Six Sigma Leadership Overview Blue Cross Blue Shield

1. Six Sigma Leadership Overview Blue Cross Blue Shield

2. Six Sigma Leadership Overview • Objectives: • Develop a “leadership level” understanding of Six Sigma • Understand the critical success factors for organizations with Six Sigma initiatives • Understand the importance of Organizational Change Management as a parallel initiative • Develop a leadership “to do list” for supporting and accelerating Six Sigma within Blue Cross Blue Shield of Minnesota

3. Everything You learned…… in 8th grade science is all you need to know to also understand Six Sigma: • Begin with a problem definition • Create a hypothesis to solve the problem. • Gather data about the problem to understand contributing factors • Define solutions that control the factors • Create an experiment and measure the results • Validate the hypothesis

4. Newton’s first law of physics “An object at rest tends to stay at rest and an object in motion tends to stay in motion with the same speed and direction unless acted upon by an unbalanced force.” Analytics/insights = “unbalanced force” The packaging and the application of the analytics is Six Sigma

5. Theory “O” • Management Theory where all decisions are based on opinion. • Tools such as “brainstorming” and “affinity analysis” support Theory “O” • Supported by “organizational wisdom”. Six Sigma supports a shift in creating and implementing solutions to solve problems. To From Opinion based Improvement Fact and data based Improvement No defined improvement framework Clearly defined improvement framework Lack of process and results measures Clearly defined process and results measures Little solution collaboration Fully enabled Six Sigma improvement teams Solution success dependent on ideas Solution success dependent on proven tools

6. DATA Sales Data Activity Data Extranet/Internet Data Financial Data Customer Service Data External Source Data Business Impact is the ROI – Analytics Value Flow INFORMATION OBJECTIVE KNOWLEDGE BUSINESS ANALYSIS BUSINESS CHANGES VIA SIX SIGMA BUSINESS IMPACT Customer Intimacy & Loyalty New Value Opportunities Prod/Promotion Opportunities New Business Opportunities Organizational Alignment Channel Partner Improvements Customer Intelligence Product Intelligence Competitive Intelligence Operational Intelligence Management Intelligence Channel Partner Intelligence Top Line Growth Supply Chain Efficiency Reduced Cost Channel Partner Growth Competitive Advantage Employee Retention Marketing ROI WAREHOUSING The Value Continuum

7. Some Six Sigma Observations • Six Sigma works best when focused on improving a process towards a “customer defined” target (CTQ) • GE’s definition of Six Sigma: “Meeting Customer’s Needs Profitably”

8. Some Six Sigma Observations • Six Sigma is NOT a cost cutting/cost saving methodology. This is a result, but it is not the goal. • This is a key mistake of leadership when introducing the initiative. • Cost Cutting = Job loss, why should I participate? • Positioning Six Sigma as cost cutting vs. process improvement will sub-optimize the effectiveness of the initiative.

9. Some Six Sigma Observations • Six Sigma should be an enterprise initiative and a “way of doing business” NOT an isolated organizational function. • This is not an HR “training” initiative • The Six Sigma initiative should report to the highest level and be held accountable for organizational improvement. Examples: • 3M’s Six Sigma executive reports directly to McNerny • Apogee’s Six Sigma Executive reports directly to Russel Huffer

10. Freud’s definition of insanity: “Continuing to do the same thing over and over but expecting different results” Overcoming inertia is impossible without an agreed to framework. Six Sigma provides a framework to overcome organizational inertia by applying data.

11. Business Objectives Lower Expense to Revenue Ratio Increase Revenue Reduce Cost Increase Cash Increase Market Share Increase Share of Wallet Increase Customer Satisfaction and Loyalty Six Sigma Framework B U S I N E S S O B J E C T I V E S B U S I N E S S O B J E C T I V E S Project Charter Supply Chain Claims Financial Demand Renewals Processing Management Management Generation DEFINE DEFINE DEFINE DEFINE DEFINE P R O J E C T MANAGEMEN T P R O C E S S MEASURE MEASURE MEASURE MEASURE MEASURE Change Management Database ANALYZE ANALYZE ANALYZE ANALYZE ANALYZE Core and Common Components Core and Common Components Infrastructure IMPROVE IMPROVE IMPROVE IMPROVE IMPROVE Roles & Responsibility CONTROL CONTROL CONTROL CONTROL CONTROL Process Results

