WORKING PAPER

A COMPARATIVE REVIEW OF LEAN THINKING, SIX SIGMA AND RELATED

ENTERPRISE PROCESS IMPROVEMENT INITIATIVES

Kirkor Bozdogan

Lean Aerospace Initiative

Center for Technology, Policy and Industrial Development
Massachusetts Institute of Technology
Cambridge, Massachusetts

May 31, 2006

Acknowledgments: This paper has been motivated by discussions with many colleagues within the Lean Aerospace
Initiative (LAI) community. LAI is a consortium of major US aerospace companies, US government agencies led by
the Air Force, national labor organizations and the Massachusetts Institute of Technology (MIT) to help accelerate
the transformation of the greater US aerospace enterprise. The initial idea for the paper can be traced to probing
conversations with Cliff Harris some years ago, when he served as the first LAI Stakeholders Co-Director. Special
thanks are owed to Fred Stahl, who served as the second LAI Stakeholders Co-Director, and Earll Murman, the MIT
Co-Director of LAI for many years, for their useful comments on earlier drafts of the paper. The financial support
provided by LAI at MIT is gratefully acknowledged. The author alone is responsible for the accuracy of all facts,
statements, interpretations and conclusions presented in the paper. They do not in any way reflect the views of the
Lean Aerospace Initiative, the US Air Force and other government organizations, sponsoring companies or
organizations (individually or as a group), national labor organizations or the Massachusetts Institute of Technology.
The foregoing should be absolved from any remaining errors or shortcomings for which the author takes full
responsibility.

Contact: For more information, please contact the author at: bozdogan@mit.edu, Tel: 617 253-8540; Fax: 617 258-
7845

Massachusetts Institute of Technology, 2006

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 SUMMARY

In recent years, a growing number of firms in many industries have adopted Lean Thinking, Six
Sigma and related enterprise process improvement initiatives to achieve continuous performance
improvement and, often, to bring about enterprise-wide change and transformation. This paper
presents a critical comparative review of these initiatives to identify the similarities and
differences among them, highlight how they relate to each other, and assess their strengths and
weaknesses. The paper strives to provide an improved understanding of these initiatives to
enable enterprises -- both public and private -- develop better-informed change and
transformation strategies.

More specifically, the paper focuses on Lean Thinking, Total Quality Management (TQM), Six
Sigma, Theory of Constraints (TOM), Agile Manufacturing, and Business Process
Reengineering, roughly in the historical order in which they have been first introduced. These
cover the best-known initiatives for improving enterprise performance. They have been advanced
by their respective advocates as contending frameworks, models or strategic approaches for
bringing about planned systemic enterprise change. A high-level comparative overview of these
initiatives is given in the Summary Table. In particular, the paper concentrates on Lean Thinking
and Six Sigma, the two major change initiatives that have become widely adopted in recent
years.

A main conclusion of the paper is that Lean Thinking provides an overarching intellectual
architecture for the various systemic change initiatives, wherein they share common roots,
augment each other in significant ways, and generally comprise mutually-complementary
approaches. The various differences among them are dwarfed by their common characteristics.
Taken together, under the overall umbrella of Lean Thinking, they are rapidly merging into a
unified framework for bringing about fundamental enterprise-wide change.

In particular, Lean Thinking and Six Sigma share important common features. These include
focusing on the customer, reducing variation, continuous improvement, collaborative
relationships, proactive leadership and data-and-fact-driven management. Six Sigma, like Lean
Thinking, aims to achieve virtually defect-free production to meet exacting performance
specifications and customer requirements. Both place importance on improving the capabilities
of all people. They both have deep roots in terms of continuous quality improvement. They also
complement each other in significant ways. Among these, clearly the most important is the fact
that Lean Thinking stresses continuous flow and striving for perfect quality to achieve the
advantages of speed. Materials and information flow through the value stream, but defects do not
flow by design, since they represent rework and, therefore, waste. Six Sigma stresses quality
through elimination of all sources of variation. Therefore, Six Sigma directly complements Lean
Thinking through its emphasis on virtually defect-free products and processes. But a similar
conceptual link is missing in Six Sigma, where the concept of flow does not occupy such a
central role.

There are also some differences between Lean Thinking and Six Sigma. Lean Thinking strives to
optimize the entire enterprise value stream, by providing a holistic perspective. Such a holistic
systems perspective provides an important unifying framework guiding specific improvement

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initiatives. Lean Thinking encompasses a unified, mutually-reinforcing, set of enterprise-wide
principles and practices at all levels, linking the board room to the factory floor and providing an
end-to-end view of all enterprise operations spanning a defined enterprises entire value stream.
By contrast, Six Sigma, despite efforts in recent years to evolve it into an integrative
management system, largely stresses a generic problem-solving approach employed to
implement discrete improvement projects. These project-specific initiatives -- driven by their
respective cost-benefit criteria and pursued by multiple teams led by Black Belts or Master Black
Belts typically represent a collection of localized improvement efforts leading to many islands
of success; whether or how they scale-up into a coherent enterprise-wide transformational
framework remains an open question. Another example is that Lean Thinking concentrates on
elimination of waste, as well as on striving for perfect quality, to achieve continuous flow. By
contrast, Six Sigma basically concentrates on reducing all sources of variation; this helps to
eliminate waste stemming from the presence of variability, but certainly not all sources of waste
attacked on a broad scale by Lean Thinking. Six Sigma also helps to improve quality and speeds
up flow, but Lean Thinking employs a wider array of practices to achieve both.

In the final analysis, however, Six Sigma complements Lean Thinking. This is already being
recognized by a growing number of companies that have adopted integrated Lean-Six Sigma
change initiatives, combining Six Sigma quality with lean speed. More broadly, the various
large-scale change initiatives are becoming rapidly integrated into an emerging overall
conceptual framework driving enterprise transformation in the post-mass-production world. This
is not to say that they should all be classified as various specific species of Lean Thinking. In
fact, we may well look back many years from now and observe that the dominant emerging
model of fundamental enterprise transformation, replacing the mass production system, should
be more properly known by perhaps a different and broader designation that has fully
internalized the revolutionizing role of information technology. It is well to remember that it
took decades of evolution before basic principles of Lean Thinking finally became formalized in
terms of a coherent framework.

Finally, with the possible exception of Lean Thinking, the various enterprise change models
reviewed in this paper generally lack a coherent conceptual framework providing a causal
explanation of the structure and dynamics of enterprises. Also, while they place heavy emphasis
on process improvement, they lack a conceptual framework driving enterprise transformation.
Enterprise transformation is fundamentally different from achieving incremental improvement.
However, under fairly stable external market and technological conditions seeking continuous
improvement may be the right choice, leading to substantial organizational change over time.
But, more generally, when the enterprise is out-of-step with the pace of change in the external
environment or when the external environment is characterized by past-paced market shifts and
disruptive technological change, enterprise transformation would more likely require not
incremental change but discontinuous change, requiring fundamental change in terms of the
enterprises concept, structure and behavior.

Enterprise transformation is a complex process, requiring an understanding and management of a

large number of interdependent change processes orchestrated at multiple levels over time. The
various enterprise change models reviewed in this paper generally do not provide much guidance
on designing and managing complex enterprise transformation processes. The challenge of

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developing conceptual models of enterprise transformation and the necessary toolset for
accomplishing such transformation basic principles, simulation-based modeling, heuristics,
practices, methods and techniques still remains a major task ahead and represents the next
frontier.

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 SUMMARY TABLE
Summary Comparative Overview of Major Systemic Enterprise Change Models
Change Total Quality Theory of Agile
Model
Key Dimensions Lean Thinking Management Six Sigma Constraints Manufacturing Reengineering
Key Attributes Create value for multiple Meet customer Increase customer Improving net profits Enhance enterprise Improve enterprise
Goal enterprise stakeholders expectations, improve satisfaction and create competitiveness performance
and build dynamic profitability and increase economic wealth (higher
competitive advantage shareholder value profitability and shareholder
value)
Strategy Eliminate waste with the Improve product quality Reduce variation in all Remove constraints to
Anticipate and meet Radical change in
goal of creating value enterprise operations throughput in customer needs; provide processes for dramatic
production operations
high-quality, low-cost, improvement
innovative new products;
deliver individualized
customer solutions
Focus Enterprise value stream Business unit; production Enterprise operations Business unit Extended enterprise (all Business unit (business
(all enterprise processes, operations (products and (all enterprise processes) (production operations) enterprise processes, processes)
functions and people) processes) functions and people)
Implementation Value stream mapping Statistical process control DMAIC cycle Define, Improving throughput Integrate customers, Clean sheet process
Method and analysis (SPC); quality circles; Measure, Analyze, Improve, (drum-buffer-rope) suppliers and internal redesign Mobilization,
quality engineering Control processes; form virtual diagnosis, redesign,
organizations; create transition process
adaptive, flexible, efficient
manufacturing system;
pursue continuous process
improvement
Improvement Evolutionary systemic Continuous Process-specific Continuous Continuous incremental, Radical change
Process change incremental change incremental or radical incremental change as well as radical, change
change
History Since late 1940s Since early 1980s Since mid-1980s Since mid-1980s Since early 1990s Since early 1990s

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1.0 INTRODUCTION

Lean Thinking, Six Sigma and related large-scale enterprise change initiatives have been
embraced in recent years by a growing number of firms in many industries as the primary
approach for achieving continuous performance improvement, often with the aim of bringing
about enterprise change and transformation in order to create long-run competitive advantage.
This paper presents a comparative review of these change initiatives. In particular, the paper
presents a discussion of Lean Thinking, Total Quality Management (TMP), Six Sigma, Theory
of Constraints (TOM), Agile Manufacturing, and Business Process Reengineering roughly in
the historical order in which they were first introduced and presents a critical comparative
assessment of their similarities and differences, how and where they are linked together, and how
they individually stack up against each other. The paper concentrates on Lean Thinking and Six
Sigma, two major change initiatives that have become quite widely adopted in recent years and
that would benefit, in particular, from a closer comparative examination. A common framework
is employed for conducting a comparative assessment of the various change initiatives.

