Roots of Quality Dr. Deming

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Renewing American Civilization

By Dr. Barbara B. Lawton, Ph.D. ~ Dr. Lawton is a Senior Fellow at The Progress & Freedom Foundation and a longtime colleague of W. Edwards Deming. Dr. Lawton wishes to acknowledge her debt to a key associate,
Dr. Nida Backaitis, who collaborated on many of the ideas expressed in this article.


Dr. W. Edwards Deming, a man revered in Japan as the father of quality, is an American. He is the man to whom the Japanese attribute the rebirth of their industry after WW II. In 1960 the emperor of Japan awarded him the Second Order of the Sacred Treasure – the first American to receive such an honor, in recognition of his great contributions to and love of the Japanese People. In 1951, the Union of Japanese Scientists and Engineers (JUSE) established the Deming prize, to be awarded each year to those companies who demonstrate their adoption of his principles and to individuals in recognition of accomplishment in statistical theory. The Deming Prize is today the most prestigious quality award in the world – akin to a quality Nobel Prize – and is sought after by companies around the globe.

Born in 1900, Deming grew up in the still Wild West in the state of Wyoming. He received his Ph.D. in physics from Yale and in 1924 began working as a statistician at the Department of Agriculture. Over the course of his career his love of learning and deep respect for knowledge drove him to study with some of the great statisticians of the era, such as Dr. Walter Shewhart, the inventor of methods of Statistical Quality Control (SQC). By the late 1930’s he had built for himself a reputation for his knowledge of sampling. With the approach of the 1940 census, he was sought after by the U.S. Census Bureau to develop sampling techniques, to be used for the first time, in the upcoming census.

In 1942 the undersecretary of state solicited his help in teaching SQC to engineers and inspectors at companies engaged in wartime production. The Deming Management Method by Mary Walton states that nearly 31,000 people attended the 10-day quality control classes he and his colleagues delivered. The application of these methods flourished during the war and then all but disappeared when American industry returned to peacetime production. With the American industrial base the sole surviving source of consumer goods, it was, from management’s perspective, more important to maximize production rates and efficiencies than to ensure that every item coming off the assembly line was of good quality.

In 1947 Deming traveled to Japan as part of the statistical mission planning the 1951 Japanese census. He was to develop sampling methods for surveys of housing, nutrition, etc. Over the next few years, his love of learning and tremendous compassion enabled him to learn much about Japan and to become known by many of her people. When, in 1950, the head of JUSE looked to the U.S. for knowledge of SQC, they learned of Dr. Deming’s work with Dr. Shewhart and turned to him for help in teaching Japanese engineers and plant managers the methods of quality control. Dr. Deming replied he was delighted to do so with the caveat that he begin not with the engineers but with the chief executives. The American experience with SQC taught him that the mandate for quality must come from the boardroom. Otherwise the methods of SQC would suffer the same fate in Japan as in the U.S. In his first lectures with the Kei-dan-ren (an association of Japan’s chief executives) he reached those responsible for 85% of the capital in Japan. After his work in Japan he returned to The US and continued his career as a statistical consultant and professor at NYU. More than 20 years passed in which time Americans enjoyed the prosperity their dominant manufacturing position created for them.

In the late 1970’s, the giants of American industry began to feel the economic pain of Japan’s increasing marketplace success. At that time, a television producer and seasoned reporter, Clare Crawford-Mason, set out to find the story behind Japan’s success. After much research, there still was no clear answer. Just when she thought she would have to give it up, someone mentioned Dr. Deming’s name and intimated at the role he played. She went to see him and, after much interviewing an unbelievable story began to unfold. This is the story she brought to the American public it the 1980 NBC documentary, “If Japan Can… Why Can’t We?” This was America’s introduction to Dr. Deming.

After the showing of this white paper Deming’s phone rang continuously as CEOs of major companies called to ask for his help. Everywhere he went he was asked what it is management should do. In the context of his consulting, he developed 14 points of action that American management must take to regain its competitive position. The 14 points, as well as the methods of statistical process control (SPC), have been the subject of his four-day seminar, “Quality, Productivity, and Competitive Position,” for the last 14 years. To this day he reaches approximately 10,000 people a year with his seminars and he continues to consult with the CEOs of some of our largest corporations. Literally thousands of organizations in this country have begun quality improvement efforts and untold millions spent on related education, training, and consulting fees. Needless to say, the results of these efforts have been disappointing at best.

Unable to find satisfactory answers to quality and productivity here in the U.S., businessman routinely travel to Japan to see what it is the Japanese are doing that makes them so successful. They see employees on the factory floor involved in Quality Circles, they see control charts for each process, storyboards on the walls, kanban cards for inventory control and regimentalized calisthenics for all employees. These are the tools, methods and practices that have evolved within the context of their culture based on the knowledge Deming brought them. In essence they are manifestations, and sometimes merely artifacts, of his philosophy. They are useful for those who developed them, having a clear understanding of what they are trying to accomplish. Little wonder they have had so little impact when applied here.