12. Business Objectives Lower Expense to Revenue Ratio Increase Revenue Reduce Cost Increase Cash Increase Market Share Increase Share of Wallet Increase Customer Satisfaction and Loyalty Six Sigma Framework B U S I N E S S O B J E C T I V E S B U S I N E S S O B J E C T I V E S Project Charter Supply Chain Claims Financial Demand Renewals Processing Management Management Generation DEFINE DEFINE DEFINE DEFINE DEFINE P R O J E C T MANAGEMEN T P R O C E S S MEASURE MEASURE MEASURE MEASURE MEASURE Change Management Database ANALYZE ANALYZE ANALYZE ANALYZE ANALYZE Core and Common Components Core and Common Components Infrastructure IMPROVE IMPROVE IMPROVE IMPROVE IMPROVE Roles & Responsibility CONTROL CONTROL CONTROL CONTROL CONTROL Process Results Six Sigma Core Focus

13. Tollgate Tollgate Tollgate DEFINE IMPROVE CONTROL Define the problem Implement continuous feedback and control of the activity Design “should be” activities to improve the situation Six Sigma Framework Six Sigma process and tools - it’s all about managing variance... Tollgate Tollgate MEASURE ANALYZE Understand the Variance 1 8 6 4 2 0 Measure the process Target Process is the key, IT is an enabler

14. Tollgate DEFINE Define the challenge Six Sigma Framework • Defining the challenge • Project Charter: • Key vehicle to communicate and establish the following: • What is the problem or opportunity we are trying to solve? • What is the hypothesis for improvement/outcome? • What is the core process/activities that this effects? • What is the time line we will complete our work? • What is the critical “Y”, (Business outcome)? • What are the critical “X”s? • Who is the business champion? • Who is the project leader? • Who is on the team? • What are their Roles and Responsibilities • SMART Objective.

15. Six Sigma Framework • Understanding Critical “X”s and Critical “Y” Critical “X” must be a Process measure not a result measure. Renewal Cycle Time (Critical “X”) Critical “Y” must be a RESULT measure not a process measure. Renewal Rate (Critical “Y”)

16. What is Six Sigma? • A process and project methodology • “Meeting Customer Needs, profitably” • The Six Sigma Measurement: • 3.4 Defects per Million Opportunities CTQ = 3 Months 1 mths 2 mth 3 mths 4 mths 5 mths 1 mths 2 mth 3 mths 4 mths 5 mths Renewal Cycle Time Renewal Cycle Time

17. Process Variation 1. Worst: Process out of control and missing CTQ 2. Not bad: Process in control, missing CTQ Controlling the “X”s = Critical To Quality 3.. Process out of control, but hitting CTQs 3. Process in control and hitting CTQs

18. Process Variation 2. Not bad: Process in control, missing CTQ 1. Worst: Process out of control and missing CTQ Controlling the “X”s = Critical To Quality 3.. Process out of control, but hitting CTQs 3. Process in control and hitting CTQs

19. Tollgate MEASURE Measure current state Six Sigma Framework • Measure current state • Measure: • How do we measure: • Create a data collection plan which should answer: • What data do we need • How much data do we need • Does the data exist today • If the data does not exist, is there a tool/system that can collect the data • Collect existing data • Execute data collection tools for missing data.

20. Tollgate ANALYZE 10 9 8 7 6 5 4 3 2 1 Indiana Michigan Illinois Ohio Wisconsin Renewal Rates Nebraska Iowa Minnesota 0 – 20 21 – 40 41 – 60 61 – 80 81 - 100 % Share of Wallet Six Sigma Framework • Analyze the data – Establish Correlations • Analyze the data collected for meaningful correlations • Individually the analysis may not tell us much, but together they might: 5 4.5 4 3.5 3 2.5 Michigan Pro-active Interactions 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Weeks

21. Tollgate IMPROVE Six Sigma Framework • Design “should be” activities • Now that there has been correlations established – How do you determine what to do? • Here are some tools to help you decide: • From – To Analysis • Cause and Effect Analysis • Value Analysis • Swim Lane Mapping • Kano Model

22. Tollgate IMPROVE Customer Branch Marketing Cust Care 1-2 days 1-2 Weeks 4-5 days 1-2 days Time line Six Sigma Framework • Design “should be” activities • Ensuring consistency: Kano Model + Satisfaction Delighters More is better - + Performance For each activity step, (especially those that interact with the customer), use the KANO model to determine the activity requirements for success Must Be -