The paper omits any detailed discussion of various performance assessment frameworks -- such
as the Capability Maturity Model Integration (CMMI) system developed by the Software
Research Institute at Carnegie Mellon University, the ISO 9000 standards, the Balridge award
criteria for manufacturing excellence, and related methods that are typically used to gauge
compliance with defined practices or standards of performance, progress towards pre-defined
levels of capability achievement, or levels of excellence. These methods, in themselves, do not
represent enterprise change models. Rather, they have been developed to gauge progress towards
achieving continuous improvement or enterprise transformation, typically driven by employing
some combination of the enterprise change initiatives discussed in the paper.

Even though these enterprise change initiatives have been widely embraced, they are often not
too well understood. There also exists considerable confusion on how they relate to each other. It
is expected that a clearer comparative understanding of these change initiatives will help
companies and enterprises of all types to develop better-informed change strategies to
achieve significant performance improvements. This paper is intended to contribute to such an
improved understanding. It is also hoped to pave the way towards the development of a common
perspective and shared vocabulary on the various change initiatives

Each of these enterprise change initiatives has been introduced in recent decades as the
preferred framework or model for bringing about enterprise change. Each has been introduced,
at different points or concurrently, as a contending approach, replacing the prevailing enterprise
change paradigm. Each has been advanced as the more potent approach that alone holds the key
to greater enterprise success by offering, at least implicitly, a more insightful grasp of the
underlying causes impeding greater enterprise efficiency and effectiveness. When viewed
through the long eye of history, these enterprise change models actually represent quite
complementary efforts to respond to the unfolding external industrial order following the gradual
dissolution of the mass production system. They represent, more generally, means of enterprise
adaptation to succeed in an evolving environment of business, institutional and technological
change.

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At a fundamental scientific level, one would expect a remedy being offered, such as a particular
medicine prescribed to cure a specific medical problem, to reflect a basic understanding of the
causal dynamics of the system in need of improvement. A similar expectation in the case of
enterprises would seem quite logical. It is thus reasonable to ask of any enterprise change
initiative or model what basic causal explanation of enterprise failure it posits, before one can
decide whether it, in fact, offers the cure needed. Whether and to what extent these change
models, at their core, offer coherent causal explanations of the dynamics of enterprise change
and adaptation is a large question not settled in this paper. By extension, the paper also skips
over the basic question of whether sensible change strategies can in fact be fashioned for
enterprises, seen as complex adaptive systems, in the absence of a coherent science of
enterprises. Nevertheless, it is conjectured that these change initiatives, through a learning-by-
doing process, might help raise the right types of questions towards gaining deeper insights that
might some day result in a science of enterprises and, therefore, in a science of enterprise
change.

The paper is organized as follows. The next section provides a description of the framework that
is developed and used for conducting an objective comparative assessment of the various
enterprise change models. This is followed by a comparative discussion of the various enterprise
change models. Since a detailed exposition of each of the various change models can be found in
numerous references, the discussion here is focused on a concise distillation of their main
attributes. The paper then presents a comparative assessment of the various enterprise change
models and provides a synthesis of key findings, while concentrating on a closer examination of
Lean Thinking and Six Sigma. Finally, a number of concluding observations are offered and
their wider implications are explored. A list of the key references is provided at the end of the
paper.

2.0 COMPARATIVE ASSESSMENT FRAMEWORK

A common analytical framework, employing a number of criteria or key dimensions, is used as a

general guide in conducting a comparative assessment of the various change initiatives. They
encompass: the goal (e.g., expected outcomes), including the basic underlying concepts;
proposed change strategy; focus of the planned intervention; the method employed to implement
the proposed strategy; and the nature of the improvement process. These criteria are described
more fully below.

Goal: What is the overriding purpose or objective that is sought? What are the basic
organizing ideas, concepts or principles? Are these principles grounded in theory or do they
represent informed speculations? What is the overall outcome expected to be achieved?

Strategy: What is the proposed strategy for bringing about the intended change? For
example, what is the proposed method or approach?

Focus: What is the central focus of the intended improvement or change? For example, is the
initiative focused on improving manufacturing processes alone or does it encompass total
enterprise change?

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 Implementation method: What are the tactical and operational implementation practices and
methods for bringing about the intended change?

Improvement process: How continuous or discontinuous is the intended improvement

process? For example, does the change strategy involve incremental or radical improvement?

These five criteria or dimensions together provide a common set of lenses through which to
provide an objective review and evaluation of the respective change models. They are used not
as a structured framework but primarily as a general guide.

3.0 A REVIEW OF LEAN THINKING, SIX SIGMA AND OTHER ENTERPRISE

PROCESS IMPROVEMENT INITIATIVES: A COMPARATIVE REVIEW

This section presents a discussion of the various initiatives by using the assessment framework
just presented as a general guide. The discussion concentrates on the evolution and main
characteristics of each of the individual change models, while at the same time drawing attention
to their important similarities and differences, how they relate to each other, and their strengths
and weaknesses.

3.1 Lean Thinking

Lean concepts can be traced to the evolution of the Toyota production system in the decades
following World War II.1 Lean represents a new and fundamentally different way of thinking
about modern industrial enterprises. Lean thinking is the dynamic, knowledge-driven and
customer-focused process by which all people in a defined enterprise continuously eliminate
waste with the goal of creating value.2 Value creation is a central concept in lean thinking, to
build robust, adaptive, flexible and responsive enterprises. This is in sharp contrast with the
rather narrow view that lean is primarily about eliminating waste, which can only lead to a state
of anorexic lean a sure recipe for disaster.

Value creation also differs from the traditional view of lean concentrating on delivering value
economic utility, worth or satisfaction to the customer. In fact, value delivery may well miss
the mark if it is not preceded by two essential, prerequisite, steps: value identification, which
involves identifying the stakeholders and their value needs or requirements, and value
proposition, which defines the terms under which value exchanges among the stakeholders can
take place such that the enterprise, shareholders, the workforce, suppliers, customers and other
stakeholders will contribute their efforts or resources in return for the benefits they can expect to
derive from their engagement. In reality, of course, value identification, value proposition and
value delivery phases of the value creation process are closely coupled and highly interactive,
rather than being sequential. Also, the idea of stakeholders is more broadly inclusive, even
though focusing on the customer remains a critical feature of lean thinking.3

Lean Thinking, driven by the value creation framework just outlined, rests upon a set of
mutually-reinforcing tenets or organizing principles4:

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 Focus on the customer Make sure that customer needs and expectations act as a pull on all
enterprise activities.

Eliminate waste with the goal of creating value Eliminate all forms of waste throughout
the enterprise value stream not narrowly to reduce costs, increase efficiency and improve the
bottom line but with the goal of creating value for all stakeholders (customers, shareholders,
workforce, suppliers, community and other stakeholders) on a sustained basis in both the
short-run and the long-run, by concentrating on delivering best lifecycle value as defined by
the customer.

Pursue knowledge-driven enterprise transformation Make optimal use of the ideas and
efforts of the entire workforce to achieve evolutionary enterprise-wide change leading to
enterprise transformation.

Foster a dynamic process of change and capability-building -- Pursue a proactive,

relentless, process of on-going change and capability-building to ensure the creation of a
robust, adaptive, flexible and responsive enterprise that can withstand failure in specific
enterprise elements, adapt to external shifts, and respond quickly to changing market
conditions and technological advances, with the goal of evolving sustained competitive
advantage.

These basic principles reflect an updated view of lean enterprises as complex enterprise networks
operating in an environment where competition between individual companies is replaced by
competition between networked enterprises. That is, lean enterprises are viewed as purposeful
complex adaptive networked socio-technical systems organized to create value for their multiple
stakeholders by performing their core missions, functions or businesses serving societal ends.5
This reflects the recognition of a growing confluence between the emergence of networked lean
enterprises and the theory of complex adaptive systems and networks.6 Such a view of
enterprises means a mental shift away from the arms length, adversarial, transaction-intensive
relationships characterizing traditional vertical enterprises to those reflecting interorganizational
collaboration, learning and innovation in the form of networked enterprises.7

A number of overarching practices translate these tenets or basic principles into action8:

Synchronize flow throughout the value stream Establish flow and pull throughout the
value stream to achieve continuous flow of value pulled by customer needs and expectations.

Pursue an adaptive product development process Adopt an adaptive process of

designing, developing and integrating products, processes, technologies and supplier
networks to reduce cycle time and deliver proven capabilities to customers that can be
incrementally improved and perfected over time by linking learning-by-using to learning-
by-doing.

Ensure seamless flow of information Provide systems and processes for seamless and
timely exchange of pertinent information throughout the enterprise value stream.

