Performance effects of early and late Six Sigma adoptions

Abstract

Operations managers confront the challenge of deciding when to implement various administrative innovations such as Six Sigma, ISO 9000, and Lean. This research examines the operating performance effects of early versus late adoption of Six Sigma process improvement. Using theories of organizational learning and knowledge transfer, we develop hypotheses describing the advantages of late adoption, and factors that affect a firm's ability to benefit from Six Sigma either as an early or late adopter. We test our hypotheses using an event study methodology. The empirical results show that, on average, late adopters in our sample enjoy significantly greater performance gains than early adopters. However, the analysis also shows that the advantages of late adopters tend to be moderated by certain environmental and structural characteristics of a firm. Specifically, late adoption has been favorable when firms operate in low-velocity industries, when they primarily sell in business-to-business markets, when they have good financial performance prior to adoption, and when they are large. Conversely, when adopters operate in conditions that have the opposite characteristics, then early adoption appears to have produced better results. Understanding the effects of these factors can enhance managers’ abilities to determine appropriate adoption timing to increase performance.