Introduction to Six Sigma & Lean

A Brief History of Six Sigma

Six Sigma began at Motorola in 1986 when engineer Bill Smith developed a quality improvement framework to dramatically reduce manufacturing defects. The methodology caught global attention when Jack Welch adopted it at General Electric in the mid-1990s, making it a cornerstone of GE's corporate strategy and reportedly saving the company billions of dollars.

By the early 2000s, the financial services industry recognized that the same disciplined, data-driven approach could transform banking operations. JP Morgan Chase was among the first major banks to roll out enterprise-wide Six Sigma programs, applying the methodology to everything from mortgage processing to call center performance. Citigroup, HSBC, Bank of America, and American Express followed, embedding Six Sigma into their operational excellence frameworks. Today, it remains one of the most widely adopted process improvement methodologies in global banking.

What Is Six Sigma?

Six Sigma is a data-driven methodology for eliminating defects and reducing variation in any process. The name refers to a statistical concept: a process operating at "six sigma" produces only 3.4 defects per million opportunities (DPMO).

The core idea is simple — every process has variation, and variation leads to defects. Six Sigma gives you the tools to measure that variation, find its root causes, and eliminate them systematically. The sigma level of a process tells you how capable it is:

• 1σ = 691,462 DPMO (30.9% yield) — barely functioning
• 2σ = 308,538 DPMO (69.1% yield) — poor
• 3σ = 66,807 DPMO (93.3% yield) — average
• 4σ = 6,210 DPMO (99.38% yield) — good
• 5σ = 233 DPMO (99.977% yield) — very good
• 6σ = 3.4 DPMO (99.9997% yield) — world-class

Most banking processes operate between 3σ and 4σ. The goal is not always to reach 6σ — it is to reach the level that makes business sense for your process and your customers.

The DMAIC Framework

DMAIC is the structured problem-solving roadmap at the heart of Six Sigma. Each phase builds on the previous one:

• Define — Clearly state the problem, identify the customer, scope the project, and secure sponsorship. What are we fixing, and why does it matter?
• Measure — Collect data to establish a baseline. How is the process performing today? What does the data actually tell us?
• Analyze — Identify and verify root causes. Why is the process producing defects? What is driving the variation?
• Improve — Develop, test, and implement solutions that address the validated root causes.
• Control — Sustain the gains. Put monitoring, control charts, and standard procedures in place so the process does not regress.

We will explore each phase in depth across the remaining modules of this course.

Lean + Six Sigma

Lean and Six Sigma are complementary methodologies that are often combined. While Six Sigma focuses on reducing variation and defects, Lean focuses on eliminating waste and improving flow. Together, they form Lean Six Sigma — a powerful toolkit for making processes both more consistent and more efficient.

Lean identifies eight types of waste, remembered by the acronym TIMWOODS:

• Transportation — unnecessary movement of documents or data between systems
• Inventory — backlog of unprocessed applications or unresolved breaks
• Motion — excessive toggling between screens or systems to complete a task
• Waiting — idle time while approvals, handoffs, or system batches complete
• Overproduction — generating reports or outputs that nobody uses
• Overprocessing — redundant checks, dual-keying data, or gold-plating low-risk items
• Defects — errors that require rework (failed trades, incorrect payments, rejected SARs)
• Skills underutilization — qualified analysts spending time on low-value manual tasks

In banking, waiting and overprocessing are often the dominant wastes. Think about how many times a KYC file sits in a queue, or how many levels of review a low-risk transaction alert passes through before being closed.

Six Sigma Roles

Six Sigma organizations use a belt system to define roles and responsibilities:

• Champion — Senior leader who sponsors the project, removes obstacles, and secures resources. In banking, this is typically a Managing Director or department head.
• Master Black Belt — Expert coach who trains Black and Green Belts and ensures methodological rigor across the organization.
• Black Belt — Full-time project leader who manages complex, cross-functional improvement projects. They are proficient in advanced statistical tools.
• Green Belt — Part-time project leader who applies Six Sigma tools to projects within their department alongside their normal role.
• Yellow Belt — Team member who understands the fundamentals of Six Sigma, supports Green and Black Belt projects, and applies basic tools to improve processes in their own area.

As a Yellow Belt, your role is critical. You are closest to the actual work. You understand the day-to-day pain points, you can collect data, you can participate in root cause analysis workshops, and you can champion small improvements within your team without waiting for a formal project to be launched.

Banking Example: Trade Settlement DPMO

Let us make the sigma concept tangible with a banking example. Consider a bank's equities trade settlement process. The customer requirement is straightforward: trades must settle by the contractual deadline (T+1 for US equities).

Suppose the bank processes 100,000 trades in a month, and 500 trades fail to settle on time. Here is how we calculate the sigma level:

DPMO = (Number of Defects / Total Opportunities) x 1,000,000

DPMO = (500 / 100,000) x 1,000,000 = 5,000 DPMO

Looking up 5,000 DPMO on a sigma conversion table, this equates to approximately 4.1σ. That is solid, but there is room for improvement. The operations team might set a project goal of reaching 4.5σ (approximately 1,350 DPMO), which would mean reducing failed settlements from 500 per month to roughly 135.

This is the power of Six Sigma in banking — it takes a vague concern like "we have too many settlement failures" and converts it into a precise, measurable target that the entire team can rally around.

In the next module, we will begin the DMAIC journey by learning how to Define an improvement project: scoping the problem, identifying stakeholders, and writing a project charter.