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 Strive for perfect quality Design quality-in into new products, ensure process capability
and maturation, and continuously challenge existing processes in pursuit of achieving perfect
quality.

Promote leadership and effective decision-making at all levels Align and clearly
communicate enterprise-wide goals, objectives and metrics; design organizational structures
and management systems for effective decision-making at the point of need, action or
knowledge; empower leadership and decision-making not to avoid risks but to manage risks;
and ensure an informed workforce actively participating in shaping the enterprises future.

Optimize the capabilities and utilization of all people Provide for on-going training and
education of the entire workforce as a precious asset to be nourished and productively
deployed to enhance overall enterprise performance in an environment of job security,
mutual commitment and partnership.

Nurture organizational learning Create an environment conducive to organizational

learning and development of the enterprises collective tacit knowledge base that can be
codified and deployed to enhance enterprise-wide performance.

Foster innovation and integrate knowledge across the enterprise value stream Provide
incentives and business models for on-going innovation across supplier networks, and
effectively capture and deploy knowledge across the extended enterprise encompassing the
supplier base to improve network-wide performance.

Establish relationships based on mutual trust and commitment Develop collaborative

relationships throughout the enterprise value stream, while balancing cooperation and
competition, to enable value identification and creation of robust value propositions and to
ensure the delivery of value to all stakeholders in an environment of shared purpose and
mutual gain.

Lean Thinking principles can be deployed at the enterprise level by employing a family of tools
developed by the Lean Aerospace Initiative.9 These tools go well beyond a number of lean
implementation tools developed earlier that focus more directly on manufacturing processes.10
Among these methods, value stream mapping has emerged as a powerful technique for
identifying and eliminating waste in value streams associated individual products or product
families. A product or service value stream is defined as the set of end-to-end and linked
actions, processes and functions necessary to transform raw materials and other resources into
finished products or services delivered to the customer.11 Value stream mapping is used to
develop a visual understanding of the flow of materials and information as a product moves
through the value stream.12

Even though Lean Thinking did not become established in the Western world until the 1980s and
1990s, basic lean principles focusing on manufacturing had already evolved over many decades
since the late 1940s. Two principal publications were instrumental in introducing lean thinking to
Western audiences. The first was The Machine that Changed the World by Womack, Jones and
Roos (1990)13, which summarized the results of the International Motor Vehicle Program at MIT

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during the previous five-year period. The second was Lean Thinking (1996) by Womack and
Jones (1996).14 Womack and Jones reformulated and streamlined the core lean concepts that had
evolved earlier into a structured change process, enabling their effective implementation in an
on-going production environment. In this reformulation, lean thinking is presented as an antidote
to muda (waste), converting muda into value, stressing the how-to aspects of lean
implementation. Lean thinking was defined by Womack and Jones to encompass four major
steps: specify value, identify the value stream, make the value-creating steps for specific
products flow continuously, let the customers pull value from the enterprise, and pursue
perfection.

This reformulation can be summarized as follows:

Value The starting point for lean thinking is value as defined by the end customer. Value is
defined in terms of specific products and services having specific capabilities offered at
specific prices to specific customers.

Value Stream Mapping the value stream for each product provides a basis for performing an
in-depth analysis of each of the individual actions in the value stream. Each action is
classified into one of the following categories: (a) it unambiguously creates value, (b) it
creates no value but is unavoidable given the current capabilities within the company, and
(c) it creates no value and can be eliminated immediately. Actions in categories (a) and
(b) are analyzed further through the use of value engineering, in an effort to improve the
action as much as possible, eliminating unnecessary expenditures of resources.

Flow Once the wasteful actions along the value stream have been eliminated to the maximum
extent possible, the next step is to make the remaining, value-creating steps flow. The
primary challenge is to discard the batch-and-queue mentality prevalent in mass
production and install small-lot production. The ultimate goal is to implement batch sizes
of a single unit. Flow is best achieved by discarding traditional functional organizations
and by replacing them with integrated product teams organized along the value stream.

Pull Conceptually, the customer pulls the product from the enterprise rather than the
enterprise pushing the product onto the customer. This pulling action cascades
upstream, all the way to the supplier network. A production system is organized
according to the just-in-time principle, implemented by using the kanban system.
Employment of total quality management (TQM) roots out all defective work. JIT is
supported by production smoothing, standardization of operations, reduction in setup
times, single piece flow and rearrangement of production operations into work cells.

Perfection Companies that have implemented lean principles and practices find that there is
no end to the process of reducing waste and continually improving the product and
service delivered to the customer. Consequently, the pursuit of perfection entails a
continuous process of radical and incremental improvement in terms of removing waste
and eliminating effort, time, space and errors.

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The book Lean Thinking has helped to popularize main lean concepts in a way easy to
understand and implement across many industries. In addition to its contribution to wider
dissemination of lean ideas, the book has also elevated the concept of the value stream into the
lean lexicon a borrowing and broadening of the idea of the value chain introduced earlier by
Porter.15 In discussions of value streams and value chains, there is often an underlying
assumption of perfect congruence of the value systems of all the stakeholders and enterprises that
are linked together to deliver value to the customers. In the real world, asymmetrical power
relationships and the fact that any given enterprise may be embedded in multiple value streams
with their respective pulls and tugs may not result in such perfect harmony.16 Beyond these
critical issues, however, has loomed the even larger problem of demand variability. To make
lean concepts operationalizable in its formative years, lean thinking has had to rest on stability in
operations often accomplished through production leveling or smoothing. This may have been
a necessity in the pre-information technology era, but is hardly the answer for todays super-fast-
response industrial world with its highly variable market environment.

In summary, the goal of Lean Thinking is to eliminate waste in order to create value for multiple
enterprise stakeholders. Efficient creation of value requires not only improving all processes but
also optimizing the capabilities and utilization of all people. Efficient creation and delivery of
value also requires a focus on the entire enterprise value stream the interconnected chain of
processes, activities and webs of companies involved in delivering value to the ultimate customer
and, of course, to all stakeholders. The concept of continuous flow throughout the enterprise
value stream occupies a central unifying theme in lean thinking. Pull-based single piece flow
through the factory, for example, is a basic lean manufacturing practice the traditional core of
lean thinking. Materials and information flow, from one station to the next, but defects do not
flow by design, since defects represent rework and a major source of waste. In this sense, striving
for perfect quality which makes continuous flow possible -- is integral to lean production. Of
critical importance, Lean Thinking stresses speed, through its emphasis on continuous flow. Of
course, neither continuous flow nor speed would be possible without striving for perfect quality.
In this sense, Total Quality management (TQM) and Six Sigma level quality, are critically
important enablers of Lean Thinking. When all of these mutually-positively-reinforcing pieces
are put together, the larger mosaic that emerges is a powerful evolutionary model for bringing
about systemic change, embracing the whole enterprise. In this sense, lean represents more than
simply an aggregation of a series of incremental improvements defining a process of continuous
improvement.

3.2 Total Quality Management (TQM)

Total quality management (TQM) programs took the corporate world quite by storm in the 1980s
and continue to serve as an important means of meeting customer expectations (e.g., product
performance, reliability, durability, aesthetics, perceived utility) by improving the efficiency of
the organization its products, processes, and services. Concern with quality, of course, has long
been a part of human history. Over many centuries, individual craftsmen inspected their own
products as they were made. Granted, no two products were exactly alike and product variability
was taken for granted, but each individual product received special attention to ensure that it
would meet the customers needs. A fundamental change took place, however, at the beginning
of the twentieth century with the rise mass production: a whole army of specialists assumed the

12
task of inspecting products after they were made inspecting-quality-in. This meant, of
course, that defects were inevitable. A folklore, thus, was built that production and quality were
incompatible that you could not have both, since pushing for higher quality would mean falling
behind in production and would thus cost more.

The power of Lean Thinking was that it proved this piece of folklore or myth wrong, by
showing that one could have both higher quality and higher productivity. Main ideas came from
work on quality control during World War II at Bell Laboratories, focusing on statistical process
control (SPC) principles. These ideas found their way into Japan right after the war, carried by
Japanese engineers who studied the literature on quality control supplied by engineers from the
Bell Laboratories who were then working on the staff of Gen. MacArthur in connection with the
assistance provided to Japan to demilitarize the country and rebuild its industrial base.17 During
this period, W. Edwards Deming, an American statistician and management expert whose
principles became widely embraced by many Japanese companies played a central role.18 Also,
starting in the 1940s, Taguchi developed his system of quality engineering for robust design,
paving the way for designing-quality-in early in the product development process to optimize
customer satisfaction.19 With the emergence of quality circles and a culture of continuous
improvement, ensuring quality became an integral part of the lean production system.
The dramatically new approach to quality did not become apparent to U.S. companies until about
the 1980s, when the inroads made into the U.S. domestic market by Japanese producers
highlighted the importance of a new way of thinking about quality. The new quality movement
culminated in the establishment of the Baldrige National Quality Award Program in 1988 to
recognize performance excellence by U.S. organizations toward improving national
competitiveness.20

The bloom of the Baldrige Award gradually lost its original luster, however, when reality caught
up with expectations. Several early winners ended up showing questionable performance soon
afterwards. A great deal of effort focused on documentation of merit for the award, detracting
from its underlying purpose. Many came to believe that quality was a destination to reach, like
winning a trophy, and they could go back to their former ways of doing business after having
won the award.21 In addition, quality has remained a word with many shades of meaning, with as
many means of realizing it. On the whole, departmentalization of quality initiatives and their
lack of integration with core activities, leadership apathy, unclear goals, emergence of quality
enforcers, the failure to break down internal barriers to change, emphasis on incremental rather
than on significant improvement, ineffective training, and focus on product or process quality
rather than on the quality of services, logistics and customer support, all conspired to relegate
TQM into yesterdays headlines although it is still alive in many organizations and provides a
positive impetus for performance improvement.22

3.3 Six Sigma

In 1995, Jack Welch, the long-time Chairman of General Electric, proclaimed that Six Sigma
was the most important initiative GE had ever undertaken. He likened it to the genetic code of
GEs next generation of leadership. What was so compelling about it about Six Sigma? An
immediate answer can be found in the story of Motorola. In the early 1980s, Motorola was being
battered by the competition from Japanese companies. In 1988, Motorola became the first

13
recipient of the Baldrige National Quality Award, formally presented by President Reagan.
Motorola had achieved one of the most dramatic corporate comebacks in a relatively short period
of time. Much of the success was attributed to Motorolas crusade for quality, which spawned its
now famed Six Sigma initiative.

