(From Deming 1982 ‘Out of the Crisis’ Chapter 3)
1. Lack of constancy of purpose
Constancy of purpose – the first of the Fourteen Points – is essential to stay in business. Its absence spells doom for a company. Without constancy of purpose, management does not think beyond the next quarter and has no long-range plans for staying in business.
Dedication to the new philosophy must be widespread throughout the company. It is not sufficient to announce intentions to improve quality, even repeatedly. Employees in many companies have been exposed to a succession of plans for improvement. They have seen programmes come and go, often coinciding with the term of the chief executive; a new boss, a new programme. Disenchanted and disillusioned, they require proof that the company is serious.
2. Emphasis on short-term profits
Todays organisations are often controlled by financial people who manipulate figures but do not make substantial changes to production and quality. They are driven by what they argue are the needs of the shareholders. Shareholders who depend on dividends for income need to be assured that their company will still be in existence, and still be producing dividends, some years hence. It is common for companies to ship products (or take other actions) on the last day of the month, without regard to quality, merely to inflate the figures.
Emphasis on short-term profits is fed by fear of unfriendly take-over or, says Dr Deming, the equally devastating leveraged buyout.
He finds an ally on this subject in Professor Robert B.Reich of Harvard University. Writing in the Atlantic, March 1983, Reich said Paper Entrepreneurialism is both cause and consequence of America’s faltering economy. Paper profits are the only ones easily available to professional managers who sit isolated atop organisations designed for a form of production that is no longer appropriate to America’s place in the world economy. At the same time, the relentless drive for paper profits has diverted attention and resources away from the difficult job of transforming the productive base.
Paper profits do not make the pie bigger, Dr Deming was fond of saying. They give you a bigger price. You take it from somebody else. It doesnt help the society.
3. Evaluation of performance, merit rating, or annual review
Management by objective (MBO) programmes and management by the numbers fall in this category. Management by fear would be a better name, suggests Dr Deming. The effects are devastating.
First, performance evaluation encourages short-term performance at the expense of long-term planning. It discourages risk-taking, builds fear, undermines teamwork, and pits people against each other for the same rewards. On a team, it is difficult to tell who did what. The result is a company composed of prima donnas or sparring fiefdoms. People work for themselves, not the company.
Such evaluations, Dr Deming says, leave people bitter, despondent, dejected, some even depressed. They are unfit for work for weeks after receipt of rating, unable to comprehend why they are inferior. It is unfair, as it ascribes to the people in a group differences that may be caused totally by the system that they work in.
He notes that merit ratings tend to increase variability of performance, as people with lower ratings attempt to emulate those with higher ones.
An insidious effect if that they also increase reliance on numbers. Because they measure short-term results, there is a tendency to consider only evidence that can be counted. The number of designs an engineer turns out, for example, with no consideration of their quality. Merit ratings also depend on the subjective judgement of supervisors. One’s rating may vary wildly, depending on the boss.
Some supervisors dread making the judgements. One popular system requires them to assign ratings from one to five, with a certain number of people at each level. Even when there are only five workers, one must be rated at the top and one at the bottom.
The great accomplishments of man, Dr Deming says, have been achieved without competition.
Look at Moses. He had no competition. Two hundred years ago Sebastian Bach was writing the rules of harmony for all time. Why did he do it? Pride of workmanship.
Dr Deming feels very strongly about the damage done by performance ratings. In his speech at the 11 December 1985 Deming Prize awards ceremony in Japan, Dr Deming cautioned his listeners against infection with American diseases. He talked at length about performance ratings. His audience, of course, was familiar with the use of control charts to determine statistical limits.
The ratings of people in a group based on any numerical system whatever, whether it be a single measure of whether it be a composite or weighted index, whether it makes sense or not, will divide the people into three groups. A) People outside the control limits on the bad side; B) People outside limits on the good side; C) the people between limits.
Group A requires individual help. Group B, if there’s anybody there – there may not be anybody in A or B – but if there is, they require individual attention. Now, people in between the control limits must not be ranked. That is wrong, for the same reason that it is costly, devastating to try to discover the reasons why a point within control limits is higher than another one, or lower than another one. Differences within levels between the limits come from the system itself, not from the people there. Everybody in group C should receive the same increase in pay or the same bonus. There is no rightful distinction between them. The differences come from the system. They must be ascribed to the system, not to the people.
The job of the leader is to shrink the control limits, to get less and less variation in a process, or less and less difference between people.
4. Mobility of top management
Business schools are dedicated to the idea that you can train a good manager in university applicable techniques. But how can a manager be committed to long-term change when he is constantly building up his curriculum vitae? How can a manager really know a company when he is there for only two or three years? In Japan, executives move through the ranks in a progression that takes decades to push them to the top.
Dr Deming quotes J. Noguchi, managing director of the Union of Japanese Scientists and Engineers, as saying, America cannot make it because of mobility of American management. Says Dr Deming, Mobility from one company to another creates prima donnas for quick results. People require time to learn to work together.
Mobility of labour in America, he adds, is almost as serious a problem. The principal cause is dissatisfaction with the job.
5. Running a company on visible figures alone (counting the money)
Visible figures are important, of course. There is a payroll to meet, suppliers to pay, taxes to pay, and so on. But, says Dr Deming, in a formulation for which he credits Lloyd S. Nelson of Nashua Corporation, the figures that are unknown and unknowable are even more important.
It is impossible, for example, to measure the effect on sales of a happy customer or the gains in quality that result from ridding a company of the Deadly Diseases. Only in time will these results become apparent.
6 & 7
These are not reproduced here. They relate to excessive medical and warranty costs and were considered by Deming to be essentially American phenomena.
6. Excessive medical costs
As William E. Hoglund, manager of the Pontiac Motor Division, put it to me one day, “Blue Cross is our second largest supplier.” The direct cost of medical care is $400 per automobile (“Sick call,” Forbes, 24 October 1983, p116). Six months later he told me that Blue Cross had overtaken steel. This is not all. Additional medical costs are embedded in the steel that goes into an automobile. There are also direct costs of health and care, as from beneficial days (payment of wages and salaries to people under treatment for injury on the job); also for counselling of people depressed from low rating on annual performance, plus counsel and treatment of employees whose performance is impaired by alcohol or drugs.
7. Excessive costs of liability, swelled by lawyers that work on contingency fees(Eugene L Grant, interview in the journal Quality (Chicago), March 1984).
Throughout his long working life, Deming held and expressed forthright views on what he saw as the ills of Western management. Here are some direct quotations.
If management were to spend as much existing time to improve processes as they do in ranking, rating, reward and punishment for people (teams, departments, divisions) at the top and at the bottom the results would be stupendous improvement of our economic position.”
“Why the decline? (In Western industrial performance). The cause of the decline is that management has walked off the job of management, striving instead for dividends and good performance of the price of the company’s stock. A better way to serve stockholders would be to stay in business with constant improvement of quality of product and service, thus to decrease costs, capture markets, provide jobs and increase dividends.”
“The biggest problem that almost any company in the Western world faces is not its competitors, nor the Japanese. The biggest problems are self inflicted, created right at home by management that is off course …”
“Understanding of a stable system discloses devastation of people wrought by the appraisal of performance and futility of management by the numbers, management by objective.