A New Lens with Balaji Reddie (Part 4)

What if better management starts with seeing connections that were there all along? In this conversation, Balaji Reddie and Andrew Stotz unpack one of the most powerful and overlooked ideas in management: that everything is connected. Drawing on Dr. W. Edwards Deming's systems thinking, he explains why the problems we face today were set in motion long before we noticed them, and why the solutions are rarely where we think to look.    Along the way, a cup of coffee becomes a window into five years of invisible effort, hydrogen and oxygen defy everything we'd expect, and a classroom game reveals that cooperation isn't a soft ideal — it might just be human nature. Whether you run a team of two or a global organization, this episode will quietly shift the way you read a situation, ask a question, or respond to a problem. TRANSCRIPT 0:00:02.2 Andrew Stotz: My name is Andrew Stotz, and I'll be your host as we dive deeper into the teachings of Dr. W. Edwards Deming. Today, I'm continuing my discussions with Balaji Reddie, an educator and trainer in the teachings of Dr. Deming and quality management generally. The topic for today is connectedness, which will help you see things you normally would not see. Balaji, how are you?   0:00:30.7 Balaji Reddie: I'm good, I'm fine.   0:00:32.5 Andrew Stotz: Nice to connect with you.   0:00:34.1 Balaji Reddie: Yes, same here.   0:00:35.3 Andrew Stotz: Connectedness day.   0:00:36.5 Balaji Reddie: Yeah, connectedness, absolutely. Yeah, we chose this term very carefully, right?   0:00:42.6 Andrew Stotz: I suspect you have, given your precision.   [laughter]   0:00:47.4 Balaji Reddie: Yeah, to see things that you normally would not see, let me attribute this to Henry Neave, who said that he heard Deming say this during his last three or four seminars in England, right? In Britain rather. Yeah, I think it was mostly in England. And he said, when he heard him say that, he said, "I am not here to teach you anything new. I'm here to make you see things that you normally would not see." And I would like to just expand on that and say when you see things differently, obviously, you observe, you record different things. And when you record different things, you ask different questions. When you ask different questions, you get different answers. And when you get different answers, you draw different conclusions. When you draw different conclusions, you take different decisions. And when you take different decisions, you get different results. It's insanity to expect different results by asking the same questions every single time. So management is not so much about giving the right answers as much as it is about asking the correct questions. And I think Dr. Deming helps you do that. He helps you ask the correct questions.   0:02:02.2 Balaji Reddie: Now coming to the word connectedness. We spoke about the System of Profound Knowledge, a unified theory of leadership and management, where Dr. Deming brings together four sciences. And the first one he says about systems thinking, or what he called as appreciation for a system, appreciation for a fact that everything is systemic. There's nothing that happens in isolation, right? And the second one, of course, he said was understanding variation, then understanding theory of knowledge and understanding psychology. But he said, all four are equally important, et cetera. And then comes the, I won't say contradictory, but a chapter before Profound Knowledge on systems especially. So that's where I decided to use the word connectedness, that all these are connected. What did he mean by that? So I believe he wanted people to learn about connectedness and systems first.   0:03:01.6 Balaji Reddie: So let's dive right there. What did he always say about systems, or connectedness as we say here? And let's get into his definition for system. And he says that "a system is a network," right, "of interdependent components that work together to achieve the aim of the system." And then he says "every system must have an aim. Without an aim, there is no system." And very well articulated throughout this book which he wrote, he always began with aim of the chapter. Even in Out of the Crisis, he always started with aim of a chapter. So network of interdependent components. So let's just break it down, because the three important words are network, interdependent, and aim. And he says aim comes first because without the aim, there is no system.   0:04:00.6 Balaji Reddie: Right. And he goes on to tell us what the aim of a system should be. Okay. He says here that the recommended aim should be for everybody to gain. Now, in one of the paragraphs there, management's job, where he says should be to make it clear, the first step is clarification. Everyone in the organization must understand the aim and how to direct their efforts towards the aim, right? And everyone must understand, okay, this is important. The danger and loss to the whole organization from a team that seeks to become a selfish, independent profit center. Right. So he says here we need to give both, why we need to do what we need to do. And he says the aim precedes the system. Now, I would like to leave this discussion right here. We will cover this in our 14 Points, our session on the 14 Points, because I believe the word aim and purpose are, they go hand in hand. Aim gives us a direction and purpose gives us the reason why we exist, right? And so the direction of all the efforts, you can see the development. He says here, he gives some examples that the system must create something of value. In other words, results. The intended results along with consideration of recipients and of cost mold the aim of the system. So he said it should be something that makes life better for everyone.   0:05:39.8 Balaji Reddie: Now, he was talking about a man-made system here. Remember, he wrote this for organizations, but I think I mentioned this before that this can equally be applied to natural systems, if you want to really study them in detail. I remember talking to Barbara Lawton about this, and I said, "Natural systems, they do have an aim. It's just that we've not understood it." The purpose and aim of, in fact, that was the basis for my paper, which I delivered at the Deming Research Seminar in 2002. And the title of my paper was Deming and Ecology. And I was trying to put together the thoughts of the physicist Fritjof Capra, who wrote some wonderful books like The Tao of Physics, The Turning Point, The Web of Life, and The Hidden Connections. And The Systems View of Life is also one of the sub-books or booklets that he came out with. But these were his wonderful books. At the time, he had not yet written The Hidden Connections, right? So based on his three books that I had read up until then, of course, one was called Uncommon Wisdom, where he reproduced some of the interviews he had with some systems thinkers in the world, including people not from conventional systems thinking. For example, he also reproduced his interaction with the then Prime Minister or the ex-Prime Minister of India, Mrs. Indira Gandhi, and how he spent time with her, because he was over here in India for quite some time studying the language Sanskrit and studying the texts over here, because he learned about systems thinking even deeper.   0:07:25.1 Balaji Reddie: So over there, he wanted to, he raised a question, what is the purpose? So I wanted to use Dr. Deming's theories to understand the purpose of a natural system and what is the purpose of man [laughter] in this natural system. So that was my theory. And that's when this aim thing became more and more clear. And Barbara said, "No, you're right. There is an aim. It's just that we're trying to understand it. Without that, you won't have the system working so beautifully. There is something that is at work." Right. And he says here, management of a system. And then he says that a system includes the future. And now here's where, when you talk about system includes the future, he mentions Peter Senge in his book, if you know about The Fifth Discipline: The Art and Practice of the Learning Organization. And that's where this fantastic statement comes in because he says delayed effects. So although, Deming never used these words directly, but here I am putting among the first principles of systems thinking is that cause and effect are not closely related in time or space. Right. And that gives a lot of frightening conclusions, or inferences that you can draw from this. If I say that, by the way, that cause and effect are not closely related in time or space, and if I ask you what you understand by this statement, your first knee-jerk reaction would be what I do today, the consequences would be felt in another time at another place. Absolutely right. That's exactly what this means. But the converse is also true. What we get to see in front of our eyes, the origins are at another time and another place.   0:09:15.9 Balaji Reddie: So we only see the event, but systems thinking teaches us there are no events in this world. There are only eventualities. Now, this comes into play when you start doing a study, typically when people learn about quality, and then the first thing they learn is to, okay, identify a problem and try to solve it, right? And then they start asking the question, "Why did this happen?" And then you draw a fishbone diagram, which is, you know, one of the most popular tools. But the problem there is you need to arrange the causes logically and not categorically. And you also need to take into account that these causes are also related to each other. You can't isolate them. And the fact that, there could be an element of time over here, right, that this is a delayed effect that you're seeing. So the effect comes much later. And sometimes it could be weeks and months. So you have to take that into account, right? So the cause and effect are not true, which means then the next corollary from this statement is that seemingly disconnected events turn out to be connected. And so when you are studying something that's happening in front of your eyes, very quickly you ask the question, "What else happened a month ago, a week ago, that we seem to have missed? Are we missing something here?" So that's one of those things that we need to get into, right? We need to go backwards in time and not look at the localized stuff here. We need to look in space all around and try to figure out where and how we need to change things.   0:11:06.1 Andrew Stotz: It's also interesting to think about all the things that have to have happened for an outcome to occur today the way you want it, that is the right outcome.   0:11:19.8 Balaji Reddie: Yes.   0:11:21.4 Andrew Stotz: And a good example I use for that, and I was just talking two different times this week with my team, is coffee. Coffee is a really interesting one, because when you go to a coffee shop, they make you a cup of coffee, they give you a cup of coffee, but what you don't realize is that there was a farmer, took him five years to grow that tree. And then they had to pick it at the right time. You pick it at the wrong time, it goes wrong.   0:11:47.4 Balaji Reddie: Oh, yeah.   0:11:48.3 Andrew Stotz: They put it into some water. They leave it in too long, it's fermented. They leave it in too short, it doesn't, the shell doesn't come off. And then if they, once they've worked on it, if they have their grinders that are getting off the mucilage off of it, if they're too tight, well, then you're going to get a little slice off the top of the bean. And then when that goes to the roasting machine, that's going to burn right there because there's no protection in that area. But they got to get all of those things right all the way to that barista. And if that barista just basically doesn't check the water temperature, it's done.   0:12:29.5 Balaji Reddie: It's done. [laughter]   0:12:29.9 Andrew Stotz: You throw it away. And when you think about it, I have another lesson that I give to young people about capitalism, that how all of these decisions are happening all along the way. And when that happens, there's waste in the system. And that waste goes back all the way back to the effort of the farmer five years ago when they planted that tree.   0:12:51.8 Balaji Reddie: That's right.   0:12:52.3 Andrew Stotz: And so reducing waste is not only good for you and good for costs in general, but it has a respect for the process, a respect for the system.   0:13:04.0 Balaji Reddie: Yes. Connectedness. Reconnected. [laughter]   0:13:07.6 Andrew Stotz: Well, and the other thing I tell them is I say, and here you have a coffee bean coming from this country that's then being shipped to this country. They never met.   0:13:16.8 Balaji Reddie: Yeah.   0:13:17.1 Andrew Stotz: And that's capitalism. You trade. In fact, they may not speak the same language.   0:13:23.1 Balaji Reddie: Absolutely.   0:13:23.5 Andrew Stotz: Or they may even be enemies. They may hate each other.   0:13:26.9 Balaji Reddie: Yeah.   0:13:27.4 Andrew Stotz: And yet they trade.   0:13:29.5 Balaji Reddie: Yeah.   0:13:31.1 Andrew Stotz: And so it's a voluntary connectedness that happens through capitalism. Anyways.   0:13:37.2 Balaji Reddie: Yeah. The right quality and uniformity are foundations for commerce, prosperity, and peace. [laughter] That's Deming for you.   0:13:46.1 Andrew Stotz: Yeah.   0:13:46.3 Balaji Reddie: I think he chose that sentence so beautifully. It goes into the Deming Medal. He knew what he was talking about. So he was talking about systems, and I think profound knowledge came towards the end of his life, and rightly so. It came as a revelation, as a catharsis. I think he went through all of that, especially, I think it was between '88 and '89, if I'm not mistaken. Jaki Graham talks about this very, very funnily. She says that they were giving him pure oxygen and maybe that made his brain cells go alive. [laughter] And he could think so clearly. He was getting pure oxygen. And so his thought process...   0:14:31.0 Andrew Stotz: By the way, for the listeners out there, you may feel like I feel when I think about how Dr. Deming didn't really come out with the System of Profound Knowledge until he was, early '90s, let's say, '90s. You think to yourself, okay, I still have time to come up with my incredible insight on...   0:14:52.4 Balaji Reddie: Correct.   0:14:52.9 Andrew Stotz: Bringing together all my experience.   0:14:55.1 Balaji Reddie: Yeah. So because I think I shared this with you before that when you read Mary Walton's book and he says, "No, I don't think I'm ready to establish an institute," and he only did it one month before he passed. So I think by that time he was quite sure what he created was quite amazing, and it'll stand the test of time, right? And although, the title of the book is The New Economics for Industry, Government, Education, I believe it is industry, government, education, and healthcare. Because when he was in Japan, he said Japan must see itself as a system. And when he got the Deming Medal, that's what he said. Oh, sorry, when he got the Emperor's Medal, the Second Order of the Sacred Treasure. And he was talking to the Japanese Prime Minister. And he said, "You all must see yourselves as a system." And the four sectors of industry, government, education, and healthcare must work together. So he meant it as in the broadest sense of the term, right? And that's why this word system. So the first thing, of course, cause and effect are not closely related. Seemingly disconnected events turn out to be connected. The third important thing here in systems thinking is the reductionist thinking that we have.   0:16:12.0 Balaji Reddie: We believe the word analysis means dissection. And if you look deeply and read the book Mind and the World Order, what is the purpose of analysis? The purpose of analysis is not dissection. That's just the act of breaking a system down. But the purpose of analysis is interrelationships, establishing the interrelationships or understanding the connectedness. And I find it quite funny because people say analysis is dissection, and so they came up with a new term, really not necessary, synthesis, bringing it all together. There was no need for that term. You're not engaging in what, tautology? [laughter] You didn't need that. Analysis itself means dissecting and understanding relationships, right?   0:17:02.2 Andrew Stotz: Hmm.   0:17:03.3 Balaji Reddie: And so he said here, we have that reductionist thinking, but we forget that in a system, you have what are called synergistic relationships. You cannot understand a system by breaking it down into its components and studying the components separately and then believing that the components and their attributes and what they do gives the output of what we see. No, you could be completely wrong here. It's not what they do separately. Okay, it's a good thing to understand the components of a system and study them and maybe even establish connectedness, but sometimes what the results you see are quite contrary to what they could be giving separately. I'll give you an example here. Take the case of water. Water is composed of hydrogen and oxygen. You cannot study and draw conclusions about water by studying the attributes of hydrogen and oxygen separately. You'd be making a mistake, a grave error. Okay, let's do that. Hydrogen, a highly inflammable gas, catches fire like this. Oxygen feeds fire. But you put them together and they give you something that quenches fire. Hydrogen is not wet. Oxygen is not wet. But water is wet. [laughter] How do you explain this?   0:18:25.9 Balaji Reddie: All right. If you take the case of sugar, it's a hydrocarbon. Try tasting hydrogen. All right, try tasting carbon. Now put them together and see what you get. Now, can it not be then that you are studying a system and when you break things down and you're studying the components separately, you could be making the same error? It's not what they do separately, it's what they do together. It's the same with sections in a company, departments in a company, companies themselves. Today, we use this sophisticated term, supply chain, call it what you will. I love to use the word provider network. I don't like using the word supplier any longer. I like to use the word provider, because today we're living in a different world. We're getting activities done by someone else, and you can't say he's supplying me this activity. He's providing me this service, right? So provider is a better term to use than supplier. And it's no longer a chain. It's a network, right? It's more lateral. It's all over the place. It's not linear. You're doing a huge disservice by using the term supply chain, because it's not bringing out what exactly is happening right there.   0:19:38.3 Balaji Reddie: And today's supply chains or provider networks are globally dispersed. So you need to have something that connects them. You just said that, the farmer could be in a different country, speaking a different language, maybe he didn't even know where it is being used, and they could hate each other, but they have to work, [laughter] you need to work together. So there's some kind of connectedness that comes in once again. But here's where people make mistakes. So you're talking about synergistic relationships. So sometimes in a team, now here's where all that incentive pay and choosing employee of the month can destroy a system.   0:20:18.8 Balaji Reddie: It could have been the entire team that did well, and they did well because they worked as a team. And it was synergistic, where some components had to, I can't use the right word, but maybe had to underperform so that the system came out ahead. It's like the organs of the human body, right? That's an interconnected, interdependent system. You have a primary function of each of the organs, but there are many other functions we are still discovering, right? For example, if you take the case of ears, besides hearing, they're responsible for balance in our body, right? Eyes, besides sight, they are also responsible for balance in our body. If you try this yoga position, you know, there's a yoga, so to say, yeah, you stand on one leg. And then you lift one leg off the ground and put the ball of your heel on the knee, the other leg's knee. And then you hold your hands above your head to form like a namaste or a triangle. As long as your eyes are open, you stand upright. Shut your eyes, you fall. It's a system and we don't even realize it, right? So this is something we're still...   0:21:38.3 Andrew Stotz: You also fall in that posture when your teacher says, as mine did once, "Now you're in the position. Now raise your other leg."   [laughter]   0:21:54.5 Andrew Stotz: My yoga teacher didn't come yesterday, but I did my sessions every day. But I haven't been able to do that one yet.   0:22:03.6 Balaji Reddie: We had that joke in school. Why does the crane stand on one leg? [laughter] 'Cause if it raised the other leg, it'd fall. [laughter] So it continues standing on one leg. So yes. So you have the synergistic relationships which exist, all right? And it's so difficult then to establish these interrelationships. And sometimes they're visible, sometimes they're not, all right? And sometimes you get to see the results right up front. Sometimes you get to see them in time delay. And that is why Deming said continual improvement. It never stops. Continual learning. You can never say you have complete knowledge of a process or a system. You can never say that, right? And now comes the best part. When you say here that all these are interconnected and there's synergy and then there's cause and effect not closely related in time and space, the output of a system, that is why, is subject to variation. And that's why the study of variation becomes important, right?   0:23:16.2 Balaji Reddie: And when you draw a diagram saying, suppose you say this is a system and all the components are there and you draw the interconnectedness and you draw an arrow and you say, "Okay, you're getting the system is subject to variation," right? Can you with absolute certainty say that because here, because the funny thing is each of the component's performance is also subject to variation, right? So can you say that, this combination gave me this output? You can never say that. You can only say it's probable, might be somewhere here. And so I think Walter Shewhart's greatness was in recognizing that what is natural to a system and what is not natural. When do you start asking the question, "What do I know about this?" When you cannot predict. When you can predict with a certain amount of certainty that this is going to happen.   0:24:14.6 Balaji Reddie: It is between these two limits. Well, then that's when you say, "Okay, I think I know quite a bit about this, but I don't know much. I want to reduce those limits, because I want to be as certain as possible when I make a prediction." And that was what was continual learning. It was not so much about cost. It was as much as it had to do about understanding and predicting. I know what's going to happen next. To a certain extent, this will happen. This will happen, right? And that's where the understanding of variation comes in. Okay, and then he brought in the third, that in variation, you saw that there were what he called as random variation and assignable variation, or what Deming had common and special cause variation. Common causes belong to the system and special causes are alien to the system under study, right? And so say it's easier to identify the special causes because they tell you something is not right. And so you can say, "I know it happened." You can isolate and say, "This is the cause," right? It makes it easier for you then to isolate that, study it, but...   0:25:30.1 Andrew Stotz: I just had that happen this morning.   0:25:32.4 Balaji Reddie: Okay.   0:25:33.7 Andrew Stotz: I'll give you an example.   0:25:35.2 Balaji Reddie: Yeah, sure.   0:25:36.0 Andrew Stotz: I've been working with my accounting team and what we're trying to do is make sure we have on-time and accurate monthly financial statements. And I've chosen those words very, very carefully. And what I've done with the team is ask them, there's no pressure in this. All I'm asking you to do is pick a day that you think we will be able to have on-time and accurate monthly financial statements. And then they pick their days for each month to the end of the year, which pretty much certainty accounting is a repeating of a similar function. And so then as I was talking with them throughout that day, I said, "Why are these boxes piled up around here?" And they said, "Well, the room that we store them in is getting full." The paper, 'cause you have a regulation in Thailand, you have to have your accounting documents for up to six or eight years on premises in case the revenue department comes. So I said, "Well, show me that room." And we went to the room and it was an absolute mess. It's like people have been dumping boxes and papers in there for five years.   0:26:51.6 Balaji Reddie: Wow.   0:26:52.6 Andrew Stotz: And I said, "Okay. You got to clean up this room this month." They're like, "Ah, it's going to take us two months." I said, "Look, this is critical." And they agreed. And so they have now completed that task, but it consumed so much of their time to do that. And it looks beautiful now. But they're two days late on the on-time and accurate monthly financials. And if we were to look at that on a control chart, we would see that it's a big deviation from what they've been able to do. But that special cause is almost meaningless, just as meaningless as the random variation in the sense that this was just a simple situation where there was a trade-off, they made the trade-off, and it's an acceptable trade-off.   0:27:43.1 Balaji Reddie: Yeah, I'd like to put it this way. When you know why it has happened, it's not that harmful, right? As long as you can predict when we do something. It's the unpredictability that makes a special cause harmful. And that's why when I used the term that Deming's thinking was about reducing or eliminating harmful variation, that is things which get out of your hand and you usually don't know why it's happening. So once you get to know, I believe that this could be connected, yeah, that's a good place to start, right?   