The basic idea driving Motorolas Six Sigma initiative was a simple one: identify and reduce all
sources of product variation machines, materials, methods, measurement systems, the
environment (or mother nature), and the people in the process. The idea is not new it can be
traced to the genesis of Lean Thinking and the more recent origins of total quality management
(TQM) that is, it has its roots in the application of probability theory to statistical quality
control. At a technical level, Six Sigma is aimed at achieving virtually defect-free operations,
where parts or components can be built to very exacting performance specifications. Underlying
Six Sigma as a statistical concept is the construct of standard deviation (denoted by the Greek
letter , or sigma), which is a measure of dispersions around the mean. Reducing variation to the
six sigma level means reaching a performance level of 99.99966 percent perfection (3.4 defects
or nonconformances per million opportunities DPMO23). This means virtually defect-free
production, where a defect is defined any instance or event in which the product fails to meet a
customer requirement.24 The sigma level is also used as a measure of the manufacturing
capability level of individual enterprises, denoted by cpk -- the manufacturing capability index,
which is a gauge of the degree to which the system can produce defect-free products.25 For
example, the six sigma level of performance corresponds to a cpk level of 2.26 Thus, at its core
Six Sigma is essentially a technically-rooted concept.

Although Six Sigma has its genesis in the application of probability theory to statistical quality
control, its importance reaches beyond its narrow technical moorings. Its reach has widened in
recent years to encompass an integrative management tool for achieving continuous
improvement across the entire enterprise. It provides a means for measuring performance across
different processes and thus for driving performance improvements across the enterprise. It also
serves to connect performance measures at lower levels in an enterprise to higher-level corporate
objectives, thus providing a broader management method. Six Sigma places special emphasis on
tangible cost savings achieved through the successive improvement of quality (ultimately to a
level of six sigma perfection). As its proponents have observed, Six Sigma is a disciplined
business process that allows companies to drastically improve their bottom line by designing
and monitoring everyday business activities in ways that minimize waste and resources while
increasing customer satisfaction.27 The ultimate goal of Six Sigma is not improvement for
improvements sake but rather the creation of wealth for the customer and provider alike.28

General Electric and several other organizations have used Six Sigma as a structured
management tool, by following a five-phase cycle: define customer requirements and develop a
map of the process to be improved; measure identify key measures of effectiveness and
efficiency, and translate them into the concept of sigma; analyze the causes of the problem
requiring improvement; improve generate, select and implement solutions; and control ensure
that improvement is sustained over time.29 This process or DMAIC is grounded in the well-
known Deming Plan-Do-Check-Act cycle (PDCA), which describes the basic data-based
improvement process.30

14
It is maintained that beyond generating immediate performance improvements, Six Sigma
represents a strategic weapon for fundamentally changing the way corporations do business,
based on the concept of value entitlement. By value entitlement is meant that companies
have a rightful claim to producing quality products at the highest profits, while customers have a
similar claim to buying high-quality products at the lowest possible cost.31 It is not clear,
however, how Six Sigma enables companies to reconcile these seemingly diametrically-opposed
expectations.

Whereas the goal of Lean Thinking is to eliminate waste in order to create value for all enterprise
stakeholders, the goal of Six Sigma is to minimize process variability and increase customer
satisfaction in order to create wealth. Creating value and creating wealth are not necessarily
synonymous. A basic question is who receives the benefits. In Lean Thinking, value is created
and delivered to multiple stakeholders. This typically encompasses not only the customers and
shareholders but also, for example, the enterprise itself, the workforce, and the supplier network.
In Six Sigma, the wealth that is created may more narrowly benefit the shareholders as well as
the enterprise itself, which may well need to retain part of the wealth that is created for
reinvestment to ensure its long-term survival and success. It can similarly be argued that lean
enterprises, as well, need to retain part of the wealth that is created for reinvestment and
innovation in order to prosper and succeed over the longer haul. Thus, such a difference between
Lean Thinking and Six Sigma is perhaps more nuanced, upon closer inspection. Six Sigma,
unlike Lean Thinking, does not seem to evidence an explicit understanding of the concept of
value creation and delivery to multiple stakeholders.

The differences between Lean Thinking and Six Sigma are perhaps even more pronounced in
terms of their overall scope. Lean Thinking encompasses the entire enterprise value stream. In
contrast, Six Sigma is less specific about its scope, concentrating more narrowly on specific
improvement projects within a corporation or firm. That is, the concept of the enterprise value
stream is not clearly understood or explicitly recognized in the Six Sigma context. Although
process mapping -- however circumscribed in its application -- is an established part of the Six
Sigma implementation toolkit,32 it does not have the conceptual power of value stream mapping
and analysis. By extension, the notion of the extended enterprise, encompassing the supplier
network and the need to enhance network-wide performance in order for the core enterprise to
create and deliver value to its multiple stakeholders, is not a well-established conceptual building
block of Six Sigma. The emphasis on supplier integration in Six Sigma, such as it is, appears
largely limited to ensuring that suppliers have the required process capabilities.

Lean Thinking and Six Sigma also differ further in terms of their central focus. For example,
Lean Thinking concentrates on elimination of all sources of waste in order to achieve continuous
flow and, therefore, to leverage speed as a key competitive advantage. By contrast, Six Sigma
focuses on reducing all sources of variation. To be sure, reducing sources of variation also
eliminates waste and reduces cost. However, reducing variation does not necessarily eliminate
all sources of waste, which is of central importance in Lean Thinking. In the same vein, the
emphasis in Six Sigma on reducing variation certainly helps to improve quality. Lean Thinking,
too, puts considerable emphasis on improving quality not only by reducing variation but also by
utilizing a much wider array of tools and methods. In addition to a number of tools that are
common to both (e.g., root cause analysis, mistake proofing [poka-yoke], failure modes and

15
effects analysis, design of experiments, statistical process control), Lean Thinking draws upon a
wider array of tools and methods to improve quality (e.g., quality circles, critical to team-based
continuous improvement driving Kaizen or the continuous improvement process; standardized
work [not only to speed up flow but also to reduce rework]); total productive maintenance).

Another way of looking at Lean Thinking and Six Sigma involves the nature of change they
respectively pursue. Lean represents aggressive evolutionary process of systemic change,
embracing the whole enterprise, leading to enterprise transformation. This is different in kind
and degree from a series of incremental improvements leading not to significant changes but
resulting mostly in marginal performance improvements. Six Sigma, as well, espouses
evolutionary systemic change rather than simply a process of on-going incremental
improvement. However, in Six Sigma discussions of change initiatives are often quite localized
and process-specific -- how they fit into a broadly conceived, structured, process of enterprise-
wide transformational change is often left quite obscure at best. Still, this may not mean that Six
Sigma shies away from transformational change or that it ignores a holistic enterprise-wide
outlook. In fact, many of the companies often cited in connection with Six Sigma
implementation (e.g., Motorola, AlliedSignal [now Honeywell], General Electric, Raytheon) are
also those that have attempted to bring about fundamental enterprise-wide changes.
Nevertheless, the conceptual framework driving Six Sigma cannot be said to be scalable to
achieving enterprise-wide transformation. The basic Six Sigma deployment tool DMAIC
appears to represent more of a generic problem-solving approach applied to whatever domain,
project or problem that may need to be addressed. In this respect, Six Sigma fails to offer the
wide array of conceptually-grounded and differentiated tools and methods Lean Thinking
provides to address change management issues at multiple domains and levels across the
enterprise.

Further, Lean Thinking is concerned not only with improving all processes but also with
optimizing the capabilities and utilization of all people. Six Sigma, too, is concerned with
improving all processes, but its emphasis on people appears comparatively less pronounced even
though it, too, believes in the importance of enabling the participation of front-line workers to
achieve continuous improvement. In Six Sigma, change is often achieved through the highly-
specific, process-focused, efforts of a large of large number of teams led by Black Belts trained
in Six Sigma principles, practices and tactics. How the disparate efforts of these many localized
teams are coordinated to bring about coherent, integrated, systemic change throughout the
enterprise remains an open question, however. In the absence of a compelling enterprise-wide
perspective or roadmap for change, one is tempted to see the many localized change initiatives,
driven by their respective cost-benefit criteria and reward systems, as basically isolated instances
of change which are not necessarily connected to each other. Such change initiatives may result
in islands of success leading to local optimization rather than system optimization. In the final
analysis, Six Sigma does not appear to address, head-on, the central issue of the basic
interdependence of many change processes across a defined enterprise.