The power of Dr. Deming’s work is not to be found in the 14 points themselves or the methods or practices that the quality movement has spawned, but rather it lies in the assumptions (i.e., paradigms or way of thinking) behind them. Our failure to understand the concept and importance of paradigms, and the role of paradigm shifting, has prevented us from seeing beyond the quality methods and tools to the real nature of the change of which Deming speaks. Once we’ve broken through this barrier, and can begin to surface and examine our own thinking, we can begin the cognitive assessment process that must precede internalization and adoption. It isn’t until we’ve passed through this stage that we can learn from the tools and methods developed by others, and utilize this knowledge to advantage in our own culture.

The Role and Importance of Paradigms

Paradigms constitute the frame of reference or perspective on life that has developed through the cumulative effect of our life experience. According to Stephen R. Covey, each of us holds many, many paradigms, but in essence they may be divided into two categories: the first being beliefs about the way things are (we may call these theories in use), and the second is beliefs about the way things should be (these are our values). They shape our perception and interpretation of the events around us, provide the yardstick by which we evaluate their importance, and ultimately, shape our responses and actions. An anecdotal example of the role and importance of paradigms is in the meeting of two people from very different cultures. One person’s act of courtesy can, in the context of the other’s culture, be viewed as a sign of disrespect. Clearly we see things not as they are, but as we are. This is the power of paradigms.

Paradigms operate on many different levels and determine both the playing field and the rules of the game at home, on the job, and internationally. All of us can likely recall the first time we lived with someone, whether roommate or spouse, outside our immediate family. The turmoil, misunderstandings and hurt feelings experienced in that first year are often due to paradigm differences rather than personality differences.

Certainly, no two people have the exact same set of paradigms. There are, however, commonalities within families, communities, and countries which reflect the commonality of experience of the people within. According to Edgar H. Schein, culture – a set of shared assumptions – determines how a group, or even a nation, perceives itself and the world around it. It shapes their mission and strategy, its goals, and the method by which they are achieved (e.g., structure, division of work, authority and reward systems). In other words, it shapes the rules and guidelines members of the organization will use to deal with the outside world and with each other as it works to accomplish its aim. The tremendous differences in strategy, structure, authority and work systems between organizations such as IBM and Microsoft, are, to a great extent, a reflection of the differences in their underlying system of assumptions.
Throughout the ages, the history of social, economic and scientific progress is a discontinuous one. Within a given paradigm there is a period of continual improvement. Methods are developed, refined and applied to solve the problems of the day, For example, with discovery of the germ theory, doctors developed new procedures for everything from dressing wounds, to pulling teeth and childbirth, considerably reducing the mortality rate due to infection. There comes a point however, where our methods and approaches no longer seem to work when applied to the problems of the day, where, states Steven R. Covey “the way we see the problem is the problem.” What is needed is a new way of thinking, a shift in paradigm. Albert Einstein once said, “The significant problems we face cannot be solved at the same level of thinking we were at when we created them.”

In his book Discover the Future, Joel A. Barter writes, “Discontinuous change occurs with a shift in the underlying paradigm itself.” Consider for example the dramatic changes that ensued as our view of the world shifted from flat to round, from the center of the universe to a planet orbiting the sun, from a Newtonian, mechanistic perspective to Einstein’s understanding of relativity. Examples of social paradigm shifts include the beliefs that no man can own another, that all men are created equal, that everyone has a right to life, liberty and the pursuit of happiness. Within the framework of this paradigm there is then continual development and refinement of the methods with which we live out these beliefs, e.g., moving from the notion of separate but equal to one of full integration.

The Challenge We Face

We are today in need of a paradigm shift. In the 1950’s and 60’s we were on top of the world. Our intact and untouched industrial base after WW II enabled us to fill the market void created by the destruction of the war. The result was an unprecedented era of prosperity and abundance for all. The effect was to deeply entrench our collective faith in the validity of the assumptions and the resulting managerial and work systems of the time and, hence, to forestall the wake-up call of changing world and market conditions.

The wake-up call is now coming through loud and clear. The ever-increasing U.S. budget deficit threatens future quality of life for both ourselves and our children. The Statistics on health care, education, homelessness and the poor continue to deteriorate. Corporate America is besieged by offshore competition that provide better value (quality and price). The effect is continued increase in the trade deficit, loss of share of market, declining corporate earnings and downsizing. The American response at all levels of the organization, management and unions alike, is to fight one another to protect the gains they have made, forestalling the fundamental rethinking that is necessary. Perhaps the most telling statistic is the educational standing of our high school graduates relative to that of the other industrialized nations. If the current trends continue, the U.S. is at risk of becoming a third world country, with the rich getting richer and the poor getting poorer. A shift in paradigm is needed. As Deming has said “We’ve reached the limits of capability of current systems and thinking. More money, effort and energy will not do it. What is needed is transformation, a change of state.”

