This podcast (download) features Dick Steele, Founder and Chairman of Peaker Services and member of The Deming Institute Board of Trustees. Dick discusses his company’s transformation and their continuing application of the Deming philosophy.
Peaker Services remanufactures locomotive engines and designs electrical control systems for large power applications.
Dick shares how attending a Dr. Deming’s 4-day seminar in 1988 led to the company dropping performance appraisals the following week.
Some examples of decisions Dick made with an understanding that much of what is important cannot be measured (and the benefits of making the changes cannot be measured). First, as mentioned they eliminated performance appraisal.
We did institute a scholarship program where every person in the company has a $7,000 scholarship every year to use pretty much as they wish…
If an employee has an idea for an improvement he is pre-authorized to spend $2,500 of company money to make that improvement.
W. Edwards Deming, February 1993 Deming Four Day seminar in Phoenix, Arizona (via the notes of Mike Stoecklein).
So what was Dr. Deming trying to convey with this quote? It wasn’t an attempt to get people to give up trying because failure was certain. It was a attempt to get people to understand the importance of the system and the futility of trying to focus on blaming people for failures.
My automobile, sitting in front of my house, would not start. I called Bill at the Exxon station not far away. When the man from the Exxon station came, I noted that he was in a truck owned by his competitor across the street.
How smart these people are, I perceived. Each station owns one truck. By borrowing the competitor’s one and only truck, if it be idle, both stations provide to their customers service equivalent to ownership of perhaps 1.8 trucks, at the cost of owning only one. Advantages: these stations both retain business of customers at lowest cost. Even further cooperation: one station stays open late one night, the other stays open late the next night.
It is a great example, showing how it is possible to find solutions that help business and customers by thinking in unconventional ways. These types of cooperation are not unheard of but I think we could benefit from more thought given to ideas that initially make us think it is an unworkable and crazy idea.
Now in the stadium example I fear it is mainly a negotiating tactic to back their current cities into providing huge concessions. The concessions local governments grant for stadiums are widely seen by economist as foolhardy: I agree. But if the choice is between wasting lots of taxpayer money on 2 stadiums or doing so on 1 stadium, closing 1 stadium they share is the lessor of two bad options. The correct option is to let them build the stadium if it is economically wise without taxpayer giveaways. The New York Giants and New York Jets share a stadium in New Jersey.
The idea of finding cooperative solutions with competitors is something I support. As with most any strategy there are considerations that impose limits on how far things can go. Cooperative solutions have to be found that benefit each competitor and also that benefit customers. In the USA, and most other places I would imagine, there are legal limits on collusion to harm consumers with anti-competitive agreements.
I think examples of these cooperative solutions with competitors from our readers would be of interest to all of our readers. Please share examples from your organization with us by including a comment below.
It is easy to compare grades on a test. But it is highly questionable if those numbers tell you much. Many studies show students will study for a test and then forget nearly everything so they have no long term learning. When you focus on test results it sure seems like focusing on what is easy to measure instead of what is really desired. As Ackoff put it (f-law 51, from his book Management f-Laws):
Managers who don’t know how to measure what they want settle for wanting what they can measure.
What David talks about is the importance of creating powerful learning experiences. Those experiences students will retain that learning over the long term. When your focus is on learning you ask yourself what will make student want to learn? That is different than what will make students want to get a good test score.
David, in the podcast:
The system coming out of the last century basically made learning flexible but time rigid. Its called the grading system. Set an arbitrary due date, [say] Friday. Then by Friday, do any amount of work you want, any poor quality level you want as long as you get it to me by Friday. So the schedule drives everything and teachers and parents get frustrated when my child is getting a C or D or B.
A lot of that is psychological they [the student] realizes there is no way I am going to get an A or do this level of work in the arbitrary time limit. So I’ll just do whatever I need to do and get whatever I get and then people just start responding to the extrinsic motivators.
Dad doesn’t get mad at me as long as I get at least a C, ok. So you have kids coming in and saying what do I have to do to get a C. I have to get at least a D average to play basketball. Ok, what do I need to do to get a D average.
Dr. Deming didn’t directly address executive pay as far as I know. Executives were paid well and without much detrimental impact on companies historically. In the 1980s many CEOs started treating corporate treasuries as personal bank accounts and problems exploded. Peter Drucker had no issue with high and reasonable CEO pay, as things became more and more abusive he spoke out more and more strongly about the damage being done by CEOs and those allowing such behavior. Since that time things have progressively and dramatically worsened as pay for senior executives exploded.
