Introduction

Lean Six Sigma (LSS) combines the waste reduction principles of Lean with the defect reduction methods of Six Sigma. LSS can drive continuous improvement in both manufacturing and service industries. Though traditionally associated with manufacturing, the principles and methodologies of Lean Six Sigma have significant potential to transform service industries as well. This chapter explores the application of Lean Six Sigma in service environments. It addresses methodologies, waste reduction, customer experience enhancement, and the adaptation of TPS (Toyota Production System) tools to service environments^[1]

Applying Lean Six Sigma in Service Environments

Design for Six Sigma (DFSS) in Services

Design for Six Sigma (DFSS) is a method for designing processes that meet customer needs, processes that exhibit high performance from inception. In service industries, DFSS helps design processes that are efficient, customer-centric, and robust. It is important for service organizations to continually monitor a new process or a change to facilitate PDCA (Plan, Do, Check, Act) cycles. The iterative nature of the PDCA cycle is structured to use error as part of the learning process.

Step-by-Step DFSS Application to Streamline Hospital Patient Admission

Example: Hospital Patient Admission Process

In a hospital setting, DFSS can streamline the patient admission process. The process design involves mapping out each step, identifying potential bottlenecks, and ensuring that patient information is collected accurately and efficiently.

Step 1: Define Phase

1. Problem Statement: Patients experience long wait times during the admission process, and this leads to patient dissatisfaction.
2. Goals: Reduce average wait time by 50%, improve process efficiency, and achieve 90% patient satisfaction.
3. VoC Findings: Patients complain about long waits, redundant paperwork, and a lack of communication.

Step 2: Measure Phase

Current Process Map:

1. The patient arrives at the hospital.
2. The patient registers at the front desk.
3. Registration staff verifies insurance and personal information.
4. The patient waits for nurse assessment.
5. The nurse assesses the patient and assigns them to an appropriate ward.

Data Collection:

1. 1. Average wait time: 90 minutes
   2. Steps in process: 5
   3. The error rate in patient information: 10%
   4. Patient satisfaction score: 60%
   5. Total registration staff: ____
   6. Total nursing staff: ____

Step 3: Analyze Phase

Root Cause Analysis:

1. Registration delays are due to outdated software.
2. High error rates found in paper records.
3. Nurse assessment bottleneck is due to limited staff.

FMEA Findings:

1. There is an elevated risk of delays and errors at the registration and nurse assessment stages.

Step 4: Design Phase

Solutions:

1. Upgrade registration software to streamline data entry.
2. Introduce self-service kiosks for initial patient registration.
3. Increase nursing staff during peak hours.
4. Implement EHR (electronic health records) to reduce paperwork errors.

New Process Map:

1. The patient arrives and uses a self-service kiosk for initial registration.
2. Registration staff quickly verify information using new software.
3. The patient proceeds directly to nurse assessment.
4. The nurse assesses the patient and assigns the patient to a ward using EHR.

Pilot Test:

1. Implement new processes in one department for one month.
2. Monitor performance and gather feedback.

Step 5: Verify Phase

Implementation:

1. Roll out new process hospital-wide.
2. Train staff in new software and using EHR.

Monitoring:

1. The average wait time was reduced to 45 minutes.
2. Steps in process: 4.
3. Error rate in patient information: 2%.
4. Patient satisfaction score: 90%.

Continuous Improvement:

1. Set cadence to regularly review process performance.
2. Use patient and staff feedback to make further adjustments.

Quality Function Deployment (QFD)

Quality Function Deployment (QFD) is a structured approach to translating customer requirements into specific technical requirements for process or service design.

Watch the video below titled, “Quality Function Deployment & the House of Quality – Simplest Explanation Ever (approximately 14 minutes).”^[2].

https://youtube.com/watch?v=iRMsd-X_e-0%3Fsi%3DSKcKfPXONjwSjCaS

Example: QFD in Banking Services

In banking, QFD can be used to improve loan processing services. By translating customer needs (quick approval times, clear communication, transparency) into process requirements (automated credit checks, standardized communication templates, online tracking), banks can design services that align with customer expectations.

A Brief History of Loan Applications (2004-2024)

Over the past 20 years, the process of obtaining a loan has undergone significant transformation. This has been driven primarily by advancements in technology and changing consumer expectations. Below is a timeline highlighting key developments in this evolution.