Unlike Einstein’s theory of relativity, Deming’s new paradigm is remarkably simple and within the realm of our own day-to-day experience. The ideas are, to a great extent, the product of early 20th century, American civilization. The obstacles to the adoption of his philosophy are two-fold. The first is, as already mentioned, a lack of awareness about paradigms and the role they play. An analogy would be someone who copied our method of preparing an operating room without knowledge of the germ theory. Although the room and utensils would be clean, the doctors may not be, and neither for that matter, would the rest of the hospital. The resulting improvement in the mortality rate would be minimal at best. To reap the results of a paradigm shift, the new way of thinking must he applied to all aspects.

The second obstacle lies in the fact that our culture has changed significantly since Deming’s belief system was formed. Our new paradigms now act as filters, screening out apparently contradictory ideas. For example, we have come to believe that monetary incentives and practices such as merit pay are necessary to increase productivity and regain global competitiveness, and that competition at all levels is the key to improvement. With this frame of reference Deming’s suggestion that competition for awards on the job and grades in school is destroying our people and this country, would immediately be judged as either ludicrous or insane. Cooperation may be okay for Asian societies but it clearly goes against the very heart of what has made the U.S. what it is today, right?

It’s clear we’ve forgotten just what it is that brought us through our first two hundred years and built the foundations for the success of the 1900’s. The U.S. was built on a healthy balance of cooperation and competition. Cooperation is at the core of America’s strength, from wagon trains to barn raising. In many ways, cooperation has been a more important factor to our success than has competition. Cooperation is what enables us to create strength from diversity and to develop a society and nation that is stronger than any one nationality or culture alone has been able to create before. It is impossible to compete against one another (i.e., one gains at another’s expense) and work together to create synergy for the common good. People will always put themselves first. Cooperation should be seen as nothing more than a form of enlightened self-interest.

Deming’s work challenges us to surface, from the deepest levels of our subconscious, the assumptions we hold and operate under. Many people are deeply vested in their beliefs and opinions so that the mere act of questioning them is tremendously threatening. For this reason it is imperative that paradigms, like maps, be viewed as a tool to help as navigate successfully through day-to-day life. A simple metaphor is a drive from New York to San Francisco. I have a choice of many maps: weather maps, railway maps, geological survey maps, county road maps, an atlas, property ownership maps, and waterfowl migration maps, to name a few. None of them are the terrain themselves, they’re merely representations of if. Some are useful, some are not.

Like any other tool, paradigms are neither good nor bad, right nor wrong, in and of themselves. The key question is whether or not they are useful. Does this new theory help solve the problems of the day? Does it help us achieve our aim? Japan, as an example, is continually criticized for not playing according to the rules of our game. Why should they? They operate under a different set of assumptions. The question their success should lead us to ask is whether the assumptions that we currently hold and operate by today am still useful in today’s rapidly changing environment.

In a world of free market forces, the rules of engagement will ultimately be determined by the marketplace winner, i.e., the producer that creates the most value for the consumer. American industry, coming from a history of dominance and success, is accustomed to setting the rules. Today our organizations are caught off-balance, as they work to maintain their advantage on yesterday’s playing field.

The Current Paradigm

Much of Western progress has come through a combination of reductionism and specialization. Researchers, pushing deeper and deeper into narrower and narrower fields of knowledge, have made innumerable discoveries and unprecedented advances in genetics, physics, and, for that matter, all of the sciences. This same approach enabled Henry Ford to kick-start a new phase of the Industrial revolution. By breaking complicated jobs, heretofore done only by skilled craftsmen, into a multitude of simple tasks that anyone with minimal training could perform, he and others enabled poorly educated and low-skilled workers to produce in quantity and at low cost goods and services only the elite could previously afford.

We applied this same approach, with great success, to all the problems of the day. Businesses were divided into independent divisions and departments, each a profit center of its own. As a nation we dealt with the poor by creating the welfare system, low-income housing and Medicaid. These divisions allowed those with expert knowledge to focus their energies and efforts on the work of their component, independently and without knowledge of the work of other areas. Of necessity, coordination, evaluation, decision-making and control of the independent components are reserved for those few with the bigger picture. The result is nearly universal application of Frederick W. Taylor’s top-down, command-control hierarchy of management (Fig. 1).

Fundamental to this is strategy and corresponding structure are several basic, interrelated assumptions. The first is that efficiency is the key to success. The second is that the world can be simplified and treated as a collection of discrete and independent pieces, i.e., the whole is equal to the sum of the parts both in space and in time. Hence, marketplace value is created by maximizing the efficiency of each component. These assumptions influence, if not dictate, the frame of reference used to evaluate results. That is, the result of any action can be evaluated in terms of short-term, direct and local consequences. As an example, the effect of a drive to reduce raw material costs can be evaluated with the purchasing department’s bottom line at the end of the quarter. The impact of a merit pay system for teachers on the quality of education can be assessed on the basis of students’ scores on a standardized test at the end of the school year.

