1. Lack of constancy of purpose

2. Emphasis on short-term profits

3. Evaluation by performance, merit rating, or annual review of performance

4. Mobility of management

5. Running a company on visible figures alone

6. Excessive medical costs

7. Excessive costs of warranty, fueled by lawyers who work for contingency fees

“A Lesser Category of Obstacles” includes:

1. Neglecting long-range planning

2. Relying on technology to solve problems

3. Seeking examples to follow rather than developing solutions

4. Excuses, such as “Our problems are different”

5. Obsolescence in school that management skill can be taught in classes[24]

6. Reliance on quality control department rather than management, supervisors, managers of purchasing, and production workers

7. Placing blames on workforces who only responsible for 15% of mistake where the system desired by management is responsible for 85% of the unintended consequences

8. Relying on quality inspection rather than improve product quality

1. Create constancy of purpose toward improvement of product and service, with the aim to become competitive and stay in business, and to provide jobs.
2. Adopt the new philosophy. We are in a new economic age. Western management must awaken to the challenge, must learn their responsibilities, and take on leadership for change.
3. Cease dependence on inspection to achieve quality. Eliminate the need for massive inspection by building quality into the product in the first place.
4. End the practice of awarding business on the basis of price tag. Instead, minimize total cost. Move towards a single supplier for any one item, on a long-term relationship of loyalty and trust.
5. Improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly decrease costs.
6. Institute training on the job.
7. Institute leadership. The aim of supervision should be to help people and machines and gadgets to do a better job. Supervision of management is in need of overhaul, as well as supervision of production workers.
8. Drive out fear, so that everyone may work effectively for the company.
9. Break down barriers between departments. People in research, design, sales, and production must work as a team, to foresee problems of production and in use that may be encountered with the product or service.
10. Eliminate slogans, exhortations, and targets for the work force asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships, as the bulk of the causes of low quality and low productivity belong to the system and thus lie beyond the power of the work force.
11. a. Eliminate work standards (quotas) on the factory floor. Substitute leadership.
    b. Eliminate management by objective. Eliminate management by numbers, numerical goals. Substitute leadership.
12. a. Remove barriers that rob the hourly worker of his right to pride of workmanship. The responsibility of supervisors must be changed from sheer numbers to quality.
    b. Remove barriers that rob people in management and in engineering of their right to pride of workmanship. This means, inter alia,” abolishment of the annual or merit rating and of management by objectives.
13. Institute a vigorous program of education and self-improvement.
14. Put everybody in the company to work to accomplish the transformation. The transformation is everybody’s job.

“The first step is transformation of the individual. This transformation is discontinuous. It comes from understanding of the system of profound knowledge. The individual, transformed, will perceive new meaning to his life, to events, to numbers, to interactions between people.

“Once the individual understands the system of profound knowledge, he will apply its principles in every kind of relationship with other people. He will have a basis for judgment of his own decisions and for transformation of the organizations that he belongs to. The individual, once transformed, will:

* Set an example;

* Be a good listener, but will not compromise;

* Continually teach other people; and

* Help people to pull away from their current practices and beliefs and move into the new philosophy without a feeling of guilt about the past.”

Deming advocated that all managers need to have what he called a System of Profound Knowledge, consisting of four parts:

1. Appreciation of a system: understanding the overall processes involving suppliers, producers, and customers (or recipients) of goods and services (explained below);

2. Knowledge of variation: the range and causes of variation in quality, and use of statistical sampling in measurements;

3. Theory of knowledge: the concepts explaining knowledge and the limits of what can be known (see also: epistemology);

4. Knowledge of psychology: concepts of human nature.

Deming explained, “One need not be eminent in any part nor in all four parts in order to understand it and to apply it. The 14 points for management in industry, education, and government follow naturally as application of this outside knowledge, for transformation from the present style of Western management to one of optimization.”