2004: Traditional Loan Processes

• Paper-based Applications: Loan applications were predominantly paper-based, requiring extensive paper documentation, such as income statements, tax returns, and identification documents.
• Manual Processing: Long wait times occurred due to the manual review of applications. Borrowers often needed to visit brick-and-mortar branches multiple times.

2008: Initial Digital Shift

• Advent of Online Applications: Some financial institutions initiated online loan applications, allowing borrowers to submit forms electronically. However, many still required physical documentation to be mailed or delivered in person.
• Basic Credit Scoring: Lenders relied on traditional credit scoring models, although these often did not account for alternative data sources.

2012: Enhanced Digital Capabilities

• Automated Verification: The introduction of automated verification systems reduced the time required for background checks and credit assessments, thus streamlining the approval process.
• Improved User Interfaces: Lenders adopted more user-friendly online platforms for loan applications, making the loan process more accessible.

2016: Rise of Fintech Solutions

• Fintech Disruption: Financial technology (fintech) companies emerged. They offered innovative lending solutions that prioritized speed and convenience. This included peer-to-peer lending platforms that connected borrowers directly with lenders.
• Mobile Applications: Many lenders launched mobile apps that allowed their customers to apply for loans and manage their accounts from mobile devices.

2019: Advanced Risk Assessment

• Data Analytics and AI: Lenders possessed advanced algorithms and machine learning to calculate risk assessment, and this enabled more accurate evaluations of borrower creditworthiness based on a wider range of data points.
• Instant Decisions: The ability to provide instant loan approvals became more common as automated systems took over many aspects of the application process.

2021: Fully Digital Experience

• Self-service Models: The loan application process evolved into a fully self-service model. Borrowers could apply for loans online without human intervention. This included electronic document signing and real-time status updates.
• Personalized Loan Products: Technology enabled lenders to offer customized loan products tailored to the individual borrower’s needs based on data-driven insights.

2024: Current State of Loan Applications

• Instant Approvals and Funding: Today, borrowers can apply for and receive approval for loans in minutes through various digital platforms. Many lenders have eliminated the need for physical documentation by using e-KYC (electronic Know Your Customer) processes.
• Enhanced Accessibility: A wide range of loan options is available online. This enhances credit accessibility for underserved populations. The use of mobile devices for loan applications has become standard practice.
• Continued Innovation: Ongoing advancements in technology continue to shape the lending landscape. Trends such as blockchain integration and further automation are expected to enhance efficiency and security in future loan processes.

Conclusion

The loan application process has evolved over the past 20 years. It reflects a shift from cumbersome, manual procedures to streamlined, technology-driven solutions. As digital capabilities expand, borrowers now enjoy unprecedented convenience and accessibility in obtaining loans. This marks a significant transformation in the financial services industry.

Step 1: Identify Customer Needs with VoC (Voice of the Customer)

Objective: Gather and prioritize customer needs for loan processing services.

Surveys and Questionnaires:

• Develop surveys targeting current and prospective loan customers to gather feedback on what they value most (e.g., quick approval times, clear communication, transparency).

Interviews and Focus Groups:

• Conduct in-depth interviews and focus groups with customers to gain qualitative insights into their experiences and expectations.

Complaints and Feedback Analysis:

• Analyze customer complaints and feedback related to loan processing to identify common pain points and areas for improvement.

Online Reviews and Social Media:

• Monitor online reviews and social media comments to capture spontaneous customer feedback about the loan process.

Step 2: Translate Customer Needs into Technical Requirements

Objective: Convert customer needs into specific, measurable process requirements.

List Customer Needs

• Quick approval times
• Clear communication

Develop Technical Requirements:

• Quick approval times: Implement automated credit checks.
• Clear communication: Develop standardized communication templates.
• Transparency: Introduce an online tracking system for loan applications.

Step 3: Construct the House of Quality (HoQ)

Objective: Create a visual representation of the relationship between customer needs and technical requirements.

Build the Matrix:

• List customer needs on the left side of the matrix (e.g., quick approval times, clear communication, transparency).
• List technical requirements along the top (e.g., automated credit checks, standardized communication templates, online tracking).

Weigh Relationships:

• Indicate the strength of the relationship between each customer need and the technical requirement using symbols or numbers (e.g., strong, medium, weak).

Benchmark Competitively:

• Compare your bank’s performance against competitors on each customer need and technical requirement.

Assess Technical Difficulty:

• Determine the technical difficulty of implementing each requirement, and include it in the matrix.

Step 4: Prioritize Technical Requirements

Objective: Determine which technical requirements should be prioritized. Base prioritization on impact on customer satisfaction and feasibility.

