Thursday, May 31, 2007

Does Six Sigma Inhibit Breakthrough Innovation?

Business Week has a thought-provoking article about the tension between innovation and efficiency at 3M. When Jim McNerney came over to 3M from General Electric, he brought with him many GE processes and systems, including Six Sigma. During McNerney's tenure at 3M, profitability soared. Operating margins increased from 17% to 23%, and earnings grew 22% per year on average. However, some people wonder whether the Six Sigma process, as well as the emphasis on improving efficiency, harmed the creative culture at 3M and dampened the likelihood of breakthrough innovation. Drawing on 3M's experiences as well as the work of several academics, the article suggests that Six Sigma may drive a large amount of incremental improvement and innovation, but perhaps makes it difficult for employees to pursue discontinuous/disruptive innnovations. Simply put, one cannot completely systemize the process of innovation.

It will be interesting to watch how new CEO George Buckley's efforts to stimulate creativity play out in the years ahead. Can the company stimulate more breakthrough innovation without compromising its efforts to continuously improve quality and efficiency? The 3M story takes us back to a very interesting issue that academics have been studying for years, namely the tension between exploitation activities and exploration activities. Exploitation refers to the systematic refinement and improvement of existing processes and products, while exploration involves more open-ended experimentation and discovery. Can firms simultaneously perform both sets of activities well? Often, a firm's resource allocation process exhibits a strong bias toward one form of activity or the other. Senior management teams often have skills and capabilities that are well-suited for exploitation, but not exploration, or vice versa. The incentive system also often leans one way or the other. Some managers and academics believe that the best firms can strike a balance between exploration and exploitation, but it has not been easy identifying how to achieve this balancing act. It strikes me that we will learn a great deal about this issue by watching how events unfold at 3M in the years ahead.