The differences between Lean Thinking and Six Sigma, as well as where they are strongly linked
together, become sharper at the tactical level. Let us consider, for example, the concept of flow,
which occupies a traditionally central role in Lean Thinking. Pull-based single piece flow
through the factory, for example, is a basic lean manufacturing practice. Materials and

16
information flow, from one station to the next, but defects do not flow by design, since defects
represent rework and, therefore, a major source of waste. In this sense, striving for perfect
quality which makes continuous flow possible -- is integral to lean production. However, a
similar conceptual link is missing in Six Sigma, where the concept of flow does not occupy such
a central role. While Lean Thinking stresses speed, through continuous flow, Six Sigma stresses
quality, through elimination of sources of variation. But it is difficult to imagine how one would
go about reducing the sources of variation without employing basic lean manufacturing
practices, such as standard work.

Despite these in some cases quite sharp differences, Lean Thinking and Six Sigma share
certain important common features which, by comparison, dwarf the observed differences. These
include focusing on the customer, reducing variation, continuous improvement, collaborative
relationships, proactive leadership and data-and-fact-driven management. They also complement
each other in significant ways. Among these, clearly the most important is the very fact that
continuous flow and, therefore, the advantages that derive from speed is made possible by
striving for virtually perfect quality. Lean Thinking, by definition, stresses both speed and
quality and it, too, is intolerant of failure. This observation can be used to consider Six Sigma as
a special case of Lean Thinking. However, the fact remains that Six Sigma pursues virtually
perfect quality with a particular single-mindedness. In this respect, it may be more useful to think
of Six Sigma as providing an obvious booster shot into Lean Thinking. In the final analysis,
Six Sigma complements Lean Thinking. This is already being recognized by a growing number
of companies that have adopted integrated Lean-Six Sigma change initiatives, combining Six
Sigma quality with lean speed.33

3.4 Theory of Constraints

The Theory of Constraints (TOC) has been evolved by Goldratt, a physicist by education, in a
series of publications over the past two decades.34 The main motivation for developing the
Theory of Constraints appears to have been Goldratts disenchantment with Just-in-Time (JIT)
a common earlier description of the Toyota production system and Total Quality Management
(TQM). According to Goldratt, TOC represents a paradigm shift to make up for the failure of JIT
and TQM. In particular, JIT and TQM are viewed to have failed by not helping much in
stimulating the needed change. Both are viewed with some dissatisfaction by Goldratt , since
they have not done much to help management change to the new style required to cope with this
new scale.35 The reason given is that these enterprise change models concentrate on the cost
world rather than on the throughput world. That is, they strive to reduce operating and
inventory cost. Thus, they are thought to offer a limited opportunity for on-going improvement.
Substantially more performance improvements can be obtained by focusing on throughput,
largely ignored which by both JIT and TQM. Also, both of these change models are perceived to
have a tenuous connection to the companys bottom-line financial performance.36

Neglecting for the moment whether these observations are in fact correct, it is worth pointing out
that the important contribution of the Theory of Constraints has been its recognition at a
conceptual level that systems should be viewed as chains of interdependence and that systems
contain leverage points constraints where proactive change initiatives can deliver large
positive effects on overall system performance. A deeper understanding of the thinking behind

17
the Theory of Constraints can be developed by focusing on three key variables: throughput,
operating expense, and inventory. Throughput is defined as the rate at which the system
generates money through sales. This is more precisely defined as sales revenues minus the cost
of all purchased parts and materials from suppliers as well as an assortment of related costs (e.g.,
subcontracting, customs duties, transportation costs). Operating expense is all the money the
system spends in turning INVENTORY [more broadly, investment brackets added] into
THROUGHPUT (sic). Inventory -- a subset of the investment that is transformed into
Throughput and generates a return for system37 -- is the money the system invests in purchasing
goods and materials. Throughput minus operating expense equals net profits. This is considered
the central measure of enterprise performance. It then follows that throughput must be increased,
while investment and inventory, as well as operating expense, must be reduced to improve
enterprise performance.38 It is then argued that in a throughput world of numerous variables
and interdependencies, attention must be focused on the weakest link which represents the real
constraint to improving flow and, therefore, to improving throughput.39

The overarching implementation framework that is offered (called the Ten-Step Decalogue): 40

(1) Establish the goal of the system, the units of measurement and the operating measurements;
(2) Understanding the system;
(3) Making the system stable;
(4) Identify the constraint and carry out five focusing steps;
(5) Implementing buffer management;
(6) Reduce the variability of the constraint and the main processes;
(7) Creating a suitable management structure;
(8) Eliminating the external constraint: selling excess capacity;
(9) Set up a continuous learning program.

The central focus on throughput leads directly to concentrating on system bottlenecks physical
(e.g., bottleneck in a plant), logistical (e.g., supplier response time), managerial (e.g., policies.
rules, the cost accounting system) and behavioral (e.g., certain activities of people that may not
be well aligned with the enterprises goal). It is posited that typically one bottleneck represents
the weakest link in the chain. To concentrate efforts on these bottlenecks, five focusing steps
are offered: (1) identify the systems constraints; (2) decide how to exploit the systems
constraints; (3) subordinate everything else to the above decision; (4) elevate the systems
constraint; (5) if, in the previous steps, a constraint has been broken, go back to step one; and (5)
if, in the previous steps, a constraint has been broken, go back to step one, but do not allow
inertia to cause a systems constraint41 (where the last step is an expansion of Step 5).

The Theory of Constraints also includes the Thinking Process (TP), which has been designed to
help people learn better and faster enabling them to achieve continuous learning. The Thinking
Process addresses three key questions: (1) what to change (by developing a current reality tree
to identify root causes of the current problem); (2) what to change to (by addressing the
evaporating cloud to expose current conflicts and to break deadlocks, as well as by developing
a future reality tree to check if the solutions offered by the evaporating cloud will eliminate
the systems); (3) how to change (by developing the prerequisite tree to identify the obstacles to

18
change and by developing the transition tree to identify the specific actions needed for
accomplishing change).42

The approach proposed by the Theory of Constraints to workflow management familiar in lean
thinking through steps such as the application of takt time, cellular manufacturing, and single-
piece flow is the drum-buffer-rope method, borne out of a skepticism about the ability of JIT
(lean thinking) to develop a continuous flow system. The drum determines the pace of the
system, similar to takt time in lean manufacturing, buffer is the time interval required to
protect the manufacturing line against unknown disturbances (e.g., tool breakdown, worker
absence, out-of-control process generating scrap), and rope serves as the simple
communication device that links the timing of material release into the manufacturing system to
make sure that the capacity-constrained-resource is not flooded with work that it cannot
process.43

The Theory of Constraints represents a somewhat different approach to the challenge of

achieving continuous flow through its emphasis on throughput but it is highly complementary to
the principles and practices of lean thinking. As in lean thinking, it strives to speed up the flow
process by removing bottlenecks. Also, as in lean thinking, it strives to bring about continuous
improvement. In addition, the importance it places on continuous learning is in tune with lean
thinking. However, its initial claim that lean thinking concentrates solely on cost reduction is
fundamentally erroneous. Obviously, value stream mapping and analysis is no stranger to the
identification and removal of bottlenecks in the system, just as it can help identify and remove
waste throughout the value stream. Further, its claim that lean thinking is not capable of
generating substantial performance improvements remains basically unsubstantiated. Moreover,
its emphasis on net profits as the key measure of overall enterprise performance, or its equivalent
in the non-commercial world, represents perhaps a necessary but certainly not a sufficient
criterion for assessing overall enterprise performance. Unlike lean thinking, which takes a
broader systems view of the entire enterprise value stream encompassing, rather importantly,
the enterprises supplier network --, the Theory of Constraints appears content with improving
the financial health of the core enterprise. In the final analysis, the Theory of Constraints
represents a constrained conceptual framework for managing todays complex enterprise
networks.

3.5 Agile Manufacturing

The agile manufacturing model, which also came into prominence in the early 1990s, has been
advanced to explain the new industrial order following the unraveling of the mass production
model and to provide a conceptual framework for guiding enterprises to enhance their
competitiveness in a new market environment. Agile manufacturing strives to accomplish these
objectives by going well beyond what could be learned from lean ideas, flexible production
systems, and other attempts at defining the next industrial paradigm. Agility is defined as
the ability to thrive in a competitive environment of continually and unpredictably changing
market opportunities.44 Agility is seen as being dynamic, proactively embracing change
(sometimes radical change), adaptive to changes in the external environment, and an open-ended
journey in the sense that there is no point at which a company or an individual has completed
the journey to agility.45

19
Agile manufacturing has been proposed as a new vision to guide U.S. manufacturers, providing
the basis for highly adaptive, flexible, and efficient manufacturing practices, in the product
development cycles as well as in manufacturing.46 While proponents of agile manufacturing
acknowledge a common foundation with lean thinking, they claim, for instance, that agile
manufacturing takes the additional steps of reducing product development time and allowing for
considerable customization of product features.47 Agility further requires a careful integration
or alignment of people, technology organizational elements and business processes, to ensure
that all parts of the organization pursue a common goal48 and that the entire organization is
tightly run, well coordinated and provides effective support for its manufacturing operations.
Production assumes the central, dominant role in the organization, with other functions providing
supporting roles.

