The W. Edwards Deming Institute Blog

Deming Podcast with Dick Steele, Chairman of Peaker Services

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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.

On a personal note, I think one of Dick’s smartest decisions was to hire Ian Bradbury as the CEO (when Dick stepped down as CEO while remaining as the chairman). Ian is still the CEO. See some clips of Ian presenting at the Deming Institute conference: Deming 101 with Ian Bradbury, Deming 101: Theory of Knowledge and the PDSA Improvement and Learning Cycle, Knowledge About Variation and Deming 101: Understanding Systems.

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.

Related: Improving Problem SolvingBaking Apple Pies Using the Deming Management SystemManage what you can’t measure

A Bad System Will Beat a Good Person Every Time

A bad system will beat a good person every time

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.

As Deming said we are being destroyed by best efforts. Trying harder, to do what you understand as your job, when the system is broken often results in more damage. Don’t just do something, stand there (and think).

So if a bad system will be beat a good person every time what can you do? You have to focus not on trying harder within the current system but on changing the system so that success is built into the system. Relying on heroic measures is a poor way to manage.

Related: The System Will Produce What It’s Capable of Producing94% Belongs to the SystemWe are being ruined by people putting forth their best effortsEffort Without the Right Knowledge and Strategy is Often Wasted

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Cooperating with Competitors

cover image of The New Economics

W. Edwards Deming included this example of businesses cooperating with competitors in The New Economics for Industry, Government, Education:

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.

I was actually reminded of this idea by a headline on two American football teams being willing to share a new stadium near Los Angeles if they can’t get individual stadiums built (with huge funding from taxpayers) near their current location.

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.

In a previous post we discussed how, in applying Deming based management principles as a business strategy, Hallmark Building Supplies cooperated with customers (some of which were also competitors). That post also includes a webcast of Louie Paynter discussing his experiences.

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.

Related: Tyranny of the Prevailing Style of ManagementDr. Deming Video: Managing the Organization as a SystemManaging the Supplier Relationship (a systems view)

Deming in Education: Education as a System

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In this podcast (download) David Langford becomes the first repeat guest. David is the CEO and founder of Langford International and a Deming Institute Advisory Board member.

David continues discussing his thoughts on using Deming’s ideas to improve education. By looking at education as a system and examining what the goals are you find a need to change the focus of school.

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.

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Related: Monta Akin on The 20 Year Deming Journey at the Leander Independent School DistrictHow Did We Do on the Test?Dr. Deming Video: System Improvement for Educators and ManagersDeming Podcast: Andrea Gabor on Management at Ford, GM and the USA Education System

Peter Drucker Advocated a Ratio of 20 to 1 for CEO to Average Worker Pay

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.

Rick Wartzman, Executive Director of the Drucker Institute, wrote, in 2011, to the Securities and Exchange Commission in support of requiring public companies to disclose the pay of their typical worker compared to the pay of their chief executive.

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.

I have written about the problems caused by such practices over the years. In fact, I include it in what I call the 2 new deadly diseases: extremely excessive executive pay and the broken patent and copyright systems.

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Knowledge, Personality, and Persuasive Power

As I use the term here, the job of a leader is to accomplish transformation of his organization. He possesses knowledge, personality, and persuasive power.

W. Edwards Deming, The New Economics, page 116

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.

The management system also seeks to encourage the constant seeking more knowledge and the testing of knowledge using experiments. And by encouraging an understanding of variation it seeks to reduce the risk of people being mislead by persuasive people that are making claims unsupported by the data.

Related: Dr. Deming on Leadership (includes more context for quote above)W. Edwards Deming on Leadership and Management of PeopleYour authority stems from: position, knowledge and personality

Keith Sparkjoy on Adopting the Deming Management System at Pluralsight

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Keith Sparkjoy, Cofounder and Culture Coach of Pluralsight discusses his “awakening” on their journey to keep Pluralsight’s healthy culture as they rapidly expanded (download the podcast).

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.

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Quality Comes to City Hall

image of the book cover for Out of the Crisis

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.

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Monta Akin on The 20 Year Deming Journey at the Leander Independent School District

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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.

Related: Deming Today-Leander Texas Independent School DistrictDeming Podcast: David Langford on Improving EducationUsing Control Charts to Aid in Improving the Classroom Learning EnvironmentDeming’s Ideas Applied in High School Education

How to Start Applying Deming’s Ideas on Management

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.

This is one reason why a knowledgeable consultant can be so useful. They have the experience and wisdom to know what is likely to work and what will be difficult as you begin to improve management practices. In the recent podcast with Fred Wambier, CEO of Finishing Technology, he mentions the crucial role Kelly Allan continues to serve as Finishing Technology adopts Deming’s ideas.

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.

I have written on my other blog on some ideas on getting started: Start small, with projects people actually care about, Grow Your Circle of Influence, Psychology of Improvement, Helping Employees Improve). What you want to do is chose projects you can get started on now (not projects where you are going to be delayed trying to convince others to go along) and where the process and results will help show others the benefits of adopting some new ideas.

Don’t worry about the perfect way to start. There isn’t one. What matters is creating a system that is effective today and which is built to continually improve: a good management system is robust and continually improving.

Related: Change has to Start from the Top (and you are the top of something): Webcast with David LangfordThinking Required: Not Just a Recipe to FollowCustomer Focus with a Deming Perspective