0:28:15.7 Andrew Stotz: Yeah. Now, someone that doesn't understand the situation and look back over time may not understand what that cause was, which I'm thinking that I want to develop kind of a note-taking system where we actually write down what was that so that we have a record and an understanding of it. But...   0:28:37.1 Balaji Reddie: Yeah. And so when you say here that there's so many, that complete knowledge is not possible, and that's where you start thinking that was Deming being a pessimist to say complete knowledge is not possible, unknown and unknowable. But no, he was just being realistic. But he did not leave us right there. He said the way you can make the unknown as known as possible is through the theory of knowledge. And that's how the whole thing is. It's beautifully done, what the theory of knowledge is. But he says here, very simply, one of those exercises which you see in the new edition of The New Economics on page 58. But if you go to the old edition, right? That's, I believe, on... Where would that be? Page 84. The example he gives there, effect, the plans and their effect, area A, B, and C, the matrix diagram, if you see that?   0:29:50.0 Andrew Stotz: Yeah.   0:29:50.5 Balaji Reddie: That he says was devised by Henry. And then, of course, he picked on that and put it into his book. I got a chance to actually work on this in the form of a game. And the game, I would break up the audience into four or five groups of five people each and then say, "You're department A, department B, department C," and then have a host of projects lined up for them. And I say, "Now you're going to be ranked and rated based on how you do as a department." And so they would choose those projects where only they were benefiting, right? And obviously, that's what you see in the first table. A chooses three projects, and B chooses two projects, and C chooses three projects. And you see the plus signs there indicating that it's for them, for them alone. And then they are exposed to the fact that, wait a minute, now we're going to give you some extra information. You chose these projects because they were good for you, but now we're going to tell you that these were bad for the others, right? And only one of them was good.   0:30:59.9 Balaji Reddie: And I say, "Okay, now here's this extra information you've been given. Now what are you going to do?" All right. And I said, "I'm giving you five minutes to... Because the company is going to do badly, right? And even though you get a good rating, but the company does badly and eventually the company might have to shut down. So what would you want to do now? I'm giving you five minutes to rectify this." You know, Andrew, not even five minutes was necessary. They would come back within two or three minutes and say, "Let's just choose those projects where everyone gains." And I was surprised the first time that happened. And that's why Deming said cooperation is the key and it is natural. It's just that we have brought in this competition thing. So competition is not natural. He says cooperation is natural. [laughter]   0:31:53.9 Andrew Stotz: And that, in Asia, and I can speak to Thailand, what I like to tell people here in Thailand for managers and people running business is that the core strength of Thai people is that they want to work together. So when you break them up and you put them into groups and then you incentivize them either by group or by individual, you destroy one of their core strengths.   0:32:28.7 Balaji Reddie: Right.   0:32:29.1 Andrew Stotz: That's not a core strength of American. A lot of Americans don't want to work together. They just want to do their own thing. Right? They've been trained to be independent and they don't want that hassle. But in Asia, particularly in Thailand, where we're struggling to bring more and more value, what's happened is the KPI mentality of divide and conquer really is damaging. And it brings me to another point or question that I wanted to mention, and that is about the natural... My mom has a saying, and it's "inch by inch, it's a cinch, yard by yard, it's hard." And what she was telling me was to break things down into manageable parts and then work on the next right part, and then you will start to make progress. And we have studied under Adam Smith and the concept of how division of labor brings value, can increase output. And so there's a whole side of things. And then we're incentivized as individuals, particularly in the West, but let's say generally that, if it's to be, it's going to be up to you and you got to make yourself performance and your department's performance. I don't care about the others. I care about what you're doing with yours.   0:32:54.6 Andrew Stotz: So there's an accountability aspect and it all comes together to give people the perception that, hey, I need to break this down into smaller parts. And so there's just this natural inclination to do that. And if you were to say to people, you can't break it down into individual parts, that also doesn't work. You have to be able to understand the different parts and their interconnectedness, going back to what you're saying.   0:34:26.8 Balaji Reddie: Yes.   0:34:27.1 Andrew Stotz: But there's a lot of different things that I'm saying here. But I think the thing that I'm saying is that the pressure on most people is to divide and conquer, to say, "I'm going to go and look at this department and you and your performance." And what Deming was saying was, you've got to look wider than that if you're really going to be successful. Tell me where I'm right or wrong or give me some guidance.   0:34:53.5 Balaji Reddie: Yeah. I mean, that's exactly how it is. And I just told you that when I saw this happen, it was like an eye-opener. And then what happened after that was, okay, there were some other projects which where we were not going to do well, but the company's going to come out ahead. So why don't we choose those? And that's exactly what you see in the table, that they choose certain projects where they themselves are... Now that's real optimization, right? That's getting the best for everyone.   0:35:23.4 Andrew Stotz: Yeah.   0:35:24.8 Balaji Reddie: And today it's become an overused and abused term. For anything they use the word optimize. I think Deming was way very clear about this 30 years ago when he came up with this idea. And he said it's for everybody to gain. It's not compromise, it's optimization. Right? So I, of course, have a different take on optimize and we'll see that next week when we come into four parts of profound knowledge. So I'd like to end here with talking about cooperation is the key and I think we realized why.   0:35:59.1 Andrew Stotz: Okay.   0:35:59.8 Balaji Reddie: Deming says it's not about each other, it's win-win. The system should... And he gives that lovely example in the same chapter, the last example, where he talks about the truck company, the two truckers who used to keep their establishment open. Alternately overnight so that both could gain and they would use each other's resources. He said, "I was surprised when I called the pickup truck and I saw that the truck was from his competitor. He sent his competitor's truck to pick up my car." That was a classic case of cooperation. So since he ends with that, he ends that chapter, I'd like to also speak about that. Cooperation is the key because we are dealing with something very complex, right? And none of us is as strong as all of us. It's not just about, like you said, because cause and effect are not closely related, it is imperative now that we need to work together. So that was with systems thinking. Cause and effect are not closely related. There exist synergistic relationships. Seemingly disconnected events turn out to be connected. And outputs are the result of a myriad of inputs. You can never say you know everything. So that was systems thinking for you as they apply to the elements of profound knowledge as well.   0:37:33.3 Andrew Stotz: Great.   0:37:33.7 Balaji Reddie: Next week, we'll get into profound knowledge.   0:37:37.1 Andrew Stotz: You know, I think my ending thought on this goes back to the concept of meditation.   0:37:45.4 Balaji Reddie: Okay.   0:37:45.9 Andrew Stotz: Concept of insight meditation or Vipassana or...   0:37:52.6 Balaji Reddie: Vipassana.   0:37:53.7 Andrew Stotz: Yeah. So part of what I understand about meditation is the idea of clearing our mind in this moment. It may also be just observing our mind and just observing all that's happening and going on, which is fine. And let's say that a meditation master may be able to clear their mind. But let's just say that what we're trying to do is come down to this instant, this moment. And I remember during COVID when a lot of pressures were on in my business and stuff, I used to meditate and focus on one saying, which is, "I'm okay right now at this moment."   0:38:36.7 Balaji Reddie: Right.   0:38:37.1 Andrew Stotz: And why this is interesting is because let's say this moment is time zero. What you've just explained is that there's about 50 million things before time zero that have been connected in one way or another that got you to time zero.   0:38:55.1 Balaji Reddie: Yes.   0:38:55.3 Andrew Stotz: And you also said that a system, as Deming said, is a system includes the future.   0:39:00.2 Balaji Reddie: Future.   0:39:01.2 Andrew Stotz: And that's going to be a function of all the different things that happen after time zero, the interconnected things. And it just made me realize, ah, so the value of meditation, I can see it even more now when I think about all the connections on both the future side and the past side. And so it just helped me think about it from that perspective, a little bit different, but anyways.   0:39:23.4 Balaji Reddie: Yep.   0:39:24.9 Andrew Stotz: So I just want to thank you for taking the time. And in fact, what I was thinking is that I need to do more interviews with our advisors and other board members of the Institute, including yourself, because they've all got a lot to say. And I've got some discussions going on with that right now. So I'm looking forward to that. And so I appreciate the discussion and the journey that you're taking us on. And just for the listeners out there, remember to go to deming.org and jump into DemingNEXT to continue your journey.   0:40:03.8 Balaji Reddie: Yes, absolutely.   0:40:05.3 Andrew Stotz: There's so much, so much to learn and explore. So I'm going to wrap it up there. This is your host, Andrew Stotz, and I'll leave you with one of my favorite quotes from Dr. Deming, and that is, "People are entitled," that includes you...   0:40:21.7 Balaji Reddie: Yes.   0:40:22.4 Andrew Stotz: Are entitled to joy in work.

"I'm not here to teach you anything new. I'm here to make you see things that you normally would not see." — Dr. W. Edwards Deming In this episode, Deming educator Balaji Reddie reveals the practices that are hiding in plain sight within most organizations. Practices that feel normal. That get celebrated. And that quietly undermine everything you're building. One example: arbitrary targets. An employee collected 2 million rupees in a single day — four times his target. He told no one and did nothing for four days. Because he knew his manager would just raise the bar. That single moment of silence cost the company a genuine breakthrough. This is what Deming called a "faulty practice." And there are many more where that came from. Host Andrew Stotz and Balaji dig into Chapter 2 of The New Economics — Deming's most overlooked chapter. They cover why ranking employees is built on a mathematical illusion. Why chasing quarterly results destroys long-term value. And why the best leaders, from Steve Jobs to Walt Disney, ignored the pressures that trap most organizations. TRANSCRIPT 0:00:02.4 Andrew Stotz: My name is Andrew Stotz, and I'll be your host as we dive deeper into the teachings of Dr. W. Edwards Deming. Today I'm continuing my discussions with Balaji Reddie. He's an educator and a trainer in the teachings of Dr. Deming and quality management generally. And the topic for today is becoming aware of faulty practices. Take it away, Balaji.   0:00:26.0 Balaji Reddie: Good morning. Thank you, Andrew. So part three of our series, what we're looking at. So last time we met, we spoke about essentially Point number 14, because we outlaid his profound knowledge. And then I always said that he gave us a lot of clues as to what needed to be done. So I started out by reading some of the excerpts from the book, which we tend to ignore. And then he said, "Here's what I expect." So he expected leadership, a critical mass to be created, and then he gave attributes of a leader. So we listed 17 of those points, which we said principles of leadership. And now once you've created that critical mass and there's someone who's taken the lead and there are a bunch of leaders, maybe, so what do we do next? So when you start becoming aware that you are now in a prison, so to say, because that's what he said here, that they feel it's a fixture, and this is the way things are, this is how things always have been. So he says, "No, you need to understand that these things are wrong." Right? And you first need to become aware, and then we need to look at what needs to be done, perhaps. So he's given some suggestions, and you could always adapt and adopt this. So most of this would be taken from the book, The New Economics, chapter two, which he has titled as "The Heavy Losses." Now, remember, when he wrote this book, it was after the other book, Out of the Crisis, where he had listed his 14 Points. Yes, but he also listed diseases and obstacles. And people tend to ignore that.   0:02:18.9 Balaji Reddie: In fact, I remember having a chat with Bill Bellows on this, and I said, "Diseases and obstacles." And he said, "Obstacles?" I said, "Yes, he has listed 16 obstacles in Out of the Crisis." And he said, "Oh, wow." And he took his copy and he said, "Oh, yeah, you're right. There are 16 of them." And so sometimes you see things that you normally would not see. So when he wrote this, initially, I think many people thought that it was just an extension of those Diseases. But when you start looking deeper, you'll find that he became more elaborate in what he listed as the heavy losses. So he says here that these are things that you start observing and you say, "This is not normal." So the language that he's used is pretty, pretty clear. Present practice, so faulty practices. The present practice, and he says these are only reactive. You only need certain skills and not nearly any theory of management. Whereas when you opt to go to a better practice, you need a theory. So let's start with the very first faulty practice. And this stems from his 14 points too. He says, "Lack of constancy of purpose, short-term thinking, and emphasis on immediate results. Think in the present tense, no future tense." And then he becomes more elaborate and says, "Keep up the price of the company's stock and maintain dividends."   0:04:02.0 Balaji Reddie: Which, well, okay, it seems like you should not do that. No. He says here, you fail to optimize through time. Make this quarter look good, ship everything on hand at the end of the month or quarter, never mind its quality, mark it as shipped, show it as accounts receivable, and defer till the next quarter repairs, maintenance, and orders for material. Just a word here, in the new edition of The New Economics, there's been a spelling mistake there. So if anyone's listening, you can just correct it in the next edition that comes out. Instead of "defer till the next quarter," he's written "defer toll the next quarter." So we need to correct that in the next printing. Now he says here, a better practice...   0:04:52.1 Andrew Stotz: And before you go to there, can we just talk about this for a second?   0:04:56.1 Balaji Reddie: Sure.   0:04:57.8 Andrew Stotz: One of the things that, having been a financial analyst all my career, we get quarterly results from companies in the stock market. And in my own business, of course, I look at monthly results because we close the books every month. And it's definitely one... Donald Trump recently came up with the idea of telling companies not to report quarterly results. And I believe the Singapore Stock Exchange also came up with the idea of maybe we'll reduce the amount of reporting to maybe half-yearly, because we do have half-yearly reporting in some countries, right?   0:05:39.6 Balaji Reddie: Right.   0:05:40.9 Andrew Stotz: But having learned the teachings of Dr. Deming many years ago, long before I became a financial analyst, I always thought, I never really got this one because I thought, what an idiot you would be if you're running a company and all you could see was the market's demand for quarterly performance. And I've always admired those people, I think Jeff Bezos was one that really made it very explicit. "If you're here for quarterly performance, you're not gonna get it." And so I always have said to CEOs, having seen analysts and fund managers, I've visited, taken fund managers more than 1,000 times to meet with CEOs, and CEOs ask me, "What's your advice from seeing all that?" And I said, "Don't listen to this too much." Take it on board, what the discussions are about, but you're the CEO. Your job is to optimize the value of this business. And that means, that doesn't mean making quarterly numbers, manipulating things to make quarterly numbers. So part of what I've said to people is, "Get a backbone. Don't come and complain to me, 'Oh, yeah, but the pressure of the market's quarterly.' Come on." You know and I know that the job of a CEO is to maximize the value of the business, not the quarterly result. So anyways, that's my little pet peeve.   0:07:13.6 Balaji Reddie: Yeah. Yeah, that's right. And if you look at even Jobs, Steve Jobs, when he came back as Apple CEO, he had the nerve and the spine, like you said, to tell the board, "Don't judge me on this. It's gonna take time. And believe me," he said, "someday you will see results." Now, unfortunately, he was not there to see what he's created, but I think anyone in Apple can safely say that they're growing because of the foundation that he laid so long back, right? And I think that was one of the major reasons why he did not make Jonathan Ive as the CEO, because he wanted him to focus on the product and the customer rather than the quarterly results. And I don't think Apple ever played it by quarterly results.   0:08:04.9 Andrew Stotz: Yeah. And here's a good book called Competition Demystified by Bruce Greenwald. And there's a passage in here that's interesting because he published the book back in 2005, so it was long before Steve Jobs really made the company profitable. And he had basically gone through and explained the situation at that time as a strategist looking at the company. And what he said, it says, he just said that "Jobs had managed to restore operating margins, but Apple survived, it had hardly prospered, its future does not look bright." And I use this as an example in my strategy class to help people understand that when you're building strategy, you're thinking long term. And the ecosystem that Steve Jobs created, the value of that ecosystem didn't really truly appear until many years after he was working on it. So anyways.   0:09:06.6 Balaji Reddie: Yeah, so that's a classic case here.   0:09:11.1 Andrew Stotz: Let's keep going. You're on a roll.   0:09:14.5 Andrew Stotz: Oh, that's okay. So now better practice, he says, theory of management. Now see what he writes here. He says, "Adopt and publish the constancy of purpose." Now, that's one of the things that he also changed in his 14 points in the 1990 edition, which he never really published in a book but he gave as handouts in his seminars. Earlier on, it was "Create a constancy of purpose," but he says now, "Publish it." And it should be a proper statement, right? And he also said not just for the company, but for other organization. Now, he perhaps was envisioning or he already saw what is happening in the world today, that it's not one company against another, it's a family of companies against another family of companies, if I may say so. And these companies are globally dispersed, so there has to be something that binds them together, and that's the constancy of purpose. And purpose is why we exist, right?   0:10:13.4 Andrew Stotz: And I want to ask about this.   0:10:15.3 Balaji Reddie: Right.   0:10:16.2 Andrew Stotz: Professor, can I ask you about this?   0:10:18.4 Balaji Reddie: Sure. Right.   0:10:21.0 Andrew Stotz: Because if we go to Out of the Crisis, he has his section, and this for me is on page 24, but I don't know what edition I... Maybe I have an old edition, but it's the chapter "Principles for Transformation." He's gonna talk about the 14 Points, and I want to talk about the first point. And the first point is "Create constancy of purpose for improvement of product and service."   0:10:45.8 Balaji Reddie: Yeah. This is the old edition, 24.   0:10:48.6 Andrew Stotz: And the question that I have is that was he saying... Because now you've said in The New Economics he says constancy of purpose. He just states constancy of purpose. He doesn't say "for improvement of product and service." So my question to you is, is he saying that the constancy of purpose should be about improvement of product and service, or is he saying your constancy of purpose could be any purpose, but you just need a long-term purpose?   0:11:22.8 Balaji Reddie: Yeah. And he says that anything that help people to live better and have a market. That's on page 25. So whatever you do, your purpose should be to make life better, right?   0:11:40.2 Andrew Stotz: Right.   0:11:40.7 Balaji Reddie: And the product is just the manifestation of that. It's the outcome, correct? For example, if you talk about Walt Disney and his statement of purpose, he made a very telling statement, right? And how he came to write that down as a very fascinating tale. But he said, "I'll do anything to make a child smile. I'll do anything to make a child smile." So all that you see was aimed at the child, right? Whether it was the merchandise, whether it was the animated films, whether it was the actual non-animated films, if I may say so. And then, of course, coming out with Disneyland and then Disney World. So whatever he did was for the child. And then after he passed away, they lost that. I think they wanted to just sustain what they had attained, but there was nothing new coming out of Disney. And slowly people started encroaching on their turf, so to say. You had someone like a Steven Spielberg who made ET, and that really pulled the rug under their feet. And before they knew it, there was Goonies and Gremlins, and they were really crumbling. And they thought, "Let's join hands with the devil," and so they hired him to make a film. And that did very badly.   0:13:01.9 Balaji Reddie: We also know that Hook, which was supposed to be on Peter Pan, et cetera. And then they were in a crisis and said, "What do we do now?" And most of the top people were just washing their hands of everything. They were the employees who were left, many of them who had worked with Disney, and they said, Sony was very keen to buy them out. And they said, "We need to keep them out, and how do we do that? The only way we can do that is to make a comeback and let's make another film. And we've not been doing anything original, so let's go back to the drawing board." But they said, "We need something to guide us." And that's when they discovered what Walt Disney had written, "I'll do anything to make a child smile." And they said, "What a shame. We forgot the child. We hired the best, but we didn't do anything for the child." And they added one more sentence there. "Anything to make a child smile, and there's a child in every adult." That's how they created Honey, I Shrunk the Kids. Unique idea.   0:14:03.0 Andrew Stotz: Right.   0:14:03.9 Balaji Reddie: You can see it's a statement of purpose that brought them back.   0:14:07.6 Andrew Stotz: Okay. That helps me to understand that what he's talking about, according to what you're saying, is come up with your purpose.   0:14:14.4 Balaji Reddie: That's right.   0:14:15.3 Andrew Stotz: Okay.   0:14:15.6 Balaji Reddie: And he of course also added the word "aim" later on, which is that direction, because he says there, "Where do we wish to be? And then by what method?" So you should know whatever you do should go in the right direction. So that's the first faulty practice, and also giving us a theory of what we need to do. So go back and try to rediscover your purpose if you don't have it, or maybe just come out with something and see what really ignites you, what really drives you forward. And he's given some bullet points here. No number of successes in the short-term problems will ensure long-term. Short-term solutions have long-term effects. So that's that statement where he said cause and effect are not closely related in time and space. Of course, management must work on short-term problems as they turn up, but it's fatal to work exclusively on short-term problems. So he tells us that there has to be some place where you need to stop and start focusing on the big picture. So that's the very first faulty practice. Now the next one is a real, real bucket of water on your face. "Present practice, ranking people, salesmen, divisions. Reward at the top, punishment at the bottom. The so-called merit system." At the top and bottom. It's an artificial creation because no matter what scale of measurement you use, there will be an average measure and there will be 50% above the average and 50% below the average. That's exactly what the word average means. So making these stupid claims that this is an above-average person or a below-average person does not really mean anything.   0:16:07.8 Andrew Stotz: Because what you're really doing is rewarding or punishing common cause variation?   0:16:14.9 Balaji Reddie: Well, that's one. But when you're artificially creating something which doesn't even exist, right? You're saying top half, bottom half. In fact, that funny statement where there's a headlines in England, this happened in England, which said studies have shown, and they spent half a million pounds on carrying out the study, that 50% of the children in England are below average nutrition level. You don't need to spend half a million pounds to figure that one out. That's the law of averages. And using that to judge people is crazy on some arbitrary scale that you've invented. And he goes on to...   0:17:06.7 Andrew Stotz: So the first question I asked was, is this just a frivolous or tampering with common cause variation? Or the other question that... Or is this part of psychology and the idea of demoralizing people through this type of behavior? Where does that fall in from the System of Profound Knowledge, let's say? Is it variation, psychology, or is it both?   0:17:34.5 Balaji Reddie: It's a bit of both.   0:17:36.4 Andrew Stotz: Yeah.   0:17:36.6 Balaji Reddie: Because if you talk about understanding psychology, what he meant, I think I used the word empathy, that we need to be empathetic. When you're talking about employees, what do you mean by empathy there? Well, we need to understand their learning processes. Each one of us has a learning process, but we have a different kind of a learning process. And then when you understand the learning process of a person and then put that person in the right job, you'll have to stop that person from working. That's joy in work. He says that when you... And that takes time. And the ranking system or the merit rating system is an excuse for not having understood or making an effort to understand your employee. You're becoming lazy. You put the onus on them when actually the onus is on you. You have to find out what makes that person tick, if I may use the word resonates. What resonates with that person, right? And then put that person in the right job. He's been saying this from the beginning. It's fascinating that he said this in Japan when he was teaching the control charting there.   0:18:42.3 Balaji Reddie: He said if you draw the control chart for performance of a worker and then it's all within limits for a long period of time, despite all the training and all the lessons that he or she has been given, then he said, "I think it's time to move that person out from that job and give them some other job." Because they've reached statistical control. Any amount of effort put in will not result in a better output. You're gonna get the same thing. And if you want something else, then you need to shift them or maybe give them some better job, whatever it is. So he always had this, that we need to use these in tandem. And in any case, it's a System of Profound Knowledge, so all the four sciences work together, right? And if you want to ask me, when a person understands their purpose, I'm extending the statement of purpose here to the person, when a person understands why they're doing something, they always do the job better. So that statement of purpose needs to come in here too. Instead of ranking them, sit down with them and have a heart-to-heart with each one of them. This is back again to the 17 principles we discussed last time, that you have to spend some time with them.   0:19:57.9 Andrew Stotz: Okay.   0:19:58.3 Balaji Reddie: And understand what makes them tick. So he says "the better practice is to abolish the merit system and manage the company as a system. The function of every component, every division under good management contributes towards optimization of the system. That is, it's not compromise, it's optimize." We don't say either-or, it's and. And he says "differences there will always be, but the question is, what do the differences mean?" So that's where you can use control charting to figure that one out. And I told you how I did this in my company and I got the HR lady to finally say, "I think we need to remove performance appraisal." Performance management, yes, of course you need to have a system in place because I need to know where I am. Even when we later on come to the 14 Points, one of his most, according to me, most misunderstood points is point number three, cease dependence on inspection. But that doesn't mean you stop inspecting.   