Managerial Auditing Journal

Statistical thinking and its role for industrial engineers and managers in the 21st
century
Miltiadis Makrymichalos Jiju Antony Frenie Antony Maneesh Kumar
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MAJ
20,4 Statistical thinking and its role for
industrial engineers and
managers in the 21st century
354
Miltiadis Makrymichalos
Pefki, Athens, Greece, and
Jiju Antony, Frenie Antony and Maneesh Kumar
Division of Management, Caledonian Business School,
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Glasgow Caledonian University, Glasgow, UK

Abstract
Purpose – The purpose of this paper is to demonstrate the vital linkage between six sigma and
statistical thinking. The paper also explains the key characteristics required for statistical thinking
and some of the common barriers in the implementation of the key principles of statistical thinking.
Design/methodology/approach – The objectives of the paper have been achieved in several ways.
The paper provides the key principles of statistical thinking and then discusses the possible reasons
for lack of statistical thinking in modern organizations. The paper then illustrates the linkage between
the statistical principles and six sigma. The tools and techniques of six sigma used within statistical
thinking are also highlighted in the paper.
Findings – The key findings of this work include the relationship between the two key powerful
methodologies: six sigma and statistical thinking, reasons for lack of applications of statistical
thinking in organizations, the future role of managers and engineers in companies with regard to
statistical thinking era and the commonalities in the application of tools and techniques between these
two methodologies.
Research limitations/implications – The paper needs more justification through surveys and
case examples and this will be the future step of this study. In fact, one of the co-authors is currently
conducting a survey in the UK organizations to investigate the relationship between statistical
thinking and six sigma.
Practical implications – The paper is very practical in nature and it does yield a great value to
those people who are currently embarking on six sigma program, especially at senior manager and
executive levels.
Originality/value – Very little is published in the field of statistical thinking in the UK academic
world. In fact, there is a cognitive gap in this field and this paper certainly forms a good platform for
further research that will enable to bridge the gap.
Keywords Statistical analysis, Corporate strategy, Quality improvement
Paper type General review

Introduction: the need for business performance improvement

All business activities are subject to variability, and hence uncertainty; consequently,
managers have to take decisions in this environment. Managers need to understand the
nature of variability and the type of variation (special cause or common cause) in
Managerial Auditing Journal business processes. Making wrong or inappropriate decisions can be costly and waste
Vol. 20 No. 4, 2005
pp. 354-363 of effort to organizations. Much about the business world has changed in recent years,
q Emerald Group Publishing Limited largely due to the developments and influence of information technology and global
0268-6902
DOI 10.1108/02686900510592043 competition. Although most of the businesses today find themselves “drowning”
 in data, many professionals still lack the ability to harness the data for competitive Statistical
advantage (Hoerl and Snee, 2002). Statistical thinking tells us how to deal with
variability, and how to collect and use data so that we can make effective decisions on
thinking and
the system or process we are dealing with everyday. All industrial engineers and its role
managers in the 21st century need to be able to think “statistically” and to appreciate
fundamental statistical tools and techniques for improving quality and overall
business performance (John et al., 2001). 355
Statistical thinking
Statistical thinking would one day be as necessary for efficient citizenship as the ability to
read and write (H G Wells).
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Statistical thinking should be an integral and important part of any engineer’s or

business manager’s knowledge. According to the definition published in the
Glossary of Terms for Statistical Quality Control (ASQ, 1996), “statistical thinking”
is a philosophy of learning and action based on the following three fundamental
principles:
.
all work occurs in a system of interconnected processes,
.
variation exists in all processes, and
.
understanding and reducing variation is the key to success.
Statistical thinking can also be defined as thought processes, which recognize that
variation is all around us and present in everything we do, all work is a series of
interconnected processes, and identifying, characterizing, quantifying, controlling, and
reducing variation provide opportunities for improvement (Snee, 1990). This definition,
shown schematically in Figure 1, integrates the ideas of processes, variation, analysis,
developing knowledge, taking action, and quality improvement.
The importance of statistical thinking derives from the fundamental principal of
quality put forth by Deming (1986): “Reduce variation and you improve quality”.
Customers of today and tomorrow value products and services that have consistent
performance. The consistency in performance can be achieved by systematically
eliminating variation in business processes.

