The modern business environment requires that companies have the ability to react quickly to unexpected changes. It’s a situation that has led some corporate leaders to include possible worst-case scenarios in their annual planning process.

For example, Eli Lilly CFO Anat Ashkenazi said the global healthcare company uses this approach to imagine what amounts to disaster scenarios in different phases of the company’s operations. She told CNBC that company leaders ask questions such as:

  • “What could cause us to fail to achieve everything we set out to achieve?”
  • “What could cause us to have a completely different strategy as an organization?”

Perhaps that is not the most comforting of business strategies. But in a world buffeted just in the past two years by a global pandemic, a post-pandemic recession, inflation, and concerns about another recession on the horizon, preparation is key to success.

For many companies, including Eli Lilly, putting the Six Sigma tool of failure modes and effects analysis (FMEA) to work offers insights into what the future might bring.

A Challenging 21st Century

The first two decades of the 21st century have thrown one challenge after another at both individuals and businesses. The pandemic and inflation have been but the latest in a string of incidents that included a terrorist attack on U.S. soil in 2001, the Great Recession that started late in 2007 and the Great Resignation that many industries are still going through in 2022.

All of this is happening against the backdrop of “industry 4.0,” the revolution at home and in the workplace brought on by the speed of innovation in technology. It’s also happening during a period when more business leaders than ever are understanding the need for company policies that promote diversity, equity and inclusion in the workplace.

That’s a lot on the plate of any manager or administrator. Throw in the impact of a new war in Europe on oil prices, and things get even more tricky.

The Importance of Six Sigma Training

Ashkenazi, who served as chief strategy officer for Eli Lilly before becoming CFO in 2021, said all companies benefit by looking at “what if” scenarios as part of risk management.

She said Eli Lilly has “done this religiously” and attributed this to Six Sigma Black Belt management training and the use of FMEA. She said both have led to a more disciplined and efficient approach to collecting data and implementing both strategic planning and organizational transformation.

The pharmaceutical giant began integrating Six Sigma into its training and strategy around 2005 with the goal of saving revenue, training employees and completing projects. The company website notes that at Eli Lilly, “Performance productivity is measured by our global manufacturing organization against best practices, while continuously improving processes and products using good science and Six Sigma methodology.”

How Failure Modes and Effects Analysis Works

Businesses use FMEA to determine where a process or product is more likely to fail, and why. Typically, organizations use it when designing a process to better manage risk. For example, a medical implant company used FMEA to determine the potential for costly problems in the manufacturing of a medical device.

FMEA provides a step-by-step approach that first identifies a failure mode and then analyzes the estimated effects of the failure. The technique then calls for developing a plan to control the process better so that failure is averted.

The use of FMEA typically falls into one of three categories. Process FMEA is used to evaluate processes such as in manufacturing and assembly. System FMEA analyzes entire systems during the design stage. Design FMEA examines product designs before their release to manufacturing.

FMEA got its start with the U.S. military, which uses the procedure for quality control and to assess risks caused by different military options. By the 1960s, NASA used FMEA as part of its quality management. Today, typical events FMEA might analyze include what happens if workers omit a step in a process, a certain piece of equipment breaks or workers get distracted.

Ashkenazi said this same approach works for bigger picture crisis scenarios because “when you do ‘what ifs’ you can get the specific risk wrong, but have a broad enough set of risks covered.”