Chapter 1: How are we Doing? Will best efforts bring improvement? No, Deming argues that best efforts not guided by knowledge will dig us deeper into the pit we are in. What is needed is new knowledge. There is no substitute for knowledge. In order to improve living standards, people must trade with each other and the market is the world. Trade depends on quality. In terms of the balance of trade, the U.S. is not doing well. We have been in economic decline for three decades. What must be done? Our problem is education and the development of a culture that places value on learning. Your customer expects only what you and your competitors have led him to expect, but he is a rapid learner. Customers do not know what they want. They may be satisfied and switch. A customer may be loyal and switch. What is needed is innovation. Deming provides several examples of companies that were doing well and lost their market to an innovator. The question to ask is what business are we in and what will it be in the future? How do we achieve quality? Which of the following is the answer? Automation, new machinery, more computers, gadgets, hard work, best efforts, merit system with annual appraisal, make every body accountable, management by objectives, management by results, rank people, rank teams, divisions, etc., reward the top performers, punish low performers, more statistical quality control, more inspection, establish an office of quality, appoint someone to be in charge of quality, incentive pay, work standards, zero defects, meet specifications, and motivate people. Answer. None of the above. All of the ideas above for achieving quality try to shift the responsibility of management. Quality is the responsibility of management. It cannot be delegated. What is needed is profound knowledge. A transformation of management is required. Chapter 2: The Heavy Losses According to Deming, the present style of management causes huge losses that cannot be evaluated or measured. His purpose for this chapter is to identify the most important sources of loss (or waste) and to suggest better practices. At the beginning of this chapter he tells us that the reason for many wrong practices is management's failure to understand the difference between common causes of variation and special causes of variation. He provides several tables similar to the ones I have provided below. I have condensed his ideas and tried to capture his main points, but the reader must consult the book for the many examples used to support his views on the present style of management. Chapter 3: Introduction to a System Deming begins this chapter by saying that the prevailing style of management is a modern invention and a trap that has led us into decline. He defines a system as "a network of interdependent components that work together to try to accomplish the aim of the system." A man made system must have an aim and this purpose, or aim must be clear to everyone in the system. Deming continues by stating that "A system must be managed. It will not manage itself." Left to themselves the components of a system become selfish and competitive and this behavior has a destructive effect on the system. An organization is a system if it has an aim or purpose. This purpose, or aim precedes the organizational system and the people working in it. The system must be defined in terms of the aim, not in terms of methods. When the whole system is optimized, everybody wins. Any less than optimization of the whole system means eventual loss to everyone. A system includes the future and part of management's job is to govern the organization's future. A system cannot manage itself. It needs guidance from outside. Managers must learn that in order to compete, they must learn to cooperate. A system includes competitors who working together to provide better service and to expand the market, contribute towards optimization for the entire industry. Deming argues that rather than worry about market share, companies would be better off to work together to expand the market. Deming includes a diagram (used in Japan starting in 1950) that illustrates how production is viewed as a system. The flow of information and materials from any part of the system (from suppliers to customers) must match the input requirements of subsequent stages. It is used for planning from the idea stage through design, production, distribution and customer service. It also helps in making predictions of how changes in one component will affect the other components and shows the people in the system where their jobs are and how their work is related to the work of others in the system. This knowledge helps people take joy in their work. The flow diagram is a more meaningful organization chart than the usual pyramid showing who reports to whom. The diagram shows the value chain concept described by Porter, although Deming does not use that term. The pyramid type organization chart ignores customers (internal and external) and contributes to the fragmentation of the organization into individual profit centers. The terms silos and stovepipes have been used by others who have described this problem. (See the Mintzberg & Van der Heyden summary on developing Organigraphs). Two important jobs of management include: Recognizing and managing interdependence. Defining jobs to include what the work will be used for and how it contributes to the aim of the system. Deming provides several examples of how lack of cooperation is destructive to an organization. In one company example, an increase in the cost of an engine of $30 would decrease the cost of the transmission by $80. The responsibility center in charge of the engine would not accept the idea because of the effect of the change on that segment's profits. If the components of an organization are all optimized, the organization will not be optimized. If the whole is optimized, the components will not be optimized. "If economists understood the theory of a system, and