Figure 1.
Statistical thinking in
quality improvement
 MAJ Six sigma
20,4 Six sigma is a business improvement approach that seeks to find and eliminate causes
of mistakes or defects in business processes (Breyfogle, 1999; Harry and Schroeder,
2000). It is a disciplined method of using extremely rigorous data gathering and
statistical analysis to pinpoint sources of errors and ways of eliminating them
(Minitab, 2002). Another definition of six sigma is (Linderman et al., 2003): “Six Sigma
356 is an organised and systematic method for strategic process improvement and new
product and service development that relies on statistical methods and the scientific
method to make dramatic reductions in customer defined defect rates”.
Six sigma is a statistical term that roughly translates to only 3.4 defects or failures
or mistakes/errors per million opportunities. The six sigma approach emphasizes in
understanding and documenting the business process, developing metrics and hard
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data, and reducing process variation (Hoerl and Snee, 2002). Six sigma has been quite
successful in integrating the simple and powerful statistical tools into the
problem-solving methodology DMAIC (define, measure, analyze, improve, and
control). This careful integration of tools with the methods is unique to six sigma
(Breyfogle, 1999; Ishikawa, 1985; Kume, 1987, 1985; Hoerl, 1998). Six sigma is viewed
as a process performance improvement approach and a measure of process capability.
The focus is on creating financial gains to the bottom-line of the organization. This is
one of the facets of six sigma that is not accentuated in TQM. The bottom-line impact
is central to the strong and charismatic leadership and the support that has been given
to six sigma initiative in an organization. Another key aspect of six sigma is the
integration of human and process elements of improvement. Human elements may
include teamwork, communication of results, recognition and awards, training,
customer focus, etc. and process elements may include process stability, capability,
and process characterization and optimization.

Linking six sigma and statistical thinking

The six sigma approach has a lot in common with the process improvement and
problem-solving strategies which utilize statistical thinking. Statistical thinking is
fundamental to six sigma and hence it is imperative to begin with the significance of
statistical thinking before six sigma is introduced and developed within organizations.
Six sigma differs from other quality improvement approaches in that it focuses on the
extensive use of both statistical (e.g. design of experiments, statistical process control,
multivariate analysis such as principal components analysis, response surface
methods, and so on) and nonstatistical tools (e.g. quality function deployment, pareto
analysis, cause-and-effect analysis, affinity diagram, etc.) that are linked and
sequenced in a much disciplined way.
The goal of standard six sigma statistical training is to give Green Belts and Black
Belts an appreciation of statistical thinking and a hands-on introduction to the tools
needed for successful projects (Hahn et al., 2001). Broad understanding of statistical
thinking at the strategic, managerial, and operational levels is essential to maximise
the contribution of statistical thinking to six sigma. It is evident from many research
studies that both strategic and managerial aspects of statistical thinking are not yet
thought of clearly during the introduction and development of six sigma programs.
The successful integration of all the above three aspects of statistical thinking should
be the backbone of a successful six sigma initiative.
 Principles of statistical thinking Statistical
All work is a system of interconnected processes thinking and
The first principle of statistical thinking is that all work occurs in a system of
interconnected processes. A process is one or more connected activities in which inputs its role
are transformed into outputs for a specific purpose (Hoerl and Snee, 2002). Businesses
and other organizations are made up of a collection of processes. Business processes
interconnect and interact to form a system that typically provides a product or service 357
for a customer.
Dr Juran, one of the quality gurus, pointed out that the source of most problems is in
the process we use to do our work. He insisted that the process was to blame and not the
people when working on the process or system improvement. Dr Juran makes the point
that “85% of the problems are in the process and the remaining 15% are due to the
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people who operate the process” (cited in Hoerl and Snee, 2002). Dr Deming, another
quality guru stated that the true figure is more like 96/4, i.e. 96 percent of the problems
are in the process or system and the remaining 4 percent are due to the people
(Joiner, 1994). Although there is a difference between the figures provided by the two
“quality gurus”, obviously the vast majority of the problems are in the process/system.

