Scott Kurtis knew things were on track when a box of chocolates landed on his table one February morning this year.

Kurtis, the head of General Electric Capital Corp.'s annuities services here, and his team had been desperately trying to improve their response time to queries from institutional clients. Some queries took less than a day to answer, or even a couple of minutes, while others took as long as 65 days. Officials at GE Capital Financial Assurance Holdings Inc. (GEFA) wanted to crunch the response time to an acceptable level for all customers, regardless of the nature of the query.

So the GE Capital division took a management tool normally associated with manufacturing, a concept called "Six Sigma," and tried to use it in a radically different way: improving services.

Barely four months later, Six Sigma already was producing results. Kurtis was particularly happy about the chocolates because they came from one of the division's most vocally critical customers.

"We quickly moved from complaints to chocolates and praise," Kurtis said. The annuities team now boasts of a response time of 24 hours or less.

The apparent success here is but one example of how corporate parent General Electric Corp. is using the manufacturing world's most exacting quality tool to overhaul performance of its services businesses.

In spreading the Six Sigma gospel to every corner of the GE organization, chief executive John F. Welch has transformed his employees into quality crusaders. Their objective: to relentlessly ferret out inefficiencies from every aspect of GE's performance. And every time a GE Six Sigma team completes a project, it raises a new bar for competition.

As the high priest of Six Sigma, Welch declared recently, "Variation [in service quality] is evil in any customer-touching process," and good is not good enough because "the customer only feels the variance that we have not yet removed."

This year, GE said, Six Sigma will save it more than $2 billion. Needless to say, the cash-rich conglomerate is a Wall Street darling, having posted returns on investment of more than 50 percent in the past year.

But just what is Six Sigma? Put simply, Sigma is a statistical tool for measuring defects--defined as anything that deviates from the ideal, whether the ideal is a perfectly manufactured product or, as in the GE case, a discrete bit of customer service. Six Sigma, the highest level on the Sigma chart, sets an ambitious target of reducing defects to just 3.4 for every 1 million tasks performed.

If your phone company operated to the ruthless standards of Six Sigma, it would provide 83,333 years of defect-free monthly billing before the first mistake showed up. Similarly, a car built to perform to the Six Sigma level would spend less than 18 minutes in a repair shop the whole year.

"Six Sigma is a whole new dimension of quality," said David Mansfeld, director of business development at Six Sigma Qualtec, an Arizona-based consultancy that has worked with GE on Six Sigma.

Six Sigma was developed by Motorola Inc. in the mid-1980s in a bid to boost growth and earnings. Motorola's experience proved so successful that others quickly jumped on the bandwagon.

But for a long time, Six Sigma was confined to the shop floors of manufacturing industries because people found it difficult to translate the statistical rigor of the concept into anything meaningful when not dealing with tangible products.

For example, how was an accountant to detect a "defect" in his 45-day invoice-to-payment cycle. How might a human resources manager regard delays in filling vacancies as "flaws"?

That was the challenge GE faced when it ushered in Six Sigma almost five years ago. "The first step is to recognize that all tasks can be broken down into logical sequences," said JoAn Walter-Toney, GEFA's senior vice president for quality and integration. "When you do that, it's amazing how similar processes look across different functions."

To drive home this message, GEFA puts all its white-collar employees through 10 days of annual training. Through everyday examples--say, getting a car washed--employees are taught how to use some common quality-control tools to analyze problems.

Most important, employees are told what a "defect" is: anything that does not meet or exceed customer expectation. So, all variances from the ideal level are defects. That's why a human resource manager who takes only a week to fill one kind of vacancy but takes months to fill some others, or an accountant who normally processes bills in a day but on occasions takes a week, would be viewed as having defective work standards.

"Going through a Six Sigma program changes your perspective," said Linda White-Taylor, a quality instructor at GEFA.

After an employee finishes the training program, he or she is considered a "green belt" and is required to take the next step. Using a "define, measure, analyze, implement and control" methodology, the green belts--who know the basics of Six Sigma but are not as skilled as "black belts or master black belts"--identify and work on an area of improvement.

As soon as a project is identified, the team--comprising three to 10 people--assesses the current level of quality of the process involved. Unlike a manufacturing setup, where variations can be easily spotted, a service business must depend on its customers to set and help achieve quality standards.

This is done through customer feedback and by creating a list of prerequisites called critical to quality (CTQ) factors. The process in question must, then, be deconstructed to zero on the bottlenecks.

For example, when Kurtis's team began working on the annuities response-time project, it discovered that the analysts responsible for answering customer queries faced frequent interruptions. As a result, while frequently asked questions got answered quickly, those that required research got set aside.

The team came up with two solutions to the problem. One, to avoid interruptions, it set up a separate team for researching answers. And two, it moved a couple of financial products from a batch-processing computer system to a real-time system. By March, Kurtis's team had achieved its first "Six Sigma Week"--all queries that week were answered in 24 hours or less.

"Historically, the focus was on addressing complaints one by one," said Kurtis. "With Six Sigma, we learned how to address the root cause of problems."

Although the statistical rigor of Six Sigma can be intimidating to some people, Walter-Toney said she has not had much trouble making converts. "People are excited about being able to do their jobs better," she said.

GEFA alone has 170 quality professionals working full time on training and trouble-shooting.

Indeed, thanks to Welch, Six Sigma is a way of life with GE employees. And that's not just because promotions and rewards are tied to Six Sigma projects. Walter-Toney said she tries hard not to enforce her high quality expectations on her home builder. "I feel like asking my builder, 'Do you know what my CTQs are?' "

In the past five years, GE has spent more than $1 billion on Six Sigma training. Welch's vision is to transform GE into a huge, superlative Six Sigma machine.

If Welch has his way, one of the future projects that a GE team might need to address is what to do with the problem of storing complimentary chocolates.


A finished product or service that's 97.7 percent perfect sounds pretty good -- until the product is broken down into the thousands of steps or parts that went into making it. That's when it becomes apparent that 97.7 percent still allows for 308,538 defects per million steps, or "opportunities" in quality-control lingo. The Sigma Six level allows for only 3.4 defects per million steps.

Sigma: 6

Defects per million steps: 3.4

Percentage of products or services without defects: 99.9999999

Sigma: 5

Defects per million steps: 230

Percentage of products or services without defects: 99.99997

Sigma: 4

Defects per million steps: 6210

Percentage of products or services without defects: 99.997

Sigma: 3

Defects per million steps: 66,800

Percentage of products or services without defects: 99.9

Sigma: 2

Defects per million steps: 308,538

Percentage of products or services without defects: 97.7

SOURCE: General Electric Capital Corp.