When it came to the relationship between a CEO’s pay and that of the average worker, Drucker advocated a ratio around 25 to 1 (as he suggested in a 1977 article) or 20 to 1 (as he expressed in a 1984 essay and several times thereafter). Widen the pay gap much beyond that, he said, and it makes it difficult to foster the kind of teamwork and trust that businesses need to succeed.
“I have often advised managers that a 20 to 1 salary ratio is the limit beyond which they can not go if they don’t want resentment and falling morale to hit their companies,” Drucker explained (At last year’s World Economic Forum in Davos, Switzerland, those looking to cap runaway CEO pay came to refer to the 20 to 1 mark as “the Drucker principle.”)
In a 2004 interview, Drucker elaborated further: “I’m not talking about the bitter feelings of the people on the plant floor… It’s the midlevel management that is incredibly disillusioned” by king size CEO compensation.
I agree with Drucker’s reasoning and the Drucker Institute’s continuing to take a stand against the bad practice of so many CEOs today. If someone wants a lot of money to lead your organization and they are qualified, fine. If they won’t run your organization for less than a king’s ransom find someone who is more interested in leading your organization than in treating it as their personal bank account.
It is hard to know how strongly Dr. Deming would feel about the problems caused by the current epidemic of overpaid executives. I feel strongly he would have vigorously objected to the damage being done to corporations and the management system by such practices. But that is my opinion, and it is possible I am wrong. Though I don’t know of any prominent Deming practitioners that support the current practices.
This is a wonderful, succinct quote on the sources of influence available to a leader, and in fact everyone else too.
You have knowledge that can be applied to achieving whatever is being attempted. That knowledge is used as well in helping improve the system over the long term.
Your personality will impact your ability to succeed. If you are outgoing you will be more easily able to reach out to others. If you are persistent you will overcome short term obstacles. If you are curious you will seek out new knowledge. If you are happy often you will make those around you happy and likely find people interested in helping you.
And your persuasive power impacts your ability to convince others of the wisdom of what you believe. Sometimes this persuasive power is detrimental, for example, when you convince others to follow a path that was in fact unwise. A person that has persuasive power is able to convince people to make wise decisions, but also to convince people to make unwise decisions.
Thus it is best for the organization when that person has knowledge; and also the wisdom to know when they would be better off seeking someone else’s advice. That wisdom is more rare, in my experience.
These traits, while providing a guide to understand your means to influence the organization also provide a guide for potential weaknesses in your management system. There is really no advantage to having decisions unduly influenced by those with persuasive power while ignoring ideas from those without much ability to persuade people. What you really want it to follow the best course of action, not the course championed by the most persuasive person.
And actually the Deming management system does address that to some extent. Our psychology cannot be comply overcome, so persuasive power remains an unduly large factor in convincing people.
Using tools and concepts like the PDSA cycle, data based decision making, respect for people will help the organization alleviate some of the weaknesses we have due to our psychology that leads us to follow more charismatic and persuasive people even if the idea isn’t as wise as one championed by someone without much charisma.
Keith started by reading Out of the Crisis and thought it would be tough to use that book as a tool to convince his cofounder and CEO that using Deming’s ideas was important for Pluralsight. He heard about the Deming Library videos and decided to buy them and found them to be a great tool and something he could imagine his CEO learning from. And it turned out that the DVDs from the Deming Library worked well as a tool to engage the CEO in learning more about Deming’s ideas on management.
We very quickly started making changes. We started transformation and moved very fast. One of the very first things we did, we eliminated all incentive pay for all executives on the leadership team. We renegotiated their salary, bumped it up, so that they didn’t have to worry about hitting a target or anything. We wanted that team to work as a team. So that is one of the first things we did.
In 2014 the sales team also decommissioned the sales force.
They have seen great things going on. Watching sales people help each other now. They used to help each other before, but not like this.
We’re attracting the type of talent we want. Which is the type of talent that is going to come in and really try and do what is right for the customer and help move the company forward for long term success.
In 2015 they are replacing all bonuses in the company with a profit sharing plan.
Out of the Crisis included a couple pages (245-7) that Dr. Deming asked my father to write on the efforts to apply Deming’s management ideas at the City of Madison (the first effort to do so in the public sector as far as I know). This article provides more details on that effort and is packed with good ideas: Quality Comes to City Hall, Harvard Business Review, 1991 by the former mayor of Madison, Wisconsin – Joseph Sensenbrenner.
Deming said, it was our system of make-and-inspect, which if applied to making toast would be expressed: “You burn, I’ll scrape.” It is folly to correct defects “downstream”; the critical issue, he said, is to get your “upstream” processes under control so you can guarantee the outcome every time. To do this, an organization must create a culture of quality; it must master proven quality techniques. Most important, it must define quality—first, as continuous improvement in pleasing customers and second, as reducing the variation in whatever service or product it offers.
