NEW: Louis Coutts
Friday, October 12, 2007/
Snake oil anyone? No? OK; here’s an actual business guru, who developed some enduring business principles that we can all learn from.
Who has heard of Deming?
The other day someone asked me about Deming. Ever heard of him? Unfortunately, we become preoccupied with the next snake oil solution to growing our businesses and making money.
Deming exposed these new cabs off the rank by introducing into management some basic enduring principles. W. Edwards Deming was an American statistician who made a lot of discoveries about the causes of product variability which, he said, creates a crisis because consumers are reluctant to buy products that vary in quality.
In the sixties, Deming was concerned about American manufactured goods because of the variability in quality, particularly motor cars produced in Detroit that were made with the philosophy that if problems were found in manufacture, the vehicles could be recalled.
He pointed out that this approach caused at least two major problems. One was the cost of fixing the product once it reached the market, and the other was the damage to consumer confidence by product failure such as Ford Pinto’s burning and killing its occupants.
No one would listen to him, so he went to Japan and the Japanese listened to him. The rest is history, as Toyota is now the number one auto maker in the world while GE and Ford are bleeding profusely.
So what was Deming’s secret? One of his students reduced it to a mathematical proportion which, in its simplest form is: 1: 24: 96
What lies behind this formula was a discovery by the Japanese under the direction of Deming that if you fix a problem in the design stage it costs a dollar. If you only pick up the problem in the manufacturing stage it costs $24 to fix, but if the fault gets into the market place, it costs $96 to fix.
In other words, it is 96 times more expensive to fix a problem once it reaches the marketplace than it is to fix it in design. Some American author whose name now escapes me cottoned on to this discovery and turned it into a managerial cliché – “Get it right first time” – which in turn was reduced to the acronym GIFT.
More importantly, Deming came to understand the reason for not getting things right at the design stage. He found that when a problem arose, people would tend to respond by fixing the specific problem whereas the fundamental cause of the problem was the system operating in the business. If you don’t fix the system, you are going to constantly get into the 24 and 96 categories.
A glaring example was the foreign trading disaster at the National Bank. The immediate cause of the problem was the greed of the operators. The real cause was the incentive scheme in operation at the bank that encouraged and rewarded risk taking.
One of the major causes of product variability according to Deming related to systems that did not encourage workers to take initiatives when on-job problems arose. They worked within a system that was designed by management, and even though they might not agree with the system, they would go along with it for fear of ridicule or making a fool of themselves. This drains a business of the principal source of innovation.
Deming is forgotten, and so I was surprised when someone asked me about him. I had the great fortune of being taught the Deming way by a wonderful guy, Professor John Whitney of Colombia. He introduced me to the most basic and wonderful managerial tool that Deming invented. It is called the circle of constant improvement. It looks something like this.
It is called the PDCA circle of constant improvement. The first thing you have to do is to plan something. We often do that, but then tend to get nervous about taking the next step for fear that it won’t work or we might be ridiculed. Deming says, don’t stop there, but DO IT.
Then, once you have implemented your plan, you can check to see if it is working. You can then act on what you have discovered and improve the idea. Once you have done that, you can start all over again, planning further modifications or improvements.
So many great ideas stall at the doing stage because of this fear thing that haunts all of us. As a result, opportunities for growth, innovation and development are frequently shelved. All we have to do is overcome our fear and put the plan into operation knowing that we have the safety net of checking.
So Deming is now dead (he died two years ago at the age of 93) and largely forgotten, but he left some great and enduring concepts that have helped lowly manufactures like Toyota and Sony to become household names.
So, if you want to grow, Deming might not be a bad starting point rather than the most recent snake oil formula.
If anyone wants a summary of Deming (he had 14 points) they can email me via comments to this blog and I will send them a copy.
To read more Louis Coutts blogs, click here .
Robert Ramsay writes: You’re joking – nobody remembers Deming – give me a break, I can’t be that old. He endures through TQM and Six Sigma, both management fads inflicted on Telstra staff and no doubt many other major corporations. But you’re right – in the right environment his principles are gold.
Louis replies: Robert, it is sad that you associate Deming with what Telstra did under the pretext of TQM when in reality all they were doing was an adaptation of time and motion study, which was not Deming but Taylor’s scientific management.
Deming was more a philosopher than a statistician but used statistics to establish the basic principle that almost all people try to do their best and if they are unable to do this, it is the system set up by management that prevents them from doing so.
So, while people may remember Deming (although the many people who have responded to my blog suggests that not too many people do know of him) those who do may remember him for what others have said about him rather than from a study of his work.
I was fortunate to have been taught by a friend and student of Deming and I believe that his basic philosophy, that when something goes wrong it is more likely to be the system rather than the malevolence of the individual, is enduring and universal. At least I have found it so.
Joyie writes: Hi, please send me the 14 points. It’s such a good idea! I think so many organisations can learn from it and humans can learn from it too!
Nima Kazerooni says: Constant improvement can only be accomplished through the PDCA Circle! I would love to see the list of Deming’s 14 points.
Mark Wickman of Wickmans Fine Wine Auctions writes: Another great article Louis – thank you. Your insights and stories are always appreciated.
Wendy O’Donnell at de Groots writes: Thanks as always for your insight, Lou. Would appreciate a copy of the summary.
James Morris writes: That is a great example of what we don’t do, in the Anglo Saxon world, anyway. I have just joined a large US based multinational and have to brief them on my plans for the future. I would dearly like to use the Deming philosophy, even if it is just to show that there are other ways of doing things. Would it be possible for you to send me the summary of Deming as stated in your story?
That is a great example of what we don’t do, in the Anglo Saxon world, anyway. I have just joined a large US based multinational and have to brief them on my plans for the future. I would dearly like to use the Deming philosophy, even if it is just to show that there are other ways of doing things. Would it be possible for you to send me the summary of Deming as stated in your story?
Ken Fife at Auto-IT writes: I would greatly appreciate you emailing the 14 point Deming summary.
Mike Sewell writes: Thanks for an informative article. I understand the need to continually assess and improve, and use the PDCA model. I am interested in understanding Deming’s principles more, and would appreciate a copy of the 14 points. Thanks.
Robert writes: I have heard of Deming and his ideas – but how soon we forget! Would appreciate your summary of his main points.
John Gunn writes: I would be grateful to receive your summary of Deming.