It is no coincidence that the very strengths these assumptions enabled us to develop are seeds of the paradigm’s demise. The drive for efficiency has distracted the eye from the customer and the marketplace. Ongoing success in the marketplace requires intimate knowledge of the customers’ work and environment and the development of products and services to meet new and emerging customer needs. Fallout from the assumption of independence resulted in practices such as those cited in the paragraph above. i.e., improving a company’s (or nation’s) total cost structure by requiring each department to reduce its budget by some fixed percentage or instituting merit pay for teachers to improve education. The very systems that enabled us to create the prosperity of the 50’s-90’s now act as leg irons, binding us to past thinking and behavior. Many are beginning to personally experience the decline and realize the need for change. The uncertainty is in understanding the nature of the change that must occur, and in knowing what we must do and how to do it.

A Shift in Thinking

The path to a future of prosperity and enhanced quality of life begins with the knowledge and know- how Deming brought to Japan in 1950. What he brought starts with the all-American belief that we can shape our own future. He told the Japanese that within 5 years, they could create quality that all the world would clamor for. They beat his prediction. As Mary Walton states, they did it in four. From there they have proceeded on to redefine value, and the nature of competitiveness and the ground rules by which the marketplace game is played.

At the heart of Dr. Deming’s work is the belief that the customer will only expect what you and your competitors have led him to expect. No customer ever asked for an electric light, a microwave oven, a fax machine, or ever-higher quality at lower cost. It was the producer or his competitor, through delivery of these products and services, that created these customers expectations. Management will determine its own future. They can spend their time, energy and resources playing catch-up, i.e., reacting to consumer expectations created by their competitors, or proactively seeking new ways to create value for the consumers that raises their future expectations. As Dr. Stephen Covey has said, “The best way to predict the future is to create it.”

Execution of this strategy, if it may be called that, requires an organization that is 1) focused on the consumer and the marketplace, and 2) fosters continual learning, can capture the learning of its members, and facilitate action on the knowledge gained. Dr, Deming drew a diagram (Fig. 2) of such an organization at the start of all his lectures in Japan. Deming’s picture is no more an organization than is Taylor’s hierarchy. Rather it is a view or map of an organization designed for learning and creating value as versus the command/control orientation of the past. It depicts the organization as a network of interconnected processes by which value is created for the customer and is continually improved, rather than as a collection of independent components or profit centers.

Whereas Taylor’s hierarchy tends to create a mental image of the whole being a sum of its parts, Deming’s diagram creates an image of a chain that is only as strong as its weakest link. Suppose for a moment, that a city health clinic and counseling service is part of a larger system designed to help homeless people regain their ability to create value for themselves and the society that sustains them. Suppose further that the hours of the clinic are from 8:00 a.m. – 5:00 p.m. By requiring patients to come during normal working hours, they may be completely undermining the efforts of the rest of the system to help these people get and then keep a job.

With the passage of time and advent of new knowledge Taylor’s view becomes increasingly obsolete. Value is no longer an issue of availability. Cars, refrigerators, homes, schools and health care are essentially available to everyone. Rather, value is judged by such measures as ease of use, reliability and cost. Advances in communication and travel continually diminish the barriers of distance and time and hence strengthen the interdependence between individuals, organizations and countries. Our televisions and VCRs are made in Japan, our produce comes from California, our textiles from China, our leather from Brazil. The death of our inner cities, the rise of AIDS, drug abuse and homelessness, the decline in educational standing of our students and the downward slide of our industrial giants such as General Motors will affect many of us in the short-term, but certainly all of us in the long-term. The challenges we face today and the world we live in are dramatically different than the ones Henry Ford faced. They are beyond the limits of capability of our past philosophy and resulting systems and methods, e.g., independence, short-term thinking, and adversarial competition. More money, people and effort, applied within the context of our current systems, are at best a short-term patch that will increase the time and cost of the profound changes necessary. What is necessary is total re-thinking of our philosophy, systems and practices.

The “New” Quality Paradigm

What Deming offers is the beginnings of a new paradigm and a framework for management within it. His aim is to improve the quality of life and economic situation of all. Some may quibble with the aim, but there are no viable alternatives. Because of interdependence, everyone will eventually lose unless all can win. Furthermore, ensuring that everyone wins is not a matter of taking from the rich to give to the poor, i.e., redistributing the outcomes of the process. Rather, it is of working on today’s process so that everyone can get better results tomorrow (Fig. 3). The job is to improve the ability of each and every individual and organization to create value for themselves and for the society that nurtures them.

This paradigm is outlined in Deming’s book The New Economics as the System of Profound Knowledge.

