Six-Sigma Methodologies Can be a Fit for ARM Firms
Ever worsening economic indicators, a consumer-centric regulatory climate and historic unemployment levels have created a formidable gauntlet for receivable management concerns to navigate. Operational heads are turning to nontraditional sources for help.
For some innovative accounts receivable management firms, these sources include tearing a page from the manuals of high profile manufacturing businesses by implementing Six Sigma methodologies. Developed by Motorola during the 1980s and made famous by General Electric, Six Sigma represents a widely accepted methodology for driving continuous improvement. Six Sigma requires the analysis of data to understand business processes, including process variation and capabilities. The methodology follows a consistent approach to Define, Measure, Analyze, Improve and Control (DMAIC). Service industries, including accounts receivable management, generally have been late to adopt Six Sigma due to the perception that these concepts may not translate from manufacturing to people-intensive processes.
CORNERSTONE SUPPORT, INC.
We are a true full-service compliance solution for state licensing, bonding and resident offices. Put Your Licensing & Renewals in Our Hands.
Why Collections? Why Now?
The global recession has been a game changer for the collections industry. Spiraling unemployment, evaporating retirement plans and declining residential equity levels no longer provide debt options that were available just a few months ago. Additionally, consumers’ abandonment of land lines for cell phones creates new challenges for reaching debtors. These factors combined exert a great deal of pressure on organizations to maximize performance at every transaction while reducing costs.
Balance these conditions against a collections environment that is data rich nearly beyond comprehension. Managers are challenged to harness the outputs of numerous, often unlinked systems. Consumer credit card collections is rarely a linear process, rather a collection of complex sub-processes, riddled with external dependencies. Engaging Six Sigma and utilizing the DMAIC approach helps managers convert a veritable galaxy of data points into upgraded processes and exceptional results. Six Sigma empowers managers to challenge the status quo, make decisions and create strategies based on data rather than intuition.
Deployment Approach
Stabilizing the data is the first step. Before Six Sigma projects can be launched, data must be organized in a meaningful way. Establishing reliability and integrity are critical to provide adequate structure to support process improvement. Dashboards are created to which operational needs are mapped. Performance metric information is compiled and shared at all operational levels. This data serves as the cornerstone for planning and forecasting sessions.
Role of collection supervisors. Front line collection supervisors are trained in the use of fundamental quality control tools including fish bone diagrams, control charts, histograms and Pareto charts. These supervisors are then able to apply learnings to real problems on the operations floor to bolster team results.
Care to Comment?
(Please read our comments policy first.)
Tell us what topics you're interested in and we'll keep you posted. Enter your email address below.
Topics:
Companies:
Related Resources
News
Analysis
Publications
Research
Products and Services
Comments
Comment from Anonymous on March 18, 2009 at 11:49AM EST
I have had extensive experience with six sigma, and up to a point it is useful and helpful. However, it can be quite inflexible, especially in a collections/services environment especially if the black belts do not understand that you have to sometimes disrupt your control group that you are using to establish baseline performance. It is the nature of collections where people resign, or call in sick, and you have to line balance staff to get the job done. If these people are in your control group, then you have a problem establishing a baseline. I think it is more useful in helping to improve quality in a fixed process, for example, payment processing. It is important to roll six sigma out correctly, and not ram it down the throats of the management and staff. Unfortunately, that was my experience, and six sigma was virtually useless, and a waste of a great deal of time and money.
Comment from Jim S on March 18, 2009 at 1:13PM EST
My experience with improving execution is that there are much better approaches in a collection environment then Six Sigma. While its theory is great it's rigidity of process approach and significant expense and learning curve in implementation don't fit the collection environment well. (Read article on Cisco Systems in Dec/Jan Fast Company. Flexibility and speed are more important characteristics of a successful business today.)