“The various segments of the system of profound knowledge proposed here cannot be separated. They interact with each other. Thus, knowledge of psychology is incomplete without knowledge of variation.

“A manager of people needs to understand that all people are different. This is not ranking people. He needs to understand that the performance of anyone is governed largely by the system that he works in, the responsibility of management. A psychologist that possesses even a crude understanding of variation as will be learned in the experiment with the Red Beads (Ch. 7) could no longer participate in refinement of a plan for ranking people.”[21]

The Appreciation of a system involves understanding how interactions (i.e., feedback) between the elements of a system can result in internal restrictions that force the system to behave as a single organism that automatically seeks a steady state. It is this steady state that determines the output of the system rather than the individual elements. Thus it is the structure of the organization rather than the employees, alone, which holds the key to improving the quality of output.

The Knowledge of variation involves understanding that everything measured consists of both “normal” variation due to the flexibility of the system and of “special causes” that create defects. Quality involves recognizing the difference to eliminate “special causes” while controlling normal variation. Deming taught that making changes in response to “normal” variation would only make the system perform worse. Understanding variation includes thepractical certainty that variation will normally occur within six standard deviations of the mean.

Why? Because OpX is concerned with the way the work gets done and we all have work to do. Finance processes transactions, prepares statements and secures low cost sources of financing expansion. Human resources is busy hiring new talent, building effective compensation, retention and performance management programs. Operations is delivering products and services to customers, marketing is detailing new product design and IT is trying to keep track of it all.

OpX is all about doing any and all of these jobs faster, with less waste, greater quality and lower cost. That’s the key to OpX thinking, recognizing that all the work that happens in an organization, from accounting to operations and from assembly to strategic planning, happens as a result of a process.

Systems and processes are the verbs of work. Nothing gets done without them. OpX demands that we understand the organization as a system, just as Dr. Edwards Deming taught us over 50 years ago.

Systems Thinking

It was in the 1950’s that Dr. Edwards Deming gave his series of famous lectures to the Japanese Union of Scientists and Engineers (JUSE) as well as to leaders of Japanese industry. If he taught the Japanese anything it was the importance of thinking of the business as a system. It was a radical idea at the time.

Just how radical is made apparent by Deming’s version of the organization chart (left). No boxes, no hierarchical levels, no lines of responsibility. Rather, a set of interconnected processes that take in supplies, produce products and services of value and deliver those to customers. And all the while, redesigning those products and services to better meet customer needs while continuously testing processes and taking advantage of opportunities to improve operating performance.

Organization charts depict the business as a static thing. The focus is on who reports to whom and who is responsible for what. When we think of the business this way, we miss the whole point of having a business – producing products and services of value for customers. And that’s never static.

Deming was presenting the organization as something dynamic. A complex set of processes and systems designed with a very specific aim – delivering products and services of value to customers and doing so with greater speed, less cost and greater quality than competitors. In other words, improving how the work gets done.

Implications of Systems Thinking

Appreciation of the organization as a complex system brings with it some important implications. Some of which challenge long held notions concerning how best to manage and lead in organizations. Deming highlighted some of these implications in his Fourteen Points for Management and  Seven Deadly Diseases.  Borrowing from both, our interpretation of some important implications of systems thinking are provided below.

The purpose of business is to create and serve customers because without customers, there is no business. The constant preoccupation of management, including the formulation of strategy and selection of business priorities, must be increasing the value delivered to customers.

Business performance is the sum of its systems and processes. Processes define how the business conducts and organizes the work. Systems define how the business has organized its processes. Together, they provide a comprehensive description of how the work gets done and how value is delivered. Systems and processes are designed, built and owned by management. It’s your responsibility.

The current set of systems and processes represent the collective know-how of the business. How the business accomplishes the work right now, represents the level of best practice and the state of knowledge or know‐how in the organization. If you really knew how to do things any better, you would be doing it now.