0:21:02.8 Balaji Reddie: And we will read that when we come to that as to what he meant. So you need to know what is happening, definitely. For that reason, you do need to have some system in place, but you cannot judge a person based on that. And so he says here that "ranking is a farce. Apparent performance is actually attributable mostly to the system." And a simple equation, that's my favorite, that's what we discussed last night too, Tim Higgins, when he said x + (x * y) = 8. And you've gotta solve this equation when you don't even know both. Both are unknowns. Then how can you figure out what is x and what is y? So the other factor, the Pygmalion effect, right? I think for those who are not conversant with the Pygmalion effect, the play by George Bernard Shaw, Pygmalion, which was made into the movie My Fair Lady, where he picks up a lady from the streets who was a flower seller, a flower lady, a flower girl. And he accepts the challenge of teaching her how to speak good English rather than what they call as Cockney English. And then it's like an experiment and a challenge and he starts teaching her. And then to test himself, he takes her to a party. And there she has one drink too many and she gets a little bit tipsy and then goes back to her old way of speaking, which really shocks the guests in the party.   0:22:41.5 Balaji Reddie: And he's very upset when they come back home and he said, "You'll always be a flower girl." And then she makes a statement, "Treat me like a flower girl, I'll behave like a flower girl. Treat me like a lady, I'll behave like a lady." And that's the Pygmalion effect. You start treating people that they're failures and then they have to live up to that reputation, right? So they continue being failures. You treat them well, so the Pygmalion effect comes into play. And of course, he talks about his red beads. That's an excellent experiment in bringing out many of his principles. Though he did not design it originally for this, that came much later. In fact, in Japan when he carried out the red bead experiment, it was purely for sampling. He invented that experiment for sampling. And he said that he broke down barriers and made things so simple for people. I think the lessons of management came much later at Hewlett-Packard where while he was explaining sampling and then when he went to what he was trying to teach them about management, someone jumped up, I forget the name of the person, who said, "But this is... So this is what you're trying to teach us with that sampling experiment." And then he suddenly realized he could use this. And of course, the so-called, and then raises in pay, et cetera. Yeah, whom to raise? Everybody within the system, blah, blah, blah.   0:24:13.4 Balaji Reddie: So I think last time I explained this about the roles, responsibilities and objectives, right? I borrowed this idea from another company in India where I saw this happen. When we removed the performance appraisal system, we came out with something which was quite different. We used to sit down with the people and explain to them what we intend to do as a company for the next four or five years and what their role is and what we expect them to... How do we expect them to contribute? But then came the next question. We turned around to them, "What do you expect from us as a company to help you grow in this direction or anything else?" And so they would give us certain expectations. And so we negotiated, came down and wrote things down. And then came the best part. We said we're gonna meet not once a year, but every month and as often as possible to discuss. That's why I loved it when the Deming Institute came out and were doing it, I'm sure they're doing it even now, in the two and a half day, from "me" to "we". So when we met every month, we used to ask the question, "How are we doing?" Not "What have you done?" "How are we doing?"   0:25:33.0 Balaji Reddie: And so when I heard that, I wanted to tell Bill Bellows I've been doing this since 2004. And when I heard the "me" to "we" thing, which was around 2017, '18, I think I saw that happen and I was, "Wow. All right." So thinking on the same lines. So the faulty practice, all right, when he talks about this, the second one and what needs to be done. Yeah, he gives some other advice also that if you're faced with problems, cut the dividend, cut it out. And that's, of course, when you're having hardships in the company. So he's given us a set of steps there too. And he says finally, if necessary, cut pay, but nobody loses a job. So, of course, those are extreme cases that we need to do, but he gives us advice what needs to be done. Now, the third faulty practice is incentive pay, pay based on performance. And I think that this has a lot to do with the arbitrary numerical targets that are set, right? And then, "If you do this, I'll give you that." So he says that the performance of an individual cannot be measured except maybe on a long term.   0:27:04.7 Balaji Reddie: He said reward for a good performance may be the same as reward to the weatherman for a pleasant day. He's got no control over it. And he says, "Abolish this incentive pay and pay based on performance. Give everyone a chance to take pride." I think you were talking about this last week too when we said about these arbitrary targets that lead to all of this, where somebody made a statement to me that, "The targets were a distraction to me from what my actual job was. My job is this. The target is just distracting me from my job." So very often people feel that way, right? And pay for performance, "I'm supposed to do this," right? And he gives an example. The top salesman may be a heavy loss to the company by overselling, selling to a customer a bigger copying machine than he, the customer, needs, right? And selling a bigger or fancy insurance policy than the customer can handle, promising immediate delivery, promising unauthorized discounts, et cetera, et cetera, right? It's the same thing, when one of my students was doing this, his internship project, he found that there was excessive inventories that were stocked up at an automotive company, at the authorized service stations and the sellers, and they had excessive stocks of components and that's why the sales had dipped over a period of time.   0:28:42.3 Balaji Reddie: Why were they holding so much of stock? Because the previous purchasing guy, or rather sorry, the marketing guy, forced these guys to buy extra, saying that, "I'll give you a discount," and things like that. And so they overstocked themselves to a point where they did not need anything because he had to meet a target. So he pushed it down their throat without really understanding what repercussions this would have. All right? And the problem with that pay for performance, it sounds good. Get what you pay for, pay what you get for. But the funny thing is you'll get only that much. Another case which I can tell you is how this student of mine was... His job during the internship was to collect receivables from the shops that were buying stuff. This was in the appliances, home appliances industry. And after they trained him to do that, how to call up the retail outlets and outstanding statements and then go collect the money, and his target was 500,000 rupees a day. 500,000 rupees a day collection. Now, one day he collected 2 million. My question is, do you think he reported it? Well, he did. And for the next four days he did nothing.   0:30:22.6 Balaji Reddie: Now, there's also a reason why he didn't report it. Because when you don't have Profound Knowledge, if he reported that he collected 2 million, immediately the manager would have said, "From tomorrow, your target is 2.1 million." Now, this is what happens when you don't understand variation. If you drew a control chart and you said that, "Okay, the average is so much, so I'm telling him to collect 500,000," and he's collected 2 million, he's done something special. As a manager, I'd call him and ask him, "Could you please tell me what exactly you did? Because you've not done what I taught you, otherwise you wouldn't have gone to this extent." Sometimes you don't know why you've been successful. The theory comes from the outside, right? So a manager with Profound Knowledge would sit down and have a talk and say, "Okay, you did this right. Now try doing this again." And he goes the next day and collects 2 million again, and then the next day and 2 million again. And then he comes and says, "Okay, boss, I'm ready for a new target. Raise the bar." Now what have you done? You've improved the system.   0:31:24.9 Andrew Stotz: We have new knowledge.   0:31:26.3 Balaji Reddie: We have new knowledge. And that's why, answering the same question what you asked me, it is a bit of both. So you need to understand that it's beyond... And we need to help the people understand why they've been successful. So better practice, here you go, is "abolish incentive pay, give everyone a chance to take pride." So when they start realizing, like this child, this student of mine, why he hit 2 million rupees that day, it would have been great. Instead, he just kept quiet. So see, you've lost an opportunity to really learn, to find a leverage point in a process which can take the process to another level. The next one he talks about is failure to manage the organization as a system. Instead, components are individual profit centers, everybody loses, right? And I think we have these separate business units, and he says here that they don't optimize for the aim of the whole organization. I think this is again, if you look at his Points number 9, 10, and 11, he very clearly mentions these because one thing leads to another, right? Break down the company into silos, each one focuses on what they're doing, and there's no communication, and they don't know their understanding the relationship of their work with the work of others.   0:32:54.9 Balaji Reddie: They don't even talk to each other. And he says here that "enlarge the boundaries of the system," but that comes when you understand your companies much better. And the system must include the future. Definitely, you start with theory. If this is what's happening in the world right now, this is how the world is going to change. Now he says, encourage communication. Now this part, a lot to do with Point number eight, drive out fear, where he says make physical arrangements for informal dialogue between the various components of the company regardless of level of position. That's a very telling statement. Encourage continual learning and advancement. Some companies have formed groups for comradeship in athletics, et cetera, all right, which provided facilitation for study groups. The company can well afford to underwrite the cost of social gatherings in outside locations. I can give you my personal example here. One of my college friends, and this was the time in the '90s when she came to America to do her Master's and then eventually started working in Ford, right? She did her Masters in applied electronics and she joined there as a design engineer. And that time, the world was a different place, and we Indians from India, we tend to be very, very conservative about a lot of things. We don't want to step on people's toes. So when someone says something, we, instead of opposing it, we keep our mouth shut.   0:34:32.6 Balaji Reddie: And so in meetings when they used to discuss and somebody brought up something and she said, "No, I think there's a problem," and they said, "What's the problem?" and she decided not to say anything, but eventually it turned out that she was right. And so the team members had a grouse against her that she doesn't share and she doesn't talk, she doesn't open up. Now what had happened was the HR lady in Ford, when she'd given her resume, when she asked about her hobbies and activities, one of the things she wrote there was dancing. Now she was learning a form of classical dancing here in India and obviously she could not continue pursue that in the United States at that time. So when that lady read dancing, she said, "You know, Ford sponsors ballroom dancing classes. So would you like to go for that?" So she said, "Oh wait, I learned a classical dance form in India. This has nothing to do with this." So she said, "Well, dancing is dancing. Why don't you just go? And we're paying for it, so why don't you go for it?" So she said, "I just enrolled in that class." Now, the first day when she went for the class, I don't know if you've seen the movie Shall We Dance, Andrew, but Richard Gere and Jennifer Lopez, and if you remember the first day, they tell you to hold your partner's hands and you're blindfolded and you follow your partner. It's about trusting the person in front, right? So she said when she went through that and she had to hold a stranger's hands, the whole barrier was broken.   0:36:08.2 Balaji Reddie: And she said, "I don't know, I had a different kind of a feeling when I came back to work." And she started trusting a lot more and it had an impact. Now, who would have dreamt that a ballroom dancing class could have changed my friend like this? That's Point number 13. You just have a theory that this will make that person a better person. You don't really do things to get a return on investment, but it works. So I think this is a beautiful paragraph by Deming where he says that there are ways and means of doing it and give it a shot. You have nothing to lose, right? Now he comes to the next one. Now this one, I think a lot has been spoken about this, MBO. But very clearly, he says "MBO as practiced." He does not blame Peter Drucker at all. In fact, he says Peter Drucker was clear that the objectives are interdependent and they're not mutually exclusive. He says, "Unfortunately, efforts of the various components do not add up. There is interdependence. Thus, the purchasing people may accomplish saving of 10% over the last year and in doing so raise the costs of manufacture and impair quality.   0:37:31.3 Balaji Reddie: They may take advantage of high-volume discount and thus build up inventory, which will hamper flexibility and responsiveness to meet unforeseen changes in the business." Peter Drucker was clear on this point. It's unfortunate that many people do not bother to read his work. In fact, let me just make a note that it was even Juran who said this, that having these kind of disjointed objectives can lead to a lot of problems. He said, of course, you can't be devoid. And that's why I think Deming has been very clear in chapter one of The New Economics where he says there are some things called as facts, right? Facts of life. So giving an arbitrary target is not a fact of life. He says here how he needs to improve that. So setting numerical goals, arbitrary numerical goals, I would say, right? Work on a method for improvement of a process. By what method? I think even Brian Joiner says that when you set this arbitrary goal. And now he goes on to explain that even further where setting a goal beyond the means of the process, they either distort the systems, distort the data, or distort both. Then management by results.   0:38:56.7 Balaji Reddie: Okay. Take immediate action on any fault, defect, complaint, action on the last data point. I think this again brings to the fore the understanding of variation where you need to look and ask questions and where you say, "Okay, I know this normally happens." So understand and improve the processes that produce that. Understand the distinction between common causes and special causes and understand the kind of action to take. So common causes, most of the time you need management to take action. There's a change in system. Yeah, there are some times when it is when a person close to the process can take that decision. Likewise, a special cause can be taken care of by the person closest to the process, but sometimes you need management action too. So that will always be the case, but it's rare, right? And so he talks about Sears, Roebuck, et cetera, and working on improvement of the process. The other one was buying materials and services at the lowest bid, right? Which he goes back to his Point number four, where he says here that it does not take brains to work with the cheapest. It takes brains to choose the best. Right?   0:40:23.4 Balaji Reddie: And estimating the total cost of materials and services, purchase price. Don't go by purchase price alone. And if I know right, Andrew, this was a point he was working on till the end of his life. You see the lady who was actually looking into the publication, the second edition of The New Economics, Elizabeth DiLorenzo. I was in touch with her because in my early days of my introduction to the Deming world, because I was quoting a lot from Out of the Crisis and The New Economics, and she was working for MIT Center for Advanced Engineering Study that used to originally publish his books. And she told me a very funny tale of how she was expecting her twins and at the same time she had to release this book. So the joke at MIT was, "What's gonna come out first, the twins or the book?" And since Deming was no more, she had to release that very quickly. So March '94 is when she released the book, and she said her twins were born some weeks later. So they are as old as this book. Now, she was telling me that till the end, the one aspect of what he was working on was, if you see the notes in the appendix and purchase of supplies and service. So continuing purchase of supplies and services, World 1, World 2, World 3 and World 4. He made this so clear. I think nobody has made it clearer. Okay, World 3, sorry, there's no World 4. So he talks about this and he talks about how practical you need to be about this, right?   0:42:18.7 Andrew Stotz: Yeah, and I underlined something in there from a long time ago that said, "Sudden jump to a single supplier is inadvisable."   0:42:28.8 Balaji Reddie: Right. He says there's a method of doing that.   0:42:32.5 Andrew Stotz: Yep.   0:42:33.2 Balaji Reddie: And I teach that method, by the way, where you start with the product, then go on to the process, and then go on to the system. And that takes time. You just can't get up one fine morning and say, "You're my sole supplier." It doesn't happen that way. It takes a lot of effort and a lot of doing, right? The next faulty practice is delegate quality to someone else or some group. And this is, I remember my interaction with Dr. Juran on this, right? I had just received my certificate for ISO 9000, I became a lead assessor, and I quite liked the new standard that had come out at that time in the year 2000 because it had a lot of Deming flavor to it. Plan-Do-Study-Act had come in and things like that. I was quite happy, the definitions and this. I said, "It's better than what it was." It's not, they had a long way to go, no doubt about it, but I said at least they've broken away from the defense mode where they copied the whole document from, right? And when he asked me the question that, "What's the status of quality in India?" and I said, "Well, earlier on it was a lot of standards-oriented and ISO 9000 played a huge role in that," and he just raised his hand as to tell me to stop and he said, "I am very disappointed with the ISO." And then he made this statement, "The ISO 9000 is a standard for mediocrity splendidly marketed by the ISO." And I just stared at him. I said, "What?" because I had just received my certificate, so obviously I was very touchy about it. And I said, "Dr. Juran, a little harsh." He said, "I've just begun."   0:44:26.4 Andrew Stotz: Yeah. And the problem is, is there's a lot of money to be made from it and it's an ingrained system.   0:44:30.5 Balaji Reddie: Yeah. So I just asked him, why would you say that? They made a lot of changes. He said, "Yes, but two things are missing." And one of them, he said, is something about leadership. Go back and read it. And then I went and read the standard again, and I realized what he was trying to say here. There was a lot of work that they were delegating to a person called the management representative, and he says, "Sorry, you can't delegate this to someone else. It begins at the top." Ed Deming also said that. He said, "It begins at the top. Only they can do this."   0:45:10.5 Andrew Stotz: I have a little story on that.   0:45:13.5 Balaji Reddie: Sure, sure, sure.   0:45:14.8 Andrew Stotz: In my coffee business, maybe 15 or 20 years ago, we got a big, big customer, and overall, they were a very good customer. But they picked us over all of our competitors. And then they told us, "Okay, in a month we're gonna come and inspect your factory, and if you get below 80%, then you're not gonna be our supplier." And so we said, "Well, I study with Deming, and I know quality, and we've never had a problem with quality ever." And my business partner, Dale, is very focused on the principles of quality. So they came, we were quite proud, and then by the end of the day, they had 600 questions they went through. And by the end of the day, we were like, "Yeah, what's our score?" And they said, "65. You're fired." They said, "You have 10 weeks or five weeks to fix these top 10 things." And then at that moment, we had a revelation, which is, oh, to them, paper is quality. And what I've always said, what I learned from that, was that it wasn't a big deal. We did the paperwork that they asked for, and then we got the job. And they were a customer for 16 years and a very good customer. But what we learned, one of the things I say, is that we had the heart of quality. They asked us for the paperwork that they thought represented quality. That's not such a big deal. But could you imagine having been trained that paperwork is quality, and then you have to try to develop the heart of quality? Very difficult.   0:47:01.9 Balaji Reddie: Very difficult. And now I come to this picture that he's drawn on page 37 of The New Economics, the old edition. I think the new one, let me just see what that is. Okay, that's on page 27. So he says here that unique processes that produce figures, all these principles have been applied to just 3%. Now, I have my own version of this particular picture that he's put here. Imagine an X and a Y axis, all right? And on the X axis, you can put down measures that are known. Close to the origin, you can write "known", and then as it goes away from that, "unknown", right? And then you have on the Y axis "measurable", and as you go up, "unmeasurable". So because he said that most of the things are unknown and unknowable, and among the known, you have only some fraction of those which are measurable. So the 3% deal with those factors or those parameters which are known and measurable. There are many parameters, he says 97%, which are unknown and unmeasurable, but you still need to manage them.   0:48:26.5 Balaji Reddie: And that's where he gives us a lot of advice that comes after this. Okay, when after this diagram, beautiful paragraphs in his book. "Beware of common sense," he says. And of course, he gives the example of Gallery Furniture, salary instead of commissions. Also goals, aims, hopes, facts of life, futility of a numerical goal. And a picture may help, where he talks about the goal being beyond the capability of a system. And will the goal be achieved? And he says redefinition of terms and distortion, et cetera. Gives a lot of examples there. And then he goes on to give even more examples. Okay, if you say merit pay, et cetera. Need to manage by results, wrong. And the last bit, the note where he says America 2000 was originally put together in December 1989 at the educational summit between the President and the governors of the 50 states. These goals were published in February 1990 by the White House, later incorporated into America 2000. This job may be an example of an enlargement of a committee. We shall learn in chapter four, he says, that the enlargement of a committee is not a way to acquire profound knowledge. How could they know?   0:49:57.7 Andrew Stotz: Yeah, and so what's happened to education since then in America?   0:50:00.6 Balaji Reddie: Oh, no comments. And we in India are almost going the same way. Of course, in some cases they've gone back to the roots saying that, no, we need to get back to our original way of educating people, right? We had this thing of exposing a child to all the different kinds of subjects, right? Like you have history, geography, languages, mathematics, science, just about everything. But the idea was to very quickly identify which child is resonating with what, because we need these different kind of people to work together. Some people are good at memorizing, some people are good at analyzing, some people are good at imagination. And so you throw all this out and then you cast the net and then you say the job of the teacher is to identify, okay, you're good at this, you're good at this. The problem is when you start saying if you're good at this, you are intelligent, and if you're not good at this, you're not. There are different kinds of intelligence. I would say the problem is more with the teachers and not with the system.   0:51:16.5 Andrew Stotz: We should wrap up at this point.   0:51:18.9 Balaji Reddie: Absolutely.   0:51:19.6 Andrew Stotz: How would you summarize what you want people to take away from this discussion?   0:51:24.0 Balaji Reddie: Sure. Go back and read chapter two in The New Economics. Dr. Deming has very clearly shown us why we need to do what we need to do. You're gonna be seeing things differently. As he used to say towards the end of his life, "I'm not here to teach you anything new. I'm here to make you see things that you normally would not see." And now he's just shown us what we thought was normal in the working of a company is actually detrimental to the running of a company over the long term. So my advice is go back, read this. You could watch some of the videos of the Deming Institute, especially on the 14 Points. We will be covering the 14 points later, but I would say that this is a real elaboration of his Diseases and he's given us what needs to be done. Not just pointing out what was wrong, but he tells us what needs to be done. That's why the heavy losses form an integral part of the preamble to actually what is the next step that you're taking your foot off the brake, so to say, trying to identify things that are pulling your company back.   0:52:37.8 Andrew Stotz: Well, Balaji, I want to thank you for this discussion. And recently I have been reading chapter two and I saw a lot of new stuff. It's funny how you just keep rereading. And then today you've just made me realize I gotta go back and read that chapter two because he does really the way he did the tables. I kind of forgot all about that. When I went back to it about three or four weeks ago, I was like, oh, this is really great. I kind of forgot about it. And now as you go through it, it's the tables was what I was focused on, but now I'm also seeing the text in between that you're highlighting that's valuable. So for everyone out there, grab your book, go to New Economics, go to chapter two. It's just gold. It's gold.   0:53:30.7 Balaji Reddie: It's gold.   0:53:31.0 Andrew Stotz: So, and for listeners out there, remember to go to deming.org and jump into DemingNEXT to continue your journey.   0:53:37.7 Balaji Reddie: Absolutely. Absolutely.   0:53:39.9 Andrew Stotz: Yep. And this is your host, Andrew Stotz, and I'll leave you with one of my favorite quotes from Dr. Deming, and that is, "People are entitled to joy in work."   0:53:52.2 Balaji Reddie: Absolutely.