23. Six Sigma Project Hopper • Observation: Many organizations “bite off” improvements around the edges without continuity of improvement. • Developing a project hopper Importance and Satisfaction Analysis

24. BENEFITS READINESS INVESTMENT 1 2 3 4 5 6 7 8 Prioritization C&E 9 10 6 3 7 8 5 4 Importance Weighting Tools Potential Depth & Solutions Benefit ($) Depth of Resources Complexity of Customer Productivity Time to Key Requirements for Activity Best Available to Required Change Impact Impact Implement (Sales Practice Support (all costs) Management Dollars) Activity Required # Potential Projects Total 1 3 3 9 0 3 0 3 9 Project 1 183 2 9 9 3 0 9 3 0 0 Project 2 276 3 3 3 9 0 3 0 3 9 Project 3 183 4 3 9 3 0 9 3 3 0 Project 4 237 5 3 9 3 3 9 3 3 0 Project 5 246 6 3 9 0 3 3 3 3 1 Project 6 190 Six Sigma Project Hopper • Observation: Many organizations don’t choose projects with substantial benefit. Score the potential projects based on benefit, organizational readiness, and cost

25. Project Hopper Six Sigma Project Hopper Project A Project B Project C Project D Project E

26. Six Sigma Project Hopper 6σ Sales Growth Initiative: Project Outline Increasing Account Penetration Project Title Commercial Accounts Organization Bill Smith Black Belt _X_ Growth __ Productivity / Cost __ Cash Corporate Y Increase sales & marketing productivity and effectiveness through better knowledge & understanding of end users, the products they use and the interaction they have with their suppliers. Division Critical Y • Increase sales penetration 15% of products at existing top accounts per sales territory. • Sales growth of $4.84MM (first 12 months of program) • Incremental OI increase of $557,000 Project Y Financial Benefit

27. Six Sigma Project Hopper • Recommendation: • Each functional area/division should have a defined Six Sigma project hopper that gives the organizational “line of sight” to the improvement projects that will be executed and total hopper expected value, (Business Critical X – Cash, Growth or Cost)

28. Critical Success Factors • Leadership: • Lead by example: Leadership must think in terms of process improvement • Operate under Six Sigma Principles: • Define, Measure, Analyze, Improve, Control, NOT • Guess, improve, guess, improve….. “I keep hiring workers, but people show up.” - Henry Ford It is not a people problem it is a process problem.

29. Critical Success Factors • Leadership: • Training: Leadership must be trained and at least go through “Green Belt for Champions”. Why? • So leadership can speak the language and ask relevant questions: • “What are the critical “X”s? • What did the KJ analysis show? • What was the result of mini-tab? • What is the entitlement of this process?

30. Critical Success Factors • Organizational Emphasis and Structure: • Master Black Belts are full time and report into process improvement areas • Black Belts are from the business, and perform a “tour of duty” in cross functional areas • Functional vs. Agnostic debate for Black Belts • Sales and Marketing • Hold leadership accountable for execution and improvement based on their project hopper.

31. What are the common barriers using data in Six Sigma Projects? • Common Barriers: • Do not trust the results of the analysis • No cultural appetite for change • No leadership willing to “do something different” • Overcoming inertia (15 Miles to turn a supertanker)

32. Tollgate Tollgate Tollgate Tollgate Tollgate MEASURE DEFINE ANALYZE IMPROVE CONTROL Measure current state Define the challenge Analyze the data and establish correlations Implement continuous feedback and control of the activity Design “should be” activities to improve the situation ORGANIZATIONAL CHANGE PROCESS Critical Success Factors

33. Organizational Change Management Q x A = E The importance of Organizational Change Management: The effectiveness of a project is driven by the quality of the initiative and organizational acceptance. The “multiplier” is organizational acceptance.

