Traditional American management theory says that quality is the responsibility of the worker. To make sure that workers are producing high-quality work, reward the best performers and punish the worst performers. Provide concrete objectives, measure them, and reward accordingly. Where relevant, establish quotas to push workers. Inspect products to ensure quality. But quality is a cost, so don’t inspect too much, and establish acceptable tolerances.
Let’s look at the implications of this. Most manufacturing systems are in statistical control, which means that the system produces random variations about a certain consistent value. If a system is in statistical control, then the amount of defects is random (within limits). Management wants to show they are serious about quality so they tell workers that whoever has the least defects will get a bonus and the most gets fired. Since the system is in statistical control, some worker will randomly produce fewer defects and get the bonus, while some unlucky worker will get fired. In time, the worker previously hailed as a high quality worker will randomly produce the most defects and get fired. In fact, everyone will get fired. No matter how carefully the workers work, they cannot change the purchasing department’s poor choice of supplies (based on the lowest cost, even if a slightly higher cost part would work much better) and they cannot change the manufacturing procedure (even though the smart ones can tell you where all the stupidities are). Instead of producing higher quality, it produces fear of being fired in the workers (“Joe was a great worker, but was a little short last month, so he was fired”). In fact, it may produce lower quality or lower production, as workers take steps to insulate themselves from random variations.
Seeing that things are not getting better, management will, of course, have new objectives, which just continue to demoralize, because they appear arbitrary (“the problem is really these lousy parts, but management thinks that new computers will fix the problem”). In fact, they probably are arbitrary, because management thinks it is the workers’ responsibility to get quality and management’s job to find ways to incentivize workers. And cut costs, speaking of which, management decided to outsource a department, which was working fine before, but the new (cheaper) outsiders just really don’t seem to care, and now everyone hates the new system.
Sound like a Dilbert comic?
In contrast, Deming says that quality is the joy of workmanship; quality is not a cost, it is the end goal. It should be noted that this is not saying that high quality necessarily implies high tolerances or the finest materials. It is, instead, the combination of good design and quality of manufacture.
One of Deming’s main points is that quality is management’s main job. Only management can direct purchasing to purchase parts which do the job well, even if they are a little bit more expensive. Only management has the authority to change the manufacturing procedure, after asking the workers for feedback on things to improve and things that are frustrating about the process. If a system is in statistical control, the workers can not substantially affect their output.
Deming says to get rid of management by objective and management by numbers. Management by objective is worse than helpful: workers will meet the objective, but often at the expense of something else, probably less able to be measured, but which is at least as important. Deming also says to get rid of performance reviews and rewards/punishments. This simply causes fear, and motivates workers to look out for themselves first and the company second.
A large part of Deming’s philosophy is continuous improvement. Because quality, pride in workmanship, is the goal, it is the responsibility of management to be continuously increasing quality. It is quality that a company is selling, even if consumers don’t consciously realize it. Aguayo tells the story of a Ford car for which some transmissions were made in Japan and some in the U.S. The customers preferred the Japanese transmissions and were willing to wait to get them. Upon inspection, the U.S. transmissions were all within tolerance, but the Japanese transmissions exceeded the tolerances, and as a result were quieter, smoother, and more reliable. A company that is continually improving its products will soon reach a point where other companies simply cannot reach, because there are some unexpected benefits to improved quality. Defect rates drop, which decreases costs more than linearly, since the cost of a defect is much more than simply the wasted cost of one product: there is shipping cost, cost of diagnosis, the replacement cost, and the cost in customer perception. Furthermore, as quality goes up, unexpected improvements appear, such as the product taking less time to assemble because the parts fit more reliably. So not only does the customer have a better product, but the company increases profit!
