October 2006

In this issue:

SPC has been successful in many companies. Yet, there are probably more unsuccessful implementation efforts than successful ones. Why has this occurred?

I believe the major reason is that the leadership of these companies didn't understand that quality is more than SPC and attempting to put control charts on the floor. It represents a philosophy. And the philosophy that should have driven these leaders was that developed by Dr. W. Edwards Deming. This is the first of a four-part series that explains the philosophy behind quality and the use of statistics. Enjoy!

Profound Knowledge

Dr. W. Edwards DemingDr. W. Edwards Deming was a remarkable man. He is often credited with helping the Japanese rebuild following World War II. The following is from the W. Edwards Deming Institute® website (www.deming.org, permission to use the Media Gallery photo of Dr. Deming granted by Diana Deming Cahill of the W. Edwards Deming Institute). "The Union of Japanese Scientists and Engineers (JUSE) invited Dr. Deming to Japan in 1950 where he taught the basic principles of statistical quality control to executives, managers, and engineers of Japanese industries. His teachings made a deep impression on the participants' minds and provided great impetus in implementing quality control in Japan. In appreciation, JUSE (English) created a prize to commemorate Dr. Deming's contribution and friendship and to promote the continued development of quality control in Japan. The prize was established in 1950 and awards are still given annually. The Deming Prize, especially the Deming Application Prize which is given to companies, has exerted an immeasurable influence directly or indirectly on the development of quality control and management in Japan."

I have wondered recently if the world is beginning to forget his teachings. Dr. Deming passed away on December 20, 1993 at the age of 93. I don't think we can afford to forget what this great man taught. So, this is my effort to help keep his words alive. This is the first of a four-part article on Dr. Deming and his four areas of profound knowledge. I originally wrote this article around 1992. I have updated it somewhat, but most of it remains as it was fourteen years ago.

I first heard Dr. W. Edwards Deming speak during his four-day seminar in December of 1985 after being exposed to his teachings through an earlier seminar on statistical process control (SPC). This earlier seminar sparked my interest in this man and his famous fourteen points for the transformation of the western style of management. I spent the seminar listening to this "grand master" for four days and adding the "seven deadly diseases" to my knowledge base. My interest in this "man who discovered quality" has continued. My autographed copy of his book, Quality, Productivity, and Competitive Position, is the prize of my book collection. I believe Dr. Deming is right in his theories. However, when it comes to implementing his theories (and in some instances, understanding his theories), "there is no instant pudding."

Dr. Deming spent years developing a theory for helping companies move forward into the twenty-first century. Remarkably, it all still applies today. Understanding Dr. Deming begins with understanding his "system of profound knowledge." This system is composed of four bodies of knowledge:

  • Knowledge of a system
  • Knowledge of variation
  • Theory of knowledge
  • Knowledge of psychology

To understand the system of profound knowledge, you must understand what a system is and what the "aim" of a system is. You must also understand variation and realize that the true benefit of this understanding comes from how you lead people. You must understand the theory of knowledge, and finally you must understand motivation and psychology. Thank goodness you don't have to be an expert in each of these areas. However, you must know something about each area because they are interrelated. I believe this is point 2 of Dr. Deming's fourteen points: Adopt the new philosophy. We are in a new economic age. Western management must awaken to the challenge, must learn its responsibilities, and take on leadership for change.

Below, I describe the "system of profound knowledge" through my eyes. We will start with knowledge of a system this month. My apologies to Dr. Deming for anything I may have misinterpreted. Dr. Deming said that doing your best is no longer sufficient. You must know what to do. I'm trying to know.

Defining a System

 

the Deming model

 

The first part of this profound knowledge is understanding what a system is. Dr. Deming defines a system as "an interconnected complex of functionally related components that work together to try to accomplish the aim of the system." Most people familiar with Dr. Deming will remember this as the system shown in the figure above. Thus, suppliers, customers and the organization must work together to accomplish the aim of the system.