Weight Customer Needs:

• Assign weights to each customer need based on its importance to customers (e.g., quick approval times may be more critical than clear communication).

Calculate Priorities:

• To calculate priority scores, multiply the weight of each customer need by the relationship strength with each technical requirement.

Rank Technical Requirements:

• Rank technical requirements based on their priority scores to determine which requirement should be addressed first.

Step 5: Develop an Implementation Plan

Objective: Create a detailed action plan to implement the prioritized technical requirements.

Set Goals and Objectives:

• Define clear goals for each technical requirement (e.g., reduce loan approval times by 30% through automated credit checks).

Develop Action Plans:

• Outline the steps, timelines, and resources needed to implement each technical requirement.

Assign Responsibilities:

• Assign specific tasks to relevant teams or departments (e.g., IT team can develop automated credit checks, the Communications team can create templates).

Set Milestones and Deadlines:

• Establish milestones and deadlines to track progress and ensure timely implementation.

Step 6: Implement and Monitor

Objective: Execute the implementation plan and monitor progress to ensure desired outcomes are achieved.

Implement Technical Requirements:

• Roll out automated credit checks, standardized communication templates, and the online tracking system as per the action plans.

Training and Support:

• Provide training and support to staff to ensure they are familiar with new processes and tools.
• Provide customer communication and updates to ensure they are informed of any customer-facing changes.

Monitor Performance:

• Continuously monitor performance metrics, such as approval times, customer satisfaction scores, and usage of the online tracking system.

Gather Feedback:

• Collect feedback from customers and staff to identify any issues or areas for further improvement.

Step 7: Review and Refine

Objective: Evaluate the effectiveness of the implemented changes and make necessary adjustments.

Evaluate Results:

• Compare performance metrics before and after implementation to assess the impact of the changes.

Identify Improvement Opportunities:

• Use feedback and performance data to identify new opportunities for improvement.

Refine Processes:

• Continuously refine loan processing services based on ongoing feedback and performance reviews.

Celebrate Successes ^[3]:

• Recognize and celebrate successful improvements, as this will maintain motivation and engagement in employees.

CTQ (Critical to Quality) Elements

CTQs are the key measurable characteristics of a process or product that must be controlled to meet customer needs. In services, typical CTQs include:

• Voice of the Customer (VoC): Feedback on service quality, speed, and satisfaction
• Critical to Cost (CTC): Efficient use of resources to control costs
• Critical to Process (CTP): Process steps that must be performed correctly to ensure service quality
• Critical to Safety (CTS): Ensuring the safety of both customers and employees in service delivery

Example: CTQ in Call Centers

In call centers, CTQs may include the average call handling time (CTP), customer satisfaction scores (VoC), and error rates in order processing (CTC).

Identifying Opportunities to Reduce Waste (Muda) and Improve Customer Experience

Muri refers to the overburden or the unreasonable use of resources within a system. This includes excessive workloads, unrealistic production demands, or using equipment beyond its capacity. Muri often leads to stress, errors, and inefficiency within a process. Muri sometimes causes Muda (waste), and it is closely related to Muda (waste), as overburdening employees or machines can create waste through delays, defects, or excessive energy consumption. Reducing Muri helps minimize Muda by ensuring processes are balanced and sustainable, which leads to greater efficiency and better quality.

Types of Waste in Service Organizations

Lean identifies eight types of waste^[4] that can occur in any process. In services, these wastes often manifest differently than in manufacturing. They include:

1. Overproduction: Providing services that are not needed by the customer
2. Waiting: Delays for customers or employees waiting for information or resources
3. Transportation: Unnecessary movement of information or materials
4. Overprocessing: Steps in a service process that do not add value
5. Inventory: Excess materials or information waiting to be processed
6. Motion: Unnecessary movements by employees during service delivery
7. Defects: Errors in service delivery that require rework or correction
8. Human Potential: Management does not use all the potential of employees

Reducing Waste

Example: Reducing Waste in a Hotel

• Overproduction: Avoid overbooking rooms, which can lead to customer dissatisfaction.
• Waiting: Streamline check-in/checkout processes to reduce wait times.
• Transportation: Optimize the layout of the front desk and back office to reduce unnecessary movements.
• Overprocessing: Eliminate redundant steps in housekeeping services.
• Inventory: Implement Just-in-time inventory for cleaning supplies.
• Motion: Design efficient workflow so staff may minimize unnecessary movements.
• Defects: Implement quality control measures to ensure room cleanliness and maintenance.

