The following is excerpted from Chapter 4 of The New Economics, second edition
by W. Edwards Deming.
The prevailing style of management must undergo transformation. A system can not
understand itself. The transformation requires a view from outside. The aim of this
chapter is to provide an outside view-a lens-that I call a system of profound knowledge.
It provides a map of theory by which to understand the organizations that we work in.
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
- Help people to pull away from their current practice and beliefs and move into the new
philosophy without a feeling of guilt about the past
The layout of profound knowledge appears here in four parts, all related to each other:
- Appreciation for a system
- Knowledge about variation
- Theory of knowledge
- Psychology
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.
Further illustrations of entwinement of psychology and use of the theory of variation
(statistical theory) are boundless. For example, the number of defective items that an
inspector finds depends on the size of the work load presented to him (documented by
Harold F. Dodge in the Bell Telephone Laboratories around 1926). An inspector, careful not
to penalize anybody unjustly, may pass an item that is just outside the borderline (Out of the Crisis, p. 266). The
inspector in the illustration on page 265 of the same book, to save the jobs of 300
people, held the proportion of defective items below 10 per cent. She was in fear for
their jobs.
A teacher, not wishing to penalize anyone unjustly, will pass a pupil that is barely
below the requirement for a passing grade.
Fear invites wrong figures. Bearers of bad news fare badly. To keep his job, anyone may
present to his boss only good news.
A committee appointed by the President of a company will report what the President
wishes to hear. Would they dare report otherwise?
An individual may inadvertently seek to cast a halo about himself. He may report to an
interviewer in a study of readership that he reads the New
York Times, when actually this morning he bought and read a tabloid.
Statistical calculations and predictions based on warped figures may lead to confusion,
frustration, and wrong decisions.
Accounting-based measures of performance drive employees to achieve targets of sales,
revenue, and costs, by manipulation of processes, and by flattery or delusive promises to
cajole a customer into purchase of what he does not need (adapted from the book by H.
Thomas Johnson, Relevance Regained, The Free Press, 1992).
There is no substitute for knowledge. This
statement emphasizes the need to know more, about
everything in the system. It is considered as a
contrast to the old statement, "There is no
substitute for hard work" by Thomas Alva Edison.
Instead, a small amount of knowledge could save many
hours of hard work. Here are s few points about
knowledge and its meaning (or lack thereof).
"The most important things cannot be measured."
The issues that are most important, long term,
cannot be measured in advance. However, they might
be among the factors that an organization is
measuring, just not understood as most important at
the time.
"The most important things are unknown or
unknowable." The factors that have the greatest
impact, long term, can be quite surprising.
Analogous to an earthquake that disrupts service,
other "earth-shattering" events that most affect an
organization will be unknown or unknowable, in
advance.
"Experience by itself teaches nothing."
This statement emphasizes the need to interpret and
apply information against a theory or framework of
concepts that is the basis for knowledge about a
system. It is considered as a contrast to the old
statement, "Experience is the best teacher." To Dr.
Deming, knowledge is best taught by a master who
explains the overall system through which experience
is judged; experience, without understanding the
underlying system, is just raw data that can be
misinterpreted against a flawed theory of reality.
"Data has no meaning apart from its context."
"By what method?... Only the method counts."
When information is obtained, or data is
measured, the method, or process used to gather
information, greatly affects the results. Dr. Deming
warned that basing judgments on customer complaints
alone ignored the general population of other
opinions, which should be judged together, such as
in a statistical sample of the whole, not just
isolated complaints: survey the entire group about
their likes and dislikes. The extreme complaints
might not represent the attitudes of the whole
group.
A leader of transformation, and managers involved, need to learn the psychology of
individuals, the psychology of a group, the psychology of society, and the psychology of
change.
Some understanding of variation, including appreciation of a stable system, and some
understanding of special causes and common causes of variation, are essential for
management of a system, including management of people (Chs. 6 - 10).
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