While Profound Knowledge is a seemingly ostentatious name, it is descriptive. The Latin roots of profound are pro meaning before or in front of, and fundus, meaning bottom or basis, as in the word foundation. There are four elements to profound knowledge, namely:

Appreciation for a System • Knowledge of Variation 
• Theory of Knowledge 
• Knowledge of Psychology

In Appreciation for a system Deming focuses on the interdependencies within an organization, and on how to manage them for the benefit of all. He continues on in Knowledge of variation and Theory of Knowledge to discuss the process of learning for the purpose of improving future results and the requisite changes in management this knowledge creates. In his section on psychology, he examines the assumptions behind our traditional management of people and explores more effective modes of human interaction for learning and improvement.

Although each individual element of Profound Knowledge is likely familiar, it is their interaction as elements of a system that has deep, far reaching and, in many ways, revolutionary ramifications on our day-to-day life as Americans. The result of adoption is nothing short of “transformation, change of state,” according to Deming. In a recent conversation with Dr. Nida Backaitis, she stated, “It is interesting that under this new paradigm, what turns out to be best economically in the long run for everyone is the restoration of the self- esteem and dignity of individuals and an environment that encourages learning.”

Appreciation for A System

Deming defines a system as a network of interdependent components that work together for accomplishment of the aim. He views the world beginning with our immediate family members and extending to the far reaches of the globe – as a system, with networks of subsystems within it. Certainly, this is the nature of the world Deming grew up in. On the American frontier, people worked together to tackle survival in a way they could not if operating as independent individuals. The livelihood of the blacksmith depended upon the success of the local ranches, cowboys from different ranches would bring their herds together for the long cattle drive to the railway, farmers would share equipment and labor to bring in their neighbors’ harvests, the general store would extend credit and do whatever else they could to ensure the survival of their customers.

Each component pulled their own weight. Many operated in a monopoly position. The smart ones knew better than to charge prices higher than those that would optimize the growth and prosperity of the entire system. This wasn’t done out of the goodness of their hearts; the Wild West was not a kinder and gentler nation. Nor was it a group of homogenous people. Rather, it was a collection of strong individualists, many of whom would probably have preferred to compete rather than cooperate. Certainly no one needed any more work than they already had. Cooperation is driven by the realization of interdependence, that my success is tied to yours.

Deming’s view of the world as a system is a more accurate map of the way things are. It is the beginning of a paradigm shift that to be successful, must eventually lead to changes in our system and methods, as well as changes in our thinking.

The essence of Deming’s framework for managing an organization under the above assumptions is captured in the system flow diagram (Fig. 2) he used in 1950 to describe for the Japanese a system for creating quality. It is a model of an organization, whether it be a hospital, business, school, family or nation, that depicts the interrelationships and, implicitly, the interdependencies between the “components.” He calls such an organization a system. A system must have an aim. Without an aim there is no system. The aim is also a value judgment. As an example, any number of different aims can be imagined for a large automobile manufacturer. The company’s aim may be to provide a sound investment for their stockholders, providing steady income and reasonable growth. It may be to fulfill the dream of a car for every family, or to become a world-class organization, or to use their expertise to create personal transportation that enhances the lives of all Americans, and to do so in a manner that creates value for stockholders, employees, and the communities they live in. In a system the value of an individual’s contribution depends upon much more than their specialist knowledge. It depends upon how well they understand their work relative to the aim of the larger organization and how their work impacts the work of others in the value-creating chain.

For example, a designer that does not understand the impact of his work on the rest of the organization can negate the work of everyone else – the purchasing agents, suppliers, manufacturing personnel, market research people, salespeople, and so on – and destroy all hopes for production of a reliable, high quality and low cost product. This is the old perspective in which quality is the responsibility of the Quality professionals, productivity the responsibility of Manufacturing, cost the responsibility of Purchasing, and sales the responsibility of Sales. The ultimate ability of an organization to create value and continually improve its ability to do so depends as much upon deep understanding of the interrelationships between organizational components as it does specialized knowledge and know-how within each component. Similar examples abound in business, education, health care, and, for that matter, all aspects of life.

Management’s job therefore begins with determination of the aim and helping everyone in the system to understand how their work contributes to it. It is also to asses the impacts of today’s managerial systems. Do they help the organization accomplish its aim?

Many of today’s practices, such as competition for merit ratings, bonuses and so on, destroy cooperation and hence the functioning of the organization as a system. Under these circumstances, “I win – you lose” invariably leads to lose-lose for everyone. Information and communication systems today are patterned after Taylor’s diagram, with information flowing up and directives flowing down. People in different departments are only allowed to communicate with those in other departments through their managers. These systems facilitate management by control rather than knowledge building about the customer and the organization’s value-creating system, knowledge sharing and application of this knowledge for continual improvement.

