We Need to Understand Variation to Manage Effectively

Guest post by Mike Stoecklein

I had the good fortune to get to know Dr. Deming beginning in 1986. I call it a “correspondence relationship”. We wrote letters (these were the days before e-mail, and I doubt that Dr. Deming would ever send an e-mail even if it had existed). I played a small role in some of his 4-day seminars and had some opportunities to have some discussions with him on various topics. John Hunter asked me to make a contribution to the W. Edwards Deming Institute blog and I am honored to do so.

My current role is Network Director for the Healthcare Value Network, which is a peer-to-peer learning network sponsored and managed by the ThedaCare Center for Healthcare Value. It’s my responsibility to make it possible for approximately 60 healthcare organizations in North America to learn, share and connect with each other in the application of what is being called lean and lean thinking. You may be interested in a white paper that we recently published regarding the Network.

Many healthcare managers seem to be interested to see how lean might apply to their work.  According to Jim Womack, the word “lean”, as it relates to process improvement, came from researchers at M.I.T., John Krafcik in particular, who coined the term “lean” to describe what the Toyota Production System did – provided ever increasing value to the customer with less. Less time, human effort, waste, defects, inventory, and rework.  According to Mr. Womack, John stated, “it needs less of everything to create a given amount of value, so let’s call it ‘lean’.”

Where did the Toyota Production System come from?  Based on my readings and discussions with others, I believe it came from many contributors over decades.  It is one system (Toyota has many systems) based on a way of thinking.  But where did this way of thinking come from?  Here too, I think it came from many contributors, over time, but one in particular deserves mention – Dr. W. Edwards Deming.

Dr. Deming brought new knowledge to Japan and the leadership of Japan beginning in 1947.  He made multiple trips and taught people at all levels.  He also learned from them.  He taught on the topics of variation (understanding it, how to react to it, how to reduce it), quality, seeing the organization (and country) as a system and the benefits of collaboration. There were other topics as well.  The point that Dr. Deming stressed in his later years was the he brought “new knowledge”.  He was not proposing knowledge and practices from western management.  As a matter of fact, he derived his 14 Points for Western Management because there was so much that managers in the United States and other countries needed to change.

In the late 1980s, Dr. Deming began to articulate the knowledge from which the 14 points were derived.  He described this as the “system of profound knowledge“, the 4 components of: understanding variation, appreciation for a system, psychology and theory of knowledge and their interactions.

I believe that much of what I see and hear these days related to lean and lean thinking can be traced back to Dr. Deming, his teachings and the system of profound knowledge – with one exception.  I rarely hear anything about “understanding variation“.  I hear about teams and tools, visual management, daily tracking, problem identification, flow, pull, standardized work, problem solving, value streams and their analyses.  But I don’t hear much about “understanding variation”. I have some ideas about why this is so, and would like to share them with you and get your thoughts.

Possible explanation #1 – people are copying tools and methods, but they may not fully understand the principles.

To illustrate this, I am borrowing the “iceberg” metaphor (in the diagram below) from Barbara Lawton who worked very closely with Dr. Deming.  When I think in terms of what a person may see in any organization, there are the things that are visible, on the surface – the tools and methods.  What a person will not see, directly under the surface, are the processes and deeper still are the systems.  I use Dr. Deming’s definition of a system “a set of interdependent components working together toward a common aim”. What exists even deeper are the underlying principles.  I believe that, over time and with much trial and error, organizations like Toyota developed tools and methods that we can see. These are the components of the Toyota Production System, and this system is based on certain principles.  But these principles are not so apparent.

graphic illustration of iceberg showing unseen management issues

It’s not like I have not heard about the principles behind this system. Some researchers and authors have described some of the principles. James Womack and Dan Jones listed five in the book “Lean Thinking”: 1) specify value, 2) identify the value stream, 3) flow value, 4) pull value, and 5) pursue perfection.

Jeffrey Liker described 14 principles in his book “The Toyota Way”: 1) long-term philosophy in decision-making, 2) continuous process flow to bring problems to the surface, 3) pull systems, 4) level out the workload, 5) culture of stopping to fix problems, 6) standardized tasks, 7) visual control, 8) reliable and tested technology, 9) grow leaders, 10) develop exceptional people and teams, 11) respect extended network of partners and suppliers, 12) go see for yourself, 13) make decisions slowly by consensus, 14) create a learning organization through reflection and continuous improvement.

