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Image: Realizing the full potential of Lean Six Sigma and other QMSOrganizational learning capability (OLC) is often noted as a critical capability for nurturing an organization’s learning culture and developing its intangible assets. Intangible assets and knowledge-based resources have been noted as a source of a firm's competitive advantage.

In dynamic services environments, such as in business process outsourcing (BPO) firms, knowledge and learning developed from customers, suppliers and network partners is of critical importance in developing tangible and intangible assets, and in maintaining firms' competitive advantage. However, limited research has been undertaken in understanding the influence of customers/clients in developing any firms' decision to invest in training and development and, consequently, in supporting its organizational learning processes.

Adopting a total quality management (TQM) approach can be a source of competitive advantage. In manufacturing settings, for example, a mutual dependence has been found between TQM and learning organization in a way that TQM principles underpin the evolution of a learning organization.

Outsourcing of BPO services

The global expenditure on IT-BPO and related services is estimated to be at US$1.5 trillion, of which, the global BPO and related services spending is estimated to be US$118.7 billion. The global BPO sector is projected to grow at a rate of 7 per cent annually.

The phenomenon of outsourcing and offshoring is not new. In the last two decades, the nature and extent of services offered has changed significantly. The services continuum has moved from non-core to core and from front-end customer support to high-level back-end services.

The growth of knowledge process outsourcing (KPO) can be attributed to advances in technology, cost arbitrages, partner capabilities, institutional factors and, more importantly, a capitalist thinking of having a “local” outsourcing and shared service solution provider. The decision to offshore and outsource electronically deliverable services exists on a spectrum. For example, offshoring destinations can be chosen on a spectrum of cost, quality and proximity based on a continuum of high to low. Similarly, a firm may outsource a process, facility or enter into a build, own, lease and transfer arrangement with a distinct firm for a given product or service.

Outsourcing contracts are usually well developed with detailed service level agreements (SLAs), whereas, in offshoring services, the offshore firm generally operates on a fixed cost plus a mark-up margin, or a time and material business model. There are of course managerial concerns and benefits of scalability, expertise and capabilities, competitive advantage, employee morale, performance, etc. in both decisions.

It is not just the buyer of the service that stands to gain from modularization, even the service provider benefits from possessing certain capabilities that help them to modularize. BPO firms' QMC are useful in the modularization and standardization of tasks and services that need to be delivered. Strong QMC can support modularization through continuous improvement and standardization and, thus contribute to a cost efficient, predictable and timely service delivery. Similarly, strong technical and OLC are critical in knowledge transfer at the time of transition in offshore outsourcing contracts. Such capabilities can be a source of business transformation and improvement in the tactical and strategic positions for the offshoring firm.

The distinctive features of the BPO industry include: a high-growth dynamic business environment, high levels of interdependence between a service provider and the client firm, and a dynamic business environment, which necessitates dynamic coordination between firms for information sharing, learning and co-development capability.

Organizational learning capabilities

Organizations that are able to learn and transform themselves in response to a dynamic external environment are more likely to sustain themselves in the long term. Organizational learning depicts a cognitive view of the Organization and has been noted as one of the key ways to achieve sustained competitive advantage.

The concept of Organizational learning is multidisciplinary in nature and its early theorizations has foundations, for example, in psychology, sociology, Organizational theory and systems thinking. Subsequent explorations have been undertaken by scholars from strategic management who have highlighted OLC as a source of competitive advantage.

Organizational learning is not a simple sum of individuals learning in Organizations. Instead, the nature and extent of learning evolves from individual to group before becoming embedded in Organizational routines. The levels of learning can also vary from single-loop to double-loop learning, representing the nature and extent of learning as varying from superficial to deep, respectively. Second-order or double-loop learning requires an Organization to demonstrate open-mindedness to the new information it acquires from its business environment and to ensure such learning is transferred and integrated in its daily routines.

Although numerous Organizational learning processes have been advanced in the literature, some consensus exists regarding the focus of Organizational learning. In short, it involves the acquisition and development of new knowledge or insights that can potentially change an Organization's behaviour towards its strategic and operational milieus.