At its core, agility is envisioned as a comprehensive strategic response to a new market

environment that is fast-changing and essentially unpredictable. The new environment is seen as
being significantly different from that which characterized the mass-production model where
markets are becoming fragmented, product life cycles are getting shorter, and the innovation
process is becoming faster at an accelerated pace. In this new market environment, products are
no longer physical products or services in the traditional sense but rather bundles of information,
services and attributes that are knowledge-intensive and designed with care to satisfy individual
customer needs. Moreover, new products are designed not in isolation but are determined jointly
with customers.

In this new market environment, the goal of an agile production system is to respond to customer
needs quickly with high-quality, low-cost, products. Customers are provided individualized
solutions, which are contextual and which they value. Results include time-to-market
compression, low-volume production runs, and expanded product-mixes. These results are
achieved through continuous process improvement aimed at eliminating waste, improving
product quality, and rapidly introducing new product innovations in response to market changes.
Agile producers practice value pricing for their products and services, commensurate with
their perceived value of the customers.

Agility in this new market environment means aggressively creating opportunities for profit and
growth and precipitating change by creating new markets and new customers.49 Agile
competitors succeed by understanding the directions in which markets and customer
requirements are evolving. They can individualize their products to customers at no increase in
manufacturing cost, having adopted a totally new mindset and having put in place fundamental
changes in organization, management philosophy, and operations. They can offer high-volume
production on a build-to-order, arbitrary lot size, basis, through the employment of an
information-technology-intensive flexible production capability. Virtual organizations, formed
on an as-needed basis, provide the dynamic delivery mechanism for agile firms50 bringing
products to market at much faster speed and at lower cost, as well as ensuring a better match
between market requirements and available capabilities.51 Some proponents of agile
manufacturing, however, take a skeptical view of virtual organizations as a cornerstone of
building agile enterprises.52

20
The idea of interprise has been advanced as the central means by which companies can
transform themselves into agile competitors. An interprise is one that exhibits increased
integration of its business processes with those of its customers, demonstrates greater
cooperation with its suppliers, and fosters an entrepreneurial internal environment.53 The key to
a successful interprise is seen as coordination of three areas: interacting with customers,
integrating with suppliers, and changing internally.54 In an agile enterprise built on the
interprise organizational model, customer satisfaction is not enough; in order to survive and
succeed, a company must link into its customer business or lifestyle processes.55 In an agile
enterprise, a product becomes a platform, a customer becomes a subscriber, a supplier becomes
an associate and provides an enriching total solution, a sale becomes a continuing transaction,
and reward comes from customer-perceived market value.56

A key success factor in the new market environment is the recognition that no activity can be
performed well without taking into account its contribution to the total spectrum of interrelated
production processes.57 It is argued firms must move beyond flexibility, beyond efficiency and
beyond lean, to be successful in this new market environment. They must also overcome many
barriers, both internal and external (e.g., outdated accounting systems, lack of trust between
customer companies and their suppliers, antitrust regulations, product liability laws). In
achieving competitive advantage, agile firms draw upon two main sources of enablers
transition-to-lean enterprise infrastructure elements and practices (e.g., close customer dialogue
and support, ubiquitous communication and information, cooperation and teaming) and a number
of enabling subsystems (e.g., continuous education and training, distributed information systems,
empowered teams, groupware, modular configurable process components, extended enterprise
integration). Such traditional measures of performance as efficiency, cost of production, direct
and indirect costs of production, return on assets all remain relevant measures of performance,
but new metrics of performance must be invented appropriate to agile firms.

Although lean and agile have the same foundation, they differ in a number of respects. These
differences stem mostly from the various claims made by the proponents of agile manufacturing,
which remain of dubious value. An example is the argument that, compared with Lean Thinking,
agile manufacturing allows for considerable customization of product features. This represents
an outdated view of Lean Thinking. Another claim, built around the notion of virtual
organizations, paints a picture of an idealized end-state of interorganizational integration and
cooperation. Such a view overlooks serious theoretical as well as practical issues. Yet another
claim is that agile enterprises know enough about what customers do, what they want to do, and
what they should want to do, to be able to show them how they can benefit from a product
customized to their needs.58 Such a claim is difficult to reconcile with the frequent assertion,
also made by the proponents of agile manufacturing, that the emerging new markets are
essentially unpredictable. A final example relates to value pricing charging prices to
customers to reflect the perceived value of the individually-customized products offered to them.
Another name for such a practice is charging what the market will bear commonplace in
oligopolistic (few sellers) or monopolisic (single seller) markets. Such a practice hardly
constitutes a winning recipe for establishing sustained relationships with customers.

3.6 Reengineering

21
Reengineering, or business process reengineering, was introduced in the early 1990s with the
promise to revolutionize American business. The goal of reengineering was no less than to
retire the business principles and practices going all the way back to Adam Smiths famous pin
factory, laying down the principle of division of labor, and that had then fueled the rise of the
mass production system. Leading proponents of reengineering defined it as the fundamental
rethinking and radical redesign of business processes to achieve dramatic improvements in
critical, contemporary measures of performance, such as cost, quality, service and speed.59
Reengineering was aimed at standing the industrial model on its head. It was not about fixing
anything, downsizing, automation or taking small and cautious steps; it was, rather, about
starting all over again. At the heart of reenginering was the notion of discontinuous thinking.

Reengineering focused on business processes collections of activities that turn inputs into
outputs that are of value to the customer --, not on organizations, structures, tasks, jobs or
people.60 Reengineering was thus devoted to the task of reunifying the tasks performed by
corporations into coherent business processes.61 Its focus on processes -- also shared by TQM --
may be likened to value stream mapping, an important lean practice to eliminate waste and make
the value-adding steps flow in meeting customer requirements. However, reengineering differs
from Lean Thinking in a fundamental way: while reengineering has sought breakthrough
solutions by discarding existing processes and replacing them by new ones, 62 Lean Thinking has
stressed careful restructuring of existing processes, perhaps even radically in many instances, to
foster a process of continuous improvement that is guided by a mutually-reinforcing set of
overarching principles taking a holistic, systems-oriented, view of the entire extended enterprise.

Reengineering, with its stress on starting all over again by taking a clean sheet approach, may
well have created a mindset unwittingly pursuing radical one-time breakthrough changes, much
to the detriment of the need for subsequent continuous improvement. To put it another way, it is
not clear that the reengineering movement has ever resolved the central conflict between the
imperative for radical change, which it has espoused, and something it has failed to espouse, and
which is of key importance in Lean Thinking -- the importance of evolutionary organizational
learning based on cumulative creation and sharing of tacit knowledge through a process of
experimentation, adaptation and diffusion of lessons learned.

Further, radical change, to be successful, requires a coherent set of governing principles and
clear measures of success. Early signs of trouble may have been evident when Hammer and
Champy, leading proponents of reengineering, noted in their manifesto: When a company is
taking its first steps toward reengineering, no one really knows exactly where it is heading; no
one really knows exactly what it will become; no one really even knows which aspects of the
current company will change, let alone precisely how.63 Moreover, radical change means setting
into motion a chain-reaction of interrelated changes throughout an organization. However,
beyond the somewhat offhanded acknowledgement that change ripples into other parts of the
organization64 reengineering may have lacked the fundamental systems thinking tools for
effective management of fundamental enterprise-wide change. For these and other reasons, many
of the companies that have launched reengineering efforts have failed a stark admission by
Hammer and Champy towards the end of their book.65

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4.0 SYNTHESIS OF KEY FINDINGS AND CONCLUSIONS

This paper has concentrated on a comparative review of a number large-scale enterprise change
models including Lean Thinking, Six Sigma, Total Quality Management (TQM), Reengineering,
Agile Manufacturing, and the Theory of Constraints. The main high-level characteristics of these
systemic change initiatives are summarized in Table 1. Further, the key tactical comparisons
between Lean Thinking and Six Sigma are summarized in Table 2.

A main conclusion of the paper is that Lean Thinking provides by far the most compelling
intellectual architecture for the various systemic change initiatives. Further, in spite of certain
sharp differences among these change initiatives (e.g., in terms of conceptual framework, span of
vision, focus, strategic and tactical approaches), they share common roots with lean ideas,
amplify various dimensions of Lean Thinking significant ways, and largely complement each
other in a number of important ways. In the final analysis, under the overall umbrella of Lean
Thinking, all of these change initiatives are merging into a mutually-complementary unified
framework for achieving fundamental enterprise transformation.

In particular, Lean Thinking and Six Sigma, in spite of a number of differences at various levels
of significance, share certain important common features. These include focusing on the
customer, reducing variation, continuous improvement, collaborative relationships, proactive
leadership and data-and-fact-driven management. They also complement each other in important
ways. Among these, clearly the most important is the fact that continuous flow and, therefore,
the advantages that derive from speed is made possible by striving for virtually perfect quality.
In the final analysis, Six Sigma complements Lean Thinking and enables Lean Thinking to
achieve the important advantages of speed. This basic conclusion is already being recognized by
a growing number of companies that have adopted integrated Lean-Six Sigma change initiatives,
combining Six Sigma quality with lean speed.

