William Edwards Deming had a profound impact on the world of management and his broad knowledge of engineering, mathematics, physics, statistics, and business aided his work with corporations that has had a lasting impact all over the world.
Deming is also revered in Japan due to his contributions to help to improve the quality of their production, procedures and processes that took Japan from a smouldering heap of rubble after World War II to an economic powerhouse in a short space of time.
Deming identified 5 areas of concern in the way that he saw a number of companies operating, later he would add to them, for now I will look at the initial 5 deadly diseases of management, and those insights are still relevant and often overlooked and ignored by companies to this very day.
1. Lack of constancy of purpose
The foundation of any serious company is to have a purpose. The purpose of a company is to know the reason that the company exists. This reason should be understood and adhered to by every person within the company. Often only the leadership team knows the purpose of the company and the meaning of the company exists is lost to the most within the company, this lack of purpose leads to poor quality work and a lack of motivation with people in the company.
“Lack of knowledge… that is the problem.”
– W. Edwards Deming
Often the reason why management does not disseminate the purpose of a company is because they often see management roles in terms of jobs and not as essential parts of a business with a larger purpose and vision to achieve something significant.
The business thinker Jim Collins in his works ‘Built to Last’ and ‘Good to Great’ highlighted the need for having a core ideology and getting the ‘right people on the bus’ and the ‘wrong people off the bus’ in order to maintain the integrity of a company. To see more about his views on his ‘Good to Great’ work you can see more here – http://www.anisometric-inc.com/what-separates-good-companies-from-great-ones/
It is an important step for any entrepreneur to think carefully about the purpose of why they launch a company and have a vision for what the company has to achieve beyond making lots of money.
2. Emphasis on short term profits
This disease is often the standard by which a company is judged as successful or not. A manifestation of the perceived success of a company is often revealed in the share price. Investors such as the billionaire investor Warren Buffet do not use the share price as an indication of the value of the company, instead investors like Buffett use the intrinsic value of the company to provide an accurate valuation. To see more about how Warren Buffett values businesses you can see more here – http://www.anisometric-inc.com/how-did-warren-buffett-become-the-worlds-greatest-investor/
Due to the fact that analysts, investment banks, and the financial world in general operate based on short-term information then the company that is listed on any type of exchange is often pulled into that ‘game’ and has to perform based on those expectations. This means that companies are far less likely to invest in the long-term growth and development of a company and only look for ‘quick wins’ that can be demonstrated in the next few months. Deming also understood that in a number of cases there was ‘creative accounting’ where figures and data was manipulated to give the impression that the company was performing in ways that it was not.
Those type of actions led the company away from providing value to the customer and adhering to the purpose of the company.
“’Quality’ means what will sell and do a customer some good – at least try to.”
– W. Edwards Deming
The former Chairman and CEO of General Electric Jack Welch once said, “In the end, you get the behaviors you reward.” The financial industry rewards short-term actions to reinforce growth and that encourages speculative trading from both professional and retail traders. Eventually the long-term good of a company is sacrificed unless an exceptional leadership team is in place.
3. Annual rating of performance
The performance rating system is sometimes known as the ‘carrot and stick’ school of motivation. The carrot symbolises a desired outcome, and the stick represents a form of punishment that is to be enforced if the employee does not meet certain expectations.
A scientific experiment that looks at the approach of this type of motivation is the experiment from conformity by the psychologist Stanley Milgram, to see more about that you can see more here – http://www.anisometric-inc.com/the-milgram-experiment-on-obedience-and-conformity/
Deming understood that the process of annual rating and performance reviews breeds fear into the employee. This type of system is sometimes called management by objective, however in reality it is management by fear. The employee often has a number of commitments that they are responsible for, mortgage, consumer debt, etc. and the manager holds the employees fear of loss in order to assert his or her control over that employee. This rarely produces the best type of performance from an employee and this usually produces stress and psychological problems that lead to other serious issues.
Employees that become wise to the system learn how to manipulate others in order to ‘get ahead’ and then they play political games in order to make their performance appear more attractive and diminish the performance of their ‘competition’ who should be their colleagues who should all be working for the benefit of the entire company.
“In Japan, a company worker’s position is secure. He is retrained for another job if his present job is eliminated by productivity improvement.” – W. Edwards Deming
Deming noticed that this culture of fear and punishment was not a universal factor all over the world, but in economies that were heavily driven by short-term market activity.
4. Mobility of management
Deming understood the importance of having a manager being a part of the company and not a person who was an ‘opportunist’ who was looking for a short-term gain. I have mentioned Jack Welch before and his time at General Electric (GE) was an example of a successful tenure as a manager and leader, he started at GE in 1960 as a chemical engineer. Welch would learn the business and get an idea of the culture of GE from the ground up and as he rose through the company he could understand a number of the issues that people at various levels would go though. In 1981 Welch would become the youngest ever CEO of GE, to find out more about how Welch made that transition you can see more here – http://www.anisometric-inc.com/jack-welch-on-strategy-execution-and-people/
Deming knew that a manager that does not know the people, products, processes and culture of a company cannot fully perform at the highest level.
“The big problems are where people don’t realise they have one in the first place.”
– W. Edwards Deming
5. Use of visible figures only
Deming’s 5th deadly disease of management is the use of visible figures only. This means that the value of a company cannot only be judged through the use of numbers because there are a number of intangible factors that are essential to a business that include the levels of psychological wellbeing of customers, employees, etc.
Even though we are currently in an age of excessive information there is a certain lack of critical thinking that is being used and applied for the betterment of a business.
A key thing about management is the ability to work with and understand people. Unfortunately a large number of people only understand how to look at numbers. Numbers do play an essential part of business, but they do not form the entirety of a business. Numbers can be manipulated, twisted and spun to create a picture of a business that is better or worse than the actual business.
Deming died in 1993 and yet he foresaw a number of issues and difficulties that exist to this very day. There were a number of companies that failed due to accounting frauds and scandalous actions by management within their companies since the time of Deming’s death.
“In 1945, the world was in a shambles. American companies had no competition. So nobody really thought much about quality. Why should they? The world bought everything America produced. It was a prescription for disaster.”
– W. Edwards Deming
His warnings are still ignored by many. As we move into a world where we see a number of the old ways of thinking being discarded and disrupted in a number of ways, there remains an opportunity for the entrepreneurs of today to create the type of business that creates real value in the market by addressing the needs and wants of real people and solving real problems.
W. Edwards Deming on the 5 deadly diseases of management
Thinker: William Edwards Deming