the role of cooperation in optimization, they would no longer teach and preach salvation through adversarial competition. They would instead lead us into optimization of a system, in which everybody would come out ahead." In a 1990 statement of the Interstate Commerce Commission (ICC), Deming states that forcing motor freight carriers to compete on the basis of price in a zero sum game will destroy a healthy transportation system. Deming points out that cheaper is not always better. It is more important to increase reliability and dependability by reducing variation in time of transit and time of delivery. He urges the ICC to take a leadership role in promoting cooperation between the components of the industry. At the end of this chapter, Deming describes fifteen examples of cooperation that provide benefits to everyone. Some of these include common international measurements of time and date, red and green traffic signals, the metric system, and standardized parts such as batteries. Another example involves two service stations on opposite corners of an intersection that share each others tow trucks and stay open late on alternate nights. These companies compete with each other, rather than against each other and everybody wins. Chapter 4: A System of Profound Knowledge Deming states that the prevailing style of management must undergo transformation and this requires a new map of theory he refers to as profound knowledge. His purpose in Chapter 4 is to describe the components of the system of profound knowledge. The first step, according to Deming, is the transformation (more appropriately conveyed by the Greek word metanoia or spiritual conversion) of the individual. He describes this change as a reorientation of one's way of life to apply the principles of profound knowledge in every kind of relationship with other people. The system of profound knowledge includes four components as indicated in the preface, each described briefly below. Appreciation for a System An appreciation for a system includes knowledge of what a system is (defined in Chapter 3) and how interdependence between the components of the system creates a need for communication and cooperation. The greater the interdependence, the greater the need for the parts to work together. A bowling team, orchestra and business are used in a graphic illustration to show how interdependence ranges from low for the bowling team, to high for the orchestra and is very high in a business organization. Knowledge of Variation A knowledge of variation includes knowledge that life is variation, knowledge of the difference between a stable state and an unstable state, knowledge of the difference between common and special causes of variation and knowledge of the effect of the system on the performance of people. It also includes a knowledge of the implications of all this for management. The Theory of Knowledge The theory of knowledge includes an understanding that management in any form is prediction. A statement, if it conveys knowledge, predicts a future outcome including the risk of being wrong. Prediction requires theory. Without theory, experience has no meaning and there is no learning. Copying examples without understanding the underlying theory may lead to disaster. Any number of examples cannot establish a theory. Deming states that "There is no true value of any characteristic, state, or condition that is defined in terms of measurement or observation." "There is no such thing as a fact concerning an empirical observation." An operational definition is needed. He defines this as a procedure agreed upon for translation of a concept into a measurement. But this produces information and information is not knowledge. Knowledge comes only from theory. Psychology A Knowledge of Psychology includes a knowledge that people are different from one another and knowledge of how to use these differences to optimize everybody's abilities and inclinations. It includes the concepts of intrinsic and extrinsic motivation and the phenomenon of over justification. People are born with intrinsic motivation that is often destroyed by various practices at school and work. Grades cause students to work for grades, or a reward from parents for grades, rather than to work for the purpose of learning. Rewards at work such a merit pay cause people to work for rewards rather than for job satisfaction and to find meaning in their work and lives. Some extrinsic motivation helps develop an individual's self-esteem, but over emphasis on extrinsic motivation eventually destroys an individual's intrinsic motivation and leads to detrimental effects on self esteem. Work and life eventually have no meaning. Ranking people, even if it could be done accurately (as opposed to ranking the effects of the system on the workers) would not improve the performance of the people, or the system. Chapter 5: Leadership This is a very short chapter. Deming explains that the job of a leader is to accomplish the transformation of his organization. A leader needs theory, obligation, a plan and persuasive power. Chapter 6: Management of People Deming begins this chapter by saying that "We are living in prison, under the tyranny of the prevailing style of interaction between people, between teams, between divisions." We must replace the idea that we need competition between people with cooperation. He provides a graphic illustration similar to the one below to show how present practices squeeze intrinsic motivation, self esteem and dignity out of people over their life time. Across the top of his illustration he lists the forces of destruction such as forced distribution of grades, merit systems, competition between people and groups, incentive pay, numerical goals, explanation of variances, and treating every group as a profit center. Along the vertical axis he shows the characteristics that people are born with such as intrinsic motivation, self esteem, dignity, cooperation, and joy in learning.