There are many examples of possible systems in industry, government, and education. The airline industry represents a possible system. Included in this system would be the airlines, employees of the airlines (pilots, stewards, baggage handlers, etc.), suppliers to the airlines (aircraft manufacturers, meal suppliers, city airports, etc.), customers (business travelers, leisure travelers, etc.), and government regulatory agencies (Federal Aviation Administration, National Transportation Safety Board, etc.). It could be that the system for one airline includes only that airline, not the entire industry. The chemical industry is another example of a possible system. Included in this system would be the chemical companies, suppliers to the chemical companies (other chemical companies, railroads, other carriers, etc.), customers of the chemical companies, employees of the chemical companies, and a host of governmental agencies (OSHA, EPA, etc.).

The Aim of a System

a dart board with 3 darts in itAll companies and organizations can be part of a system. A system does not just automatically exist. Sure, the relationships shown in the figure exist for all organizations in terms of flow of products and services, but that does not make it a system. The key to understanding a system comes with realizing that there must be an aim, i.e., a purpose of the system. Without a purpose, there is no system. This is really Point 1 of Dr. Deming's 14 points: Create constancy of purpose for improvement of product and service. The aim should include the future and something for the employees of an organization. It should be communicated throughout the organization so everyone understands this aim. According to Dr. Deming, it is this concept of a system and an aim that helped propel Japan into becoming an economic superpower. Japan was the system.

What is an aim? Dr. Deming says that the aim should be "optimization of the system throughout time." Optimization is the "process of orchestrating the efforts of all components toward achievement of the stated aim." In addition, he says that the aim is value judgment. For the transportation system in the United States, his example of an aim is:

"Better and better service - that is, more dependable delivery. Continual improvement in on- time delivery. Lower and lower cost to the carrier. Better quality of life for employees of carriers and shippers. Protection of the environment."

The aim is truly a value judgment. Suppose the system includes a public power company. What should the aim of this system be? Of course, supplying power without interruptions to customers is one aim the company and customers would agree upon. The customers will want this service at a low price (free, if possible). The company will want to raise the rates as high as possible. Setting an aim will often require compromise between all the components in the system.

Boundaries of a System

a truck staying withing the boundaries of its laneTwo things are critical in applying this part of the system of profound knowledge. First is defining the boundaries of the system. For example, if you are a motor freight company, does the system include only your suppliers, your customers, and your company or does the system include all motor freight carriers, suppliers, and customers? This distinction is important because, if it includes your competition, then you must work together with your competitors to improve the system.

Dr. Deming actually supports companies working with their competitors to optimize the system for long-term survival. Included in his philosophy are terms like price fixing and monopolies. In the world according to Dr. Deming, companies would be just one component of the system with the aim being to "stay in business for the long term, and to provide maximum benefit to themselves, to their customers and suppliers, and to society." In this world, companies would not set prices that would hurt the system in the long term.

The Justice Department has, on several occasions now, filed antitrust lawsuits against most U.S. airlines for alleged price fixing. Since our government deregulated the airline industry, the airlines have been involved in a number of fare wars. These, along with other items, have resulted in the airline industry declining. Billions have been lost recently, some airlines are in Chapter 11, some are laying off employees, and some smaller carriers no longer exist. Is this optimization of the system? What is the aim of the system? In truth, there is not a system for the airline industry. In the world according to Dr. Deming, customers, producers, and suppliers would get together to determine pricing that helps the system achieve its stated aim.

Since suppliers are an important part of the system, it is important that you select suppliers who understand the system of profound knowledge. This is point 4 of Dr. Deming's fourteen points: End the practice of awarding business on the basis of price tag. Instead, minimize total cost. Move toward a single supplier for any one item, on a long- term relationship of loyalty and trust.