What does great leadership actually look like? Can you make a difference even if you're in the middle of the hierarchy? "If you think you're too small, you've not spent the night under a bedsheet with a mosquito." In this episode, educator and Deming practitioner Balaji Reddie explains why W. Edwards Deming was far more practical about leadership than many people realize. Drawing on both The New Economics and Out of the Crisis, Balaji shares stories and examples that bring Deming's 17 principles of leadership to life. From creating trust and joy in work to understanding variation, coaching people, and improving systems, this conversation challenges conventional management thinking and offers a clear path toward transformation. TRANSCRIPT 0:00:02.2 Andrew Stotz: My name is Andrew Stotz and I'll be your host as we continue our journey into the teachings of Dr. W. Edwards Deming. Today I'm continuing my discussion with Balaji Reddie, who is an educator and trainer in the teachings of Dr. Deming and quality management generally. And the topic for today is Principles of Leadership. Balaji, take it away.   0:00:27.9 Balaji Reddie: Good morning. Thank you so much, Andrew. We had left our last session with that, we'd be dealing with this. And of course, Dr. Deming gave us the outline of Profound Knowledge and he gave us 14 points. He also gave us the deadly diseases and the 16 Obstacles. So people often talk about the diseases, but very often they forget the obstacles. And there are 16 of them which he highlighted for us. And if you think that they're outdated, they're as relevant as they ever were. So you need to keep revisiting those. I think if you start working on removing the obstacles, it's like you're taking your foot off the brake rather than pressing on the accelerator.   0:01:11.3 Balaji Reddie: So you're removing the things that actually stop you before you actually take things forward. But nevertheless, we start with point number 14 where he says, take action to complete, to make the transformation. And he says that there should be a critical mass of people that you need to educate and train and get them on the same page as you are. I'm gonna quote Hazel Cannon here, who is current president of the British Deming Forum. And she talks about the time when she was very young and she attended the Deming four-day seminar, I think in Birmingham. And at the end of those four days, she was overwhelmed as you normally are when you hear how the man speak. And he spoke... He wanted you to make drastic changes. It's not just tinkering here and there.   0:02:08.2 Balaji Reddie: And so she went up to him and she said, "I'm really taken up by what you just said." And then she made a statement, "I'm too small to make these changes in my organization." I believe she worked as a lab assistant in a chemical manufacturing company. They used to make chemicals for cosmetics. So she said, "I'm too small." And Deming just interrupted her and said, "Never think you're too small. If you think you're too small, you've not spent the night under a bedsheet with a mosquito." So make a change where you are and take it from there. So I would like to now quote Dr. Deming from Out of the Crisis. This is Plan for Action: Take action to accomplish the transformation. So he writes there, there are three points and then I'll come to what he writes below that.   0:03:01.8 Balaji Reddie: So he says, "Management in authority will struggle over every one of the above 13 points, the deadly diseases, and the obstacles. They will agree on their meaning and on the direction to take. They will agree to carry out the new philosophy. Management in authority will take pride in their adoption of the new philosophy and in their new responsibilities. They will have courage to break with tradition, even to the point of exile among their peers." So he talks about courage. He talks about courage of conviction. And then he says, "Management in authority will explain by seminars and other means." So I think he leaves it to people of the ways and means. And now today there are a lot of means of doing that. DemingNEXT is one of them. And he says, "To the critical mass of people in the company why change is necessary and that the change will involve everybody."   0:04:00.9 Balaji Reddie: Now he writes something very interesting. He says, "This whole movement may be instituted and carried out by middle management speaking with one voice." So he gave instructions. Why are people saying that he did not tell us what to do? It is just that he expected maybe a lot. And now let's get to that middle management and what he expected. He says here... Let's see here. I'm coming to chapter four now in The New Economics where he says, "A System of Profound Knowledge. The aim of this chapter: the prevailing style of management must undergo transformation." So we just heard that, that what we need to do. And he says, "A system cannot understand itself. The transformation requires a view from the outside. The aim of this chapter is to provide an outside view, a lens that I call a System of Profound Knowledge.   0:04:59.7 Balaji Reddie: It provides a map of theory by which to understand the organizations that we work in." Then he says, "The first step is transformation of the individual. This transformation is discontinuous. It comes from understanding the System of Profound Knowledge." Then he says that "the individual, once transformed, will set an example." So setting an example, I believe, is doing the right thing under adverse circumstances, when you stick to your principles despite the fact that there is an easier way out. As they say, choosing a path between good and bad is easy, you choose good. But good and better, you need to make the right choice. And that needs profound knowledge. "So be a good listener," he says, "but will not compromise. Continually teach other people and help people pull away from their current practice and beliefs and move to the new philosophy without a feeling of guilt about the past."   0:06:02.7 Balaji Reddie: So he explains to us what was needed here, right? And he says this is what we actually need to do. Now I'd like to, I mean, I'll be referring to a document. I don't know how we're gonna get this to people, but for the Principles of Leadership. All right, I think I'll have to send this over to you later, but we will do that. So in the Principles of Leadership, just come to them. I am quoting again from both Out of the Crisis and The New Economics. So you will find this there when he speaks about what needs to be done. Modern Principles of Leadership. And he says, "The modern principles of leadership will replace the annual performance review. The first step in a company will be to provide education in leadership." So that would be introducing people to profound knowledge from what we just heard. Then he said, "The annual performance review may then be abolished." Of course, that will take time. "Leadership will take its place, and this is what Western management should have been doing all along."   0:07:12.6 Balaji Reddie: So he says, "The annual performance review sneaked in and became popular because it does not require anyone to face the problems of people. It is easier to rate them, focus on the outcome. What Western industry needs is methods that will improve the outcome." And he says, "Suggestions follow." So first, institute... The first principle. "Institute education in leadership: the obligations, the principles, and methods." And so I think introduction to the System of Profound Knowledge will help. And then after profound knowledge has been sort of brought to the notice of... Of bringing to the notice of the people then you get into perhaps teaching them about 14 Points, et cetera.   0:07:57.8 Balaji Reddie: Comes the second principle. He says, "Ensure more careful selection of people in the first place." So choosing the people, he says again, now here's where it requires you to understand the purpose of what you're doing, purpose of your organization, purpose of the people you're looking out for and making this change. Because when you know your purpose, you know the aim, then you can choose people in the right way. And I believe he said this somewhere, it's a combination of education, training, skills, and experience. So we need to combine these four factors in choosing the right people. Then he says, after selection of the people, ensure better training and education. So we fine-tune all of their... He says a complete background. He said their aspirations, their goals.   0:08:54.2 Balaji Reddie: I kind of borrowed this idea from a company here in India where they had this thing called roles, responsibilities, and objectives. And they used to meet once in a month, but once in a year they used to decide. So the top management, the HR, would sit down with each and every employee and say that, "In this calendar year, this is what we intend to do and this is what we expect from you." And in turn, they used to ask the employee, "What do you expect from us? Because this is what we want from you." And then the employee had a chance of putting forth what he or she wanted, the management, what help they needed. And I think this is where we have to be... It's a give and take. And they didn't just meet once a year; every month they would meet and the question was, "How are we doing?" not "What have you done?"   0:09:51.1 Balaji Reddie: So I think it wasn't a traditional appraisal. If there was any appraisal, it was appraising what top management were doing or intended to do and not so much the employee. I thought that was a good move. So that's what we need to do here: better training and education. Principle number four states: "A manager understands and conveys to his people the meaning of a system. He explains the aims of the system. He teaches his people to understand how the work of the group supports these aims." Now, here's where, you know, when you talk about, say, hiring people in the first place, when you bring in new employees, I believe that there should be a special session by people inside the company who have stayed the longest, who served the company the longest, especially during their bad days. Because the employees need to know what really happened and how the company survived and how we were resilient, we came back despite all the problems that we had.   0:11:00.7 Balaji Reddie: And the historical perspective, especially if there's someone who's in touch with the founding members, that would be a great boon. I know nowadays we talk about the older companies, obviously none of the founders are there, but if there is such a person, exchanging those ideas with the young employees would definitely make a difference. So they would then understand the purpose, the aims, and how your work supports these aims. I think it's the best way to do that. But what I see right now in companies and I'm being very specific about this, because today when new employees join the company, they have an orientation, they have onboarding, as they call it, but that's done by a rookie, someone who's just joined the company and is just making...   0:11:46.8 Andrew Stotz: [0:11:46.8] Following a checklist?   0:11:48.1 Balaji Reddie: Exactly. Like a PowerPoint presentation. They don't talk about the history of the company. And I think there has to be an emotional connect before there is a logical or an intellectual connect. That emotional connect, I think, then makes you feel that pride and you feel good about coming to work and you say, "Oh, I did not know." So I believe this fourth principle is important in that sense, in the way to do that. Now, he says that... Principle five says he helps...   0:12:19.7 Andrew Stotz: By the way, do you know what chapter are you in?   0:12:23.9 Balaji Reddie: Oh, I have combined.   0:12:27.9 Andrew Stotz: Okay.   0:12:29.4 Balaji Reddie: I took some of the text... Okay. If you want to see here, this is management of people, all right? In that chapter. So I've taken... There are 14 principles there, management of people. In the new edition of The New Economics. It appears...   0:12:48.2 Andrew Stotz: So chapter six.   0:12:50.2 Balaji Reddie: Chapter six, yeah. That's chapter six...   0:12:51.8 Andrew Stotz: Yep.   0:12:52.6 Balaji Reddie: All right. And he talks about pictorial effect of transformation, and then he talks about management of people, role of a manager of people. So there were 14 there, but in Out of the Crisis, the first three which were there, he did not include here.   0:13:10.0 Andrew Stotz: Okay. I just just asked...   0:13:11.0 Balaji Reddie: So I just included those. Yeah. No, so that when people read the book, they could read it clearly, right? So, yeah. So he says now principle number five, which in Economics is principle number two or three, right? He says "he helps his people to see themselves as components in a system, to work in cooperation with preceding stages and following stages toward optimization of the efforts of all stages towards achievement of the aim." So we want optimization, not compromise. So you need to sit together. Just if I were to ask a simple question to you, Andrew, and without thinking, if I were to try to answer this question... Okay. I presume you know how to make a cup of tea.   0:13:58.7 Andrew Stotz: Yes.   0:14:00.1 Balaji Reddie: So what is the first step?   0:14:02.7 Andrew Stotz: For me, boil water.   0:14:04.6 Balaji Reddie: Boil water. And what if I say that's not the first step?   0:14:12.0 Andrew Stotz: Well, first of all, I think you probably have more experience with tea than I do, but I have more experience with espresso, probably. But anyways, go ahead and tell me.   0:14:20.9 Balaji Reddie: Okay. The first question is, whom am I making a cup of tea for? So what I just tried to convey is it's not natural to think about the customer. And so the first step is, for whom is the cup of tea? If it's the person...   0:14:30.8 Andrew Stotz: Grandma.   0:14:40.7 Balaji Reddie: That's right. If she's diabetic, then you would not need sugar. So you gather the ingredients accordingly. If he wants black tea, you don't take milk, right? And that's the point he's trying to say here. When you look at different stages, every every person has a customer. So the first question is, who is my customer?   0:15:07.1 Andrew Stotz: Right.   0:15:07.4 Balaji Reddie: And that part of profound knowledge, understanding psychology, I mentioned this last time, is empathy. The word empathy captures this. So you go to the next process as, "Whom am I doing this work for?" and sit down with that person and say, "What do you expect from me? How may I help you?" And that's what decides what you're gonna do. So this this fifth principle here, that he helps his people see themselves as components, I think this is important. The next process is your immediate customer, and the rest of them are customers in a very oblique sense. But what you do is critical to the next person in line, right? So you always spend extra time with that person and of course the other people down the line who your work is gonna be impacting over a period of time, right? But these are the... This is the first step you find out. So who's my customer? So that's principle five.   0:16:09.0 Balaji Reddie: Principle number six: now this comes under psychology again, that a manager of people understands that people are different from each other. He tries to create for everybody interest and challenge and joy in work. Now, if you look at the theory of knowledge, what exactly did he give us when he brought that component of profound knowledge into play? He says that theory is a statement that conveys knowledge by relating cause to effect. So I repeat, theory is a statement which conveys knowledge by relating some cause to some effect. It fits without fail all the observations of the past and helps us predict the future with the risk of being wrong.   0:17:04.7 Balaji Reddie: So I'm gonna repeat this whole statement again. Theory is a statement which conveys knowledge. How? By relating some cause to some effect. It fits without fail all the observations of the past and helps us predict the future with the risk of being wrong. So no amount of examples can establish a theory, and even one example can lead to either abandonment of the theory or modification of the theory. That's what he kept saying. Now, how does this work? So he says it's a system of learning, and all of us have this built in, right? Now, he came from the school of Clarence Irving Lewis, Mind and the World-Order. And if you read that book, Lewis says all knowledge is a priori, it's based on what you already know.   0:18:00.9 Balaji Reddie: For example, let me take this example here. Now, suppose I were to start describing the road to my house. Now, you've not been here, but if I start saying that the road bends towards the left and then there is a command you get to see, now you start constructing a picture in your head based on what you have already seen. It's not the same. That's your theory, right? And then when you actually visit, you say, "Oh, it's the difference between theory and what I actually saw," and then you change your theory. So theory is... It's natural. All of us think naturally like this. And that's why he says here that people are different from one another and we need to celebrate those differences. All of us are born with the system of learning, but not all of us learn the same way.   0:18:49.8 Balaji Reddie: There are some who learn by watching, there are some who learn by doing, there's some who learn by reading, there's some who learn by writing. For some people, one word is enough. You utter a word and they say, "I got it." And for some people, you have to repeat the statement maybe 10 times, 11 times, and then the 12th time you repeat it, they say, "Okay, I got it." Now, is that wrong? We're just different, right? And that's why he says here that we need to understand the learning process of people. And when you understand the learning process of a person and then put that person in the right job, you'll have to stop that person from working. That was his definition of joy in work. People enjoy their work when they realize it resonates with them.   0:19:40.4 Balaji Reddie: And how does that resonance come in? When you under... And because this is so difficult to do, we just throw the responsibility on them by saying, "Here's the target." So the target actually distracts them when actually you should be working on understanding their learning process. So it's a lot of hard work. And sometimes people are motivated enough to discover it themselves, which is great, but we need to create that atmosphere for them to enjoy their work. So interest, challenge, et cetera, he tries to optimize. Now, here's the key. This is beautiful. He tries to optimize family background, education, skills, hopes, and abilities of everyone.   0:20:21.7 Balaji Reddie: So this is not ranking people, very clear. It is instead recognition of differences between people and an attempt to put everybody in a position for development. I think this is one of the most important principles in getting things done. When I teach this to the HR students in my college, I keep saying that I don't think you should call this science as human resource management, because the definition of a resource is obtain it, shape it, use it, and throw it away. We don't wanna do that. I think we should change the title of that department to Department of Learning, because that's what exactly this is all about, and it's learning in both ways where you are trying to understand their process of learning and in effect, you're trying to understand how the company is going to be learning.   0:21:17.0 Balaji Reddie: So you put this in... So this principle, he says, combine all of these things: family background, education, hopes, I love that word. Because if you see one of the things that people talk about, customer satisfaction, I think Deming was the only person who said customers should be happy. Not just satisfied, happier, right? Now comes the next principle. "He is an unceasing learner." So you can never say, "I know it all." Unceasing learner, he encourages his people to study. And I think this fits Dr. Deming himself. He made no excuses to learn. "May I not learn," he would keep repeating that. And I remember Bill Cooper getting irritated and said, "The last time I met you, you said this, and now you're saying this. I got that on tape." He said, "Well, you got this on tape now." He said that, "I do, I learn. And as I learn," he said, "that could have been under different circumstances that I said that, but I'm saying this."   0:22:22.4 Balaji Reddie: And so you keep learning. And he encourages his people to study. The word is study. And he provides, when possible and feasible, seminars and courses for advancement of learning, encourages continued education in college or university for people that are so inclined. So I think this bit is in many places getting to be a part of the systems in most companies. I've seen that happen now, which is a good sign. But it doesn't end there, there are a lot of other things to do. This was the Principle 7 in the list of 17. Now comes Principle 8, and this is so difficult to look at. He says "he's a coach and a counsel, not a judge." You judge people, they shut up.   0:23:15.4 Balaji Reddie: So he says coach and counsel. When they need help, guide them, show them the path. Sometimes maybe you need some help in doing that, well, go ahead. So that was principle number eight. Principle number nine says "he understands a stable system. He understands the interaction between people and the circumstances that they work in. He understands that the performance of anyone that can learn a skill will come to a stable state." Now, this is amazing. He said this way back in the 1950s when he was in Japan teaching them the control chart, where he took one example where he says that further training to the worker and the process was still in control. And he says, "I think he's reached the limit of his learning. He perhaps needs to be taken to another process or maybe given something more challenging so that we can develop the learning process."   0:24:17.6 Balaji Reddie: So he was speaking about this way back in the 1950s, which today you can say comes under understanding psychology through variation. And he says, upon which furthest the lessons will not bring improvement of performance, and a manager of people knows that in this stable state, it is distracting to tell the worker about a mistake, because he says you'll actually then demotivate someone. So these three principles...   0:24:44.1 Andrew Stotz: Because a mistake may be just normal variation, or are you saying... Okay. Yep. Okay.   0:24:51.0 Balaji Reddie: Yeah. I mean, it could be anything, right? But if you are highlighting that when he's already reached a stable state, it could just work in a detrimental way, the opposite direction.   0:25:05.4 Andrew Stotz: Ultimately you've reached your goal. A steady state is fantastic.   0:25:07.4 Balaji Reddie: A steady state. And then now you say if you want him to... Anything better here, I think you need to move him out from there, since maybe he needs to be given something either more challenging or whatever it is. But use of psychology and variation together. If people are saying that he spoke about this in the 1990s, he actually spoke about this in the 1950s in Japan. And I have proof. If you go and check Elementary Principles of the Statistical Control of Quality, the series of lectures that he gave in Japan, you will see this in one of the chapters, very clearly stating what needs to be done.   0:25:47.9 Balaji Reddie: Now we come to the next principle, which is... I don't know how to explain this, but it's amazing. He says that "the leader has three sources of power: authority of office, knowledge, and personality and persuasive power, tact." So authority, that's your title, knowledge, and personality. Now, personality, persuasive power, and tact is more of a personal thing. It is something that is an attribute. Authority is the title you're given. I think the only thing that you can really work on is your knowledge. And he says that a successful manager of people develops knowledge and personality and persuasive power, does not rely on authority of office. He nevertheless has obligation to use his authority, a source of power, for him to bring changes. He says that maybe some drastic changes to equipment, to materials, to methods, and to reduce variation.   