To improve business performance, you must improve process performance. Business performance is a function of the processes at work in the business. Roughly 95 % of performance is attributable to the process or system design, the remaining 5% to the people in the process. Don’t waste time focusing on the 5%. Processes and systems are the key.

The scientific method, with its reliance on evidence, is the only reliable way of adding knowledge and improving performance. There is a reason the human race has landed on the scientific method as a means of expanding knowledge – it works. In absence of the scientific method and evidence, performance improvement, and other management activities, are reduced to guesswork, hunches and myth. Greatness doesn’t flow from ignorance.

If we are going to improve performance and the competitiveness of our business, we must change our thinking. Dr. Deming had a different way of stating this truth:

It is not necessary to change. Survival is not mandatory.

Installing a Lean Six Sigma program is relatively easy – print some posters, train people up and send them off to improve something. In contrast, having a Lean Six Sigma program take root, grow and develop into an organic machine that continually finds ways to improve quality, cycle time and cost is something else again.

The difference is often the soil in which the program is planted. The technologies of OpX are encouraged to grow in an organizational environment that accepts the five foundational principles required for long-term success.

1. Customer Driven

The primary function of any organization is providing what the customer wants. Doing so in a manner that is more productive or efficient than competing sources of the same product or service adds value. Management consultant Peter Drucker once noted that, “The purpose of a business is to create customers.” Customers define our success or failure, our product or service quality; ultimately they define whether our organization prospers or dies.

This holds true for internal customers as well as external ones. All too often, internal service departments assume they are above serving the customers within their own organization. By taking this attitude, they lose the loyalty and support of others within the company. Everyone is amazed when the inevitable outsourcing follows.

The bottom line: “The most fundamental law of business is, without customers, there is no business.”

2. People Based

The real work of organizations is performed by people working together to accomplish some task or goal. Improving the performance of any system or process requires people. There is no other way.

People are not objects of analysis or cogs in a huge industrial wheel. They are first and foremost individuals, with personal aspirations, beliefs and individual differences. The object of business is not to turn individuals into efficient little clones, but to get everyone contributing to the long-term prosperity to the business. Organizations that understand this, understand the true value of employees. A people-based improvement effort is one that respects the individual.

It is also one that recognizes the necessity of teamwork. Improving process flow across functional boundaries requires an understanding of that flow from different perspectives. Improving the system requires teamwork.

Teamwork maximizes something else – organizational learning. Employees in the organization have a wealth of ideas but few organizations take advantage of this hidden asset. Separating responsibilities, through artificial organizational boundaries and levels, limits the ability of this resource to contribute effectively to improvement. Talent and ideas are wasted. Teamwork recognizes the value of this resource and, more importantly, provides an outlet for this experience and talent to be shared. “One Team” is not an idealistic statement; it is a precondition for maximizing the knowledge base within the organization and for maximizing the effectiveness of any improvement effort.

The bottom line: All improvement happens through people. Those organizations that understand what truly motivates people, and can best tap into the talents and ideas of employees, improve faster.

3. Process and System Focused

The new model understands organizations as systems. We move away from the localized, linear thinking of the past and identify the interdependencies linking the processes of production or service. The process becomes the focus of the improvement effort. To measure performance, we measure performance of the process, understanding its capability to deliver what customers need and want. Improving performance requires changing the process, not the people working within it.

Employees in an organization are not responsible for the systems within which they work. These have generally been designed by management. Management sets the rules, allocates the resources and gives the orders. Improvement will not come from demanding everyone works harder, placing inspiring messages on the wall or holding out the prospect of bonuses or punishments for over/under achievers. Changing the system and using employees to help with this change is the key to real long-term performance improvement.

The bottom line: To improve performance, you must improve the process or system responsible for the existing performance level.

4. Scientific Method

Scientific method links theories and ideas with empirical, real world results. The prediction inherent in theory is compared with observed results. If the results support the theory, we have evidence that our thinking is sound. If the results fail to support our theory, we must abandon it and look to new ideas and theories. Empirical evidence, then, is the acid test of our ideas and the foundation of scientific method.