Improving Customer Experience

Enhancing the customer experience involves understanding and meeting customer needs consistently. This can be achieved with the following tools:

• Customer Feedback: Regularly collect and analyze customer feedback to identify areas for improvement.
• Employee Training: Ensure that employees are well-trained to deliver high-quality service.
• Process Optimization: Continuously improve service processes to be more efficient and effective.

Example: Improving Customer Experience in Retail

A retail store can enhance customer experience by optimizing the checkout process, training staff in customer service excellence and using customer feedback to improve its product offerings and store layout.

Adapting TPS Tools for Service Processes

The Toyota Production System (TPS) comprises various tools and techniques that are designed to improve efficiency and quality. These tools can be adapted to service environments.

Value Stream Mapping (VSM): VSM helps workers visualize the flow of materials and information through a process, and it aids in identifying areas of waste and opportunities for improvement.

Example: VSM in Healthcare

In a healthcare setting, VSM can be used to map the patient’s journey from admission to discharge, identifying bottlenecks and waste in the process.

5S Methodology

5S (Sort, Set in order, Shine, Standardize, Sustain) is a workplace organization method that improves efficiency and safety.

Example: 5S in Offices

In an office environment, 5S can organize workspaces, reduce clutter, and improve workflow, which may lead to increased productivity and reduced errors.

Kaizen

Kaizen involves continuous, incremental improvements to processes, and it is driven by employee involvement (see Chapter 5 for details).

Example: Kaizen in Hospitality

In a hotel, Kaizen may involve regular staff meetings in which staff suggest and implement small improvements to service processes, such as room cleaning protocols or guest interaction procedures.

 Net Promoter Score (NPS)

The Net Promoter Score (NPS) is a widely used metric for gauging customer loyalty and satisfaction. Developed by Fred Reichheld, NPS measures the likelihood of customers recommending a company’s products or services to others. It is based on a single survey question: “On a scale of 0 to 10, how likely are you to recommend our company/product/service to a friend or colleague?”

Based on their responses, customers are sorted into three categories:

1. Promoters (score 910): Loyal enthusiasts who will continue buying and refer others, fueling growth
2. Passives (score 78): Satisfied but unenthusiastic customers who are vulnerable to competitive offerings
3. Detractors (score 06): Unhappy customers who may damage the brand and impede growth through negative word-of-mouth.

The NPS is calculated by subtracting the percentage of Detractors from the percentage of Promoters:

NPS = % Promoters – % Detractors

Application of NPS in Service Improvement

NPS provides valuable insights into customer loyalty and their overall satisfaction. By analyzing NPS data, organizations can identify areas of improvement and take targeted actions to enhance service quality and customer experience.

Using NPS for Service Improvement

1. Conduct NPS Surveys: Regularly collect NPS data from customers through surveys. This can be done via email, telephone, or online forms.
2. Analyze Feedback: Categorize the feedback into Promoters, Passives, and Detractors to identify common themes and issues.
3. Identify Improvement Areas: Use the feedback to pinpoint specific areas where service can be improved.
4. Implement Changes: Develop and implement action plans to address the identified issues. This might involve process changes, employee training, or enhancing service features.
5. Monitor Results: Continuously monitor NPS scores and customer feedback to assess the effectiveness of implemented changes.

Example: Improving Hotel Services

A hotel chain conducted an NPS survey and found that its overall score was lower than expected, with significant feedback from Detractors about long check-in times and unresponsive customer service.

Actions Taken:

1. Analyze Feedback: The hotel management reviews the feedback and finds that customers are frustrated with the long wait times at check-in and a lack of responsiveness from staff.
2. Process Improvement: The hotel implements a new check-in system that includes online check-in options and additional staff during peak times.
3. Staff Training: Customer service training programs are introduced to improve staff responsiveness and problem-solving skills.
4. Monitor and Adjust: After implementing these changes, the hotel continues to monitor NPS scores and gather customer feedback to ensure that the improvements are effective.

Results: Within a few months, the hotel chain sees an increase in NPS, as more customers rate their experience positively. Customers highlight the shorter check-in times and improved service quality.

By using NPS effectively, service organizations can gain valuable insights into customer loyalty and satisfaction. This enables organizations to make data-driven decisions regarding improvement of services and enhancement of the overall customer experience.

