Remember the Beardstown Ladies?
These 16 women from Beardstown, Illinois formed an investment club in the mid ‘80s that was as sensible and plain spoken as they were. Their stock picks were not based on complicated investment models or Wall Street hype, but on thorough research and common sense.
The ladies’ investment club posted extraordinary returns, claiming that in ten years they had averaged 23.4% returns annually, performance that doubled the Dow Jones average. This news turned the Beardstown Ladies into celebrities. For a time everyone was smitten with the Beardstown Ladies, both for the apparent performance of their portfolio and for their story.
Who wouldn’t love their story? These middle-class women from Middle America used good old fashioned common sense and persistent legwork. In their spare time, they had dramatically outperformed the stock market and put most professional money managers to shame.
The media embraced the club and their David and Goliath story, showering the women with praise in newspapers, magazines and television. Remarkably, the media took the dramatic claim of a 23.4% annual return on at face value. The investment club remained media darlings for over five years before anyone asked for documented proof of the club’s market performance.
Outside auditors who reviewed the club’s returns found that they were radically overstated. The 23.4% average annual return that made the club famous turned out to be an actual rate of return of 9.1%, significantly below the market.
The Beardstown Ladies never intended to deceive anyone. They were amateurs who made the amateurish mistake of counting new investments made by its members as part of their portfolio’s return.
Six Sigma and Darlings
Just as the public and the media made darlings out of the Beardstown Ladies, organizations develop their own darlings. The darling may be a profitable department, a long-standing process, or a piece of new technology that is considered by many to be irreplaceable.
Six Sigma requires its users to ask, “How well are these darlings performing?” Six Sigma then provides the tools to measure that performance. To see if your favorites are pulling their weight and producing as promised, use the following tools:
Control Charts – This tool is used to monitor process performance. The chart tracks process variation over time, which measures how stable the process is and displays how it is performing.
Process Maps – Graphically displaying the steps in a process helps project teams identify the complexity of the process and can lead to ideas for simplification.
Spaghetti Diagram – This is used to indicate the movement of material and personnel. The diagram can help identify any unnecessary movement.
Pareto Chart – Displaying errors and problems in the production system on a Pareto chart helps teams differentiate between trivial problems and serious ones. The Pareto chart ranks errors in order of frequency or cost to help easily identify critical errors.
Histogram – Project teams plot the data points they gather in bar form on a histogram to view the frequency distribution. The team is able to tell whether the process is functioning within required parameters or if it is too variable.
It can be easy to fall in love with the darlings in your process. Six Sigma forces teams to take an unflinchingly objective look at performance to identify elements that simply aren’t working – even the darlings.