As I continue to study the Shingo model for operational excellence (named after Dr. Shigeo Shingo, who was Taiichi Ohno’s mentor), I learn about the 10 guiding principles upon which the model is based: 1) respect every individual, 2) lead with humility, 3) focus on process, 4) embrace scientific thinking, 5) flow and pull value, 6) assure quality at the source, 7) seek perfection, 8) create constancy of purpose, 9) think systemically, and 1) create value for the customers.

In my way of thinking, many of these points are very similar to Dr. Deming’s 14 Points for Western Management. They describe things to do or things not to do. But if we want to know why we need to do certain things, we need to dig deeper still, which takes me back to the system of profound knowledge. Perhaps the iceberg metaphor needs to be modified? Perhaps below “principles” there are bodies of “knowledge”? I can connect many of these principles to the system of profound knowledge as illustrated below using the 10 guiding principles from the Shingo model, but I have not (yet) found strong connections with “understanding variation”.

graphic, mapping Deming's SoPK to 10 points

What I think is happening is shown in the diagram below.  I believe that many people think they can merely copy the tools and methods from organizations like Toyota (from the left) and place them on their existing platform of the prevailing style of management (on the right).  I recall something Dr. Deming said in the NBC documentary, If Japan Can, Why Can’t We? “People travel to other companies in other countries to try to copy what they are doing, but they don’t know what to copy”.

graphic showing the Toyota Production System methods

When Dr. Deming conducted his 4-day seminars he talked about “tampering” and the 4 rules of the funnel as examples of not understanding variation.  The 4th rule (trying to match the last drop) might be at play with organizations that try to copy the Toyota Production System.  It could be that they are imitating the methods and tools (and perhaps creating some systems), but do they understand the principles or the knowledge behind the principles?  I think the answer may be “no”.

Trying to copy from Toyota may lead to problems

This is a possible explanation for why I am not hearing much about the principle of “understanding variation”. The principle of “understanding variation” and how to react to variation has not been a component of the prevailing style of management.  It has not been taught in schools, universities and business schools and it has not been taught in businesses – including those that are trying to learn and practice what is being called “lean”. People are copying one organization’s application of the underlying principles, but they don’t know what to copy (the principles, at least not all of them).

Possible explanation #2 – “understanding variation” has been not fully understood.

It could be that many people do not see the full implications of understanding variation.  In particular, I think they miss this point from Dr. Deming: “the most important application of principles of understanding variation is in the management of people – not on the shop floor”.  So, it’s possible that people think about managing variation in the context of measures and control charts (perhaps viewing it as a “six sigma” thing).  Dr. Deming was talking about more that that.

Here are some key points from his 1993 book “The New Economics“:

graphic with Deming's thought that the Individual is art of the system - inter-dependant

I like the way Heero Hacquebord (another person who worked closely with Dr. Deming) talked about this.  Heero expanded upon the interaction between the system and the individual and described 3 worlds.  Here’s World I:

graphic of a world where the individual and system are independent

Do we see any real-life examples of World I?  I don’t think so.  Some people think that sports and athletics might be an example where one person is first, second or third or you having measurable results and winners and losers. However, there are still systems (rules, conditions, referees, fans, etc.). So, the performance is not due entirely to the individual.

Mr. Hacquebord then described World II:

Graphic with the worker is totally subject to the system

Does this world exist?  The only example I can think of would be the world and conditions created by Dr. Deming in the red bead experiment.  All of the variation came from the system and there was nothing that came from any of the willing workers.  But that’s not the real world, so I don’t think we have real-life examples of World II.

That leaves World III:

graphic with world 3, where the performance of the individual cannot be separated from the system

I think this is the real world.  Sometimes the amount of overlap between individuals and systems is huge and sometimes it is small, but it is always present.

In summary, I’d like to know more about why I am not hearing about the principle (or component of knowledge) that Dr. Deming called “understanding variation” from the managers who are applying lean and lean thinking. I have described two possible explanations, and would like to hear your thoughts on this.

Based on feedback Mike has provided an updated view in his post: Refinement of Possible Reasons I’m Not Hearing About “Understanding Variation” [broken link removed]

Related: Understand Variation – The Forgotten Principle [broken link removed] – Standard Work and PDSA [broken link removed] – Podcast #156 – Mike Stoecklein, Memories of Working with Deming

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16 Responses

  1. Jeff Brown says:

    Great post Mike. I believe the answer to your question is complex but the common theme is that it is much easier to copy the tools then to work at understanding and implementing the processes and changing the management culture. Hospitals tend to have very entrenched mangement structures and methods.

