Selling Horses and Seeing Systemsby Bill Bellows
Post by Bill Bellows, Deputy Director, The Deming Institute.
Midway through graduate school, while employed through the summer months in an engineering position, I joined fellow interns in an after-hours outing at a local pub. With our internships coming to an end, we invited our department manager to join us. Unlike the technical questions we answered all summer long, our manager took the opportunity to challenge us with a down-to-earth business question. Instead of the queries W. Edwards Deming used to probe senior executives, including “What business are you in, what business will you be in 5 years from now, 10 years from now?,” our manager asked us to explain the difference between crime and business. We stretched to offer explanations that might impress a member of management with our embryonic business acumen. After he allowed us to exhaust our textbook answers, he enlightened us with his trouble-free answer; “business is legal and crime is illegal.” In consideration of the fine line between business and crime, poet Robert Frost once offered his advice on the secret to selling a horse; “Take care to sell your horse before he dies. The art of life is passing losses on.” Yet, what can be said of those who will receive these losses, be they co-workers, customers, or, more broadly, fellow members of society?
In reports on the BBC News, questions have been raised about Google parent’s Alphabet’s tax bill in the UK. Specifically, are they paying enough? A few years ago, similar questions were raised about Apple and their US tax bill. Given their record profits, should they be paying more in taxes? Or, are they, along with Google, electing to pay the minimum amount needed to comply with the current tax laws? While the phrase “tax loophole” is often used by the media to explain these corporate behaviors, if the laws were changed once again, would one be surprised to learn that they have both found yet another way to minimize their tax bills? Could it be that the “loophole” designation overlooks the ability of anyone meeting a requirement to do so minimally?
As with asking our then teenage daughter to be home by midnight, could we complain if she arrived at 11:59pm? Or, is this a loophole? If we changed the requirement to 11:00pm, would a 10:59pm performance be surprising, if not labeled a loophole? No more so than what happens when a friend, a university professor, assigns the question, “List at least 20 ways to do X,” as homework to his design students, and receives a list of exactly 20 ideas from each student when their answers are submitted.
With binary simplicity, what is legal is not illegal. What is alive is not dead. What is good is not bad. What is on-time is not late. What meets requirements is not delinquent. I refer to this “Pass or Fail” logic as category thinking. In everyday practice, we use a finite number of distinct categories to differentiate answers to questions such as “Are you a citizen of the United Kingdom?” and “Does your car have gas?” or to display commands on man-hunt posters “Wanted: Dead or Alive.” By contrast, continuum thinking offers the possibility of an infinite number of answers when the inquiry shifts from “Does your car have gas?” to “How much gas is in your car?”
The many differences between category and continuum thinking might be mistakenly perceived as philosophical. In a very pragmatic sense, our ability to think about, see, and manage systems depends on which mode of thinking one activates, category or continuum. To better appreciate this finding, consider a “supply chain” inquiry I have posed in seminars and presentations across the United States and United Kingdom, as well in the Middle East and Asia, where the answer has proven to be independent of location or the type of organization which has hosted me. This question borrows from the use of a grading system in a classroom setting, where (in the US), grades range from the category of outstanding (“A”), to good (“B”), to average (“C”), to poor (“D”), and failing, (“F”). On a continuum, scores will typically extend from a high of 100 to 60, with 60 as the transition point from degrees of good to failing, all the way down to 0, perhaps extending into negative territory.
Given this classroom grading context, my “supply chain” inquiry is “What letter grade, or numeric score, is required by (“external”) suppliers to your organization for all parts, components, or elements purchased?” And, the same question can be asked about the letter grade requirements for “internal” suppliers, handing off to internal customers (i.e., co-workers). From aerospace procurement to the automotive and biomedical industries, extending to the construction industry and healthcare, quality is almost universally defined according to a tradition of “conformance to requirements” for each element of the system, a system of managing “interchangeable components” which dates back at least 200 years. From the operation of a hospital (where medical staff members must meet requirements) to the integration of “completed” software modules into a final product, these efforts remain in heavy-duty use today, with an ultimate quality goal of “Zero Defects” in each element of the system. In such a binary system, good elements are those which meet requirements and bad elements are those which do not. Once again, what is good is not bad. Assigned tasks are either complete or incomplete. Asking one’s young son or daughter to put his or her books in their bedroom may well result in them being placed inside the doorway to their room. For, what is in is not out.
What is often surprising to learn is that the letter grade requirement is not an “A,” but rather a “D,” which often translates to 60 on a numerical scale. As with the difference between an ”A-element” and a “D-element,” differences between elements scored as 60 and 70, 80, 90, 95, and 100 are invisible, on an element level, in this widely used supply chain quality protocol, even those with standards characterized as “advanced.” In such a system, might the secret to selling a component be to sell it before it fails?
Once, when confronted by the realization of his organization’s “Pass or Fail” procurement system, a seminar attendee responded by sharing his new-found frustration with this protocol. “So,” he replied, with a degree of irritation, “I should go home and instruct my daughter to get passing grades in school.” When asked how he arrived at this conclusion, he replied “Because you said there’s nothing wrong with a Pass or Fail system.” As a point of clarification, I explained that although the current procurement system defaulted to the category thinking of “Pass or Fail,” I encouraged him to engage others in Minding the Choice between defining quality through category thinking and when to define quality through continuum thinking. Note that Dr. Deming’s definition of quality – “A product or service possess quality if it helps someone and enjoys a sustainable market,” can be viewed on a continuum when viewing help as relative as opposed to as absolute. Such a system allows for help to be continually improved, as economically justified (see my post, Hair Cuts and Continuous Improvement, for added clarification of why improvements may not always be a worthy investment.)
As for semantics and pragmatism, what are the economic consequences of integrating aerospace, automotive, medical, and construction elements and components, or a team of horses, with letter grades of “D” versus letter grades of “A”? One need not look far or dig deep to find economic losses revealed by integration challenges, if not delayed deliveries of next-generation products, unknowingly constrained by the 18th-century quality standard of “conformance to requirements.” One need not look far to find meetings being called to explore and examine the paper trails of modules and components labelled “bad,” yet with little earlier effort (perhaps labeled non-value-added) to monitor their letter grades, “A,” “B,” “C,” or “D,” and prevent “bad” from occurring. From wedding planning to an invoice payment system, one need not look far to find excessive integration efforts for elements and components labeled “good,” the very losses described by Robert Frost in the context of dying horses. On one occasion, when I explained the potential for integration losses from “good” elements to a manager responsible for element integration, she realized she was, at the very moment we met, experiencing a sizeable loss. When I suggested she contact those suppliers who had provided her with the “good” elements, for closer examination of their respective letter grades, she shrugged and replied, “There‘s no one to call in our current system. All the elements are good.”
More to follow in this saga in my next post, to be released next week.