We can only understand the systems and processes at work if we are willing to give up our biases and rely on data as the acid test of ideas. Moreover, we need a sound approach to working with data – applying statistics, “the science of data” – to enhance our understanding and learning. The word “statistics” tends to strike fear in the hearts of many managers and employees alike. But the basic methods used to analyze systems and processes are understandable to anyone.

Moreover, there is no viable alternative. Without scientific method and empirical data, we are left with gut feel, impressions, guess work, and bias. Improvement by guess work is expecting greatness to flow from ignorance – it won’t happen. The scientific method is a learning model, grounding our understanding in empirical, real world information and building knowledge upon this foundation. Improving performance means we constantly test our ideas, conduct experiments, measure results and implement improvements where warranted.

The bottom line: Greatness doesn’t flow from ignorance, improvement is dependent upon knowledge.

5. Purposeful

A system without an aim is not a system! To which we add that improvement without direction is an oxymoron. Improvement, by definition, is purposeful activity.

Providing purpose is the first task of leadership. Leaders, at whatever level they exist in the organization, become leaders by defining direction and giving purpose to the activities of those they lead. Organizations all too often forget that the job of leadership is to lead. Management must demonstrate that leadership by clearly defining the aim and purpose of the system, as well as for each and every component of it.

Purposeful activity and the role of leadership, however, goes beyond this. Purposeful activity is also that which stays the course, seeing things through to completion. In short, purposeful activity demands discipline and focus.

With the new management, the role of manager as leader changes. It is no longer a “set the objective and forget it” approach. The role of management must become one of involvement – initiating and guiding performance improvement projects through to success. This in turn places new demands upon management. Managers must become more than figureheads bestowing blessings upon improvement initiatives. They become active participants, working with improvement teams in supporting their efforts. Ultimately, showing leadership means demonstrating knowledge of the new management and the systems view of performance improvement.

The bottom line: If you don’t know where you are going, any road will take you there. Improvement is a purposeful activity – it demands direction.

These are the five foundational principles of OpX. All five are required. Organizations promoting teamwork with one or more of the others missing will succeed only in making the same mistakes in the same old way – except they will be doing it in groups. Focusing on the system with scientific methods, but without teamwork, will produce brilliant analysis but little no change.

In many ways, management hasn’t changed much over the years. The fundamentals of planning, organizing and controlling are still around. So are the day to day activities of managers and executives: attending meetings, supervising staff, preparing or reading reports, talking to customers and suppliers. Outside of responding to emails rather than phone calls, and reading things on-line rather than on paper, and not much has changed.

And yet, management is in the midst of a revolution. Not a revolution of tasks or job function but a revolution in thinking.

Six Sigma, Lean Six Sigma, Lean Production, Lean Enterprise, Business Process Redesign, Business Process Re-Engineering, Quality Functional Deployment, Design for Six Sigma, Design for Manufacture, Design for Service, Rapid Cycle Improvement, Continuous Improvement, Accelerated Cycle Improvement, Hoshin Planning, Policy Deployment, Evolutionary Operations, Statistical Process Control, Competing on Time, Quality Management, Total Quality Management, Value Chain Analysis, Value Stream Analysis, Value Engineering and Reverse Engineering – all recent additions to the management lexicon and all concerned less with what management does and more with how management does it.

All of these technologies represent a change in the way executives and managers need to think about their business as well as a rethinking of how best to improve performance and competitive position.

There is no definitive starting point for this change in thinking. The work of Edwards Deming and Taiichi Ohno serves as a convenient place to begin if only because of their immense influence and impact today. Deming particularly, emphasized three fundamental points that serves as a foundation for everything that followed. These three serve as our absolutes of the new management and of the new management thinking.

1. Organizations are systems.

There are two ways to think about any organization, as a hierarchy of vertically aligned functions or as a system of horizontally aligned processes.