0:26:55.0 Balaji Reddie: So he attributes this to a gentleman, Dr. Robert Klekamp, or Klekamp, I don't know how to pronounce that. So he says, "He in authority, but lacking knowledge or personality, must depend on his formal power. He unconsciously fills a void in his qualifications by making it clear to everybody that he's in position of authority, his will be done." So I think he said if things needed to be done and if he's being guided the right way, then he has to bring his authority into power. I think this brings me to one of the interactions he had with... Was it James McDonald at Ford? When he made him stand up and asked him, "What is your job?" And he said, "I'm vice president, manufacturing," and he sat down. Deming said, "Stand up. That's your title, not your job." And then for the next half an hour, he grilled him on what his job was. And after half an hour, he still didn't get an answer. He said, "You don't know what your job is. Do you think other people in the company know what their jobs are? I think you're running a mess here."   0:28:02.2 Balaji Reddie: So Jim McDonald, instead of feeling insulted, took it in a very different way. Though he said, "I did feel that I wanted to resign and just walk out of there," but he said, "I knew this man was onto something." And that kind of thing of authority of office, I think he did not like if people used it for the wrong reason, but he wanted them to develop knowledge, personality. Personality, well, I think again, on the soft side, persuasive power tact. Not all of us have that, but I think we are living in a knowledge economy, so knowledge would be the key here. And he also says that if you're in a position of authority, use this to get the right work done.   0:28:47.3 Balaji Reddie: Then next he says "he will study the results with the aim to improve his performance as a manager of people." So when the system is not getting what it's supposed to do, then he does not put the blame on the people. He says, "I have... I may be going wrong somewhere." I'd like to share an example of my father in Japan. My father was in Japan in 1964, I said this last time. And he was on this Asian Overseas Technical Scholarship, AOTS. And they run these courses even today. They have three-month, six-month, nine-month, and one-year courses. And from what I remember my father telling me, it's integrated in the sense, I think he was there for six months. So during the morning sessions, they used to have classroom training, sitting in a classroom. And in the afternoon, post-lunch, they would go and work in a company, and that was like their intern. And so it was a combination of theory and practice taking place almost every day.   0:30:02.4 Balaji Reddie: Now, what happened there was on the first day... And that's where he started working with Showa Electric, and said they were called the interns. So on the first day, he was taken to the company and was introduced to his supervisor. The supervisor took him on the shop floor and introduced him to the team that he would be working with. And then, while he was leaving, that supervisor said, "I just need to tell you this, that we also form what is called as a quality circle." And this was... The quality circle movement started in 1962, so '64, the quality circle. And so my father said, "I don't know what you're talking about." And he said, "Well, this is something new. So would you like to be a part of it?" Because quality circle is voluntary, not mandatory. They make you a part of the quality, so if you want to be a part of the quality circle. It's not imposed on you.   0:31:05.0 Balaji Reddie: So my father said, "I need to talk to my teacher, my sensei, at the class." He said, "Yeah. You can talk to him." So he went back to the class the next day in the morning, he asked the teacher, the sensei, that this is what they said. He said, "Oh, it's a very good system. You can become a member of the quality circle." So on the second day, he said, "Yes, I'll be a member of the quality circle." "Great," he said. Now, on the third day, his actual work started. Now, they used to make television screens, CRO, et cetera. And one of the steps there was soldering. They had to solder. And the soldering was the dip soldering. You had to take the printed circuit board and dip it into the solder bath and take it out. Of course you were to... There was a technique.   0:31:52.8 Balaji Reddie: And so his job was that. His first job that he was assigned is to do soldering on these PCBs. And so the supervisor himself sat with my father and demonstrated 10 to 15 times how to do it. Then he told my father, "Now you do it." And then he was guiding him, and he made him make around 10 pieces until he said, "Okay. Now you're getting it right." Okay. Now he said the ground rules. If by any chance you press it down too hard or you keep it too long because of the extreme heat, there will be a superficial crack on the PCB. And that would not be something that affects the customer right away, but over a period of time, it can result in the board cracking and the radio not working. So when you see a superficial crack, you're supposed to pull the cord. There was a cord there. And when you pull the cord, the supervisor will come and help you. Fine.   0:32:56.1 Balaji Reddie: Now my father started doing his work, and his fifth or sixth piece developed a crack. Now, he said, I don't want to sound derogatory, but the Indian in me caught up. Should I report this? What would he think? I hardly left this man alone, and his fifth piece is a rejected piece. And he said, I did not want to pull that cord. But then... He said that, he told me, "Please pull the cord," I decided, let me go ahead and pull it. So when he pulled the cord, a red lamp went on there, and there's a big siren that went on. And the supervisor came running and turned off the siren and turned off that lamp and said, "What happened?" My father showed him the crack. So he said, "Okay, no problem." He put it aside. He demonstrated to my father 10 times again how to do it. And then he made him do it 10 times till he said, "Ah, see, you did this." And he got it right. Now he said, "Let's continue production."   0:33:58.8 Balaji Reddie: Now they went away and now my father got it right. After an hour or so, or maybe two hours, they had their tea break. And they were sitting around a table. Now, this was the quality circle. So the supervisor got up and started speaking in Japanese. Now, this was my father's third day there, so obviously he did not understand what was going on. The only thing he knew that they were referring to him because they could not pronounce his name properly. So instead of Reddie, he was being called Leddie. So Leddie-san, Leddie-san, Leddie-san. So my father said, "I knew he was talking about me." And he said, "I felt so ashamed, I was looking down at my cup of tea rather than looking up." And then when I looked up, he said, all of them were looking at him in admiration and the thumbs up sign. And he was wondering what the hell just happened.   0:34:51.0 Balaji Reddie: And at the end of it, when that supervisor stopped speaking, they all clapped. They clapped. And as they dispersed, each one came and held his hand and they went away. And now my father told the supervisor, "What did you tell them? Did you tell them I made a mistake?" He says, "Yes, yes, I did tell them that." He said, "Then why are they complimenting me? Why are they... Why did they clap? Why did they clap for me? Why are they shaking my hands?" He says, "They're shaking your hand, they're clapping, and they're complimenting because you pulled the cord." So he said, "What do you mean?" He says, "Well, we have a saying here, here in Japan, if after explaining to a person 10 times how to do something, if the person still makes a mistake, then there's something wrong in the way I explained it." So this bit over here is he will study results with the aim to improve his performance as a manager. Don't blame the other guy. What am I doing wrong?   0:35:54.0 Andrew Stotz: You hired him, you train him.   0:35:56.4 Balaji Reddie: Yep. So when Jack Welch used to say, "Sack the bottom 10% of the people every year," and he called them dead wood, well, I would say when you hired them, they weren't dead. You killed them. So that was principle number 11. Now principle number 12 is where he combined both variation and psychology together. He said "he will try to discover who, if anybody, is outside the system, in need of special help." So he draws a normal curve. I'll pass on this document to you so you could share it along with the podcast. And he says here that people belong to the system. These are people who need not be ranked. But a person outside the system on the lower side needs special help. People outside the system on the higher side, well, we need to take the system to that level to improve the system.   0:37:08.4 Balaji Reddie: So he talks about that. He says this can be accomplished with some simple calculations. If there be an individual with figures on production or on failures, special help may be only simple rearrangement of work. It might be more complicated. He in need of special help is not in the bottom 5%. He's clean outside that distribution. So he's trying to use the understanding of variation in a very different sense to understanding people. And he says that we try to reduce that variation in performance between people. That's the job of the system. So this is principle 11 and 12.   0:37:51.0 Balaji Reddie: Now you come to principle 13: "he creates trust." And that creates trust, I would believe, it's a two-way process. And he creates an environment that encourages freedom and innovation. That is the environment where people are unafraid to make mistakes. Because we learned that theory is not the opposite of practice; it's a guide to better practice. And we need all of us working together. And that trust, I think, has got a very funny meaning in my country. I keep joking about this. In India, trust is we will lie a little less to each other. But that's not what this is. We need to be straight honest with each other. And honest is you can only do that by example. Like what happened in my case. I remember when we had installed the ERP system in our company, and there are interlocks. And I remember there was a backlogged order. And I knew that because when we did not deliver the order on time, I negotiated with the customer and I got the delivery date postponed.   0:39:08.0 Balaji Reddie: Now I was trying to test the ERP that month. So I said, let me see if the ERP can capture this because it should show it as a backlogged order. But it showed it as an order that was to be delivered on the new adjusted date. And I said, "How did that happen?" Because that should not have changed. And so I called my assistant. I said, "This should be in backlog. Why is it showing me as a spillover order?" And he said, "No, I changed the date." I said, "Why did you do that?" And he said, "No, because the finance guy will get angry with me." And I said, "That is my problem." I said, "When I told you you're not supposed to change that date..." And I removed his administrative powers in changing the date so that he could not change the date in the system.   0:40:01.7 Balaji Reddie: I removed his powers. And he apologized profusely and said, "Please let me." I said, "No." So till the day I resigned, I kept it. I said, "You're not gonna be doing this because it's not a question..." I said... If I had succumbed to that Andrew, they would have lost my trust. They would have thought that, "Oh, Balaji just talks. He doesn't walk the talk." I said, "No, you're not supposed to do this. We are trying to go by a system. Let's go by the system." So I think you can only create trust through example, through demonstration, if I may say so, and especially under adverse circumstances that you need to demonstrate this.   0:40:46.1 Balaji Reddie: Principle number 14: he says "he does not expect perfection." I think that even he said it in principle of variation. Principle 15: he says "he listens and learns without passing judgment on him that he listens to." This is an extension of the previous points. Principle number 16: he will hold an informal, unhurried conversation with every one of his people at least once a year, not for judgment, merely to listen. The purpose would be development of understanding of his people, their aims, their hopes, and their fears. This meeting will be spontaneous and not planned ahead. So there should be no bias, like an audit.   0:41:41.5 Andrew Stotz: Right.   0:41:42.2 Balaji Reddie: And lastly, principle number 17: "he understands the benefits of cooperation and the losses from competition between people and between groups." So these were the 17 principles of leadership, the beginning of transformation. I think there can be nothing more to do than this. He was so clear in what he wanted us to do. I wonder why people say that there was no method.   0:42:16.5 Andrew Stotz: Yeah. He definitely outlined a lot of stuff there. One of the questions I had for you on that list is, what do you say to people that say that he's kind of a dreamer? The idea that you can sit down with your employees and have this time and everybody's so busy and just talk about your fears and your goals and all that stuff where we live in this age of, we've gotta get the result, we've gotta be focused. How do you respond to that?   0:42:51.1 Balaji Reddie: Well, I say give this a try. All right? You've done it your way, right? You've done it... Let's just forget about it, and you're seeing what's happening. You want a change, you gotta do something different. So why don't you go by what this man is saying? And if you say that, you know, a dreamer or whatever, well, I'd like to quote John Lennon here: "You may say I'm a dreamer, but I'm not the only one."   0:43:16.8 Andrew Stotz: Yep. Yep. Yep. And what do you say for people that feel that you gotta have these targets and goals and KPIs to get the most out of people? And when we think about what Deming's talking about, we're talking about this intrinsic motivation. But it's scary for people to think. It's a lot more comfortable to have these goals and structures than what you could argue is a little bit more unstructured. And how do we balance that? And obviously Deming wasn't saying don't have goals.   0:44:02.1 Balaji Reddie: Yeah, yeah. I think Henry addresses this very well in his 12-day course where he has a specific section on goals, et cetera. And he talks about how Deming said that there are some things called facts of life. Facts of life is, okay, we need to turn out, we need to generate so much of revenue this year because we need to pay for all our salaries and blah, blah, blah, blah, blah, and then we need to have some money for the future. So we need to make so much of money this year. Now that's not a goal, that's a fact of life. But when you are bringing that number out and showing that to everyone, please also indicate to them how we intend to achieve that. Don't just leave it to them and say we need to do this.   0:44:54.4 Balaji Reddie: Okay. I'll give an example here. I don't want to sound... It may sound a little self-serving, but okay, take it in the right spirit. I remember when we had our first strategic meeting at my company, and my boss... Okay, was... He said... I think 20 of us sitting in the room and he said, "Last year, our target was 30 million and we're getting there and we're doing a great job. So this year we're gonna aim for 45 million." Now when he said that, I just put my hand up and he said, "Yes." So I said, "Why 45 million?" And he just stared me down and he looked up at everyone and said, "That's it. Meeting dismissed." He just walked out. These are those days when you had... You know the OHP? You know the overhead transparencies, the projector?   0:45:56.9 Andrew Stotz: Oh, yeah. Overhead transparencies, yep.   0:45:58.8 Balaji Reddie: Yeah. So he had the transparencies, and he just took them and walked out. And all the guys came to me, "Are you mad? You're questioning the owner of the company? Are you nuts?" And I was thinking, "God, what did I say wrong?" And then we started going back to our cabins, and when I sat down at my desk, the phone rang, and it was boss. And he just uttered one word, "Come." So when I was walking towards his cabin, I was thinking to myself, "Nice company, nice friends." And then I knocked on the door, and he said, "Yeah, yeah. Come in." He said, "Sit down." And then he said, "Shut the door." He said, "What the hell were you trying to do today? Are you trying to mock me?" I said, "Please, why would I want to mock you, boss? I wouldn't want to mock you. I just wanted to know why 45 million."   0:46:52.9 Balaji Reddie: He says, "All right." And so he took out what is called the blue book, where we have the yearbook, what happened in our country in the last one year. We have these books that get written, right? So he said, "Look, this is growth in our country in industry. This is our... Sector that we are in, and we are in the organized sector in this industry. And the year-on-year growth for the last five years has been this, and this year the expected growth is so much. And can I expect at least 3 or 4% of that growth?" I said, "Of course, why not?" He said, "That, son, is 45 million." So I said, "Why didn't you tell me this? That's all I wanted to know." He said, "You think these asses..." He was referring to my other colleagues... "Would understand?" I said, "Boss, if I can understand, they can understand. It's one and the same." "Okay. Let's meet tomorrow."   0:47:52.1 Balaji Reddie: So the next day we met again. And he said, "Yesterday, when I uttered 45 million, this genius asked me why, and so I'm gonna tell you why." And he went on to explain. After he finished explaining, my sales guy... Sorry, my marketing guy got up and he said, "I have something to share." "Okay, please come forward." He put the transparency. And he had listed there the top 10 selling items in my company based on revenue, based on profits, and based on quantities. Top 10 for each. There were three products that were common to all the three. So obviously he was sending a message to us, that we had to attain our targets, at least by focusing.   0:48:44.8 Balaji Reddie: The moment he showed that, he underlined these three, the sales guy put his hand up and said, "Yes." "That second product you underlined, our competitor is selling it as a package with another product, but we don't seem to have that on our list." So the R&D guy got up and said, "Could you tell me what the part number..." And he says, "It's part number so-and-so." He said, "Hang on, I've already developed that." You know what was happening, Andrew? We were talking to each other. And that meeting went on for three and a half hours. And at the end of the three and a half hours, all of us knew how to attain 45 million.   0:49:23.8 Andrew Stotz: I thought you were gonna ask a question on the second day, "Hey, boss, so 45 million, why is there no market share gain of our business that we're growing faster than the industry?"   [laughter]   0:49:41.4 Balaji Reddie: So anyway, but this was... This is what I think goals should be transparent in this sense, that why are we giving you this number? And more importantly is the discussion that happens is how are we gonna do this? It just doesn't happen by itself, right? And if you leave it to people, they start distorting numbers, right?   0:50:03.8 Andrew Stotz: Yeah.   0:50:04.2 Balaji Reddie: As Brian Joiner said, "Distort the data, distort the system, or distort both."   0:50:12.2 Andrew Stotz: Yeah. And we're working on a growth plan for my coffee business.   0:50:19.0 Balaji Reddie: A growth.   0:50:19.6 Andrew Stotz: And really what it comes down to is three things. Number one, are we as the owners gonna hire more salespeople? Because salespeople bring in revenue.   0:50:36.3 Balaji Reddie: Right.   0:50:37.0 Andrew Stotz: Number two, are we as the owners going to develop together with the rest of the team a higher value-added offering...   0:50:50.6 Balaji Reddie: Wow.   0:50:50.8 Andrew Stotz: That we can bring more value than what we're bringing right now, which would bring potential customers to us and allow us to sell more easily. Or are we as the owners going to buy another company?   0:51:07.8 Balaji Reddie: Oh, okay.   0:51:09.2 Andrew Stotz: So those are the three things. And Dale and I have been discussing each one of those in a lot of detail, testing out and debating and discussing. But those are the type that... When it comes to growth, that's just... We know the growth we can produce with no change. And that's in line with the inflation rate or whatever the economic growth, for sure. But as long as we don't lose people on our team or something like that. But to go to our team and say, "How are we gonna grow faster?" Well, that whole point is we can see. Also the other thing is that we can see bigger about the industry sometimes. Sometimes they see something at a small level that they bring back to us and think, "Whoa, wait a minute, that's something valuable." And yeah, so we're getting ready for our final decisions on where we're gonna go with that. But yeah, without that type of change, we're not gonna reach the type of growth that we want to get. And really our idea is 5x growth in five years.   0:52:19.9 Balaji Reddie: Okay.   0:52:20.5 Andrew Stotz: And in order to do that, we have to have a completely different level of quality, service, product, thinking. And so, yeah, it's fun... It's challenging. Anyways...   0:52:32.9 Balaji Reddie: Right.   0:52:33.2 Andrew Stotz: So how do we wrap this up? What is it you want people to take away? You've shared a lot of different stuff. What would you like them to take away from it?   0:52:42.0 Balaji Reddie: Yeah. One, I'm trying to shatter that myth that Deming did not tell us what was to be done. I think he was very clear and we need to reread and reread. And we have to take these as guidelines. You may come up with your own method, but see these as a guideline by and large to put you on the right path. And once you do that, you may develop something which works for you, and that's what he wanted. But let us not just say that he only philosophized about things. I think he was very clear in his head. He just wanted us to do things our own way because nobody understood our problems better than we ourselves. And he was just showing us how to understand things around.   0:53:32.6 Balaji Reddie: He wanted us to know, to understand what we do not know. Through these principles, we can address some of the gaps. Perhaps we were getting a few things wrong. So point number 14, take action to accomplish the transformation. I think it begins with leadership. So point number seven comes into the picture. It begins with training and education. Point number six comes into the picture and it also brings in point number 13, which is learning and development. And education and training is different from learning and development. Training can be very company specific and you can measure the outcomes of training, but you cannot measure the outcomes of development because that takes time.   0:54:19.8 Balaji Reddie: So you need to have some things going in your favor. And for that you need to choose, and he told us how to do that. And yes, he wanted top management to be a part of this because he said those in authority need to do this. But that one sentence that middle management can commence, it can commence there, is a telling statement. So he knew it was possible.   0:54:45.0 Andrew Stotz: That's great. And I like that. Commence. That there's... It's not necessarily gonna be completed by middle management, but middle management can start right now, right where you are. So that's a great way, that's a great way to end with the start. So, Balaji, I want to thank you on behalf of everyone at the Deming Institute. And it's an interesting discussion and I'm enjoying it very much. And for listeners out there, remember to go to deming.org and also there, jump on DemingNEXT to continue your journey. This is your host, Andrew Stotz, and I'll leave you with one of my favorite quotes from Dr. Deming, and that is: "People are entitled to joy in work."   0:55:32.1 Balaji Reddie: Oh, yeah. Andrew, I think saying thank you on behalf of the institute, I am also a part of the institute.   0:55:38.5 Andrew Stotz: Of course. Of course. You are. I appreciate it. Okay.