  2. Good observation and discussion Mike. My major thought is that while we can correlate, (with sufficient imagination) different teachings to Deming’s philosophy (Deming institute is famous for this), i.e. Lean, TPS, 6 sigma, etc, etc; it does not help to prevent the decline we are in since the early 80’s. Deming continually mentioned this and I see no change. You are correct. Lean etc, do not understand the theory of variation as a leadership principle, so without appropriate control charts when we manage with data, we continue to tamper. According to my research we tamper 70-80% of the time.

    It seems to me that everyone is trying to survive and no one talks
    about the real issues of the destruction of people. Just referring to health care we see a continuation of ranking and rating, practiced and taught by consultants. All over we see bonuses and pay for performance based on individual performance, (actually that of the system). Physicians are mostly paid based on their performance, payed productivity bonuses etc, while we know that 95 % of the performance comes from the system…a dysfunctional system that is caused by government interference and leadership without knowledge.

    Our systems are cancerous diseases that consultants do not seem to have the courage to address, because that terminates their client contracts!!!
    “Performance appraisal:, “pay for performance”, “bonuses”, “productivity measurements” for nurses and physicians, are sold by consultants at great costs to the health care systems. We talk about respect for people, but then we destroy them by the systems we use. We do not motivate people, we only activate them, which means they do what leadership want them to do because of the consequences if they did not? We end up with fear and intimidation, and people have to go along to put bread on the table.

    Toyota and Honda are not much different. Yup they have good things, but the American diseases prevail, performance appraisals, pay for performance, and bonus systems based on performance of people.

    Really nothing much has changed. People are rewarded and punished based on the performance of the system, and you are so right, without an understanding of the world we are living in, WORLD 111, and the application of how to discern, the games we play will continue and the downward spiral will continue.

    Deming used to say that when a room gets darker the cat’s eyes adjust to the darkening of the room, but when the room is in total darkness even the cat can not see anymore. So we either join the cats, or put a fire-cracker in the room.

    My experience is that when I do my seminars 90 plus % of the participants agree and understand, but the system prevents them from making the important changes, unless they are willing to get terminated. People live in constant fear, unless they learn to conform. In fact government and top leadership have too much at stake to transform and so conformance and NOT performance becomes the norm.

    I may get answers and discussion to this from people who work and consult in the system, but no one in leadership or government will bother to debate. In fact I do not get leadership who ask questions and debate with me, they only tell me how smart they are.

    The Japanese are experts in Point #5 of the 14 points but do not do much about the rest.
    Dr. Deming agreed with me when I made the statement to him that I do not think that the Japanese have profound knowledge.

    This URL on my Web site says it in a nicer way” http://www.aptleadership.com/heero-message.html

  3. Brian Veara says:

    Great post Mike. This is a big opportunity. I believe one contributing factor in healthcare the “measurement system” is highly influenced by the Finance department. Healthcare leaders typically rely on their Finance Analysts to help them understand and are many times measuring their operational performance. The measurement system is taking measurements by month and quarter–not by the pace of demand or service. It is hard to change this paradigm as it permeates throughout the leadership structures.

    Lean efforts have been focused on clinical operations and lean thinking is not something many Finance departments have embraced.

  4. Mike Stoecklein says:

    I had some great replies on this topic from other folks and I’ve made some adjustments to the presentation that I’ll be making on his topic in a week. I put my updated thoughts and the feedback from other people on my on-line journal. You can read about them at this link:

    [broken link removed]

    thanks for all of the feedback and a chance to think this through with others.


  5. Mike Stoecklein says:

    I made my presentation today at the Society for Health Systems Process Improvement Conference. Not a bad turnout for sunday morning in New Orleans!

    Here’s what I learned:
    1) most had heard about variation, some about the two types (common & special cause) and most learned it in a statistics class in college (except for the music and english majors)
    2) “understanding variation” seems to have been placed into a container called statistics and the analytic (process) category is not seen as distinct from enumerative. It is generally seen as a “technician” thing – often placed in the “six sigma” box (those people who make the control charts).
    3) most in today’s workshop were not aware of the application of understanding variation in the application of people (the most important area).
    4) if people didn’t learn it in college, it’s not likely to be learned on the job. It does not seem to be part of what is taught by the “lean people” (they either don’t think it’s important or don’t understand).
    5) In the lean curriculum, people learn about “waste” (muda) but they don’t understand that management’s lack of understanding of variation (and systems thinking, and psychology and theory of knowledge) leads to the production of mura (unevenness), muri (overburden) and muda (waste). There does not seem to be an awareness that it’s another example of “burnt toast management”. Instead of working up-stream to eliminate the causes of muri, mura and muda (top management) they seem to be content to have middle management and associates identify (and try to eliminate) the 8 types of waste down stream.
    6) most senior management does not understand variation or why it’s important to learn it. They are not aware that most of what they do every day is “tampering” and the notion of applying the concepts of “systems thinking” and “understanding variation” to the management of people is not even under consideration.
    7) there may be a few rare individuals who saw or heard Dr. Deming when he was alive, have read his books and (in other words) “get it”. The majority appear to not have a clue about this knowledge. Their deficit of knowledge in this area is not even a suspicion.
    8) If Dr. Deming were still alive (he’d be 113 years old) the story may be different, but the idea of understanding variation and the consequences of not understanding has been largely lost to the world in 1993 (the year he died)
    9) it’s up to us to bring this to the attention of others.