Improvement efforts, directed and managed by setting new goals or standards for each individual or department, typically work to destroy the system. This approach is perfectly adequate if in fact the work of each component is independent of the work of others. Suppose, for example, management calls for a 10% improvement in results. Salespeople can increase their numbers by booking orders in advance and promising custom-made products or extraordinary service. Purchasing can improve by ordering larger quantities or switching suppliers, manufacturing can improve by lengthening the manufacturing runs for each product. The service department can decrease their costs by cutting out small-time customers. These actions may improve the numbers for each department, but they collectively destroy the ability of the larger organization to create value for the customer and hence put the company’s and their own future at risk. Only after each and every person understands their work in the context of the aim of the organization, and how it affects the work of others, can real improvement be undertaken. The same is true for all the organizations comprising government, education, and health care.

Knowledge of Variation and Theory of Knowledge

There is a tendency to treat life as a collection of independent and unrelated events or snapshots. Each outcome or event is to be explained and appropriate action taken. Everyday on television some analyst explains in great detail why the stock market was up 3 points today or down 5. Production managers around the country spend time each morning explaining why yesterday’s numbers were up or down. Each week sales departments examine their sales numbers and the safety department reviews the accident reports. On a monthly basis nearly everyone gets involved. Employment figures, budget deficits, operating income, gross profits, net profits, and so on, are up or down. This analysis presumably yields useful information that can be used as a basis of action for improvement – or does it?

An additional class of practices aimed at improvement sorts the outcomes of the day into two categories: acceptable and unacceptable. A man inspects and sorts incoming raw material, they may be high school graduates or ball bearings. While this may be necessary for the user of this material, e.g., the college or manufacturing facility, it does nothing to improve the quality of the next batch of material coming through. Rating and ranking the students in this year’s third grade class does not improve the performance of future classes. Giving an award for the salesman of the year does not improve the future sales of any salesman, including the one labeled best this year. In his book, The Fifth Discipline, Peter M. Senge writes,  “As long as we focus on results we are doomed to reactiveness.”

How then do we proactively create our own future and undertake the process of continual improvement? The test scores of a third grade class are the result of the process or system of education. To improve future performance, improvements must be made to either the input stream (e.g., better academic, emotional and social preparation of students), or the process of education itself (e.g., provide a more integrated learning experience, remove the obstacles to joy in teaching and joy in learning, etc.). Third grade test scores are affected by the specific questions chosen for that test, the emotional and physical state of each of the students that day, their level of skill upon entering third grade, classroom dynamics over the course of the year, the method the teacher used to present the material, the temperature of the room and time of day of the test etc. If, however, there is no change in the system of causes, it is possible to predict, within the boundaries of common cause variation, the expected or “normal” performance of this education process. For example, if the math scores of the third grade class were plotted year after year, and the education process was stable (i.e., no major change in the process), we would find that the results are predictable within limits. The limits denote the current capability of the process (see Fig. 4a). A process with only common causes of variation present, and hence results that are predictable within limits, is called a stable process. Other outcomes that may be predictable within limits, if their generating process is stable, are a person’s golf scores, daily production numbers and monthly sales.

There are other sources of variation, known as special causes. These are not present all the time and generally have large impact. Possible special causes in the example of third grade test scores may be a long teachers strike during the school year, or damage to the building that required students to attend a different school, or a major shift in teaching method. Potential special causes for the golfer is a new set of clubs, help from a pro to correct a problem with swing, or a bad back. When special causes are present the results are not predictable. There are no common or usual limits of performance (see Fig. 4b).

Only by studying all of the outcomes and looking for commonalities amongst them all, can we begin to understand the effect of specific common cause factors on process performance. In this light, practices such as explaining weekly variances from target, differences in grades or daily stock market numbers are a waste of time and energy and a distraction from the real work to be done. Equally important is the fact that action taken on the system in response to one data point can actually increase the variation and hence degrade future process performance. Tampering, as it is called, is analogous to adjusting your fuel injectors with every tank of gas based on miles per gallon, or determining what you eat each day based on your weight that morning.

Management programs such as Employee of the Mouth and Salesman or Division of the Year are yet another form of tampering. Certainly they are attributing the difference in performance to only one (i.e., the person) of the hundreds of common cause factors at play. Implicitly, they are also looking for adjustments in the fundamental causal system based on the value of the most recent outcome. In other words, everyone should study and then do what the top performer does. An understanding of processes and the nature of variation places yet another nail in the coffin of MBO as it is practiced today (i.e., the setting of standards or goals alone as the means for improving performance). There are only three ways to get better numbers. The first is to change the measurement method. If the goals is to increase the proportion of students graduating from high school, then a sure fire way to meet that goal is to redefine the requirements for graduation.

A second means to improve results is to distort the larger system, or “rob Peter to pay Paul.” The airline industry improved their on time arrival rate by simply increasing the posted flight times for each trip. On-time departure rates have also improved. Now if there is a flight delay or mechanical difficulty you are imprisoned on the plane. Departure time is recorded from the moment the plane door is closed and the jetway moved away. These are anecdotal examples but certainly ones that we can all relate to.