Why do more pressure, more meetings, and more accountability so often produce the same outcomes? John Dues and Andrew Stotz explore Deming's overlooked insight that results are created by systems — not effort alone. Learn why reacting to variation often makes performance worse, how leaders unintentionally create noise through "tampering," and what it takes to build improvement that actually lasts. TRANSCRIPT 0:00:02.6 Andrew Stotz: My name is Andrew Stotz, and I'll be your host as we dive deeper into the teachings of Dr. W. Edwards Deming. Today I'm continuing my discussion with John Dues, who is part of the new generation of educators striving to apply Dr. Deming's principles to unleash student joy in learning. And the topic for today is why reacting to results won't improve your system. John, take it away.   0:00:25.6 John Dues: Hey, Andrew. It's good to be back.   0:00:28.6 Andrew Stotz: Yeah, it has been a while.   0:00:30.5 John Dues: It has been a while. We missed a couple months for scheduling stuff, so we're fitting it in on Memorial Day here.   0:00:38.1 Andrew Stotz: Hard working. Even on a holiday.   0:00:41.1 John Dues: Even on a holiday, yep. No doubt. I stumbled across this, I'd seen this a number of times, but I thought I'd start with this quote from Deming. He would often sort of pose this simple question at his seminars. He would, you know, kind of ask the crowd, "what will it take to take an organization to unprecedented levels of quality?" And he was, you know, truth be told, he was kind of setting the crowd up because he knew inevitably someone in the crowd would say, you know, by everyone doing their best. And he would immediately respond then, "they already are, and that's the problem," right? So that's kind of the focus today. And, you know, that sort of exchange to me exposes a belief that still shapes in my world how many schools are led today, and I'm sure many businesses as well. And that is this idea that when results fall short, the instinct is to push harder, you know, respond faster, demand more from people. You know, it feels responsible, it looks decisive, but it rarely, very rarely produces better outcomes, especially on the long term. You know, in many schools, you know, leadership revolves around reviewing outcomes.   0:02:05.8 John Dues: You know, just like probably in your business, you know, we're examining test scores, attendance rates, discipline data, you know, lots of other types of indicators, and we're often comparing those results to what came before. And then we have all these meetings and we have charts and explanations and action steps. And, you know, despite all this attention, all these best efforts, results often remain unchanged.   0:02:30.3 Andrew Stotz: Yeah, it made me think about when, you know, let's just say that a tragedy happens and then everybody wants the government to tighten the laws. And then they're oftentimes responding to a short term, or let's say, normal common cause variation. And next thing you know, you have 10 laws coming down on society that nobody can untangle.   0:02:56.3 John Dues: Yeah.   0:02:56.8 Andrew Stotz: And if you were to actually stand up... And this is, I think, to me, some of the crux of what made Deming different and difficult, was that if you were to actually stand up and say, "my proposal is to do nothing."   0:03:04.0 John Dues: Yeah.   0:03:16.3 Andrew Stotz: Everybody wants action.   0:03:17.3 John Dues: Yep, everybody wants action. It's, you know, the issue is certainly not a lack of effort. You know, I mean, I see it every day, you know, leaders, educators, they work hard. The vast majority, you know, work very, very hard, which is probably the case in most businesses. And you know, in most cases people are already doing their best. And that's kind of the point, right? The issue is that the results are those outputs of those systems. You know, they're produced by the system and they can't be improved directly, the results, that is. You know, but that's what we focus on. As leaders we focus typically on results and, you know, we end up reacting to what the system produces rather than changing, you know, how that system works. And I think that's probably, if not the, one of the key lessons that, you know, Dr. Deming taught in his four-day seminars. And it's just like what you said, you know, that reaction, it feels like action, but it doesn't change, you know, the performance of the system. So, you know, over the past several months, I've argued, you know, as I've been writing about this, that leaders often respond too quickly.   0:04:32.4 John Dues: Just like what you were, you know, talking about in your example there. When the numbers change, it's so often just that common cause, that routine variation, and they don't have any tools to distinguish signal from noise. That's sort of one characterization. So, you know, what happens is these common cause patterns just remain. And when results are not where we want them to be, we just respond to the data itself, right? Instead of actually working towards the system. And we, you know, in my world, it's lots of meetings, you know, we ask... As leaders, we ask for explanations. I definitely did this before I discovered this methodology. We adjust expectations. You know, we in education are sort of notorious for new initiatives piled on old initiatives, but none of these actions, none of these things, it feels productive, but none of them are actually changing that underlying system. And I think that's really where the problem lies in my mind.   0:05:39.5 Andrew Stotz: Yeah, the concept of tampering is such an interesting one, you know, that he talks about, about tampering with a system, you know, just does more damage.   0:05:49.2 John Dues: More damage. Yeah, that's exactly right. That's kind of the irony or the paradox that you often find in the Deming philosophy is that until people actually stop and think about it, you know, if they stop long enough to consider what he was saying, then they start to sort of come around to those ideas. But we often don't slow down enough to actually do that, right? And so, you know, it begs the questions, if reacting to results is ineffective, and we've said that, you know, here before, what is it leaders should do instead? And I, you know, I think a really useful, different starting point is a question to ask yourself. And you know, that first question is, is the process that produced this observation the same as the process that produced the others, right? Is this actually something different being produced in our system or, when we really stop and think about it, is it more of the same? You know, and the answer to that question is going to dictate your next steps. But the key thing is that that question shifts attention away from the most recent data point and toward the system that generated it. You know, it forces you to look back more than just, you know, last month or last year.   0:07:07.7 John Dues: Now you're looking at what's happened the last several months, what's happened in the last several years in this system. You know, I think then if the process has not changed or the system has not changed, I kind of use those interchangeably, then what you often discover is that the results are likely consistent with what the system has been producing all along. And so in that case, which is again so often the case in a common cause system, asking for explanations or making immediate adjustments doesn't address that underlying issue. And it, just like you were saying, it's what Deming called tampering. And it actually makes things worse. All this action, all this activity, it feels good in the moment, but you're actually making things worse in your organization by overreacting or reacting to the wrong things. Now, on the other hand, if the process has changed, then there might be something to investigate, but the goal is not to explain the result, it's to understand what is different in your system. So in either case, whether it's a change or something hasn't changed, I think the key thing is the focus moves from the data to that underlying process or that underlying system.   0:08:29.4 Andrew Stotz: It's... I've been working at my coffee factory with the accounting team using the accounts receivable days and the inventory days as a measure that we can track over time. And then I've, you know, developed a pretty simplified PDSA for the team, considering they've never heard any of this stuff. And so, and then, you know, first thing we saw when we looked at the data was that the inventory days really went down a lot in December. We're like... And that was because we wrote off a lot of inventory at the end of the year that was obsolete or whatever. So there was a... And that's where I could say there is an example of a special cause. There's no sense in changing the system because of that one write-off, although that can give us some indication like, we need to be better in some other areas. But to look at that one special cause as unique wouldn't make sense.   0:09:35.7 John Dues: Yeah. And in that case, is the data point from December being produced by the same system that the other data points came from.   0:09:45.6 Andrew Stotz: It's the same system except there's an extreme adjustment to the system.   0:09:53.1 John Dues: Right.   0:09:53.3 Andrew Stotz: Which is the write off.   0:09:55.5 John Dues: Does that happen every year?   0:09:58.3 Andrew Stotz: Yeah, it's gonna happen in every business that has a warehouse and production because, you know, there's gonna be waste, there's gonna be obsolescence, there's gonna be mistakes, and you... It's just very hard to get it perfect. My first job at Pepsi was counting the inventory, basically, and I ran a team of seven people that counted the inventory every single day. And you know, you just, you know, you can see the whole concept of, you know, that you're never gonna get it perfectly right. But the objective is to minimize and minimize and minimize that, you know, variation. We don't really want a large, the reason why a large hit happened at the end of the year was ultimately because of the management decisions that we made throughout the year to either avoid it, not take, you know, not write it off, or not try to sell it at a discounted price or something like that. So yeah, there's lots of different factors.   0:10:58.3 John Dues: Yeah, sounds like some seasonality in that case is probably the primary driver. Yeah, and I think that's a good segue into this idea that I think when we've talked about systems, you know, they all have sort of a certain level of performance they're capable of producing at any given time. And you know, the key thing is looking at that capability not just at a single point in time, but over, you know, an extended period of time. And then by seeing the patterns that sort of emerge over time, you sort of start to really grasp what the capability of your, you know, your system is. And then, you know, at the same time as an organization we have expectations for those processes or systems, what the results should be. And I think the starting point for improvement is where you start to compare those two things. You know, what is the system currently producing, what do we want it to produce? And then what's the gap between those two levels? And that's where we, you know, often that's where the goal setting and things like that, you know, where our expectation setting falls off track because we've set those goals without studying, without understanding that capability.   0:12:14.0 John Dues: You know, we've talked about this here, it's so often leaders are establishing targets based on aspiration or pressure or, you know, external demands without understanding what the current system can actually deliver. And so then when those results fall short, the response is often to push harder or react more quickly, you know, reactive. We got to do something. Don't just stand there. You know, these are all things that we've talked about multiple times. I think, however, you know, that gap between current and desired performance, it can't be closed by reacting to outcomes. That's the whole point. It can only be closed by changing that underlying system that produces those outcomes. And I think that's what Deming was talking about when he said "substitute leadership." Right. Leadership is about understanding the system, understanding what the system is capable of. And you're a part of that system, you're a part of that understanding. And so you have to sort of lead that understanding, lead that capability understanding, and then start to help lead with the changing of that underlying system. It's not just the frontline workers, you know, in our case, the teachers, they can't be left to their own devices because they don't have control over so much of the system just like, you know, the production workers in your Pepsi example.   0:13:36.0 Andrew Stotz: Yeah, it's interesting because I've been working with this, my accounting and finance and inventory team, and you can definitely see, like, they cannot produce a different result than what they're producing right now. Like, I just can see that. And even thinking about how do we do that is a challenge. It needs some time. But I also don't want to come in and give solutions. I want to teach them how to use PDSA and how to think about, you know, the variation. And so, you know, but I did, like, I told them a story about, I went to visit a credit card collection company and they were very successful in Thailand and they were a Japanese company. And the way that they did it is they set up the collection date was the 15th, starting, or your credit card, basically you gotta pay on the 15th. And their goal was, of course, to be at 100% collection by the end of the month. So they made a whiteboard, and they just marked down each day from 15, 16, 17, all the way to 31. And then they had eight teams, and each team each day would post the percent collection.   0:14:52.8 Andrew Stotz: So one day they had 50%, you know, 50% of people just pay, and then 60 and 70. And so there's a natural, you know, increase as people are paying their bills. But then they start doing calls and other things, and then they can look at other teams and see how's each team doing. And I asked the Japanese manager of it, this was in Thailand many years ago, and I asked him, what do you do if one team's doing really well and the other one's collecting, you know, a lot less? He said, well, we have the better team help the weaker team.   0:15:23.6 John Dues: Hmm. Imagine that.   0:15:25.2 Andrew Stotz: And I was like, that would just never happen in America.   0:15:27.6 John Dues: Yeah.   0:15:31.9 Andrew Stotz: It's like, not my problem, dude. You're not doing it.   0:15:48.6 John Dues: Yeah. You know, when you're talking about, you know, a special cause, you know, a key point is that a special cause could be positive, you know, that positive deviance. And so what do you do? Exactly what you just said. You study it, and then you share it with, with, you know, with everybody else, right? And it's not in a gloating way. It's just like what you described, you know, they were helping another team because, you know, a few months from now, maybe it's this, you know, the team that needed help, they may then be, you know, helping others. And that's such a much better way to sort of operate, you know.   0:16:08.3 Andrew Stotz: Yeah, by giving some ideas like that. And this is why I love reading and I love podcasts, and I love that because, you know, you hear different ideas and you think, hmm, I wonder, you know, why don't we... We could do a PDSA on that and say, what could we track on a daily basis that would keep us all kind of seeing the progression? Would that help? Maybe not.   0:16:30.9 John Dues: Well, at least it puts it in front of you. So everybody sort of, you know, closes that feedback loop, it makes it visual. We're actually doing something like that right now with our student recruitment department, where we have a weekly meeting, we have a board where, you know, all of our sort of leading and lagging indicators are visualized, and we can see right away, like, where are the gaps. And then immediately with that team, we're problem solving. Okay, this campus wasn't able to make, you know, or spend as much time on recruitment, like what's getting in the way, and then they can immediately problem solve with some of their peers from other campuses that are doing the same work. It's been really powerful to sort of operate like that.   0:17:09.2 Andrew Stotz: Yeah. And some people may look at it as just a torture to say, why is this up? Why is this down? You know, as you're talking about reacting. That's not the purpose. The purpose is... And I think for the purposes in my own situation, the purpose is awareness.   0:17:23.1 John Dues: Yeah, yeah. And it's in our case, you know, this is not a gotcha. It's not an accountability measure where, oh, you didn't hit, you know, a certain target. It's not like that. It's more along the lines of what got in your way, what didn't allow you, you know, we, we kind of, especially with the process-oriented targets, we kind of came up with them based on the end goal. So how much work do we need to be doing now in different areas to hit the end goal before the new school year starts? And we know that that requires a certain amount of, you know, hours, a certain number of calls we have to make, a certain number of doors we have to knock on, and those types of things. And so, you know, if we wait weeks before we sort of attend to some of the gaps where we're seeing instead of, you know, doing it immediately, then we're just gonna fall farther and farther behind from our goal. And so that's, you know, again, part of the power of doing it like what you're describing. And I think it really just goes back to this idea that, you know, better results require a better system.   0:18:22.9 John Dues: And then that means that the improvement work has to focus on how the system is operating. And we're talking about ways to visualize what the system is producing and in a very quick way then attend to those areas where things aren't where we want them to be. You know, so there's all kinds of ways to do that. But, you know, the key is the leader is not walking in and saying, why aren't the results where I want them, that's the key here. There's so many other things that we can do, kind of like what you were just talking about. We can, you know, study how the current system functions. We can identify areas in the systems where the performance is being limited. We can test small changes through a PDSA to improve outcomes. You know, we can repeat those cycles of learning to, you know, build knowledge. So there's many other things that we can do besides just applying pressure and say, you know, I don't know how you're gonna do it. I don't care how you do it. Just figure it out and get it done. You know, that's sort of the opposite of what Deming was talking about.   0:19:26.3 Andrew Stotz: Yeah. And when you work with them on it, you create lasting change.   0:19:31.9 John Dues: Well, I think, yeah. And when you're working with people on it, you know, they're much more likely to be bought into it, and the change is much more likely to stick because they were part of producing that solution in the first place, right? We're not trying to force better results, but we're trying to design a better system that regularly is capable of producing those results. That's kind of how I think about it.   0:19:55.7 Andrew Stotz: So what would be your parting words to the audience here?   0:19:59.4 John Dues: Yeah, I mean, I think most of what I've seen is that improvement efforts also often fall short, you know, when we are focused on results instead of that system that produces them. So there's sort of three big ideas for me when I'm thinking about this other way of doing things. So big idea one would be we have to realize that results are produced by systems, not individual effort alone. And so pushing harder on outcomes does not change system performance. I think that'd be big idea number one. Big idea number two would be reacting to results, whether they are surprising or stable, does not improve capability. It often creates more noise without addressing the underlying causes. And then big idea number three is that improvement requires understanding current system performance and redesigning the system through disciplined experimentation. Deming's preferred method, the one we've talked about, is that Plan-Do-Study-Act cycle. And so I think when leaders shift their focus from reacting to results to improving the system, that's really when we move from activity to learning and from effort to effectiveness. And that's just what I've found as I've continued to try to apply the Deming philosophy in my own work here in Columbus.   0:21:21.2 Andrew Stotz: Yeah. And for the listeners out there, imagine if each of the challenges you faced, you created a permanent solution to through the process of, you know, not reacting, understanding variation, right, maybe using PDSA. But what happened was you permanently dealt with that particular issue. Imagine where you would be if you never had to deal with the same problem twice.   0:21:51.9 John Dues: It's learning your way to a better system.   0:21:54.4 Andrew Stotz: Yeah. Just imagine, I mean, you would be at the moon by now. So, but instead, most of the time people are stumbling through. So, well, on behalf of everyone at The Deming Institute, John, I want to thank you again for the discussion. And for listeners, remember to go to deming.org and jump into DemingNEXT to continue your journey. You can find John's book, Win-Win, W. Edwards Deming, the System of Profound Knowledge, and the Science of Improving Schools on amazon.com. This is your host, Andrew Stotz, and I'll leave you with one of my favorite quotes from Dr. Deming, and that is, "people are entitled to joy in work."

