short-sellers who would profit from its decline.)

The company’s market cap, which reached a high of nearly $600 billion in mid-2000, sank to around $60 billion late last year.

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