The final means to improve results is to improve the fundamental process that generates them. A numerical goal or standard may provide a common goal, but without a method for process improvement we are more likely to get apparent improvements via a change in measurement method or through distortion of the larger system than through the substantive changes desired.

It is important to understand that people who change the measurement method or distort the system to achieve the desired result are well-meaning people. (Although an oversimplification, it is useful to assume that there are no bad people, only bad processes and systems.) Process improvement is difficult, time consuming and a long-term endeavor. If a person’s compensation or performance rating depends upon their ability to meet these goals, they will find a way to win, even if it means using one of the first two approaches. Dr. Backaitis states, “Eventually people will react rationally to the system they are in.”

With our new understanding of interdependence, we now ask what are the long-term, indirect and systemic effects of our current managerial systems. Do these methods promote cooperation for accomplishment of the common aim? Do they build knowledge of the process: your customers’, your suppliers’ and your own, to aid innovation (the creation of new value) and fundamental process improvement? Will these practices facilitate the proactive, long-term stance needed to regain our competitiveness as an organization or a nation? From this perspective current management methods are equivalent to rearranging the deck chairs on the Titanic.

Without prediction there is no learning. One of the first to question the theory of a flat earth were the sailors. From this theory one would predict that a ship on the horizon would, as it sailed away, get smaller and smaller in size until it was no longer visible. Their experience, however, did not match this prediction. As a ship sailed away it would in fact get smaller, but it also appeared to sink into the ocean. Conversely, when a ship was first sighted, all that could be seen upon the horizon was the top of the mast. As it got closer, more and more of the ship would become visible. Without the original prediction, which came from theory, there would be no questioning and no learning. Prediction enables us to learn from the events around us. It provides a basis for discrimination, distinctions and continuous learning.

As knowledge is built about and around the causal system at play, ideas emerge for process improvement. Process capability limits are also vital for evaluating and learning from planned process changes. Because of common cause variation, the impact of a process change often cannot be judged on the basis of one or two data points alone. Rather, it is only with the passage of time and the comparison of the new process’ capability with the old that the subtle effects of a change can be seen. Suppose two factories, two schools or two hospitals are operating side by side. Suppose further that the exact same events are occurring in each. In one organization, the members are fire fighting, reacting to and explaining each and every variance in the outcomes. They return home each day exhausted but self-assured. They have done there best and will return tomorrow to live out another day. Tomorrow, however, will be no better than today.

In the second organization the exact same events are occurring. Here, however, they are evaluated in light of the process capability limits. Events within the realm of common cause variation are dealt with, but otherwise ignored. Those that prediction indicates are the result of special causes are investigated and studied in detail.

What can be learned from this event that will enable us to improve our process? The members of this organization spend their time building knowledge of the causal system at play (including common causes), formulating ideas for improvement, and then testing them with process changes that are evaluated against prediction, i.e., the previous process capability limits. This is a method for learning about and improving the process and hence, future results. It is the essence of Deming’s famous PDSA (Plan-Do-Study-Act) continuous improvement and learning cycle (which is the foundation of the DMAIC cycle from the Six Sigma movement, the latest incarnation of selected pieces of Deming’s holistic quality system).

Does this mean you can’t manage and improve what you can’t measure? Is Deming’s theory telling as that the only way to learn is through numbers? Not at all. What is the cost of a disgruntled customer, or the cost of a demoralized child or employee? What is the cost of maximizing profits at the expense of reinvestment in technology or employee education? What will be the cost of continued growth of the national deficit or continual slippage in our educational standing among the industrial nations? It is impossible to know, but the processes that generate these results must be dramatically improved if we are to have a successful future. Changes and improvement must be based on theory, our best understanding of the interrelationships between inputs, the processes at the heart of the system and the long-term, indirect, and systemic effects of proposed changes.

Some Knowledge of Psychology

The final, and some believe most important piece of the new paradigm focuses on the issue of human motivation. As awareness of the need for change and pressure for improvement builds, people are turning to merit pay systems, the rating and ranking of individuals, departments, schools, hospitals, and so on, as a means to improve future performance. We have already examined the inadequacies of this approach to improvement, but there is another important aspect of the issue to explore. Managerial systems are a reflection of commonly held beliefs or assumptions. What are the assumptions behind these methods? Will they help us accomplish our aim of regaining organizational and national competitiveness and improving the quality of life for everyone?

There are two additional assumptions behind managerial systems such as merit pay that require examination. The first is that people must be extrinsically motivated to do a better job, i.e., rewarded for good work and punished for bad. This includes the creation of competition, awarding gold stars for good work in school, sales incentives, bonuses, etc. If this were true, one would predict that a child would not learn until it has been extrinsically motivated to do so. Our experience, however, is quite the contrary. Children learn naturally from the moment they are born, building knowledge and skills from all of life’s experiences. Until they go to school there is no difference between work, learning and play. Deming proposes that there are two predominant forms of human motivation, namely intrinsic and extrinsic. People are born with intrinsic motivation, the desire to learn and create. As life progresses, we encounter “the forces of destruction,” such as grading in schools, incentives for performance and merit pay. These forces eventually destroy the natural dignity and self-esteem one is born with.