34. Organizational Change Management Q x A = E 8 x 2 = 16 9 x 2 = 18 8 x 3 = 24 2 8

35. Change Process Leading Change Creating a Shared Need Shaping a Vision Mobilizing Commitment Improved State Current State Transition State Making It A Strategic Function Monitoring Progress Changing Systems and Structures

36. 5 Organization and ways of working • Define organization structure to support the end-state. • Establish a roadmap to end-state, with interim structures and timeframes. • Define roles and responsibilities, skills and competencies, work group design, and organization integrating mechanisms. • 1 Change Vision & Leadership • Leadership articulates the end-state Vision to focus the change effort. • Build buy-in and ownership to the Vision among upper management. • 2 Change Strategy & Planning • Define specific objectives (measures) that support the end state Vision. • Define Change Actions needed to achieve the Vision, across the areas in the change model. • 6 Change Communication • Create and execute a Communication Plan to deliver desired messages to all impacted groups. • 3 Culture Alignment • Define the required organization culture to support the end-state Vision. • Develop ways to tie performance management to required culture and behaviors to performance. • 7 People Migration and future capability • Define/update job descriptions and HR policies and procedures to support the end-state process and system environment. • Train employees on new knowledge and skills required to operate in the end-state environment. • 4 Change Risks and Mitigation • Profile change risks and define mitigating actions. • Manage change risks at program and project levels. • 8 Stakeholder Management • Identify and manage key stakeholder groups and individuals to build support for the change. Change Management Approach Effective deployment and management of the change throughout the organization is essential for project success. Organization and ways of working Change Communication Change Vision & Leadership Change Strategy & Planning Culture Alignment People Migration and future capability Change Risks & Mitigation Stakeholder Management

37. Change Management Activities Project Preparation/Analysis Control Plan Priorities Define Measure Analyze Improve Organizational • Organizational Impact • Perf Metrics Framework • Process Specific Performance Metrics • Implement and Assessment • Target Organization • Detailed Job Change Descriptions Support Design and • Organizational Scope Model • Organizational Transition Transition ­ Re-aligned Roles & Responsibilities ­ Competency Assessment • Stakeholder Analysis • Execute Stakeholder Stakeholder • Stakeholder Management Management Plans Management Strategy • Ongoing Stakeholder • Risk Assessment and Assessments Prioritization Communications • Communications Strategy • Communications Audit • Audience Segmentation • Integrate Stakeholder • Communications Planning Management • On-going Communications Change Implications • Change Readiness Change Planning • Integrated Change • Transition Monitoring • Required change actions workshops (optional) Plan(s) and Support • Change owners • Implementation Site • Links four levers of change Readiness to project work groups Build Team(s) • Project Retention Strategy • Ongoing Assessment and Management • Recognition and Reward Strategy • Team Effectiveness Baseline • HR Management Practices Training • Training Population • Learning • Develop Process-Based • Post - • Train the trainer Analysis Strategy Training Materials implementation • Training Delivery • Define Training Scope • Develop Training support Evaluation Process

38. Interdependency with Projects Six Sigma Project Organizational Change Management Change Tools Change Tools Change Tools Change Tools More of/Less of TPC Analysis Threat Analysis Readiness Assessment Stakeholder Analysis Influent Strategy Readiness Assessment Shared Need Discovery Need Alignment Influence Strategy Readiness Assessment Stakeholder Analysis GRIP Analysis

39. Change Tools • Readiness Assessment: Provides valuable insight to organizational transition from “Shared Need” to “Mobilizing Commitment”. A comprehensive 18 point assessment that scores the organization from vision to planning. • Stakeholder Analysis: The Stakeholder analysis “plots” the various stake holder’s Organizational Change “maturity” and matches it to a Change Action Plan for the stake holder • Shared Need Discovery Tool: Creates a visualization of the target audience’s “need” score. The higher the score the more likely they will accept the Vision. A low score will indicate potential misalignment to the Vision and any change will be difficult • GRIP Analysis: Goals, Roles, Interpersonal relations and Processes are scored. This helps “see” what the potential pitfalls of improving activities might be.

40. Change Tools • Need Alignment Test: Provides further indication of the organization’s shared need status • Technical-Political-Cultural Analysis: Since successful change is an alignment of Strategy, Process, People and Technology, this tool seeks to identify sources of resistance into the four key alignment areas. • Influence Strategy: This tool develops the “influence” strategy that seeks to remedy the areas of resistance discovered in the TPC Analysis. • More of/Less of Analysis: This tools helps groups of key constituents to become aligned to the vision and begin to mobilize commitment to it. • Communication Plan: Developing an “Organizational Vision” requires a comprehensive communication plan. • Threat vs. Opportunity Matrix: This tools provides insight to the critical elements that need to exist in “Shaping a Need” activity

41. Leadership Call to Action • Get trained • Be a Champion or Sponsor • Build a Project Hopper • Support organizational change. Six Sigma Success is up to leadership.