MANAGEMENT: How General Electric plugged into Six Sigma

General Electric (GE) was the first major US company to adopt Six Sigma. GE’s CEO Jack Welch embraced it in 1995 and attributes at least part of the recent success of the company to the implementation of the philosophy.
In 1999 alone, Six Sigma delivered $320m (£213.3m) in productivity gains – more than double the original goal of $150m (£100m).
Six Sigma was rolled out in the GE in-house legal team in 1996 and the team has now applied the principles for more than four years – longer than any other company.
The principles are applied right across the legal function in all group divisions. All GE lawyers, globally, are required to reach the Green Belt level. At GE this means two to three weeks of training and completion of at least two Green Belt projects.
Elpidio Villarreal, counsel litigation and legal policy adviser with GE in the US, is a Six Sigma Green Belt. He is the architect of the Early Dispute Resolution (EDR) process (see sidebar right), which was introduced after applying the programme to litigation.
He admits that the lawyers were initially sceptical about how the strategy would work. “There was a question about how one can apply the quantitative mathematical approach, which is geared to the manufacturing process, to the arts and liberal graduates in the legal function?” he says.
“We came to rest at the fact that although we cannot apply Six Sigma strictly in the same way, it does not mean that the central insights do not apply. Almost everything we do in the legal department is a process that can be broken down into components and we can assess the improvements.”
Unlike the DuPont legal team, GE does not restrict the management philosophy to paper-driven administrative processes.
“Our view is that you should go to the core processes,” Villarreal says. “If you are going to apply Six Sigma, you have to be fanatical about it, particularly in a large organisation. You have to be radical, otherwise you marginalise it.”
The key to applying Six Sigma is to identify what the client wants a process that Villarreal says has benefits in itself. “The business people had probably been telling us for ages, but we simply did not listen. Six Sigma requires you to do so and the inevitable result is that it makes you more responsive.”
Unlike DuPont, GE has not brought its external advisers into the Six Sigma frame. But this is set to change. Outside supplier Ernst & Young has been trained in Six Sigma.
The principles of EDR are already set out in the letter of engagement with law firms and two conferences have been set up at GE headquarters to train external firms in EDR process.
Villarreal says that in 2001 GE will be focusing on how it can bring law firms fully aboard the Six Sigma train. He does not rule out training them to be Green Belts, but says that, while this has been considered, “outside lawyers can be quite conservative”.
Villarreal has no hesitation in recommending Six Sigma to other in-house departments. “GE lawyers are now thinking in terms of the process and how we can measure the value. It has made us better lawyers because we no longer simply accept things,” he says. “For instance, I can no longer accept the analysis from outside counsel that we have a ‘pretty good case’. I want to break that analysis down.”
Villarreal’s advice for all in-house counsel is to consider applying the principles to their legal functions.
“If I was made general counsel of a major company tomorrow and the company had not implemented Six Sigma, I think I would try to take the lead,” he says, adding: “the management can then see what is possible.”

EDR: Early Dispute Resolution
Elpidio Villarreal (right) devised the Early Dispute Resolution (EDR) process after he applied the Six Sigma principles to litigation.
“Before Six Sigma, the litigation team tended to measure successes by how the company ultimately prevailed in moments of crisis. So a win in a big trial that was reported in the Wall Street Journal would be viewed as a success,” he says.
“But, in fact, when we looked at what the company wants, it was a quick and inexpensive resolution of disputes. A case that goes to trial is a defect. The best situation – Six Sigma – is never to go to trial.”
Villarreal came up with a process to cut the number of major cases that go to trial, consequently reducing legal costs. It was initially applied to employee-led litigation. All employees are required to go through the EDR process before issuing proceedings.
There are three steps to the process: conciliation, mediation and non-binding arbitration. Where outside companies issue proceedings, the same principles are applied. Wherever possible, GE encourages mediation.
Four times a year the teams in each business unit meet to assess whether EDR is appropriate in the big litigation.
The process is monitored on an on-going basis. Villarreal says the group has made “significant costs
savings” and the percentage of big-ticket cases in the US dropped by 19% in 1999.
He is in the process of moving EDR out into the UK and Europe. “We still have a lot of big-ticket litigation and most of it is in Europe.”