Broadly speaking, the various large-scale change initiatives represent an overall confluence of
thinking, pointing the way towards an emerging overall conceptual framework driving industrial
organization and enterprise transformation in the post-mass-production world. This is not to say
that they should all be classified as various specific species of Lean Thinking. In fact, we may
well look back many years from now and observe that the dominant emerging model of
fundamental enterprise transformation, replacing the mass production system, should be more
properly known by perhaps a different and broader designation that has fully internalized the
revolutionizing role of information technology. It is well to remember that it took decades of
evolution before basic principles of Lean Thinking finally became formalized in term of a
coherent framework.

Finally, with the possible exception of Lean Thinking, the various enterprise change models
reviewed in this paper generally lack a coherent conceptual framework providing a causal
explanation of the structure and dynamics of enterprises. Also, while they place heavy emphasis
on process improvement, they lack a conceptual framework driving enterprise transformation.
Enterprise transformation is fundamentally different from achieving incremental improvements,
although under fairly stable external market and technological Conditions seeking continuous

23
improvement may be the right choice, leading to substantial organizational change. However,
more generally, when the enterprise is out-of-step with the pace of change in the external
environment or when the external environment is characterized by past-paced market shifts and
disruptive technological change, enterprise transformation would more likely require not
incremental change but discontinuous change, requiring fundamental change in terms of the
enterprises concept, structure and behavior.

Enterprise transformation is a complex process, requiring an understanding and management of a

large number of interdependent change processes orchestrated at multiple levels over time. The
various enterprise change models reviewed in this paper generally do not provide much guidance
on designing and managing complex enterprise transformation processes. The challenge of
developing conceptual models of enterprise transformation and the necessary toolset for
accomplishing such transformation basic principles, simulation-based modeling, heuristics,
practices, methods and techniques still remains a major task ahead and represents the next
frontier.

24
 TABLE 1 -- Comparative Overview of Major Systemic Enterprise Change Models: Strategic View
Change Total Quality Theory of Agile
Model
Key Dimensions Lean Thinking Management Six Sigma Constraints Manufacturing Reengineering
Key Attributes Creating value for Meeting customer Increasing customer Improving net profits Enhancing enterprise Achieving dramatic
Expected multiple enterprise expectations satisfaction of enterprises competitiveness to improvements in
stakeholders Increasing enterprise Creating greater thrive in a new, fast- critical measures of
outcomes Building dynamic profitability and economic wealth paced, uncertain enterprise performance
competitive advantage shareholder value environment
Mutually-reinforcing Evolving system of Structured practices, Framework for Attempt defining the Manifesto for
Defining set of principles, practices, tools and methods and tools for improving enterprise next industrial fundamental rethinking
practices and methods methods for improving reducing all sources of throughput by viewing paradigm beyond lean and radical redesign of
features for evolving efficient, customer satisfaction variation in enterprises it as an interdependent ideas and flexible core enterprise
value-creating, and to improve enterprise system production systems processes
healthy enterprises performance
Deliver best lifecycle Understand and fulfill Adopt customer- Improve workflow Anticipate and meet Reinvent the enterprise
value to the customer customer expectations focused culture (throughput) within the customer needs; create by discarding existing
Eliminate waste with Pursue continuous Concentrate on enterprise new market and profit business processes and
the goal of creating improvement of reducing all sources of Concentrate on key opportunities replacing them with
value products and services variation critical to leverage points Evolve adaptive, entirely new ones
Core concepts Pursue knowledge- Utilize capabilities of customer satisfaction (constraints) offering flexible and efficient Define customer needs,
driven change people at all levels Pursue proactive, data- greatest performance manufacturing system work back and start
optimizing peoples Share successful driven, management improvements Establish cooperative from scratch
capabilities practices and diffuse Emphasize teamwork Make sure people can relationships with other Seek breakthrough
Evolve robust and lessons-learned across organizations learn better and faster enterprises, as needed solutions
adaptive enterprise
Concentrate on the Concentrate on Concentrate primarily Concentrate on Concentrate on Concentrate on
entire enterprise value production operations on internal enterprise production processes effective enterprise enterprise processes,
stream Focus on improving processes (production, within the enterprise integration to support not on organizational
Focus on identifying product quality product development, Focus on the weakest manufacturing structures, tasks, jobs
Focus enterprise stakeholders (performance, business processes) point (constraint) Focus on delivering or people
and defining their reliability, durability, Focus on specific impeding workflow high-quality, low-cost Focus on clean sheet
value expectations, aesthetics, utility), projects to reduce all and causing both and innovative new redesign of specific
constructing robust meeting market needs, sources of variation delays and inefficiency products through enterprise processes
value propositions, and reducing cost, and critical to meeting continuous process
delivering value satisfying latent customer needs and improvement
continuously by customer needs by strategic business goals Form virtual
eliminating waste and introducing innovative organizations to reduce
striving for perfection new products cycle time and cost
Change Evolutionary systemic Continuous Process-specific Continuous Continuous Radical change
process change incremental change incremental or radical incremental change incremental, as well
change as radical, change
History Since late 1940s Since early 1980s Since mid-1980s Since mid-1980s Since early 1990s Since early 1990s

25
 TABLE 2 -- Comparative Overview of Lean Thinking and Six Sigma: Tactical View

Change
Key Model a b
Characteristics Lean Thinking Six Sigma
Adopt an adaptive product development process Focus on processes to improve efficiency and increase customer
Synchronize flow throughout the enterprise value stream satisfaction
Key Attributes Strive for perfect quality Pursue proactive, fact-driven and performance-focused management
Ensure seamless flow of information Drive for perfection, tolerate failure
Overarching Promote leadership and effective decision-making at all levels Provide multi-level training and develop peoples talents and skills
practices Optimize capabilities and utilization of people Establish collaboration across organizational boundaries
Nurture organizational learning
Develop controlled and repeatable processes
Foster innovation and knowledge integration across the enterprise value
stream
Establish relationships based on mutual trust and commitment
Define the enterprise -- boundaries, product lines, market position. Define enterprise-level objectives
Identify stakeholders and value exchanges -- key stakeholders, value Business transformation
exchanges, prioritization. Strategic improvement
Define strategic objectives -- major driving forces, metrics, Problem solving
performance levels. Obtain top level management support and involvement
Analyze current enterprise processes -- process-to-process and process- Deploy Six Sigma improvement strategy set aspirations, architect
to-stakeholder interactions. improvement program, implement change, and build momentum for
Synthesize current state -- directions and content of interactions; on-going improvement
methods used for enterprise integration; identification of sources of Identify core processes and key customers
Enterprise-level waste; alignment among strategic objectives, metrics, processes and Define customer requirements
deployment stakeholder value delivery; self-assessment using the Lean Enterprise Measure current performance
approach Self-Assessment Tool LESAT. Prioritize, analyze and implement improvements
Envision the future state -- strategic assessment of value-creation Concentrate on process improvement, process design (redesign)
processes versus required core competencies; definition of desired and process management
future state and metrics; gap analysis; determination of key Prioritize and select improvement projects
improvement opportunities. Expand and integrate the Six Sigma system
Develop and execute improvement (transformation) plan -- c
Implement the Six Sigma improvement model (DMAIC) :
identification and prioritization of improvement projects; development
Define Identify the problem, set goal, define requirements
and execution of an implementation plan; demonstration of continuous
Measure Validate problem identification, refine goal, define key
improvement.
measures of efficiency and effectiveness
Develop lean structure and behavior
Analyze Develop causal hypotheses, identify vital few root
Create and refine transformation plan
causes, validate hypotheses
Implement lean initiatives
Improve Develop ideas to remove root causes, test solutions,
Focus on continuous improvement
standardize solutions and measure results
Control Establish standard measures to ensure that performance
improvements are sustained over time

26
27
NOTES FOR TABLE 2:
a
The overarching practices listed here represent a proposed updating and consolidation of those identified in the Lean Enterprise Model (LEM) developed by the
Lean Aerospace Initiative (LAI) in 1995. The enterprise-level deployment approach outlined here draws upon the alpha-version of the Enterprise Value Stream
Mapping and Analysis (EVSMA) tool, currently being developed by LAI. The improvement plan in the EVSMA has been augmented by incorporating key
elements of the Transitioning to a Lean Environment: A Guide for Leaders also known as Transition-to-Lean Roadmap (Version 1.0, 2000), also developed by
LAI. More specifically, the following major building blocks of the TTL have been incorporated into the deployment approach outlined here: Develop Lean
Structure and Behavior; Create and Refine Transformation Plan; Implement Lean Initiatives; and Focus on Continuous Improvement. For more details, refer to
the LAI website: http://web.mit.edu/lean.
b
This discussion draws upon Pande, Neuman and Cavanaugh (2000), pp. 15-18, 37-40, 155-354.
c
The DMAIC process improvement process has also been framed for process design or redesign (see Pande, Neuman and Cavanaugh (2000), p.39), as well as
for both product and process design through Design for Six Sigma -- DFSS (Chowdhury, 2002). According to Chowdhury, DFSS is accomplished through a
process he calls IDDOV (Identify the Project, Define the Opportunity, Develop Concepts, Optimize the Design, and Verify the Design).

