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Dr. W. Edwards Deming's ideas are at the core of this blog. In, Deming on management, we take various ideas Dr. Deming presented and explore them. Deming's 14 Points - Deming's 7 Deadly Diseases
Recommended posts: The Purpose of an Organization - Management is Prediction - Distorting the System - Managing Fear - Performance Without Appraisal - Deming Companies - Eliminate Slogans - Improve the System Instead of Blaming the Person - Deming and Six Sigma - Dangers with Data - Management: Geeks and Deming
Toyota has developed a thought-controlled wheelchair (along with Japanese government research institute, RIKEN, and Genesis Research Institute). Honda has also developed a system that allows a person to control a robot through thoughts. Both companies continue to invest in innovation and science and engineering. The story of a bad economy and bad sales for a year or two is what you read in most newspapers. In my opinion the more important story is why Toyota and Honda will be dominant companies 20 years from now. And that story is based on their superior management and focus on long term success instead of short term quarterly results.
Yes Toyota can improve their performance, based on the last few years. Does management understand what they need to do? I think so. Does management understand that the system needs to be improved rather than the numbers on the spreadsheets of various managers have to be made better? I think so. Do I think most companies today, with bad results, understand the difference between bad numbers on spreadsheets that are used to judge various managers and a system that needs to be improved? No.
I do not believe the bad earnings for the last year for Toyota are indicative of a failed system. The results do show a weakness in the Toyota system that allowed them to perform this poorly during this credit crisis. The risk to Toyota’s future is that they become too focused on short term results, mistakenly thinking the problem to be fixed in the bad quarterly results recently. They need to focus on improving the system for the long term. And the recent experience likely shows some areas that need to be improved. But in no way do the fundamental tenants of the management system need to be changed. For many other companies today, changing fundamental aspects of their management is what is needed.
Related: Toyota as Homebuilder - Honda’s Robolegs Help People Walk - Honda has Never had Layoffs and has been Profitable Every Year - Toyota’s Partner Robot - NUMMI, and GM’s Failure to Manage Effectively - Toyota iUnit - Invest in New Management Methods Not a Failing Company by William Hunter, 1986
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The Cost Conundrum by Atul Gawande, New Yorker (The Power of a Checklist was published there in 2007 by the same author)
“I’ll be there,” the cardiologist said. Fifteen minutes later, he was. They mulled over everything together. The cardiologist adjusted a medication, and said that no further testing was needed. He cleared the patient for surgery, and the operating room gave her a slot the next day.
The whole interaction was astonishing to me. Just having the cardiologist pop down to see the patient with the surgeon would be unimaginable at my hospital. The time required wouldn’t pay. The time required just to organize the system wouldn’t pay.
The core tenet of the Mayo Clinic is “The needs of the patient come first”—not the convenience of the doctors, not their revenues. The doctors and nurses, and even the janitors, sat in meetings almost weekly, working on ideas to make the service and the care better, not to get more money out of patients. I asked Cortese how the Mayo Clinic made this possible.
“It’s not easy,” he said. But decades ago Mayo recognized that the first thing it needed to do was eliminate the financial barriers. It pooled all the money the doctors and the hospital system received and began paying everyone a salary, so that the doctors’ goal in patient care couldn’t be increasing their income. Mayo promoted leaders who focussed first on what was best for patients, and then on how to make this financially possible.
No one there actually intends to do fewer expensive scans and procedures than is done elsewhere in the country. The aim is to raise quality and to help doctors and other staff members work as a team. But, almost by happenstance, the result has been lower costs. [actually the Deming Chain Reaction] (more…)
Decades ago Dr. Deming emphasized the deadly disease of excessive health care costs in the USA. Since then, year after year, the situation has become worse (reaching $2.2 trillion in spending in 2007 - 16.2% of GDP). During that time senior executives has put forth very little serious effort (in comparison to the huge cost) to fix this problem. Finally, in the last few years, more and more senior executives are actively moving to address the ever worsening crisis (including, Howard Schultz, CEO at Starbucks).
They seem to be realizing that hoping the problem will just fix itself is not a great strategy. Finally senior executives are realizing they need to have the government address the systemic failures. Those executives need to keep up their efforts because those seeking to retain the system that doesn’t work, because they personally benefit from it, have been doing a great job of preventing progress for decades. Until a critical mass of senior executives demand change from Washington the chance of improving the relative performance of the USA health system in comparison to other countries is very bleak (we have just been getting more expensive and less effective [relative to other countries] over time).