Variation exists in all processes

The second principle of statistical thinking is that variation exists in all processes.
This provides the opportunities for process improvement and hence product quality.
Variation is the enemy of quality. Focusing on variation is a key to improve
performance and achieve consistency. Of course, in certain situations variation is
desirable, such as skills associated with players in a soccer team. It is unintended
variation which causes all the problems, which ultimately resulted in increased
customer dissatisfaction, undesired product, or service performance, etc.
Variation is a fact of life. Variation is all around us. It is present in everything we do,
in all the processes operated by us and in all the systems created by us. Variation is the
difference between two items/units produced by the same process. Variation creates
the need for statistical thinking. If there were no variation, there would be little need to
study and use statistical thinking.

Understanding, analyzing, quantifying and reducing variation are keys to business success
The third principle of statistical thinking is that understanding, analyzing,
quantifying, and reducing variation are keys to success of the business. First,
variation should be identified, characterized, and quantified in order to understand
both the variation and the process that produced it. With this knowledge, we can work
to change the process and reduce its variation. The performance of a process is
influenced by its average or centering and the amount of variation around the average
performance. For process improvement problems, we need to understand the factors
which influence the average performance and also those factors which influence
variability in process performance. Many managers of today are still concerned about
the average process performance and not yet paid much attention to the performance
variability. This fundamental problem can be readily rectified by teaching the
principles of statistical thinking. Customers of today are more concerned with the
consistency of performance and not about how often we can hit the target value of
product/service performance. Dr Taguchi’s quality loss function can be used as a
 MAJ powerful tool to quantify the loss associated with a product/service when its
20,4 performance deviates from a desired or target value (Antony and Kaye, 1999).
The larger the deviation from target performance, the greater the loss will be.

Possible reasons for lack of statistical thinking in today’s businesses

There are numerous success stories on the use of statistical thinking and methods in
358 problem solving, process improvement, and cost reduction (Britz et al., 1997; Koselka,
1996). However, the approach has been difficult to integrate into the routine business
processes of an organization. The lack of broad and sustained use of statistical thinking
and methods in many organizations are mainly due to the following fundamental issues.
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Shift in the organizations priorities

Statisticians have historically functioned as problem solvers in manufacturing,
research, and development. In exercising this role, they have focused on individual
clients rather than on organizations (Snee, 1991). Global competition has forced
managers to rethink how organizations are run and to search for better ways to manage.
Problem solving in manufacturing, research, and development, while important, is not
seen as particularly relevant to these needs of management (Snee, 1998).

Statistics have not been applied for managerial issues

Statisticians typically have focused on the technical aspects of statistics. With the
exemption of the work of Dr Deming, little energy has been devoted to the use of
statistical thinking to better manage the organization and produce better business
results. The use of statistical thinking emphasizes the importance of a process focus for
analyzing and quantifying process variation and ultimately will lead to bottom line
results – reduced costs and increased revenues. The new way of utilizing statistics is
based on a set of strategies that focus on process improvement, integrating statistical
thinking and methods into business processes, developing support and involvement of
senior management, and creating the infrastructure and skills that enable the
organization to use statistical thinking and methods on a broader scale.

Managers view statistics as a tool for “fire-fighting” actions

One of the most difficult challenges for every manager is to figure out how to use
statistical thinking effectively to help them making effective decisions. However, the
problem is that managers treat all the problems as due to special cause variation. When
a problem arises, they want to fix it as soon as possible in order to deal with their
day-to-day job activities. However, what they do not realize is that the majority of the
problems are in the system or process which can only be tackled with their full support
and approval. The result is that management spends too much time “fire-fighting”,
solving the same problem again and again because the system was not changed. These
situations are not likely to improve without using statistical thinking strategically.
Managers should not only use simple and powerful statistical tools/techniques when
the problem arises but also think strategically from the statistical point of view to
improve all the business processes through variability reduction programs.
Understanding the unique nature of both common and special causes is the key to
reducing variation, and reducing variation is the key to improving quality,
productivity, and profitability.
 Changing the mindset of people in the enterprise Statistical
Philosopher George Bernard Shaw once noted, “If you can’t change your mind, you can’t thinking and
change anything”. It is clear that managers, quality professionals, technical personnel,
and statisticians all have new roles that require new skills. Box (1988) points out that its role
achieving total quality requires skills in the fields of statistics, management,
psychology, sociology, and anthropology. All the people in every organization must
continue to learn new ways of operating to compete successfully in a rapidly changing 359
world. However, change implies discontinuity and the destruction of familiar structures
and relationships. Therefore, change can be resisted because it involves confrontation
with the unknown and loss of the familiar (Huczynski and Buchanan, 2001).