Comment from JC on March 18, 2009 at 1:56PM EST
Wow. Six Sigma is a buzzword; it's too rigid; it's impossible. Funny, these are the same things I heard when bringing 6S to every new project. It's a tool; only a tool. Don't blame the tool for the inadequacies of people unqualified or unwilling to utilize them properly. I've seen 6S work across various disciplines and it can work in collections as well.
Comment from Jeff Allspaugh Free Agent Business Solutions on March 18, 2009 at 2:52PM EST
I have seen and worked with many quality initiatives. All have the mission of helping an organization perform processes in a better, less expensive, or faster manner. Six Sigma is a great tool. But, buying the name doesn't get it done. I instead find it more useful to choose methods from many of the quality programs I've used over time and customize just the right hybrid program for my clients. This is more focused and meaningful the the client, and doesn't focus on perpetual resell opportunities for the client or the needlessly expensive certification processes.
Jeff Allspaugh FreeAgent Business Solutions www.freeagentbusiness.com jeff@freeagentbusiness.com
Comment from Jeff Allspaugh Free Agent Business Solutions on March 18, 2009 at 3:31PM EST
I have seen and worked with many quality initiatives. All have the mission of helping an organization perform processes in a better, less expensive, or faster manner. Six Sigma is a great tool. But, buying the name doesn't get it done. I instead find it more useful to choose methods from many of the quality programs I've used over time and customize just the right hybrid program for my clients. This is more focused and meaningful the the client, and doesn't focus on perpetual resell opportunities for the client or the needlessly expensive certification processes.
Jeff Allspaugh FreeAgent Business Solutions www.freeagentbusiness.com jeff@freeagentbusiness.com
Comment from buckblog on March 18, 2009 at 3:46PM EST
Please, save us all from the consultants!
Collections is a subjective not an objective activity. Some six sigma principles may apply but I've seen a collection dept get taken over by the six sigmaphiles and fouled up beyond belief.
Comment from buckblog on March 18, 2009 at 3:46PM EST
Please, save us all from the consultants!
Collections is a subjective not an objective activity. Some six sigma principles may apply but I've seen a collection dept get taken over by the six sigmaphiles and fouled up beyond belief.
Comment from Anonymous on March 18, 2009 at 4:07PM EST
Six Sigma...wow..just look at Bank of America...Citibank who pushed this methodology. They are more like Sick Sigma now. Why would anyone in the ARM business emulate this process? I say stop coming to work in your private limo's, running all your children through the payroll, racing horses board and care, country club memberships and get rid of the Rolls Royce it is time to role up your sleeves and go back to basics and get a black belt. You will need one when they start taxing you for sending jobs overseas and you have to bring the business back.You need to rebuild your foundations...you know how.The owners need to know more than how to open the mail. Any imperical minds out there?
Comment from John McNamara on March 18, 2009 at 10:09PM EST
Operations Management and Six Sigma are manufacturing disciplines. Mapping them over to the service industry is tricky, even dangerous. I would argue that Service and Manufacturing are so different that they should always be treated as separate sciences. Much bad has been done in the name of Six Sigma. That said, if you can identify the key areas in a service value chain and drive out the variablity, that's a good thing.