CEOs Secretly Want Health-Care Reform
Related: Many Experts Say Health-Care System Inefficient, Wasteful - Articles on Improving the Healthcare system - Applying Disruptive Thinking to the Healthcare Crisis - Our Failed Health-care System
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Revealed Preference: the preference consumers display by their action, in contrast to what they may say they prefer. While surveys may be useful people often say they will do one thing and actually when given the choice to do so, don’t.
Normally what matters is not what people say they want but what they actually will choose. For that reason revealed preference is a better measure than stated preference. Stated preference is often used as a proxy for actual preference (which may be fine) but it is important to understand that it is just a proxy for actual preference.
See more explanations from the Curious Cat Management Dictionary.
Related: Packaging Improvement - All Models Are Wrong But Some Are Useful - Dangers of Forgetting the Proxy Nature of Data - Confirmation Bias - Be Careful What You Measure
Dr. Ackoff is one of two management thinkers that any manager, that is serious about improving management results in their organization, should study (the other is Dr. Deming). There are plenty of others that are also great resources. From part 2 of his talk: “Why-questions, about objects called systems, cannot be answered by the use of analysis… The product of explanation is understanding… The product of analysis is how things work, never why they work the way they do. Explanations always lie outside the system, never inside it.”
Synthesis (thinking about systems) involves 3 steps: 1) what is this system of which this is a part of; 2) understanding the behavior of the containing whole; 3) identify the role of function of the system in question within the containing system. Every system is defined by its role in the larger system.
Related: posts on Russ Ackoff’s ideas - Ackoff’s New Book: Management f-Laws - Write Down Predictions - Knowledge Management - Management is Prediction
Dr. Deming long ago stated in his 14 obligations of management: “Eliminate numerical goals, numerical quotas and management by objectives.” I think he was right then, and is right now. A goal can help set the scope of the effort. If you are aiming for 2% improvement different strategies may make sense than if you are aiming at 50% improvement. But that type of use is rare. The problem with goals is what actually happens in organizations. They create serious systemic problems and should be avoided (other than in setting the scope). They are deeply ingrained in the way many people think, but we would be better if we could eliminate the use of goals, as they are used now (mainly as arbitrary numerical goals).
Ready, Aim … Fail, Why setting goals can backfire
Today, as the economic situation upends millions of lives, it is also forcing the reexamination of millions of goals - not only the revenue targets of battered firms, but the career aims of workers and students, and even the ambitions of the newly installed administration. And while it never feels good to give up on a goal, it may be a good time to ask which of the goals we had set for ourselves were things we really needed to achieve, and which were things we only thought we should - and what the difference has been costing us.
Related: Measuring and Managing Performance in Organizations - Arbitrary Rules Don’t Work - The Defect Black Market - Goals can Distract from Improvement - Be Careful What You Measure
Dr. Deming used the red bead experiment to present a view into management practices and his management philosophy. The experiment provides insight into all four aspects of Dr. Deming’s management system: understanding variation, understanding psychology, systems thinking and the theory of knowledge.
Red Bead Experiment by Steve Prevette
Related: Fooled by Randomness - Performance Measures and Statistics Course - Performance without Appraisal - Exploring Deming’s Management Ideas - Eliminate Slogans
Leadership is the act of making others effective in achieving an aim.
Leadership is not about being great yourself.
Leadership does involve more than making others effective. Leaders need to know what needs to be done, and then make others effective, based on that knowledge. As Dr. Deming said about any situation:
It is not enough to do your best; you must know what to do, and then do your best.
Leadership is not about getting a good performance appraisal. Leadership is not about making your numbers. Leadership is not about following the latest fad. Unfortunately, in my view, far too many managers fail to focus on making others better. Instead, probably largely influenced by performance appraisal mentality, they focus on making the case for why they, personally, are valuable.
Related: Deming on being destroyed by best efforts - 6 Leadership Competencies - The Leader’s Handbook - Seven Leadership Leverage Points - How to Improve - People are Our Most Important Asset - Bring Me Problems - Dr. W. Edwards Deming quotes
How P&G Finds and Keeps a Prized Workforce by Roger O. Crockett
Career education takes place outside the classroom, too. P&G pushes every general manager to log at least one foreign assignment of three to five years. Even high-ranking employees visit the homes of consumers to watch how they cook, clean, and generally live, in a practice dubbed “live it, work it.” Managers also visit retail stores, occasionally even scanning and bagging items at checkout lanes, to learn more about customers.