What if the problem isn't your strategy, your people, or your tools, but the lens you're looking through? In this first conversation with Andrew Stotz, quality educator Balaji Reddie explains why so many organizations chase Deming's 14 Points and prizes but miss the philosophy underneath. He also gets into what changes once you start seeing your organization as one connected system. There are a few surprises along the way, like why his employees actually celebrated the day he got rid of performance appraisals. 0:00:01.9 Andrew Stotz: My name is Andrew Stotz and I'll be your host as we continue our journey into the teachings of Dr. W. Edwards Deming. Today I'm here with featured guest Balaji Reddie, who is an educator and trainer in teaching of Dr. Deming and quality management generally. Now the topic for today is a deeper perspective of the teachings of Dr. Deming. Balaji, how are you?   0:00:29.6 Balaji Reddie: I am fine. It's wonderful to see you this morning. I have been looking forward to this for quite some time now.   0:00:37.0 Andrew Stotz: Yeah. In fact, we've been talking back and forth in the past and then we had a meeting recently to get going on this because you've got so much to share. And one of the things I just said is a deeper perspective on the teachings of Dr. Deming. Maybe you could just give a little background of yourself for those people that have never heard of your journey. Maybe tell us a little bit about your journey, the Deming journey, as well as what you're doing now.   0:01:02.2 Balaji Reddie: All right. So I am an electrical engineer by profession and my first job which I got was in a lamp, a bulb manufacturing company which made automotive lamps. And that's where I chose to be in the quality department because I was being shunted around in all the different departments and the owner of the company asked me, "Where would you like to be?" and I said, "Quality." I don't know, when I look back why I chose. I think it appealed to me as an engineer and also the fact that I wanted to be a manager. It combined engineering and something to do with managing people. I don't want to sound dramatic, but I don't think I chose quality, I think quality chose me. But what I did after that was conscious. I did a postgraduate diploma in quality management, the first structured course in the country, and then went on to a Master of Science in quality management here in India.   0:02:00.2 Balaji Reddie: So that's been my journey here as far as working. I worked a lot. I used to teach part-time, but I made this switch 20 years ago to be an educator primarily and decided to put all my focus into creating the next gen of managers. At the same time, during the bit of a free time that I have, I do consult, but that's not the core profession of mine. So, yes, I'm an educator and a trainer. You can say that. I teach quality management, anything to do with operations, supply chain, et cetera, but there's always been a Deming slant to it. Along with that, I've also liked to... Because I went into the works of Dr. Juran, I got a good chance to meet with him and be in touch with him. It was only the last six years of his life, but I think he had very little time to give me, but he gave me time. So I have a good perspective of both these gentlemen. And if you know quality, they're the pioneers.   0:03:01.5 Andrew Stotz: Yeah. And I'm curious, when you first started out with the degrees and the, as you mentioned, getting a diploma and then a master's, was Deming front and center in there or was that a secondary thing? What was it like in the beginning?   0:03:19.6 Balaji Reddie: Oh, my entire focus was actually Deming. I needed to be qualified in that. I wanted to qualify myself in quality, that's what I meant here, because there was no... I was looking for a structured course on the subject. You had these training programs, certificate courses, but this one caught my attention when they said we have a diploma in quality. And part of the course was we had to, there was a project like a dissertation, and we had to show how we implemented this in our companies where we were working. And for those who were not working, they were provided companies where you go and actually implement these. So it was a win-win. So the company gained and you gained. That's how it was. That's what I liked about that course. Same with the masters. It was a complete two-year course. This was a year-and-a-half or three semesters. That was more elaborate, the masters. So, yeah.   0:04:18.0 Andrew Stotz: And what is the state of Deming and the teachings of Dr. Deming in India? We know that many companies in India have implemented the teachings of Deming over the years. But of course, there's a lot of people that just know nothing. I'm just curious, what is the state right now as far as the teachings of Dr. Deming?   0:04:40.3 Balaji Reddie: Oh, I'd like to... Just a slight correction there. We have the highest number of Deming Prize winners, but that does not necessarily mean that they're implementing the teachings of Dr. Deming. In fact, many of them after having got the prize... I worked in a company, we were suppliers to one of them. And when they came to do a vendor assessment to our factory, obviously there's a lot of buzz. Everyone in the company, they called me the Deming man. They used to call me that. And so when these guys came down and they were talking and when they gave their business card which had the Deming Prize logo, so they said, "Oh, we have... You know, Balaji is here and he's our Deming man." So who's he and what is this? And so they came and met me and they said that, "We got the Deming Prize." I said, "Excellent." But I said, "Just because you got the Deming Prize, I mean, have you worked on the Deming philosophy?" "Isn't this the same?" And I said, "No." And I, of course, joked with them, and they said, "So how do we learn?" And I said, "Pay me." [laughter] Anyway, yeah, then we got talking and they realized that there was such a big gap in what they were doing. For instance, when I spoke to them about performance appraisals and having quotas and things like that, they were like, "What?"   0:06:04.9 Andrew Stotz: Interesting. And when we talk about the Deming Prize, when I asked you that, we're talking about the Deming Prize which is offered by the Union of Japanese Scientists and Engineers through their Deming Prize Committee. This isn't something done through the Deming Institute.   0:06:12.3 Balaji Reddie: No.   0:06:19.7 Andrew Stotz: Yep. Okay. And do people study Deming there in India anymore or is it fading out or...   0:06:26.7 Balaji Reddie: Well, yeah, that's what I said, they do know. The good part is that because of the fact that the Deming Prize winners are there, at least they know about Dr. Deming. And then they're curious to know, "Oh, what did he teach?" Because again, they've been given that perspective that he taught, well, wrongly, PDCA, and he focused on the 14 points. And then when they read the 14 points and then they get... Because when you read it just without understanding, you can actually... It can put off certain people. You may get a little repulsed and say, "Oh, my God, what's he saying?" But then there are certain people who get intrigued and say, "Wait a minute. This is challenging. He's saying that we need not have quotas? Then how are you going to get work done?" And that's where the questioning begins. And there have been normally these trends where some companies where they called me over, I shall not name one of them, one of the students I was teaching in class and I was talking about the 14 points, and then she comes up to me and she says, "I've spoken about you to my father, and he's working in this company, and they're going for the Deming Prize. He wants to meet you." And then she brings him to the college the next morning and then we had a lovely discussion. And he said, "We've been discussing the 14 points." And I said, "You know what? You're putting the cart before the horse. You need to discuss profound knowledge first." So he said, "I'll put you in touch with my HR, the human resource." And then that lady got in touch with me, then we had a good chat and I explained to her and she understood very quickly. Incidentally, Andrew, that's something very amazing, when I speak about these things to the HR people, they take to it like a fish takes to water. They say, "You're right. What can we do about appraisals? Appraisals are wrong." But they also know they're shackled. They do not have the authority to break and come out of it. There have been some cases where they've been bold enough, but many of them... That's one of the things I've seen over these last 20 years that I've been teaching, that everybody principally agrees, but they also say that we're bound by it.   0:08:37.6 Andrew Stotz: That reminds me when I attended my first seminar when I was 24, and I was very intimidated by all the people in the room. I was just fresh out of university, working at Pepsi in Los Angeles. I flew into Washington, D.C., and so I sat right in the front row and I just decided I'm not gonna look at anybody behind me because they're all bigwig executives. But then when I heard Deming really show no mercy and really be tough to them, I was like, "Wow, wow, this is interesting." And he was getting to the... As a factory supervisor, which is what I was at Pepsi, I could just see he was getting to the heart of the matter. And so, yeah, a lot of things are very obvious to people in the factory, but then it's the leadership that is an issue. I'm curious when we think about... Let's imagine that someone listening to this has never heard of Dr. Deming and it's their first time, they stumbled upon this, they're hearing you speak. They're gonna ask the question, "Why does this matter? What benefit do I get from this?" How would you describe that to someone who knows nothing about Dr. Deming and his teachings?   0:09:59.3 Balaji Reddie: Oh, well, when you start getting aware of what this man had to say, let me tell you, when you start actually getting to it, you'll find that what you've been missing all this time in life. And then when you actually get to implement this, it'll be way, way better than where you are right now, sometimes totally in a very, very different direction. And you begin to realize that you had an illusion of knowledge, that you thought you were correct, and then suddenly a new perspective comes in. Just to make a point here, I don't want to be boastful about this, but I'm really proud to say this, that in all the companies that I worked, I removed performance appraisal. None of the companies I worked in had performance appraisal. And the day we removed it in one of the companies, there were actually celebrations.   [laughter]   0:10:56.7 Andrew Stotz: Yeah. Which for many people listening that don't know anything about the teachings of Dr. Deming may think, "That's crazy, because I thought that we run business through performance appraisals, KPIs, and the like." One of the ways I was thinking when you were just speaking was it's a little bit like Deming's... You're a fish, and Dr. Deming is a guy that's gonna come up and tell you, "Oh, by the way, you're surrounded by water." And you're like, "Wait, what do you mean? What's water?" And then all of a sudden he brings this awareness like, "What am I swimming in? I am swimming in something, and it's called water." And it's like everything that's going on, the concept of how we learn, the concept of variation, the concept of psychology, it's like all of these are foundational things that we've been swimming in, but we really haven't been paying attention to. And I think he woke me up to a lot of that. So what should we talk about today? What do you got on your mind?   0:11:55.7 Balaji Reddie: Well, I presume that the audience would be someone who's read about Deming, or if they have not read, I can go it either way.   0:12:05.9 Andrew Stotz: Yeah, I mean, I would say just let's go into what your learnings are and what you want to teach us today and share with us, and then people can follow along.   0:12:17.4 Balaji Reddie: All right. So let's begin with what he meant by Profound Knowledge, because that was something he put together only towards the end of his life. I'm reminded of a few things that led to me thinking about these things. One of the very first books that was written on him was by Mary Walton, The Deming Management Method. And with due respect, she was an excellent journalist, and so she followed him around. Everyone was intrigued to know who this man is because he had just gained popularity. If Japan Can... Why Can't We? And so she wrote this book, I think as early as '84, if I'm not mistaken. And she followed him around for almost three years before she actually published the book. So she attended four-day seminars, and she's trying to understand what this man was. So the biography bit of it was very nice. But if you go there in the preface and in one of the chapters, there's a very interesting conversation where she says, "I asked Deming that why don't you set up a body, an organization? Why are you doing this all alone?" And he didn't say a word to her, and he just mentioned to her, "I'm good." So I believe he was still looking for the answers to offer something to the world. He had it all in uncoordinated stuff here and there, but that came much later, I think in 1989, when he finally put it all together and called it Profound Knowledge. Because that was when a year, a month or so before he passed away, he set up the Deming Institute. I think he thought he was ready now to leave behind a legacy that others could build upon, right?   0:14:08.0 Balaji Reddie: And so that he called it... Again, I'm looking for the missing link here—. Apparently, when he wrote it, as he called it deep knowledge, but it was someone who gave him the word profound, and that's how the name stuck. So I'm still trying to find out who did that. I saw this in one of the letters to Henry Neave, where he was writing to all of his colleagues, he called them, and taking feedback from them. And in that, he said that, "I profess this is deep, this is wide." And somebody said, "It's profound." I forget. I really want to find out who it is. I asked Bill Scherkenbach, and he said, no, it wasn't him. Henry, of course, no. I asked Bill Latzko, and he said, "No way. I never said that." So I really don't know who said it, but he christened it "profound." And we all know now, it sounded very pompous to begin with when you hear profound, and then you say, "Wait a minute." When you start getting into it, you say, "He's right. There's no other word to describe this. It is profound." So what exactly is Profound Knowledge? Now, it's a different way of looking at things around you. And especially he designed this or created this for man-made systems, organizations that you and I work in, helping us to look at things differently, right? And that's why he said it's a different lens. And when you see things differently, you ask different questions, right? When you ask different questions, you get different answers. When you get different answers, you draw different conclusions. When you draw different conclusions, you take different decisions. And when you take different decisions, that's when you get different results. It's insanity to expect different results by asking the same questions every single time. All right.   0:15:53.8 Balaji Reddie: Now, what exactly is, again, what do you mean by this whole thing, the lens? He brought together four seemingly disconnected sciences, right? He never invented any single one of them, but he saw the interconnections. All right. And the four sciences, he felt that if you had good knowledge, working knowledge of these four sciences, you need not be an expert in them, just enough for you to understand what's going on around you. All right? And in no order of importance, he had his title for each of those sciences. One was he called it appreciation for a system, which I would like to say very simply is connectedness, right? Because when people say systems thinking, okay, then you have the systems thinking experts who jumped into the picture. And I think they were caught napping. To be quite honest, Andrew, I think the people from the world of management were suddenly caught napping, and the experts were completely caught napping because they realized they'd missed the bus. Here's this man who caught everything together and put it into place, right? And so when they were... When they said systems thinking, so the systems experts came in and started trying to find out, "Oh, but he missed out on this, and he's confusing this with that." That's where it is. Dr. Deming knew where to start. All right? He said, "Yes, of course, it's all about systems, appreciation for a system, the fact that nothing exists in isolation." So I would like to say connectedness. Everything's connected to everything. When you start having that systemic approach, you realize you're not dealing with events, you're dealing with eventualities, and that there are always a huge myriad of inputs that create the outputs that you see in front of your eyes, right? And there's so many other attributes that they're separated in time and space, et cetera. We can talk for this forever. But the short word here is connectedness. Second...   0:17:56.1 Andrew Stotz: And I would say that the systems experts retreated soon after because they're nowhere to be found when we look at it these days, because everything's divide and conquer.   0:18:07.6 Balaji Reddie: Yes. Yeah, because there were people like Russell Ackoff, Stafford Beer was mentioned many times, and then their books. Now, I went on to read their books and I found, yes, they were going deep, but Dr. Deming knew where to draw the line and said, "That's it. Please don't go beyond this," and it depends on where you are, what you want to study. So draw your line around that and say that's it. And I think that thinking came from the next science which I'm talking about, which is understanding of variation, right? Now, although we say understanding of variation and people talk about the control chart, I think that's just the manifestation. If you look at the philosophy behind it, what Walter Shewhart actually was trying to do was to draw a line between when to act on the process and when to leave it alone, right? He came out with... He demarcated, and that's where it turned into the control chart with data. But broadly, Deming started applying this everywhere, right? He said that there are some things which are in my control and some things out of my control, and so he drew a line. And same with systems thinking, that how big and how deep should I go? And that's why he said every system must have an aim. Without an aim... So the aim and the purpose decide where you're gonna stop. You can't just keep on saying, "Oh, yeah, finally, okay, the whole world is a system." Fine, great, I get that. But I'm trying to study this, okay? My company, my organization, this process, these people. So you draw the line and say, "This is my purpose, so let me restrict." Again, I repeat, he knew where to stop. People tend to go overboard. And so he always said, "Begin with the aim, begin with the purpose." The purpose is the reason the system exists, and the aim is the direction in which you're headed. So you keep going there, keep revisiting that to let yourself remind yourself that I need to stop right here. Okay, and that's it. When I come to it later, because he said... Coming to the third part of Profound Knowledge, where he said you must have a theory of knowledge.   0:20:13.4 Balaji Reddie: Now, when people hear the word theory they get very put off. At least in my country, the broad doctrine is that theory is the opposite of practice. And so they think that theory belongs to the books and theory belongs at home. And when you come into the company, we all believe in being practical, right? And as you go through what Dr. Deming had to say about theory, you realize theory is a guide to better practice. And all the great practitioners are actually theorists. It's just that they don't know it, and we need to remind them. I've had enough of experience on this in my own company. And I remember when I turned on the light bulb for one of the very, very senior people in my company, he went completely quiet. He did not say anything, but I loved the way he reacted or responded to this when he started doing things very differently after the interaction that we had once. So that's with theory of knowledge. And...   0:21:19.9 Andrew Stotz: And would you say that theory of knowledge, would you correct my description of it, which is that you need to have a method of... You need to understand how you acquire knowledge?   0:21:40.1 Balaji Reddie: Yeah.   0:21:40.2 Andrew Stotz: And you gotta figure out, because acquiring knowledge, for instance, as an individual, we can play around lots of different ideas and experiments and stuff like that, but acquiring knowledge within an organization is a much harder thing. And so first is the idea that there's a level of rigor that you need in an organization to make knowledge stick.   0:22:06.9 Balaji Reddie: I think it's more about awareness. When you become aware of how you're converting information into knowledge. When you... He makes you aware of that, right? Dr. Deming gets you aware, he makes aware, "Okay, okay, wait, what's happening here?" Now, that method and all turned out to be the Plan-Do-Study-Act, whatever you call it. But he helped you understand how you're doing this, right? And you become cognizant. You get your cognitive behavior, you get very aware of things happening around you, right? You start asking the question, "Why? Why is this happening?" And then you get to the bottom of it. "Oh, when I do this, I get this." And that's when it becomes powerful for you. And then you also, "When I do this, I do not get this." And the more the theory fails, the more powerful it gets for you, because you know where it fails. So that's the awareness thing. So connectedness, being aware of the fact that it's beyond just numbers. It's about where, the variation bit, the third bit is about awareness, like I said, about learning, and the fourth, of course, about people. And he said here that all of us are born with a learning system, right? Each one of us has a learning system, a system of learning, but every single one of us has a different system of learning. We learn differently, and we learn at different speeds, at different paces, right? And so understanding the learning process of a person and then putting that person on the right job, right? He said you have to stop that person from working, and that's where joy in work comes in. People enjoy their work. I think the bottom line there is empathy when you start understanding why people do what they do, whether it's your people in the company, the customers, your suppliers, the entire system. So he says the learning process of every person needs to be understood. You want to control the market, you need to understand what makes the customer tick. You want to keep the suppliers with you, you want to understand what makes the suppliers tick, right? And what makes them tick.   0:24:23.3 Balaji Reddie: So that's the fourth part, which I would put as the word empathy. Trying to empathize. So putting this all together, he said that's what he called as Profound. So if you look at it in a broad sense, connectedness and empathy are very philosophical, and the variation and theory are very scientific. So he wanted us to be scientific and philosophical simultaneously. It's not either-or, it's and. And that's difficult to do, right? You have the big divide. You have a set of people who say, "Oh, I believe only in data. Show me the data, show me the results." And then there's a whole other set of people who says, "You gotta feel. You gotta feel for the company. Motivate." Yeah, but neither is wrong, but neither is complete. And this is complete. So this is where I found that I think we could begin, that we need to look at all these four sciences together. And of course, then came the 14 points which he laid out for us. Now, these 14 points, now if you look at them, because I just discussed the four... Of course, I've not gone into depth of each of the sciences, but I think good enough to understand what we are trying to deal with here, then you'd see that the 14 points are actually 14 consequences of this way of thinking. That you don't try to do the 14 points. When you start thinking this way, you end up with the 14 points, right? And there are some things which need to be done, right, and we need to start somewhere with this. And one of the main things that he always said is that people need to be educated about this, that people need to learn about this. And so education and training is important even when it comes to profound knowledge. And he said someone has to take the lead, all right? Someone has to get things done. And so that was his point number 14, that create a critical mass of people in the company that understand, believe, and will work towards these 14 points, right? So I'm gonna begin right there.   0:26:43.1 Andrew Stotz: I was just thinking about his saying, "One need not be an expert in any one point, [chuckle] any one of these areas." With the System of Profound Knowledge, the more I've studied it recently, which I've been working on a project recently where I had to go back to the System of Profound Knowledge, you really see that he's trying to provide a coherent, holistic system.   0:27:16.1 Balaji Reddie: Yes. I call it as a theory of leadership and management.   0:27:23.6 Andrew Stotz: Yeah. And then you start to realize that if you can understand these four things, which isn't that... It doesn't have to be that complex, it can be pretty amazing. And I know one part of my business is investing, which I do on behalf of my clients. And one of the things that makes me stand out as unique is that I don't get distracted by the random variation in the markets. And so that doesn't mean that I'm gonna get it right all the time, but what it means is that my mind is much more clear when I understand. And as I tell people about variation, I say, if you think about just your birth, the beginning of your life is a random event. You had no influence over that, who you were born of. And therefore we at least know that randomness plays one role in your life. But when you start exploring the possibility that randomness is all around you just like water, it just wakes you up and you start to realize, "Aha, I've been reacting to things," and punishing and rewarding and all of that stuff that's happening in companies. And what I'm really doing is I'm just chasing my tail. Or as Dr. Deming would say, putting out a fire. A man could run... A manager could run... Could put out fires their whole career and never improve the system.   0:29:02.8 Balaji Reddie: Yeah. A lot of activity, no work.   0:29:04.5 Andrew Stotz: Yeah.   0:29:06.2 Balaji Reddie: Okay. Incidentally, when you said about investing, one of my students who did something fascinating, I've yet to get to the bottom of it, I never sat down and asked him how he did it, but he used control charts for the stock market. And one day he explained to me, he was trying to rather, because I never... I'm not into all of that investing. That's done by my wife. I just sign the papers and she puts it in. So I... I mean, I might as well be shown the Constitution and say, "Okay, this is what it is," you know? But yeah, so he... I remember sharing with him and he said, "Can I use this for stock market?" I said, "Look, son, I don't know how this works, but I presume what you can do is this. If you had yesterday's Sensex numbers and you have today's, then you can draw a control chart for the differences, you know? And then you get an upper limit and a lower limit. And then if today's closing is so much, it can rise up to the upper control limit, that is the difference. You can add the difference to today's closing and say it can rise to so much, it can fall by so much, and likewise to the lower control limit." And then his eyes just lit up and he said, "I know what to do." And that was it. And I didn't meet him for a week. And a week later, I meet him and he says, "I want to show you something." And he opened his laptop and there were control charts all over the place and I just couldn't figure out, "So what was all this?" And then he said, "I've been following these. There are some blue chip companies and there are some..." I don't know, I don't understand these things much, but he said that, "I'm drawing a control chart for these and so I know that when it crosses the upper control limits, that's the max I can get for the share, so I sell."   0:30:55.7 Andrew Stotz: Yeah. I mean, the hard part... The stock market is purely random most of the time and it's a challenge. But one of the things... I gave a speech to my investors and I did control charts and I did it as a way of helping them understand the markets.   0:31:04.2 Balaji Reddie: Okay.   0:31:12.7 Andrew Stotz: To predict the markets is hard.   0:31:15.7 Balaji Reddie: It's hard.   0:31:16.4 Andrew Stotz: But the control chart allows us to kind of.. It allows us to understand that most of the variation is just normal ups and downs.   0:31:24.8 Balaji Reddie: Yes.   0:31:26.5 Andrew Stotz: And so don't freak out about it. That's the first thing that really helps me. So that area of variation I find very fascinating.   0:31:34.7 Balaji Reddie: Very fascinating. I used it for COVID data, by the way. And there was a lot of criticism about that, but I knew I was going in the right direction because I was plotting the charts for the percentage positive and not the number of cases that were being tested positive every day. And so if the percentage positive lay within limits, then we were safe. I mean, everyone wants a zero, I get that. But I'm just saying here, having said that we're collecting the data and we are turning out so much of positive every day, then it should lie within certain controllable or predictable limits. And when it crosses the limit is when we get a little worried. And that's what I used this for initially. I remember it was Lloyd Provost who stood by me, whereas the other practitioners were saying, "No, you cannot use control chart for COVID and for data and for epidemic and pandemic." Whereas Deming himself used it for an epidemic of cholera somewhere. I read it in his work and where he used the c-chart and he saw that areas where the points were outside limits and then they tested the water and well, well, whatever it was, it turned out to be that he found the special cause and blah, blah, blah. So that's what gave me the idea of using the control chart for COVID and it was quite fascinating.   0:32:56.5 Andrew Stotz: Yeah. Yeah, unfortunately there wasn't a lot of independent thinking during that time.   0:33:02.5 Balaji Reddie: Yeah. [laughter]   0:33:03.0 Andrew Stotz: Real serious groupthink at that time. So I had my experience in my PhD research and my job as an analyst all my life where... And I teach my students believe nothing, believe no one, demand evidence. And so I'm constantly digging and that's just the heart of being an analyst. But when I go back... I want to go back to when I was starting at Pepsi. The reason why my boss recommended me to go to the Deming seminar was simple because I knew how to work a computer. And that was 1989 when I went to work at Pepsi. And what I had, all of these loaders that were loading up trucks with Pepsi each night. We would load about 80, 90 trucks each night. And in the heat of the summer, we would work till 2:00 or 3:00 in the morning, but generally we would finish at 11:00 or midnight. But they were just... I would go to the drivers in the morning and then the drivers would come back in the afternoon and complain that the product that they needed was not on the truck. And there was just... And I went to the loaders, they go, "I put it on the truck. I don't know what you're talking about." And so there was this battle between the night loaders and the truck drivers. And so what I just did originally was I just started... I did inspection. The first thing I did is I said, "Look, before you close the doors on the trucks at night, I just want to count myself to understand what's happening here." And then I started keeping a record of that and I put that in Excel, it was Lotus 1-2-3 at the time, and then I put up charts of each person's error rate each night. And so we had a long chart. And I never actually even told them what I was doing, I just put up on the wall. And then they started looking at it over time and talking about it and then asking me questions. And it wasn't for the purpose of blaming, it was the purpose of just understanding.   0:35:01.2 Andrew Stotz: But then what we really started to see was that some people were much more accurate than others. And then we started to ask the question, "Well, how are they doing it?" And then they explained how they kept records of what they were doing and all that. And so we started to see that we could improve this. And we started to improve those numbers quite dramatically until we got to the point where I told the loaders when they were done that they were to lock the trucks and seal them and the drivers were not allowed to open them. They had to take them as is. And when everybody realized we really have to build from the beginning that this is loaded right, then we started to have massive efficiency. In the number of... Let's say you have 50 or 100 truck drivers that come in at 5:00 in the morning. It could take you till 9:00 AM to get them out the door if they've got problems and they're checking their trucks and all that. But if you've got it set right and you've done it right, we were able to rush people through the door and the drivers would get out to the LA freeways much earlier and that makes a difference for the whole day. So that was my first experience with it all. And then my boss just said, "Well, seems like you know about statistical quality control." I said, "I have no idea. I have no idea what that is." But he said, "You should go to Washington, D.C. And study with Dr. Deming." And that's my little story.   0:36:20.4 Balaji Reddie: Oh, wow. Okay.   0:36:21.6 Andrew Stotz: So how would we... What's the best way to wrap this up and think about what somebody who doesn't really necessarily have experience with the System of Profound Knowledge, you've given them some good overview. What would you like them to take away from this?   0:36:39.2 Balaji Reddie: Well, if you have now come to know about what this is, I think you could go to the W. Edwards Deming Institute website and you could subscribe and start looking into the learning pathways, systems thinking, there are a lot of catalogs available there and they've done a great job of putting things together. So they could do that reading, of course, you need to start reading, but the danger in reading Dr. Deming's work is it could put you off sometimes. And I would recommend a good place to start reading and understanding the Deming philosophy would be Henry Neve's book, The Deming Dimension. It's a very good start, one of the best introductions. You could always build upon that. So along with having Out of the Crisis, The New Economics, and Essential Deming, which was put together by Joyce Orsini, these are the three essential Deming books which contain papers, his own works, and then use Deming Dimension as a guide, so to say. You could read the books together and you could read profound knowledge to begin with. And once you get a good idea about what there is, then the question comes is where do we start? And that's where I just ended by saying that we start at point number 14 about creating a critical mass and take on leadership, right? So somebody has to take the lead. So what we could do is, I think the next time we meet, we could begin with that, how do we start? So we'll talk about the principles of leadership that W. Edwards Deming spoke of and what did he expect the leaders to do once you've decided or you've started seeing things differently and you say, "No, I need to do something about this. I need to start somewhere." And so we'll start with the principles of leadership. That's the way I look at it.   0:38:44.5 Andrew Stotz: Fantastic. Well, I look forward to our next conversation, how we can start to think about how we take this information and make a better world and make a better company, feel better. And so from everybody at the Deming Institute, I want to thank you again for this discussion. And for listeners, remember to go to deming.org and jump into DemingNext to continue your journey.   0:39:09.7 Balaji Reddie: Yes.   0:39:11.1 Andrew Stotz: It's an exciting tool. And this is your host, Andrew Stotz, and I'll leave you with one of my favorite quotes from Dr. Deming, and that is: "People are entitled to joy in work."