Hierarchy represents the management control strategy of the organization, how human and financial resources have been allocated and the accountability relationships that effect control.

Systems and processes represent the productive strategy of the organization. These describe how the work is organized focusing on the flow of work and seeking to reduce cycle times, increase throughput, reduce work in process, cost and waste while enhancing value and customer satisfaction.

Both hierarchy and systems thinking are required in organizations but the old way of thinking emphasized the hierarchical control aspects of the organization, often to the exclusion of the systems and processes. Systems thinking, in contrast, emphasizes the systems and processes (including hierarchical control processes) that actually create value for customers and for the business.  The systems thinking approach has some important implications:

• The purpose of business is to create and serve customers because without customers, there is no business. The constant preoccupation of management, including the formulation of strategy and selection of business priorities, must be increasing the value delivered to customers.
• The business is the sum of its systems and processes. Processes define how the business has organized the work. Systems define how the business has organized its processes. Together, they present a comprehensive picture of how the work actually gets done in the business.
• The current set of systems and processes represent the collective know‐how of the business. How you do, what you do, is your current best practice and represents the state of knowledge or know‐how in the organization. To improve performance, you must increase your knowledge of your systems and processes and actually implement change.
• Teamwork is required. Teamwork is not a nice nor a feel good exercise. It is a requirement of all organizations because systems and process flow across organizational boundaries. Hierarchical thinking creates silos which impede flow and destroy value.

2. Processes determine performance.

Performance, regardless of how it is defined, is primarily a function of the organization’s processes (including the value chain). Deming estimated that 94% of performance of the organization is attributable to the system of processes at work. Everything else, including the impact of people working in the process, amounts to the remaining 6%. The implications:

• To improve performance you must improve the process. Because processes are the primary determinants of organizational performance, improving organizational performance means improving processes. This is true regardless of the form of the organization – from global enterprise to the HR department in a small company to the success of a not‐for‐profit. If you want to get better, improve the process.
• Performance of any process is measured in terms of the value delivered to a customer. Value is what we aim to create but processes do not operate with 100% efficiency or effectiveness. Anything that doesn’t add value is waste. Eliminate waste and you improve the value‐add of the process and the business. That is why the elimination of waste must be the preoccupation of every employee.
• Performance measurement measures processes. Performance is a characteristic of processes not of organizational hierarchies. Because of this, only the performance of a process (or system) can be measured. Performance of a hierarchical unit (organization, department, individual, etc.) cannot be measured directly, but only inferred from the measurement of various processes with which they are associated. This also means that performance measurement (and process management) requires an understanding of variation and the application of  statistical methods.

3. Improvement is a process, a scientific, evidenced-based process.

Performance improvement comes from a processes – a continuous process of improvement built on an evidenced‐based, scientific approach. Deming and Shewart captured the essence of the continuous improvement process in the: Plan, Do, Study, Act (PDSA) Cycle.  Ideas and theories (Plan) are put to the test through experiments and pilots projects (Do), the results are examined (Study) and changes are made (Act) that improve performance. What is critical is that it is experience that is used to evaluate ideas and theories and not the other way around. This is the basis of evidenced‐based management. All modern models of improvement, including the DMAIC model of Six Sigma, are based on this fundamental idea. Some implications:

• Knowledge requires both theory and practice. It is not enough to examine an issue, conduct a study, draw conclusions or make recommendations. The only way an organization can claim to know something is if it has successfully married theory with actual experience. That is, implemented change and studied the results. This is the operationalized know-how.
• Knowledge generation and improvement require that experiments be done. In practice, organizational experiments typically take the form of pilot projects, trials and testing different models.  Some of these will succeed and some will fail. Both will generate knowledge. Organizations that refuse to accept failure or acknowledge it in their experiments, will soon experience it in larger doses.

The three absolutes provide a foundation for a new way of thinking about management, about organizations and improving the performance the performance of both.