Going to visit the gemba, the actual place is incredibly important, and far too often ignored by managers today.
The emphasis on life long learning (in practice, not just words) is also very wise. In my experience far to little emphasis is placed on continual improvement of what many companies will say is their most important asset: their people. If you don’t invest in education of your staff that is going to harm your long term success. The investment P&G makes shows a respect for people.
Related: Jeff Bezos Spends a Week Working in Amazon’s Kentucky Distribution Center - Workplace Management by Taiichi Ohno - Respect for People, Understanding Psychology - Ohno Circle
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Dr. W. Edwards Deming’s management philosophy is a system of management composed of four interdependent areas: knowledge about variation, understanding psychology, systems thinking and the theory of knowledge. The theory of knowledge is the least understood, and the least adopted in the various other management improvement theories (lean manufacturing, six sigma, theory of constraints…). A recent op-ed in the New York Times touches on the ideas behind how we learn: Learning How to Think
Afterward, those in attendance were given questionnaires and asked to rate “Dr. Fox.” They were mostly impressed. “Excellent presentation, enjoyed listening,” wrote one. Another protested: “Too intellectual a presentation.”
So if you want to rate know if your consultants or trainers were entertaining maybe a survey is a good idea. Of course, if you want to know if people learned something useful that they can apply and make your business more effective a survey may not work so well.
I think this sounds good, but wouldn’t work. In general, the way people build up beliefs, is full of all sorts of systemic problems. Like above, they tend to think someone entertaining is more educational than someone not entertaining. They may be more entertaining, but taking the ideas of those who are entertaining and rejecting the ideas of people who are not is not a great strategy to build up a great system of knowledge. To more effectively adopt good ideas and reject bad ideas, understanding the theory of knowledge (how we know what we know) and then apply that knowledge to how you learn is a better strategy. Learning to recognize confirmation bias and take steps to avoid it is one positive step. Learning to recognize when you accept ideas from those you like without critical judgment and reject ideas from those you find annoying and then learning to evaluate the ideas on the merits is another positive step you can take.
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Verify your work with checklists
If a checklist so simple can save so many lives, I thought the technique could surely help us do better as well. So after reading about this study and their checklist, I’ve been pushing us to create checklists for all the common procedures at 37signals.
We now have checklists in Backpack for confirming that a feature is complete, we have a checklist for preparing the feature for deployment and for executing the deployment, and finally for verifying that the feature is working as expected in the wild.
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It’s the kind of stuff that we all know, but that we’ll often forget if we’re not being reminded about it in the moment. Thinking back to the mistakes we’ve made in the past, there are plenty of those that could have been avoided or caught much earlier if we had been using checklists.
This is a great reminder of two things: using checklists and adopting good ideas. Checklists are a simple and effective quality management tool. We use them for our software development (I have been a bit slow at getting them in place but we have been making progress recently). Also this shows how management improvement should work. You get good ideas from others and adapt them for use in your systems. Copying what others do, doesn’t work well. But understanding the concepts they use to improve performance and then adapting those concepts to your organization is the path to improved performance.
Related: Checklists Save Lives - Find Joy and Success in Business - Lean, Toyota and Deming for Software Development - The Power of a Checklist - Most Meetings are Muda
I will be co-presenting an Out of the Crisis seminar for the W. Edwards Deming Institute next month, April 20-22, in Philadelphia.
Companies around the world are on the brink of destruction. When they get bailed out, or economies improve, they won’t survive if they continue to make products and provide services the same way as before, with the same style of management. They need to change.
It was the ideas of an American, W. Edwards Deming, that transformed Japanese industry after the devastation wrought by World War II. More than fifty years later, American businesses and much of the rest of the world find themselves in a somewhat similar position. Isn’t it time for American industry to wake up? Management practices need to change!
This seminar will help you work on transformation of management practices at your organization. It will show how current governance practice leads to the heaviest losses, how inconsistencies between policy and strategy create sub-optimal outcomes, how mismanagement of people leads to unethical and ineffective behavior. You will learn how to overcome these problems and focus on creating a system of continual improvement, just as Toyota and other Japanese firms did some fifty years ago.