Defining the Aim

a map of the worldSecond, defining the aim is important. There are only limited examples in Dr. Deming's books and seminars. Much of his time is spent on examples of things that destroy a system. Many companies today have developed quality policies or quality mission statements. These are usually not aims. In fact, many of the policies and mission statements could be interchanged from one company to another. Many employees are not aware of what is in these mission statements or their role in helping the company achieve its mission.

Consider the United States. What are the system and the aim? The aim will be different depending on the boundaries. If the boundary is the United States, the aim might be to improve the quality of life of all the people in the United States. All decisions would then be based on helping us achieve this aim in the long term. Of course, this is not the way we operate. Politics, as usual, is typically what occurs. The two major political parties are not interested in optimization of the system, but in optimization of their party - gaining control of the White House and Congress. Political action committees and lobbyists are not interested in optimization of the system - only in what is good for their special interest group. Congressmen and congresswomen often do not optimize the system. Their major concern is re- election for another term. Yes, they talk about improving the United States and the quality of life here - and sometimes they do this. However, to insure re-election, they often tack on amendments to bills to keep a military base open or keep a special project going in their home state when this action does not optimize the system.

Suppose the United States is just one component of the system and the boundary around the system is the world. The aim of this system could be to improve the quality of life of everyone on the planet. If we were driven by this aim, all our actions would be based on what is best for the world in the long term, not on what is best for the United States in the short term.

An aim should be stated in a simple fashion that is easy for everyone to understand. It should include input from employees, customers and suppliers. At a minimum, Dr. Deming said it should contain the following items in most cases:
1. Innovation for the future

2. Improving employees' quality of life

3. Lowering costs

4. Continuous improvement in basic business.

What is your basic business? This is a key question to setting your aim. Dr. Deming gives an excellent example concerning carburetors. There was a time when carburetors were in all cars. Carburetor makers continued to improve their product. What happened? Innovation occurred. The fuel injection system was developed. Soon, carburetors will be a thing of the past. What business were the carburetor makers in? To make better and better carburetors? They did this, but they lost the market to innovation. The business they should have been in was to continuously find better ways of putting the correct mixture of fuel and air into the combustion chamber.

What happened to the carburetor makers? The paradigm shifted. A paradigm is a working model of beliefs or assumptions used to define and limit parameters of a given approach to a system or process. The carburetor makers' paradigm was limited to the carburetor being the only way to mix the fuel and air. Past success is no guarantee of future success when the paradigm shifts. Innovation is usually what causes the paradigm to shift. In Switzerland, the Swiss watchmakers failed to realize the impact of the quartz movement watch, even though it was invented by the Swiss. The result of this paradigm shift was the Swiss watchmaker work force dropped from 65,000 to 10,000 in ten years. Past troubles at IBM can be traced, in part, to the failure to respond to the personal computer paradigm shift. Defining your basic business is one key to setting the aim of the system. It is important to remember that people work in the system; management works on the system.

Optimize the System

a set of gearsOnce the boundaries of the system have been defined and the aim developed, it becomes management's job to optimize the system - to turn the company into a fine-tuned machine with all the parts supporting one another. All action should be judged in terms of optimizing the system. Unfortunately, this seldom occurs. Most companies judge their actions solely on what is good for the company in the short term - not how to optimize the system in the long term. This is probably why Dr. Deming has more examples of how a system was destroyed than of how one was optimized.

To optimize the system, management must educate the work force on what a system is and the role they play in it. Everyone in the organization must know why they are doing a job. This is a paradigm shift for almost all organizations. Job training must include the why, not just the how. This is Point 6 of the 14 points: Institute training on the job.

In a steel mill, one department is supposed to clean the scale on tubes. The operators must know why it is important to remove the scale to be able to do their job. Why is it important to have clean tubes for the next operation or for the final customer? The why makes a difference on the operational definition of "clean."

To optimize the system, management must study the relationship between the various components. Management must realize that there are interactions between these components, just like the interaction between factors in an experimental design.