28
ENDNOTES:
1
Refer, for example, to the following seminal sources on the Toyota manufacturing system: Shingo (1989); Ohno
(1988); Monden (1993); Fujimoto (1999); Spear and Bowen (1999).
2
Murman, et al. (2002), p. 90.
3
For a more detailed discussion of the value creation framework summarized here refer to Murman, et al. (2002),
pp.177-189.
4
These basic lean tenets or organizing principles represent an updated interpretation of key lean concepts discussed
in Murman, et al. (2002), Chapter 4, pp. 87-116 and in previous contributions to the literature on lean thinking. See,
for example, Womack, Jones and Roos (1990), and Womack and Jones (1996).
5
Kirkor Bozdogan, Enterprise Transformation Research in the Lean Aerospace Initiative, Presentation at the IBM and MIT
Collaboration Meeting held at MIT (May 31, 2005).
6
See, for example, the following sample of references: Bar-Yam (1997); Rauch and Casella (2001); Dorogovtsev
and Mendes (2001); Newman (2003); Newman, Barabsi and Watts (2003); and Zuckerman (2003).
7
The term networked enterprise is used in preference to enterprise networks to underscore the notion of a focal (or core)
enterprise (e.g., a program enterprise, division of a large company, a multi-divisional company) supported by a network of
enterprises, encompassing its supplier network, providing complementary capabilities and, in effect, defining the focal
enterprises capability space. In this sense, the focal enterprises capability space provides an approximate definition of the
boundary of its upstream enterprise value stream.
8
These overarching practices reflect an updating of the enterprise-level overarching practices identified in the Lean
Enterprise Model (LEM) developed by the Lean Aerospace Initiative (LAI) at MIT in 1995. For a summary
discussion of LEM, see Murman, et al. (2002), p. 148. For a detailed description of LEM, see the LAI website
http://web.mit.edu/lean.
9
The Lean Aerospace Initiative has developed a family of tools for lean deployment at the enterprise level. These
tools include the Lean Enterprise Model LEM (1995), Transitioning to a Lean Environment: A Guide for Leaders
also known as Transition-to-Lean Roadmap (Version 1.0, 2000), Lean Enterprise Self-Assessment Tool LESAT
(Version 1.0, 2001), and Enterprise Value Stream Mapping and Analysis: A Guide for Enterprise Analysis (Beta
Version, 2003). LAI has further developed domain-specific lean deployment tools, focusing principally on product
development and supply chain management processes: Product Development Value Stream Analysis and Mapping
Manual PDVSM (Beta Version, 2003) and the Supplier Networks Transformation Toolset also known as Supplier
Toolset (Version 1.0, 2003). The Supplier Toolset Version 1.0 consists of an integrated toolset: ROADMAP for
Building Lean Supplier Networks and Supplier Management Self-Assessment Tool. For more information, refer to
the LAI website http://web.mit.edu/lean.
10
See, for example, the following: Trischler (1996); Rother and Shook (1998); Bicheno (2000a); Bicheno (2000b);
Bicheno (2002).
11
Womack and Jones (1996), pp. 19, 37-49, 311, 313n-314n.
12
Rother and Shook (1998), pp. 3-5.
13
Womack, Jones and Roos (1990).
14
Womack and Jones (1996).
15
See Porter (1985), pp. 33-61, 64-70, 120-127, 130-135, 166-169, 258-264 and 518-523.
According to Porter, value chain is the basic tool for conducting a systematic analysis of all the activities a firm
performs and how they interact in order to understand the sources of its competitive advantage. The value chain is
embedded in a larger stream of activities that Porter terms the value system, encompassing value chains associated
with suppliers, channels, and buyers. A firms particular value chain (and the way it performs such activities as
designing, producing, marketing and supporting its products) is shaped by its own special history, strategy,
implementation approach, and the underlying economics of the activities themselves. See Porter (1985), pp. 33-36.
16
In the parlance of game theory, we may be observing not perfectly cooperative games but non-cooperative zero-
sum games, where someones gain comes at the expense of some elses loss.

29
17
See, for example, Deming (1987), pp. 1-4.
18
In recognition of his contributions to the economic rebirth of Japan the Union of Japanese Science and Engineering
(JUSE) instituted the annual Deming Prizes for contributions to product quality and dependability. In 1960, the
Emperor of Japan awarded him the Second Order Medal of the Sacred Treasure.
19
See Taguchi (1986). Also see Taguchi and Clausing (1990), 65-75.
20
Public Law 100-107, signed into law on August 20, 1987, created the Baldrige Award, named for Malcolm
Baldrige who had served as Secretary of Commerce from 1981 until his death in 1987. Public Law 100-107 led to the
creation of a public-private partnership program -- the Foundation for the Malcolm Baldrige National Quality Award,
established in 1988 which provides the principal support for the program. The program is administered by the
National Institute of Standards and Technology (NIST), an agency within the U.S. Department of Commerce, which
promotes U.S. economic growth and technological innovation by working closely with industry. American Society
for Quality (ASQ) dedicated to the on-going development, advancement and promotion of quality concepts,
principles and techniques -- assists in administering the program under contract to NIST. The president of the United
States has traditionally presented the Awards at a special ceremony in Washington, DC.
21
See Eckes (2001), pp. 1-5.
22
See Pande, Neuman and Cavanagh (2000), pp.41-49.
23
Defects per million opportunities (DPMO) indicates how many defects would be observed if an activity were
repeated a million times.
24
Pande, Neuman and Cavanagh (2000), p. 28.
25
For a more technical review of both six sigma and the manufacturing capability index, cpk, refer to Harry and
Lawson (1992), and Eckes (2001).
26
For a table showing the correspondence between the sigma level and the manufacturing capability index, see, for
example, Eckes (2001), pp. 266-267.
27
Harry and Schroeder (2000), p. vii.
28
Breyfogle III, Cupello and Meadows (2001), p. 5.,
29
Eckes (2001), p. 10.
30
Six Sigma uses a sequence of methods in implementing the DMAIC cycle: Statistical Process Control (SPC) and
control charts for problem identification; tests of statistical significance (e.g., Chi-Square, t-tests, ANOVA) for
problem identification and root cause analysis; correlation and regression analysis for root cause analysis and
prediction of results; design of experiments (DOE) for identifying optimal solutions and validating results; failure
modes and effects analysis (FMEA) for problem prioritization and prevention; mistake-proofing (or Poka-Yoke) for
defect detection and process improvement; and quality function deployment (QFD) for product, service and process
design. See Pande, Neuman and Cavanagh (2000), pp. 355-377.
31
Based on Harry and Schroeder (2000), pp. 5-9.
32
See, for example, Eckes (2001), pp. 59-60.
33
See, for example, George (2002).
34
See, for example, the following publications by Goldratt: The Goal, jointly authored with Jeff Cox (1984), Theory
of Constraints (1990a), The Haystack Syndrome (1990b), Critical Chain (1997), and Necessary but not Sufficient,
with Eli Schragenheim and Carol A. Ptak (2000). The Goal, as well as the two most recent publications, are written
in the form of business novels.
35
Goldratt (1990b), p.54.
36
Goldratt (1990b), pp. 52-57.
37
Lepore and Cohen (1999), p.22.
38
Goldratt (1990b), pp.19-30.
39
Goldratt (1990b), p. 53.
40
For a clear discussion of this ten-step Decalogue see Lepore and Cohen (1999).
41
Goldratt (1990b), pp.58-63. Also see Goldratt (1990a), pp.5-8.
42
Refer to Bicheno (2000b), pp. 163-169 for a concise overview of the Thinking Process as part of a summary
description the Theory of Constraints.

30
43
For more detailed explanation of the drum-buffer-rope method, see Goldratt (1987), Cox and Spencer (1998),
and Schragenheim and Dettmer (2000).
44
Goldman, Nagel and Preiss (1995), p. 8.
45
Goldman, Nagel and Preiss (1995), p. 42.
46
Montgomery (1996), p. 1.
47
Montgomery and Levine (1996), Preface, p. xvii-xviii.
48
Montgomery and Levine (1996), p. xviii.
49
Goldman, Nagel and Preiss (1995), p. 43.
50
Goldman, Nagel and Preiss (1995), p. 201. Virtual organizations are defined as adaptable, borderless, opportunity-
pulled and opportunity-defined grouping of individual companies providing superior perceived value to customers
through an integration of complementary world-class technologies and core competencies. See Goldman, Nagel and
Preiss (1995), pp. 205-206.
51
Goldman, Nagel and Preiss (1995), p. 93.
52
See Montgomery and Levine (1996), Preface, p. xviii. It is pointed out that the idea of a virtual organization is
premature at this point. The authors continue to note: Many issues remain unresolved regarding the management
of virtual organizations, such as the appropriate distribution of profits, coordination and finance of investments
across firms, and the assumption of responsibility for product liability. These issues address building and maintaining
trust among partners and customers, rather than the more technical issues of developing and implementing common
standards for electronic data interchange and coordination. (p. xviii).
53
Preiss, Goldman and Nagel (1996), p. 4.
54
Preiss, Goldman and Nagel (1996), p. 8.
55
Preiss, Goldman and Nagel (1996), p. 13.
56
Preiss, Goldman and Nagel (1996), p. 63.
57
Goldman, Nagel and Preiss (1995), p. 46.
58
Goldman, Nagel and Preiss (1995), p. 18.
59
Hammer and Champy (1993), p. 32. for further readings on reengineering, see Hammer (1990), 104-112; Hammer
and Champy (1995).
60
Hammer and Champy (1993), pp. 2-5; 35,
61
Hammer and Champy (1993), p. 2.
62
Hammer and Champy (1993), p. 49.
63
Hammer and Champy (1993), p. 154.
64
Hammer and Champy (1993), p. 181.
65
Hammer and Champy (1993), p. 200.

31
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