One contentious aspect of Deming’s philosophy is that competition (in the win/lose sense) is bad and destroys quality. A great example is how most large companies deal with their suppliers. They push for the lowest cost and increasingly lower costs every year, on the incorrect theory that minimizing the cost of each part minimizes the cost of the whole. Instead of taking an adversarial relationship with suppliers, it is more beneficial to cultivate a relationship with the supplier, give them some information about what you are doing with the part, so that they can use that knowledge to improve areas that would be of benefit to you. Ultimately, you and your supplier are partners in delivering a product to the customer. Proctor and Gamble experimented with partnering with their ad agency, giving them more than the usual information about the products and the goals for the ad campaign. The campaign was one of their most effective. By contrast, while the book is too old for this, Dell and Walmart constantly push their suppliers for a cheaper product. Do suppliers like doing business with them? No. Are the products known for high quality? No. In fact, TV manufacturers make a special, lower quality, version for Walmart in order to meet Walmart’s cost requirements.
Another component of the Deming system is deep knowledge. In order to improve a system in statistical control, one cannot simply start fiddling with the knobs (“tampering”). Doing so will likely make the system worse. Nor can one simply analyze defectives for the cause of each defective and expect the system to improve. One really likable manager did that for years without changing the rate of defectives. Nor can you just inspect the resulting parts: if the defect rate is fairly low, random sampling will almost surely fail to find the defects, so you will need to test them all. If the system operates in a way to avoid defects, no inspection will be needed. In order to improve the results of system in statistical control you must improve the system, and to do that, you must understand how the system works.
Finally, an important part of Deming management is leadership. Leadership is not telling people what to do. Instead, a leader “tries to create for everybody interest and challenge, and joy in work. He tries to optimize the education, skill, and abilities of everyone, and helps everyone to improve. Improvement and innovation are his aim. A leader instructs. But instruction means teaching not only what to do, but why.”
Aguayo wrote this book in 1990, when everyone was worried that Japan was going to take over the U.S., so the book is more doom-and-gloom than events have warranted. Still, the lessons are timeless. Some years ago, the Johnson and Johnson decided they could save costs on making Tylenol and other medications. If quality is viewed as a cost center, Deming predicts that efforts to control costs will reduce quality and potentially destroy the product line. This year, the effects of the cost-cutting bore fruit as the factory was discovered to have shockingly poor conditions and was shut down by the FDA. Before the change to cost-cutting management-by-numbers, that division was known for its high quality products. Johnson and Johnson’s consumer drugs were so unassailable that many of them had no competitors, yet now they have been off the shelves for months. As a contrast, for the past ten years Apple has been cultivating a joy of workmanship, seeking to make the customer experience top-notch. This desire has led them to innovate even in the construction of their computers: a magnetic power cord to avoid users tripping over it, milling out a solid piece of aluminum to provide extra space for a battery without sacrificing structural integrity, even going to the extent of drilling tiny holes so that the “sleeping” LED shines through when it is on, but looks like metal when it is off. Over the past 10 years, they have redefined what a music player is with the iPod, they redefined what a smart phone is with the iPhone (apparently competitors RIM and Microsoft did not even think that the iPhone was technologically feasible when it was announced), and the iPad has been selling really well and may possibly redefine portable computing. Quality is the goal.
Review: 8.5 (+1 for content)
Aguayo gives many examples of the failings of the MBA approach to management and the wisdom of the Deming approach, and in so doing he has explained my indefinable disagreement when people say that “a company’s responsibility is to earn as much money as possible for the shareholders”. This is what makes big companies soul-sucking and Dilbertesque, because a company sells a product and makes money as a byproduct. People love companies with a great product, but a company out to make as much money as possible for shareholders is simply inhuman. Management by minimizing finances ignores the human factors. Yet, the book itself does not present the principles in a coherent way, and this reviewer was left thinking that, as helpful as this book is, reading Deming himself would probably be more informative. Indeed, in Deming’s forward Deming says “New principles, carefully explained by the teacher, may find no resting place in the mind of the student, yet the student may accumulate a wealth of ideas worth remembering and passing along. So it is with the content of Mr Aguayo’s book.”