Achieving Operational Excellence in Service Industries

Operational excellence in service industries is defined as efficiently and consistently delivering high-quality services. This requires a combination of Lean Six Sigma methodologies, TPS tools, and a culture of continuous improvement.

Key Strategies for Operational Excellence

1. Customer-centric Approach: Focus on understanding and meeting customer needs.
2. Data-driven Decision Making: Use data to identify areas for improvement and measure the impact of changes.
3. Employee Engagement: Involve employees at all levels in continuous improvement efforts.
4. Process Standardization: Standardize processes to reduce variability and ensure consistent service quality.
5. Lean Culture: Foster a culture that embraces Lean principles and continuous improvement. Focus on process metrics and processes leading to improved outcomes.

Example: Operational Excellence in Financial Services

A financial services company can achieve operational excellence by standardizing loan approval processes, training employees in Lean Six Sigma methodologies, and using customer feedback to drive improvements.

Conclusion

Implementing Lean Six Sigma in service industries requires the adaptation of its methodologies and tools to fit the unique challenges and opportunities of the service environment. A focus on reducing waste and improving the customer experience enables these organizations to deliver high-quality, efficient services that meet customer needs and drive business success.

These methodologies and tools, when integrated by service organizations, can enhance operations, deliver greater value to customers, and sustain operational excellence.

References

1. George, M. L. (2003). Lean Six Sigma for Service: How to use Lean speed and Six Sigma quality to improve services and transactions. McGraw-Hill.
2. Liker, J. K. (2004). The Toyota Way: 14 Management principles from the world’s greatest manufacturer. McGraw-Hill.
3. Pande, P. S., Neuman, R. P., & Cavanagh, R. R. (2000). The Six Sigma Way: How GE, Motorola, and other top companies are honing their performance. McGraw-Hill.
4. Reichheld, F. F. (2003). “The one number you need to grow.” Harvard Business Review. [https://hbr.org/2003/12/theonenumberyouneedtogrow]
5. Slack, N., & Lewis, M. (2019). Operations Strategy (5th ed.). Pearson.

Appendix, Chapter 11

Elements of a World-class Customer Service Employee Training Program

A world-class customer service employee training program aims to equip employees with the skills, knowledge, and perspective necessary to deliver exceptional customer service. Here are the key elements that such a program should include:

1. Comprehensive Curriculum: Cover all aspects of customer service, from basic skills to advanced techniques.
2. Interactive Training Methods: Incorporate role-playing, simulations, and real-world scenarios.
3. Customer-centric Focus: Emphasize the importance of understanding and meeting customer needs.
4. Continuous Learning: Offer ongoing training and development opportunities.
5. Performance Measurement and Feedback: Regularly assess performance and provide constructive feedback.

Course Topics List

1. Introduction to Customer Service

• Importance of customer service
• The company’s customer service philosophy

2. Communication Skills

• Effective verbal and nonverbal communication
• Active listening techniques
• Handling difficult conversations

3. Customer Interaction Techniques

• Greeting customers
• Identifying and addressing customer needs
• Personalizing customer interactions

4. Problem-solving and Conflict Resolution

• Steps for resolving customer complaints
• Techniques for de-escalating conflicts
• Case studies of successful problem resolution

5. Product and Service Knowledge

• In-depth understanding of products/services
• How to use product knowledge to assist customers

6. Building Customer Relationships

• Strategies for creating positive customer experiences
• Techniques for building customer loyalty

7. Cultural Sensitivity and Diversity

• Understanding cultural differences
• Delivering inclusive customer service

8. Technology and Tools

• Using customer service software and tools
• Leveraging social media for customer service

9. Measuring Customer Satisfaction

• Methods for gauging customer satisfaction
• Using customer feedback for improvement

10. Continuous Improvement

• Lean Six Sigma principles in customer service
• Personal development and ongoing learning

Expected Duration: A comprehensive customer service training program typically spans several weeks to several months, depending on the depth and breadth of the curriculum.

Suggested Structures:

• Initial Intensive Training: 24 weeks of daily sessions
• Ongoing Training and Development: Monthly workshops and refresher courses
• Continuous Learning: Access to online courses, resources, and regular performance reviews

By incorporating these elements into a customer service training program, organizations can ensure their employees are well prepared to provide exceptional service, which can lead to higher customer satisfaction and loyalty.

Appendix References

Yohn, D. L. (2013, February 3). “7 Steps to Deliver Better Customer Experiences.” Harvard Business Review. https://hbr.org/2015/02/7-steps-to-deliver-better-customer-experiences