Comment from Chandeep Singh on March 20, 2009 at 6:21AM EST
Good to hear the discussion generated by the article. Let me share with you my experience of trying deploy quality in different industries over the last 14 years. "Six Sigma cannot be applied in my business we are different", I remember when I had started to apply concepts of lean in a process (milk processing) company, I heard many voices saying that these concepts were great for a car manufacturing company, however, would not apply for a process based industry. We did apply the concepts, the result was a healthy increase in gross margins. As I moved into a customer service company, I heard the voices again the message being the same, these concepts work in a manufacturing industry and not in a service industry. Again, we did apply the concepts resulting in productivity improvements and also improvements in customer satisfaction. My next role was with a software organization where I was told "Listen Mr. Quality Leader we are not a customer service company, so do not try to apply the fancy six sigma concepts here, we are highly skilled programmers and data base administrators, so while we are drinking a cup of coffee with you, we are thinking of a customer problem, how can you ever measure productivity?" Did we manage to deploy anything successfully there? Yes, we did. The paradigm was different the concepts the same. Simple things like cross training database administrators to handle more clients not only increased their productivity, but also there quality of life. It is good to see that some companies are successfully using six sigma concepts to other industries like the collections work, also at the same time it is a feeling of deja vu when one hears it can not be applied to collections as an industry. Why? Are there no processes in this industry that can be improved? The question is not if we can apply quality concepts to collections but what are the common the success criteria for being able to deploy successfully irrespective of the industry. My thoughts on this are : 1. Get the top man involved and sold. If you can not, do not waste your time on taking this any further. You might have some success but are bound for failure. 2. Recognize that there will be difference in every industry. For example the baseline calculation for a collection industry can not be a monthly average, there are seasonal trends, tax season collection will be higher. Factor these variance in. 3. Get or develop black belts from the industry. These should be people who understand the industry. 4. Do not get hung up on the methodology, six sigma or TQM or something else. End of the day, a structured problem solving approach is what we are talking about.
In conclusion, I would like to say that it is good to see a fruitful discussion, as we deploy tools in different industries or work environments let us be conscious that change is never easy, persistence and demonstrating the bottom line results works the best. End of the day six sigma is only tool which dependant on the skills of the people deploying it.
Comment from Doug Mancinelli - Strategic Directions - dlmancinelli@verizon.net on March 25, 2009 at 9:52AM EST
A very interesting dialog and positive exchange of pro and con ideas, with the exception of the anonymous ramblings about corporate greed, which added no value to the process. Ever since Deming made Total Quality Management (TQM) vogue with his transformation of post-war Japan, companies have understood that improving quality and reducing defects, lower expenses and improves profitability. Virtually every quality and “business optimization” movement started in the manufacturing sector, including Six Sigma (6S), largely because of the empirical data and the ability to set specific tolerances to eliminate defects. For many reasons, applying these concepts in the service sector is more challenging. It is also imperative, if you want to create a competitive advantage.
Fundamentally, processes run all business. If you take a logical, systematic approach to cut out waste and streamline processes, your business will run better and more profitably.
The article and dialog above focuses primarily on the collections aspect of the ARM industry. 6S and Lean initiatives can be effective in this area of the business. However if you overlook training agents on collection industry best practices, your successes will be limited. 6S and Lean are well suited for the back office in ARM firms, where numerous processes can be streamlined and optimized. Tackle the 20% that affect 80% of your revenue/expenses.
Basic Truths: • 6S, Lean, TQM, etc. are tools, not magical solutions. If you buy a hammer but don’t know how to use it, don’t get upset with the hammer. Teach your teams how to use the tools. • 6S does not have to be inflexible and ridged. Follow the DMAIC methodology but adapt it to your business. If you adapt your business to the methodology, you will fail. • Business evolves to meet the ever-changing needs of customers. Your processes need to change to keep pace and these tools allow you to change them effectively. • These initiatives are a process, not an event. It takes time to change behavior and 6S/Lean are very effective ways to manage and control business transformations.
Doug Mancinelli – Strategic Directions – dlmancinelli@verizon.net
Comment from Stu on June 2, 2009 at 12:07PM EST
From my experience, six sigma projects in the collection industry tend to be overkill. All that analysis never seemed to uncover revolutionary changes to increase productivity and uncover solutions that were previously unknown. All of those meetings, presentations and revisited projects and tied up resources amounted to lots of planning and no implementation. Requiring every manager to develop a project just for the purpose of obtaining a belt or entering a project in a contest just doesn't seem to be in the best interest of the company.
Comment from M on August 24, 2009 at 6:34AM EST
The article does not have anything fresh to offer and reiterates what has been well documented and known to six sigma fraternity with regards to deployment.
The case study that has been discussed, does not offer any level of insight and is as generic as the article itself and it does not really tell you anything.
Totally pointless.