You may find more information and register online. I hope to see you there.
Related: Deming Institute Conference: Tom Nolan - Louisville Slugger - Deming Practices - Curious Cat Management Improvement Calendar - 6 Leadership Competencies - Deming Conference 2005
Photo of Jeff Bezos during the 2005 O’Reilly Emerging Technology Conference by James Duncan.Jeff Bezos, Amazon CEO, is working for a week in Amazon’s Kentucky distribution center. I hope, and based on his past, I believe, that he is going to the gemba (Genchi Genbutsu) to learn more about how Amazon operates. That would be great.
He worked on wall street and understands the fake constraints they attempt to put companies (you must focus on short term profits, you must focus on pleasing wall street analysts not customers…). He understood the importance of managing cash flow and the unimportance of short term profits. And he understands the importance of customer focus. He understands lean thinking. We need more CEO’s like him.
“He is there to work,” Smith said, “and, unfortunately, we are just not scheduling any interviews while he is in town.”
Local Amazon employees say Bezos is working in the warehouse with the company’s hourly employees to see what they do and hear their comments about their work. Most CEOs would benefit from spending a few days on the shop floor.
Once again his actions indicate he is the type of CEO I want to invest in.
via: Jeff Bezos Works In Kentucky Distribution Center For A Week
Related: Jeff Bezos and Root Cause Analysis - Management by Walking Around - Amazon Innovation - Amazon’s Amazing Achievement - Louisville Slugger, Deming Practices - Management Excellence
Lynda Finn, President of Statistical Insight, has written an article on how to create a control chart for seasonal or trending data (where there is an underlying structural variation in the data). Essentially you need to account for the structural variation to create the control limits for the control chart. She also provides a Minitab project file. Both are available for download from the Curious Cat Management Improvement Library.
Related: Control Charts in Health Care - Common Cause Variation - Managing with Control Charts - Measurement and Data Collection - Fourth Generation Management
W. Edwards Deming
Page 182, Out of the Crisis
More of Deming on Innovation
Related: Innovation Thinking with Clayton Christensen - Engineering Innovation - Managing Innovation - Gary Hamel on Management Innovation
Health spending in the United States grew 6.1 percent in 2007, to $2.2 trillion or $7,421 per person.
For comparison the total GDP per person in China is $6,100. This continues the trend of health care spending taking an every increasing portion of the economic output (the economy grew by 4.8 percent in 2007). This brings health care spending to 16.2% of GDP (which is yet another, in a string of record high percentages of GDP spent on health care). In 2003 the total health care spending was 15.3 of GDP.
With the exception of prescription drugs (which grew at 1.4% in 2007, compared to the 3.5% in 2006), spending for most other health care services grew at about the same rate or faster than in 2006. Hospital spending, which accounts for about 30 percent of total health care spending, grew 7.3 percent in 2007, compared to 6.9 percent in 2006.
Spending growth for both nursing home and home health services accelerated in 2007 (4.8% v. 4.0%). Spending growth for freestanding home health care services increased to 11.3 percent. Total health care spending by public programs, such as Medicare and Medicaid, grew 6.4% in 2007 v. 8.2% in 2006. In comparison, health care spending by private sources grew 5.8% compared to 5.4%.
Private health insurance premiums grew 6.0 percent in 2007, the same rate as in 2006. Out-of-pocket spending grew 5.3 percent in 2007, an acceleration from 3.3 percent growth in 2006. Out-of-pocket spending accounted for 12.0 percent of national health spending in 2007. This share has been steadily declining both recently and over the long-run; in 1998, it accounted for 14.7 percent of health spending and, in 1968, out-of-pocket spending accounted for 34.8 percent of all health spending.
The costs for health services and supplies for 2007 were distributed among businesses (25%), households (31%), other private sponsors (4%), and governments (40%).
Decades ago Dr. Deming included excessive health care costs as one of the seven deadly diseases of western management. We have only seen the problem get worse. Finally it seems that a significant number of people are in agreement that the system is broken. Still, admitting the system is broken is not the same as agreeing on how to fix it. The way forward to workable solutions still seems very difficult.
Full press release from the United States Department of Health and Human Services.
Related: Many Experts Say Health-Care System Inefficient, Wasteful - International Health Care System Performance - USA Paying More for Health Care - Health Insurance Premiums Soar Again - PBS Documentary on Improving Hospitals
Warren Buffett published his letter to shareholders yesterday. As usual, it is of great interest to anyone interested in the economic, investing and management ideas.