Inadequate statistical education for business and engineering curricula at higher

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education institutions
Many engineers have not been taught or have been taught poorly the value of
statistical ideas and applications. Research has shown that application of statistical
tools and techniques by the engineering fraternity in both manufacturing and service
industries is limited and when applied they are often performed incorrectly (Antony
and Kaye, 1995). In other words there is a cognitive gap in the knowledge of applied
statistical methods required by industrial engineers and managers in many modern
organizations. The most common remark made by many engineers is “I can do the text
book and class room examples but I am not comfortable while applying the concepts
and principles of this statistical tool/technique in my work area”. The main reason
identified for that is the lack of statistical education at university level (Antony and
Capon, 1999). The courses currently available in engineering and business statistics
often tend to concentrate on the theory of probability, probability distributions, and the
more mathematical aspects of the subject rather than the techniques which are most
practically useful to the engineering and business fraternity (Antony et al., 1997).

Fear of statistics by managers

A side effect of the inadequate statistical education at university level, as mentioned
above, is the fear that managers have when dealing with statistics. Even if they had been
taught statistics at the university, it was usually focused on complex maths and
formulas rather than the application of statistical tools for problem solving. Usually
managers have their first experience with statistical thinking in a workshop inside the
company, applying some tools with the guidance of an expert. Although this is the best
learning method to understand and experience statistical thinking (Snee, 1993), if the
participant does not have a good knowledge of statistics he will struggle to apply the
same principles he learnt to a different problem or in a completely different environment.
Only if the content and the delivery method of statistical education will radically change,
the future managers overcome their fear for statistics. This fundamental problem can be
tackled by teaching understandable and usable statistical techniques through practical
examples and real case studies at the university level (Bendel et al., 1999).

New roles for industrial engineers and managers in statistical thinking era
Managers should understand that statistical thinking is not just a set of statistical tools
Statistical thinking should not be observed as just the use of powerful statistical tools
and techniques with little focus at the concept level. Managers should start considering
 MAJ statistical thinking from a “systems” perspective, that is, specifically developing
systems that bring together several statistical tools and other methodologies to
20,4 perform certain activity (Pfeifer et al., 1998).

Managers should start using the available data effectively for making decisions
Statistical thinking has its roots in the work of Shewhart. One of the important
360 principles of statistical thinking contributed by Shewhart is rational sub-grouping.
The idea is to minimize within subgroup variability and maximize the opportunity to
detect variability between subgroups. To truly minimize variability, the sources of
variation must be identified and eliminated (or at least reduced). This requires process
knowledge which is usually derived from theory and data. Data must be collected in a
manner that will enable the measurement of variability in the process.
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In earlier days, collecting scant data in a haphazard manner was appealing to

managers because it created the illusion of quick, inexpensive action. Indeed, the action
is quick, but not inexpensive. Quick fixes based on incomplete, nonrepresentative data
can cause financial losses resulting from action in the wrong sense. The principle of
rational sub-grouping is necessary for reducing variability and is, therefore, a natural
part of statistical thinking (Hare et al., 1998).

Managers should be able to distinguish common and special cause variation in their core
business processes
Understanding the difference between common and special cause variation is as
important as understanding rational sub-grouping. An illustration often used to show
the difference is that common cause variation is the variation that a process would
exhibit all the time. It is also referred to as the natural process variation. Common
cause variation in many cases may be tackled by fundamentally changing the process
or system. This requires action from top management. Some of the fundamental
differences between common and special causes of variation are shown in Table I.
Special cause variation can be readily identified and can be eliminated by adjusting the
process. Special cause variation can often be addressed without spending a great deal
of time, effort, or money. Eliminating special causes is really fixing problems, or
bringing the process back to where it should have been in the first place.

Engineers and managers should develop a new way of thinking

The secret in helping engineers and managers understand and use statistical thinking is
to recognize that statistical thinking is a mindset – a way of thinking, behaving,
working, taking action, and interacting with others. Understanding and using statistical
thinking requires changing existing mindsets of both engineers and managers.