Changing to a culture that has a Deming perspective on customer focus is not easy. When you succeed though the way people think is profoundly changed. The City of Madison police department even did customer surveys for those they arrested and used the results to improve the process in ways that make sense. Obviously there are restrictions on what you can do to please those being arrested but this is really always the case – you can’t give all your products and services away for free even if that would make customers happy.
The first initial effort with the City maintenance garage ran into issues created by the existing management system.
We discovered that the fleet included 440 different types, makes, models, and years of equipment. Why the bewildering variety? Because, the parts manager told us, it was city policy to buy whatever vehicle had the lowest sticker price on the day of purchase.
“It doesn’t make any sense,” one mechanic said. “When you look at all the equipment downtime, the warranty work that weak suppliers don’t cover, the unreliability of cheaper machines, and the lower resale value, buying what’s cheapest doesn’t save us anything.”
Our next trip was to the parts purchaser. He agreed with the mechanic. “It would certainly make my job easier to have fewer parts to stock from a few reliable suppliers. But central purchasing won’t let me do it.” Onward to central purchasing, where we heard this: “Boy, I understand what you’re saying because I hear it from all over the organization. But there’s no way we can change the policy. The comptroller wouldn’t let us do it.”
Enter the comptroller. “You make a very strong case,” he admitted. “But I can’t let you do it because the city attorney won’t let me approve such a thing.” On to the city attorney. “Why, of course you can do that,” he said. “All you need to do is write the specifications so they include the warranty, the ease of maintenance, the availability of parts, and the resale value over time. Make sure that’s clear in advance, and there’s no problem. In fact, I assumed you were doing it all along.”
This was a stunning disclosure.
This sequence is one I have found to be repeated over and over. People think the status quo is required by law, regulation or policy. Those responsible for policy (in government those responsible for creating policy and regulation in compliance with the law) think sensible judgement is being used (as the policy normally allows). But in fact the management system has evolved to strictly follow silly guidelines that are not only not the intended result of policy but are often directly contrary to policy (as in this example, making spending decisions that those making the decision knew to be bad, but they incorrectly thought were required by policy).
I have never seen a place that the policy says you must by on lowest price tag. But many organization have management systems where buying on lowest price tag is the default position that is nearly universally adopted as the “proper way” to do business. Often the process requires buying based on lowest price tag, even though the policy does not.
Monta Akin, Assistant Superintendent for Leander Independent School District in Leander, Texas joined Tripp Babbitt to record the latest podcast for the Deming Institute.
Monta shares the compelling story of Leander Independent School District’s transformation to a Deming based management system. It begins when Monta was first introduced to Deming when she came across the PBS broadcast of Quality or Else and has continued for 20 years.
In the podcast Monta stated:
Deming stated that is it important to “drive out fear” and I always wondered why we aren’t talking about building trust. It didn’t talk me to long to discover fear just creeps into the system unless you are aggressively trying to drive it out.
With teachers she trusted to speak freely, she asked “what is the biggest fear for you as a teacher at our school?”
The same answer came back time and time again and that was the teacher evaluation system and the rating and ranking associated with it.
All the typical things that you would expect from studding Deming’s philosophy were apparent. People stopped collaborating: why would you show your best work when somebody could steal that lesson and [get a good rating, which could then reduce the size of your bonus].
People also would distort the system…
So the Leander school district requested a waiver to eliminate the evaluation from improvement and rewards. There was still an evaluation to determine if teachers were performing their job successfully.
That was huge in terms of gaining buy-in and trust from teachers. They saw that we were listening and we were willing to make changes to the system that will make it better for them.
There are many different ways to start applying W. Edwards Deming’s ideas on management. There isn’t a cookbook on what should be done first. This is helpful in that you can avoid trying things that would be very difficult given the current state of your management system. However, it is also very challenging in that you have to decide what to do yourself instead of just following a recipe.
But if you can’t enjoy the benefit of a consultant you can still proceed. Read what you can (books, by Deming and others, blogs, etc.) and watch the Deming Library videos, listen to the Deming podcasts. Then make changes in your behavior.
Don’t try to start with changing other people. And don’t try to make enormous changes first. Start small, but on things that are important, and build on each attempt. Change what you do. Experiment and learn and experiment some more. Involve others in the changes but I find it is much better to start with those that want to change first. Dealing with those that don’t want to change is best delayed until you build up a record of success using new management ideas, in most cases.