Optimizing each individual component will not, in most cases, optimize the system. This is because components do interact. Examples of interaction between components abound at work and in everyday life. I love my wife and enjoy spending time with her and talking to her. On a fictitious joy of life scale, this may rate a 10. I also enjoy college football and basketball. Maybe this rates a 7. Thus, it appears that I could heighten my joy in life by combining my wife and a college football or basketball game. On the joy of life scale, it should be 10 + 7 = 17. Wrong! There is a definite interaction at play here since my wife dislikes college sports. Combining these two at the same time actually decreases the joy in my life - definitely below the 7 rating for the college sport by itself.

Optimization means moving from competition between departments, people, etc. to cooperation. We have grown up believing competition is good. However, in competition at work, at school, or in life, there are winners and losers. To brand people as losers once risks branding them as losers forever. Janis Ian in her song "At Seventeen" said it very well: "To those of us who knew the pain .... those whose names were never called when choosing sides for basketball."

To optimize the system, there must be cooperation between all the components. Breaking down barriers between departments is Point 9 of the fourteen points. In developing a system, breaking down barriers between departments is very important. This is difficult to do in many companies and takes time. It is even more difficult to break down barriers between suppliers and customers. Developing a system with all components working together will not be easy in the United States - "there is no instant pudding."

The emphasis on short term profits does not optimize the system. Harvard Business School professor Michael Porter told the people gathered at then President-elect Bill Clinton's economic summit in December 1992 that, on the average, a share of stock in corporate America is held for only two years. "Our investors are too concerned with guessing what stock is going to appreciate in the next six months or a year rather than in understanding the fundamental health of the company."

A system does not exist without direction. As Dr. Deming points out, the system must be managed and led. This is Point 7 of the fourteen points: adopt and institute leadership. This is part of management's responsibility, i.e., to work on the system. The policies in many organizations today (such as pay, bonuses, performance reviews) do not support optimizing a system. Management must evaluate each of these policies in light of optimizing the system - an enormous undertaking in many companies. Yet, this undertaking must occur. Examples of policies that must be revisited include pay, performance reviews, vacation, sick leave, promotion, budgeting, safety, rewards, recognition, and environmental policies.

Typically, union and management have not worked together to optimize a system. If union and management could agree on what the system is and what the aim of the system is, the benefits (fewer grievances, better contract negotiations, etc.) to the system would be tremendous. However, in many cases, this will require major changes on both sides.

By optimizing the system, everyone wins. There are no losers.

Initial Steps

a person leading a groupBelow are some initial steps leadership can take to begin the transformation.

1. Define the boundaries of the system. As a starting point, the boundary will probably be the company, its customers, its suppliers, and the community where the company is located. In the future, the boundaries may change to include competitors. Work with suppliers who understand the system of profound knowledge. You may have to educate your suppliers and your customers.

2. Define the "aim" of the system. The aim should usually include continuous improvement in the basic business, lowering costs, improving the quality life for employees, and innovation for the future. Top management should develop the initial aim and then ask employees, customers, and suppliers for input. If appropriate, the aim should be revised to reflect this input. The aim is not necessarily written in concrete. As business conditions change, it is possible that the aim will change. However, the aim is long-term optimization of the system -- not short term.

3. Educate the work force on what the system is, what the aim is, and what its role is in accomplishing the aim. Merely communicating this information will usually not be sufficient. Every employee must have a thorough understanding.

4. Study the system to understand the relationships between the components. Change negative interactions to positive interactions. Top management must review the expectations it has set for everyone in the organization. What is the impact of these expectations on the optimization of the system?

5. Review all existing policies in light of optimizing the system -- change or delete those that do not help optimize the system. This will require attacking the "scared cow" in the organization. Old paradigms will have to be broken. This can be a time- consuming task for many organizations.

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Thanks so much for reading our publication. We hope you find it informative and useful. Happy charting and may the data always support your position.

Sincerely,

Dr. Bill McNeese
BPI Consulting, LLC

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