Our record matches our rhetoric. Most buyers competing against us, however, follow a different path. For them, acquisitions are “merchandise.” Before the ink dries on their purchase contracts, these operators are contemplating “exit strategies.” We have a decided advantage, therefore, when we encounter sellers who truly care about the future of their businesses.
Some years back our competitors were known as “leveraged-buyout operators.” But LBO became a
bad name. So in Orwellian fashion, the buyout firms decided to change their moniker. What they did not change, though, were the essential ingredients of their previous operations, including their cherished fee structures and love of leverage. Their new label became “private equity,”
Berkshire Hathaway is a very well run company. Warren Buffett is a great investor. He is also a great executive. He hires honest and able people and lets them do their job. He ensures managers retain constancy of purpose by focusing on the long term and not getting overly focused on quarterly results. And have you ever read an annual report that talks of so many employees with such respect (granted it is a rare situation - something similar in an annual report could well seem disingenuous if it were not Warren Buffett writing)?
Related: 2005 Annual Report from Buffett - Warren Buffett’s 2006 Shareholder Letter - Warren Buffett Webcast on the Credit Crisis - Berkshire Hathaway Annual Meeting 2008
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Gipsie Ranney recently sent me an article on her thoughts on NUMMI and the current problems with the Big Three car makers to post to the Curious Cat Management Improvement Library. NUMMI is the plant that Toyota and General Motors run together as a joint venture. The article is excellent.
I agree. The problem is that management fails to manage well and has been failing to do so for decades. They have improved over the last few decades but not nearly fast or consistently enough. Gipsie worked closely with Dr. Deming and serves on the W. Edwards Deming Institute Board of Trustees.
Related: Could Toyota Fix GM (2005) - At Ford, Quality Was Our Motto in the 1980s - Big Failed Three, Meet the Successful Eight - Why Fix the Escalator? - Invest in New Management Methods Not a Failing Company (AMC) by William Hunter, 1986 - Ford and Managing the Supplier Relationship - No Excessive Senior Executive Pay at Toyota
One aspect of managing people is to provide positive feedback and show appreciation. Doing so is important. People benefit from encouragement and reinforcement. In addition to just telling them, take action to show your appreciation.
The Dilbert workplace is alive and well. And even in above average management systems there is plenty of resistance faced by those looking to improve systems. For those employees that are making the attempt to improve the organization go beyond saying thanks: actually demonstrate your appreciation. Do what you can to help them achieve.
A manager should be enabling their employees to perform. That means taking positive steps that help them perform. This is even more appreciated than saying thanks. And has the added benefit of helping the organization by helping along their good idea. It is win, win, win. They win, you win and the organization wins.
Thoughts on: Rewards and Recognition
Related: Keeping Good Employees - Respect for People Requires Understanding Psychology- People are Our Most Important Asset - Motivation - Incentive Programs are Ineffective
How great companies turn crisis into opportunity
The right people don’t think they have a job: They have responsibilities. If I’m a climber, my job is not [just] to belay. My responsibility is that if we get in trouble, I don’t let my partner down.
The right people do what they say they will do, which means being really careful about what they say they will do. It’s key in difficult times. In difficult environments our results are our responsibility. People who take credit in good times and blame external forces in bad times do not deserve to lead. End of story.
I think he makes a very good point, but may overstate it just a bit. The right people do need management to do their job: to provide guidance, to work on improving the organizational system, to coach employees when needed, to plan for the future, to determine where to focus the organizations resources… But they don’t need to be micro-managed. They can be expected to do what is needed when the proper conditions are set, including a clear understanding of what is needed, communication of current conditions and changing needs, a shared understanding of roles (for people and organizations)…
Also, just to be clear, it can be the right thing to closely manage someone as they are learning. This is true when a new employee starts with the company. And also when they take on new responsibilities. I would have no problem with a company tightly managing a new supervisor. In my experience the exact opposite problem is much more common, moving people into supervisory roles with little support, to sink or swim on their own (well perhaps sinking those around them too). At both times they should get the support they need and the freedom they need to work effectively.
Related: Keeping Good Employees - Flaws in Understanding Psychology Lead to Flawed Management - People are Our Most Important Asset - posts on managing people - The Joy of Work
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