  6. Jack Hassard says:

    Thank you Mike for post. It’s helped me with my thinking about applying systems thinking to schools. I believe that most of the reform we see in education if simply tampering. Jack

  7. Nick Howard, based in the UK says:

    Great article Mike, thanks. I was hoping to see positive examples of good practice here. Instead the focus sadly but understandably on stuck and regressive management. My field research suggests that even in organisations having implemented lean systems thinking (often with the help of external consultants) there is little or no follow-through focus on ‘variation’.
    Well, as a public sector senior manager I am committed to introducing variation-focussed measurement and management. I would love to hear of any positive examples to might know, so much the better if they are publicised anywhere?

  8. I’m late to this party but wanted to comment. Here are some of my own experiences of why I haven’t used variation theory much and yet use lean tools and techniques. One, its been a difficult concept to grasp, despite studying it the most of the four principles of SOPK. Second, when I use it, it hasn’t helped me much with my job. For example, I’ve worked on various projects where the common complaint from management is, “Why is it taking so long?” I then use a control chart to plot various sets of data in the hopes of finding special causes to help me determine what I can fix. What I end up finding is that the project just has a wide range of common variation (all within 3 sigma limits). There aren’t any special causes. While it helps me understand the system we have created is, by its nature, full of variation, it doesn’t help me as a project manager to get the execs off my back who want things fixed now. Lean tools help me with this part. I’ll continue to explore and study variation, but right now, of the four principals, its helped me the least. I will also admit that I may not be doing it correctly.

  9. John Hunter says:

    Dan, when the data shows that the system is responsible for all variation not special causes that tells you to focus on system improvement rather than trying to improve by eliminating bad special causes from happening again.

    It isn’t a sign you don’t need to improve. It is a sign you need to improve the system (if the variation produces results that are more important to improve than other things).




    I have been working/procrastinating on a blog post on this topic for a long time. Hopefully I will finish it and publish it here at some point.

  10. Allen Scott says:

    Well, I guess I am extremely late to the party! Thanks Dan for your questions and John for your replies. This will be very helpful to me. System improvement has proven a difficult concept and task for me also. I left my QA Manager job due to execs like Dan mentioned who want results and believe improvement is always for the other fellow as Dr. Deming taught. I suggested to my boss he should improve incoming supplies since cheap supplies nearly shut the factory down. He told me “you vented, now work on yourself!”I was gone in 2 days time, had already been looking around for another job. I took a position with the federal government to get a foot in the door. Still badly managed, but at least good benefits and opportunity. Thanks again.


  1. February 16, 2013

    […] We Need to Understand Variation to Manage Effectively by Mike Stoecklein – “I believe that much of what I see and hear these days related to lean and lean thinking can be traced back to Dr. Deming, his teachings and the system of profound knowledge – with one exception. I rarely hear anything about ‘understanding variation’.” […]

  2. March 6, 2013

    […] talked about Deming’s red bead experiment, the need to better understand variation (including mentions of the great Wheeler book Understanding Variation: The Key to Managing Chaos), […]

  3. May 13, 2013

    […] an understanding of variation we can often mistake variation with evidence (of failure or success). Also without understanding […]

  4. August 29, 2013

    […] easy to be led astray while focusing on numbers without a solid understanding of concepts such as: variation, appreciation for a system, the proxy nature of data, theory of knowledge, […]

  5. December 16, 2013

    The improvement thinking that is most effective when there is no indication of a special cause is one which looks at the entire process and uses experiments (the PDSA cycle) to try out process changes. Based on what is learned from the experiments, then change the process to incorporate methods that improve results…

  6. July 4, 2016

    […] strategy challenges “conformance to requirements.” Dr. Deming promoted the practice of managing variation as a system, which does not “miss the point” of “conformance to requirements” he was […]

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