Consider the effect on a child of not receiving a gold star, or being the last to be chosen when athletic teams are formed, or receiving a grade of B or less for their very best efforts. These practices tell him he is less worthy than the others in his class. These forces cause humiliation, and create fear and self-defense. They damage dignity and self-esteem, and thereby destroy intrinsic motivation. How can anyone take joy in learning and creating under these circumstances? The effects of these practices on the other children, including the winners of the gold stars, are equally as detrimental. When external rewards such as money, television, gold stars, etc. are used to motivate children (or adults for that matter), we send the message that what they are doing is of less intrinsic value than the reward and not worth doing for its own sake. These practices rob our work of meaning and put at risk the very value system we are trying to create. They smother intrinsic motivation and increase everyone’s dependence on extrinsic motivation.

The second underlying assumption is that the individual or unit being evaluated has direct control over the outcomes they are being measured by. Returning to our earlier example of the third grade class, the teacher certainly does not have control of the most important factors affecting process performance, namely the mental, emotional and physical readiness of the students to learn, the classroom environment itself (are these children fearful of one another? of other students in the hall?), the curriculum, the framework in which it is taught, etc. Neither, for that matter, does the school principal or the school superintendent. Students’ scores can most accurately be interpreted as a grade for the larger educational system itself.

We’ve already explored one consequence of these managerial practices, namely, people will react rationally to the system. If there is no way to make the improvements called for, we are likely to see improvement in results through changes in the measurement method and/or distortion of the system. At an even deeper level there are further, and perhaps more damaging, effects. How can anyone feel good about themselves having knowingly taken action detrimental to accomplishment of the common aim, thus hurting themselves and others over the long term? Such action demoralizes, and destroys confidence in the system as well as those who manage it.

Our closing question should be whether managerial methods based on the use of extrinsic motivation help us accomplish our aim of regaining organizational and national competitiveness and improving the quality of life for everyone? Will they lead to innovation and improvement of processes, products and services? Based on our analysis, the short-term benefits are questionable, and the long-term impacts clearly detrimental. Deming suggests that there is a more accurate map of human motivation and interaction than is used today. Deming’s theory in The New Economics is that “Everyone wants to do a good job. Everyone wants pride of workmanship.” When there is meaning to work, and possibility for success, people have internally all the motivation that is needed to do a good job.

What then is the role of management? Clearly it begins with examination of the current organization, whether it be a school, business, hospital, or nation. What is its actual aim? What are the assumptions upon which it operates? Are they still useful? Is the organization capable of creating sufficient value for today and tomorrow so as to assure its long-term survival?

From here it is an issue of leadership. It begins with personal learning and adoption of the new philosophy. The leader must create an aim that everyone can believe in, one that enables his organization to continually create value for their customers, themselves, and the society that sustains us all. He must utilize his new knowledge to guide the evolution and development of work and managerial systems that foster learning, cooperation and continual improvement. Last, and certainly not least, his job is to nurture restoration of individual dignity and self-esteem.


There are two general categories of paradigms: the first being beliefs about the way things are (theories in use), and the second being beliefs about the way things should be (values). Most people, when they read Deming’s work, find it is in agreement with their values. It is consistent with the way they were brought up to believe the world should be, though certainly inconsistent with the way things are. The theories in use today take to extremes and excess certain elements of America’s early belief system (e.g., competition and independence), enabling us to take maximum short-term advantage of our economic and industrial position after WW.II. An indirect effect was to create, and then continually widen, the rift between values and theories in use. These theories are now obsolete. We’ve reached the limit of their capability and hence of our current systems and practices. A new theory is needed for social and economic success in the long term.

A System of Profound Knowledge is the beginnings of a new theory that is, ironically, rooted in many of the beliefs that laid the foundation for the 20th century but have since been discarded. It is a paradigm that reflects the entrepreneurial spirit continually looking for new ways to create value. It recognizes the interdependence between all Americans, and indeed of all people, and hence the necessity of cooperation for long-term survival and success. Finally, it affirms the role and importance of dignity and self-esteem in learning and continual improvement. Deming’s philosophy also goes beyond the value system of our past. It gives us a frame of reference and methodology of learning from the events of life and applying new knowledge in a manner that helps improve all future outcomes. His theory, while examined in this chapter in the context of managing organizations, will affect how we perceive and judge such diverse issues as immigration, diversity, entrepreneurial free enterprise, welfare, and so on. What we will look like under this new theory is unknown. Our current work systems and methods, and managerial and people development systems developed and matured with the current paradigm. New systems will evolve as we internalize this theory and begin to apply it to our personal lives, our organizations and society.

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