Special cause variation Common cause variation

Process can be unpredictable Inherent in the process

Often related to a specific event Part of the normal behavior of the process or
system
Process is not considered to be in a state of Process is considered to be stable if only common
Table I. statistical control cause variation is present
Special cause versus Elimination of special cause variation entails the Reduction of common cause variation entails the
common cause variation use of problem-solving strategy use of process-improvement strategy
 Industrial engineers and managers can effectively develop an understanding of Statistical
statistics using the learn-use-evaluate cycle (Hare et al., 1998). The cycle begins with thinking and
defining the statistical thinking mindset. This is followed by conducting a learning
workshop in which both industrial engineers and managers can deepen their its role
understanding and knowledge of statistical thinking. Since we learn best by doing, the
next step is for them to use statistical thinking concepts and tools in their daily work
and keep track of experiences, questions, and concerns. 361

Statistical thinking principles and six sigma tools/techniques

Tools and techniques are practical methods, skills, means, or mechanisms that can be
applied to particular tasks. A tool is used on its own and has a clear role. Examples of
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tools include Pareto analysis, control chart, cause and effect analysis, etc. A technique,
on the other hand, has a wider application than a tool and is often thought of as a
collection of tools. Examples include QFD, Robust design, DOE, SPC, etc. The
successful implementation of statistical thinking principles requires stringent
application of these tools/techniques. This section is looking at what tools or
techniques of six sigma could be employed during the successful implementation of
statistical thinking (refer to Table II).

Future steps in statistical thinking

Statistical thinking and six sigma approach are mainly implemented in the
manufacturing industry. Recently, we have witnessed an increasing number of
implementations of these approaches in the service industry. The authors believe that
statistical thinking and six sigma are applied to all industries irrespective of their
nature and size.
In the future, statistical thinking together with some basic mathematics, economics,
and quantitative and analytical thinking and computing skills provide the foundation
for studying more statistically advanced subjects. In disciplines such as marketing,
product development, economics, finance, and so on statistical thinking and its
elements – process, variation, and data – are fundamental to deeper understanding
and use of associated statistical methods. The potential benefits through the
systematic utilisation of statistical thinking in every process of the business are
guaranteed and will be impressive.

Statistical thinking principles Six sigma tools Six sigma techniques

All work occurs in a system of Process maps, SIPOC, value QFD, FMEA
interconnected processes stream mapping, affinity
diagram, cause and effect
analysis
Variation exists in all processes Histograms, box plots, control Process capability analysis,
charts, run charts, multivari measurement system analysis
charts
Understanding and reducing Hypothesis testing, correlation DOE, Taguchi methods, SPC, Table II.
variation are the keys to analysis, Pareto analysis, Shainin’s variables search Six sigma
success ANOVA, control chart, method tools/techniques used
regression analysis within statistical thinking
 MAJ Conclusions
20,4 Businesses have begun to respond to the new economic era in which we live.
This response takes many forms. Much of it is aimed at improving the quality of
everything we do. The industrial engineers and managers in the 21st century have two
jobs: to do their ordinary work but at the same time continuously improving how they
do their work. The attention on improving everything we do has brought with it
362 a renewed emphasis on statistics and in particular on statistical thinking. The
improvement activities which derive from statistical thinking are process
improvement and problem solving. Problem-solving strategy has been applied in the
past but without delivering the expected results. The main reasons identified for that
are: statistics was never used before for managerial issues and when they were used
they were focused on “fire-fighting” actions. Additionally, there is inadequate
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statistical education (especially for industrial engineers and managers) resulting in a

fear of statistics. Finally, there is always a resistance to change the way people manage
processes and they are used to it. Moreover, in order to produce the best results
through the use of statistical thinking, managers should also change the way they
work, i.e. change of mindset or attitude or new way of thinking toward work activities
and daily tasks. They should also understand that statistical thinking is much more
than a set of statistical tools and techniques. Primarily, statistical thinking is a
philosophy, a concept that variation exists in every process and reducing variation
improves product/service quality. It is also important for the managers of the
21st century to be able to distinguish the common and special cause variation, and
thereby establishing a greater knowledge of the process.

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