Organizational learning is based on the assumption that learning facilitates behavioural change, which subsequently results in better Organizational performance. A firm's learning capability is likely to be ineffective and will most likely result in “core rigidities” and “competence traps”, if firms do not undertake a review of their business environment, values and assumptions. Following numerous theorizations of Organizational learning processes, others have identified the key elements and have developed measures for developing OLC.

For example, one three-step model for building OLC includes:

  1. generating ideas (which involves acquiring new learning through proactive scanning, discovery, innovations, etc.);
  2. generalizing ideas (which involves finding Organizational mechanisms to share the new learning across the Organization); and
  3. identifying disabilities (which involves overcoming the barriers to learning, such as working in silos, complacency, Organizational inertia, etc.).

The key constructs for developing OLC include:

Similar to the above constructs, an Organization's learning orientation is a set of three values associated with an Organization's tendency to learn. These values are labelled as:

  1. commitment to learning (LO1);
  2. open-mindedness (LO2); and
  3. developing a shared vision (LO3).

Commitment to learning is an Organizational value that fosters learning through ongoing training and development of its employees and learning from external sources so that a firm allocates resources for such development. Open-mindedness requires an Organization to challenge its current theory-in-use and any new information it processes from internal and external sources. Shared vision encompasses an Organization's ability to communicate and disseminate its theory-in-use and any new knowledge and competencies that it has developed throughout the Organization. However, little is known of about the antecedents of such learning values.

Recent evidence from a random sample of 237 European firms, of whom 58 implemented Six Sigma, found Six Sigma and statistical process positively leads to the development of Organizational shared vision, a key element in developing OLC.

TQM systems and Lean Six Sigma

TQM is generally defined as the presence of a quality management philosophy that focuses on customer satisfaction, continuous improvement and treating the Organization as a total system. While the TQM content can be a source of competitive advantage to firms, it is how Organizations deploy their TQM practices that can potentially create sustained competitive advantage. Most quality management practices have a strong focus on statistical process control, which includes, minimizing variance and using a range of sophisticated statistical techniques for monitoring the quality of the product or service deliverable. Five areas that are the key focus of a TQM approach include:

  1. human resources;
  2. management structure;
  3. customer orientation;
  4. quality tools; and
  5. supplier support.

Nevertheless, to successfully implement TQM approaches, Organizations need to address the effective management of Organizational change and human resource issues that affect change.

Lean management principles and Six Sigma methodologies have been integrated to create a Lean Six Sigma approach to improving Organizational performance. The technical focus of Six Sigma is to reduce the variability in products and processes. In the last decade or so, the focus of Six Sigma has been broadened to encompass wider industry sectors, such as the services sector, and focuses more on processes that affect the customer.

The central features of a Six Sigma approach typically include:

An average Organization operates at sigma level between two and four, or typically three-σ (sigma), or 93 per cent right the first time. Effective application of Six Sigma and a quality management framework can help firms choose their competitive positioning, such as focusing on internal process efficiencies (cost leadership) or differentiation strategies.

Six Sigma is a continuous process that focuses on reducing the error or defect rates to 3.45 per million opportunities of a process or a part. Sigma level five translates to 233 defects per million opportunities. Where an Organization can focus on implanting this internal dimension of quality in its production function, the net results allow it to create a new competitive position in the market.

Lean Six Sigma strategy

Lean Six Sigma is not a fad, nor are its applications limited to manufacturing and large firms. Lean Six Sigma is part of a deliberate fact-based cost leadership and quality differentiation strategy employed by firms to realize operational gains, and develop OLC and service excellence. The caveat here is that a surface-level adoption of Lean Six Sigma and other QMS cannot realize their full potential.

For Lean Six Sigma and QMS to be effective, firms need to recombine it with other Organizational capabilities such as HR, training practices and appropriate technological capabilities for proper information dissemination. The extent to which firms can develop such values or such a philosophy will also depend on the unique configurations of their strategic milieus and top management commitment.

February 2012.

This is a shortened version of “Six Sigma, quality management systems and the development of Organizational learning capability: Evidence from four business process outsourcing Organizations in India”, which originally appeared in International Journal of Quality & Reliability Management, Volume 29 Number 1, 2012.

The authors are Ashish Malik and Stephen Blumenfeld.