What if your sales problem isn't your people — but the system they're stuck in? Mike Carr spent years doing what everyone told him to do: commissions, quotas, performance plans. Every new hire came with the quiet assumption they'd be gone in a few months. He even optimized onboarding to make firing faster. Then he did the math: it was costing ~$75,000 every time. He called it "Burning the Porsche." His friend Travis Timmons — who'd been applying Deming's principles — kept nudging him to look at it differently. Mike's first reaction? "This is crazy talk." In this episode, they walk through what changed, what didn't work at first, and why the biggest shift wasn't the system — it was the psychology. If you've ever felt stuck trying to fix your salespeople, this will change how you think about it. TRANSCRIPT 0:00:02.2 Andrew Stotz: My name is Andrew Stotz and I'll be your host as we dive deeper into the teachings of Dr. W. Edwards Deming. Today we have an interesting discussion. I'm going to be continuing my discussion with Travis Timmons, who we've been talking about all kinds of things, including offsites, which I've found very, very valuable. I know the listeners have, too. But we're also joined by Michael Carr, who is a business owner who found the teachings of Dr. Deming about 10 years ago and has been trying to implement it ever since. Why don't we kick it off with you, Travis? Tell us a little bit about how you came across Michael and what your relationship's been like over these years.   0:00:43.5 Travis Timmons: Yeah, thanks, Andrew. Great to be here again. Yeah, Mike and I met, I'll say it's probably 14 years ago, something like that. 13, 14 years ago, a business organization he and I were both part of and sat around a table of other business owners working on problems together. And long story short, and part of the problem solving, got to know Mike a little better and had some individual conversations about how Dr. Deming and the Deming approach was having such a positive impact on my business. Might be of interest to some of the things he was working on in his. And encouraged him to attend the Deming two and a half day. But that's kind of how we met, working on business problems together, having some of the same frustrations that even though we're in different industries, the problems seem to look eerily similar across businesses. So, yeah, that's kind of how he and I met and encouraged him to maybe explore Deming and see if it'd have a positive impact on him like it did for us.   0:01:49.2 Andrew Stotz: We were talking before we turned on the microphone about the idea of how do we reach the young man or woman out there who's looking for answers. And we know Deming has a lot of those answers. So I'm really interested to learn more about you, Mike, about not only, of course, your Deming journey, but maybe tell us a little bit about your business and your experience so people can kind of put you in context, in particular where they are and thinking about where you are and where you were.   0:02:17.8 Mike Carr: Sure. Yeah. I came into business about 25 years ago and I did it kind of accidentally where while I was in grad school, I started a campus chapter of Habitat for Humanity and I had more volunteers than I could handle. So over a weekend, I wrote a small piece of software to let people kind of sign up online. This is before the days of SaaS and everything that we're used to today. And that actually took off so quickly that I was supporting it for free, I was giving it away for free to other organizations - nonprofits. And eventually my wife said, this is taking so much of your time, you either need to start charging for it or shut it down and spend some more time with the family. So I quit my full-time job at the time, put all my effort on what became the business, and quickly found myself running a business with no business background or training because my training was in electrical engineering. So I hired my first salesperson and not knowing sort of how traditional business works, I hired the person on salary, fixed salary, and sort of set up a system for her to sell within.   0:03:39.3 Mike Carr: And again, not knowing Deming, not having any business background. And so I kind of accidentally set up sales the way Deming would have recommended because that's just what I thought made sense. Then later on hired a director of sales who had a lot of success in sales, but traditional sales, and he seemed to know what he was talking about. So we completely switched our sales to more of a traditional sales approach based on his recommendation. And that's when problems really started. Because as we're aware on everyone on the call here, the commissions, quotas, and that kind of thing cause a lot of unintended consequences. So at the time that I met Travis in the peer group that we belong to, I was having a lot of issues with sales. I couldn't figure out how to get sales to work. We were hiring and firing people rapidly. And Travis mentioned Deming to me and the Deming two and a half day training which I attended. And I had become so steeped in traditional sales at that time that after the training I literally said, this is crazy talk, this Deming stuff.   0:04:55.4 Mike Carr: It doesn't align at all with traditional sales techniques. But I gave it a shot and over the next year or two we started implementing it. We started trying things. I kept learning about Deming and at some point I realized this is actually the way I was doing it in the beginning when things were actually kind of working back then. So it was funny how I had come full circle from where I had started.   0:05:23.0 Andrew Stotz: And plenty of people that are listening have commission-based salespeople, bonus incentives, all kinds of different things. And they're like, that's the way you do it and the problems that you face are just part of it. And they couldn't see any other way. And it's way too much risk in their mind to even experiment with another way. So what were the problems that you were facing when you talked about I was facing these problems from the way I was compensating my salespeople? I want to make sure that we connect with people who are like... I don't want someone to say, well, that's not me. I want someone to understand exactly the problems that you were facing and then so they can think, okay, yeah, I probably have that problem.   0:06:11.7 Mike Carr: Right. So it was a lot of... So I'll describe sort of the sequence that we would go through. We would hire someone who seemed really qualified. We would give them a day or two of training, we would give them a telephone and a computer, and we would say, "Okay, you've been trained, you have the equipment, go do some hunting and get some sales," and basically leave them alone to go and do that. Of course, they would sort of rapidly fail because they didn't have the support they needed. They didn't have a system to work within. And so we would start applying pressure, we would start messing with compensation and apply incentives, and then we eventually get to a PIP, a performance improvement plan, and then we would eventually let them go and then do all the offboarding and then start from square one. And we did that so many times that we actually started optimizing our process for rapid hiring and firing. At one point, I moved to these thin client PCs so that we didn't even have to send an entire PC to the person.   0:07:25.7 Mike Carr: We could just send the thin client and put their desktop up in the cloud so that when we had to fire them later, it was just a lot quicker to get all your equipment back. So we optimized for that rapid hiring and firing, and we were literally going into most hires with the assumption we're going to fire this person within a couple of months. And so obviously you can imagine the stress that creates for the person we hired, obviously, but also stress on the part of management because we're just constantly failing all the time. Not to mention the business isn't getting revenue and we're missing all the opportunity that we could be capturing. So one day I said to the management team, let's add up how much it costs us to go through this entire cycle beginning to end in terms of man-hours and salary and so forth and missed opportunity. And the number we arrived at was something like $75,000. 75,000 to $100,000 every time we go through the loop. And so to put this in context, I said to the team, this is as if we had gone and bought a Porsche and then just poured gasoline all over it and lit it on fire every time we go through the loop. So I started calling it Burning the Porsche. Let's just burn the Porsche again, guys. And so we got to call it Burning the Porsche. We were optimizing for rapid hire and fire, and obviously stress levels on all sides were just skyrocketing. So those were the problems that we were facing.   0:09:10.0 Andrew Stotz: And I can hear a skeptical person say, oh, you just didn't know about how to train. I know how to train my salespeople, and I put them through this intense training, then I apply all those incentives and it works. What do you say to that?   0:09:27.4 Mike Carr: So, yeah, we tried all of those things. So we gave them piles and piles of written materials, we made training videos, and of course we wanted to hold them accountable for those things. So we had quizzes at the end of each training section, and assuming they passed the quiz, which was five or 10 questions, written questions, we would check the box. And we would later, when they began to fail, we would point back at the checkboxes from the training and say, "Hey, you were trained on this. We checked the box. Why are you not doing the things that you were trained on and the box was checked?" So, yeah, we tried a lot of different varieties of training and different accountability techniques, and just nothing was sticking. And I think everyone was just getting more and more frustrated. On the part of the person that we were hiring and firing, let's not forget about them. I mean, they're going through this three to six month process that's very anxiety-producing in the system that we had, and it can't feel good for them.   0:10:37.1 Andrew Stotz: Yeah, it's interesting because when you're in that situation, as many people are, there's no way out. It's just tightens the screws tighter. Every book you read, everything you see, every person you talk to, it's just you've got to engineer your KPIs better. That's what it is. We need more granularity in KPIs and all of that. And did you feel at some point, before you met Travis and learned about Deming, did you feel at some point like there's no other choice, I just got to do it this way, or what was going in your head before you came upon Deming?   0:11:24.5 Mike Carr: Yeah, I mean, that's exactly how I felt, is that other people are getting this to work somehow. So it must be that I'm just not applying enough pressure or my compensation structure isn't correct. We need a different mix of base salary and commission, and we need different quotas because other companies seem to be making this work somehow, and I just don't know what magic they're using. So that made me even double down to say I just need to look around and look at more companies and how are they structuring their commissions, how are they holding their people accountable? I started reading a lot of business books on the topic, lots of sales management business books that reinforce that thinking. You just need to get your compensation structure right and everything works. But for me, nothing worked.   0:12:21.5 Andrew Stotz: It kind of reminds me of an AA meeting as I imagine Travis sitting down next to you and then hearing the struggles that you're going through. It's like, yeah, been there. And maybe Travis... Now that we understand the background of kind of where Mike was coming from, let's talk about maybe on that day that you first met or in your first conversations, what were the things that stood out?   0:12:48.3 Travis Timmons: It was probably several months in because we'd meet monthly at that business peer-to-peer. But yeah, to your point, it's like, hey, I struggled with similar things. Mike is pretty humble. He's a super smart guy, PhD in engineering, so he doesn't lack intelligence. So he can figure stuff out, but just like me, was not trained in business. And there's a lot of things out there that just seem to make sense when you read them, but they're not applicable. And nothing seemed to take the entire system into consideration or make an assumption that people were good. That was the other thing that jumped out at me and I had the assumption that would align with Mike's worldview because as he's already said there a few times, he knew he was putting these employees through the ringer as well and he didn't like that. So it just got to a point where I'm like, hey, I found something that is different. It takes a system view and for me, it took the stress off and gave me a construct with which I could work within.   0:14:04.5 Travis Timmons: And with his background in engineering, he obviously knows how to put stuff together, so I thought this would be a good fit for him to at least explore it and look at something different than what the traditional business approach was out there. And it just kind of went from there. He finally got tired of me bugging him about it, I think, and said, yeah, I'll go to this two-and-a-half-day so Travis stops bringing it up. But it's the same thing I was doing before finding Deming. The same problem kept coming up in my organization, and I'd read a book about it or I'd have somebody tell me, "Hey, have you tried this," "Have you tried that?" And it wasn't taking an entire system view to how to solve the system for the business. So that's where I introduced it to Mike and said, "Hey, go check this out. You're a smarter guy than I am. See what you think about it."   0:14:54.7 Andrew Stotz: It kind of reminds me of AI these days because we all use AI in different ways, but I get on the TV, on the internet, talking to friends, like, oh, I'm doing all of this and I'm doing all that and I've redesigned everything. I'm like, so how much more money is in your bank account? Are you really? And it's like there's this excitement that everybody's talking about, but I'm not able to get that. Am I missing something? I'm just not smart enough. But I'm like, "Wait a minute, I'm smarter than those guys. I know that." And that guy he doesn't.... And so maybe you can talk a little bit, Mike, about your journey, your discovery, the seminar, and kind of how it started for you and where did it go?   0:15:48.7 Mike Carr: Right. Well, so let me start at the end of the journey, and then that will illuminate the beginning. So what I realized today, and I volunteer a lot with scouting because of this, is we don't really have, we don't really train young people in leadership. Most schools don't have a class on leadership. They might have some introduction to some type of leadership, say, in sports, but we don't really train people to lead other people or to manage other people. And so what I think happens, my theory is most leaders in business, specifically, lead by copying what they see other people doing. It's a Xerox copy of other leaders, and probably in the same business, in the same company, even. And so I think what we have today is we have a lot of people who want to be good leaders, they want to be good managers, but all they have to go off of is copying from what they see other people doing. And unfortunately, that's a lot of these sort of accountability techniques and pressure techniques. And so going back to the beginning, when I got into business, my background was engineering.   0:17:14.6 Mike Carr: And I had no business background, no business training. I had been in Scouts, but Scouts doesn't teach you really how to manage, how to be a sales manager. And so I was just lacking any kind of a background. So that's where I went wrong at the time, and I looked around to copy other people. How are they doing sales? And for me, I think what I took away from the two-and-a-half-day was here is a framework not just for sales management, but here is a framework that finally gives me sort of the perspective that I could use to develop my own leadership skills in a way that makes personally a lot more sense to me. And I come from an engineering background, and Deming was also an electrical engineer. And so I think it just kind of resonated with me because the techniques and the concepts he was talking about felt very familiar from my engineering training. Let's think of this as a system. Let's look at root causes. And let's think about how changing the system, how is that going to change outcomes?   0:18:22.4 Mike Carr: All of that sort of aligns with a lot of electrical engineering. And so it kind of made sense. But then I said, what Deming's really proposing here is that we take these concepts that are applied to electrical engineering and we extrapolate them to business management. And I thought that's a really interesting idea because I hadn't really thought about that before. And once I made that connection, that leadership framework just kind of came together naturally because now I have a leadership framework that I can build off of and that I understand and that seems to make sense.   0:18:57.6 Andrew Stotz: And how would you summarize that for someone who doesn't know Deming? What are the top three things that you got from it that you really have incorporated into your leadership style?   0:19:11.8 Mike Carr: Well, the number one is the psychology piece. If you're copying off other people for sales management specifically, you're copying a lot of high stress, a lot of judgment approaches, rankings, measuring personal performance, measuring individual performance, not as a team. So you have all of these sort of tricks that people do in sales management. And so the number one thing for me was the psychology piece, which is, no, no, no, let's just start with the assumption that people want to do a good job. And in my case, we're selling software that helps nonprofits. So why are we using these high-pressure techniques? People naturally want to help nonprofits do better. Let's just find those people that have an intrinsic motivation to do that, of which there are many, and then let's give them a system within which they can do that. They can go out and help nonprofits solve problems. And so that was the number one thing is just moving away from the manipulation and persuasion techniques that you see in business books and copying from other business leaders and moving toward the intrinsic motivation piece.   0:20:28.3 Mike Carr: So that would be my number one for sure. And then the number two is thinking, which is Deming's number one thing, is just thinking of everything as a system and a collection of subsystems and understanding. One thing we did early on is previously we would send out a memo across the company whenever we made a sale and we would congratulate the salesperson who closed the sale. And I said, well, it's not... Once we implemented Deming, I said, it's not just the salesperson that made this sale. This sale was the result of everyone in the company working together to produce a good product and provide good support to our customers and do good marketing and all the stuff that's required. It's all of us working together. So we just said, "Let's stop congratulating the one person and let's celebrate the sale across the entire company and congratulate everyone." So it's these kinds of things that sort of just seem natural to me and that just aligned with sort of my worldview.   0:21:34.8 Andrew Stotz: And how do you handle that for the salespeople? Is it the case that in your type of style, in the Deming style, that really only a certain type of salesperson can work in that environment and the rest of them are gonna say, "That's not for me. I want to get the commission dollars and I made that sale, and everybody else's job is to produce and deliver?" It starts with the sale.   0:22:03.1 Mike Carr: No, you're absolutely right. There are people like that, and in fact, we changed our recruiting process. And right from the first screening call now, we start talking about the fact that we pay a fixed salary and we don't have commissions and we don't have quotas. And initially, I thought that would be really appealing to people. I thought everyone we talked to would be like, "Wow, that's exactly what I want." But we actually found and experienced a number of people that when we explained that, they said, "No, that's not for me. I want the commissions and I want the quotas and I want the celebration that comes with closing a sale and I want those things." So we just make it... Today, we just make it very clear up front because we're more about finding the person that's gonna be a good fit and has the intrinsic motivation for what we're doing. And so we're very upfront about it early on.   0:23:08.2 Andrew Stotz: And that makes sense. There are some rainmakers out there who can bring in a huge amount of sales, who are very skilled at it, and they know the game very well. And so they say, "I don't want my compensation tied to anything to anybody else." And they have plenty of places to go work. But for the people that are different from that, that say, "I want to be part of an overall system and I want to contribute to this company," and all that, there are people that also see the value of that. And then I guess from an overall business perspective, when you change the way you looked at the way you're hiring salespeople, the way you're incentivizing them, and the way that you're getting people working together, what are some... Some people say, "Yeah, you're gonna lose some good salespeople. Your sales may even go down if I take all of my great performers and I say, "All right, we're going on flat salary plus some bonus for the whole company when we do well." I'm gonna take a hit in my revenue for the next six months. But what benefit on the other side do I get?   0:24:19.0 Mike Carr: Right. And that's exactly what we saw. Initially, sales went down and we did have some people leave, and we did have some people that we had to ask to leave, unfortunately, because they had been hired under a different system, the pre-Deming system, and they weren't really a good fit for the way we were doing it now. We did have some people stay as well. So it's kind of a mixed bag there. But it did take a number of years to stabilize. And to be honest, Travis probably heard me... Every time I would come to the meeting that we had together, it would be always the same problem: "I can't get sales working." And for the first couple of years, it was always pre-Deming, "I can't get sales working." And then Travis sent me to the two-and-a-half-day training and I implemented all that, and the next two years was, "I can't get sales working." But eventually, it did start working. And also, it's not easy. Deming is not easy. And even Deming himself said there's no instant pudding.   0:25:32.5 Mike Carr: So it does take a lot of study, a lot of learning. There are good resources out there, but there could be more. I think this podcast is one of them that's a really good resource I learned a lot from. But sometimes it's a little bit hard to find resources to help you get up and running. So it takes some time to sort of figure all this out, get all your systems re-implemented from scratch. And so that's why today, when I meet people and suggest Deming, I always suggest just try this one thing or try this one thing. Don't try to just immediately jump in the deep end with both feet.   0:26:14.4 Andrew Stotz: Yeah, I want to come back to that in a second, but I want to go also to Travis because what Mike's talking about is I'm sure all kinds of stuff you faced and dealt with related to incentivizing and all of that. Maybe you can talk a little bit about your experience.   0:26:30.7 Travis Timmons: Yeah, one of the things kind of to circle back, like you said, there are some rainmakers out there. And I think the consistent thing I've heard from smaller businesses under, I don't know, under 10 or 15 million in revenue and under, it's hard to afford what the rainmaker wants to be paid. So when you have that reality as a small business owner, it'd be great to have a rainmaker. You can't afford a rainmaker, but you're trying to put a system in place for non-rainmakers that works for rainmakers. And I don't even... I'm not saying that Deming doesn't work at large organizations, because it absolutely does. But I think that's the reality of... I think who we're trying to reach is the small business owner out there that doesn't have their MBA from Northwestern and doesn't just have any kind of. Like Mike and I, we had zero business experience, but the reality is you need a different approach to have the sales piece work. Yeah, we never really had a sales team in our world, so I didn't have that problem to solve in my organization just by the nature of kind of how we were structured.   0:27:48.3 Travis Timmons: But we did have other issues in terms of the system thinking. And that's where realizing to Mike's point, the one big thing we had to tackle early on was like, hey, if we have a good client visit, it's not just because the physical therapist crushed the visit. The front desk had to have a good experience. The billing team had to get the bill out clean. Everything had to happen correctly for that visit to go well. And in our world, that would be, I guess, our sale. So the system thinking, how do you get the entire team to understand what direction you're going in? So you have to be a team player minded person. I think Mike would agree with that to work well within Deming. But yeah, we didn't have the sales... Now, I've heard plenty of stories over the years in different organizations I've been part of that had the same problem Mike did. And I've heard at Deming seminars time and time again, organizations that made the switch and it was a game changer for their organization. And it doesn't happen in two months, to Mike's point.   0:28:54.4 Travis Timmons: But it has a way to approach things in a systematic and methodological way. If that makes... Does that kind of align with what you'd say, Mike? The system approach and collaboration for the entire team to understand, here's where we're going, rather than sales doing this and development doing this and marketing doing that and accounts receivable doing this, like nobody's trying to get the same thing accomplished at the end of the day until Deming helped me see that in a different light.   0:29:26.3 Mike Carr: Yeah, I would agree with all of that. But I would also say while you're also learning Deming at the same time, so it's a little tricky to learn it all and implement it all at the same time. I explain it to my team as if you're driving a car at 70 miles an hour on the freeway and fixing the car at the same time. It's hard to do both.   0:29:50.3 Andrew Stotz: I thought you were going to say and climbing out of it into another car while you're fixing both.   0:30:02.3 Mike Carr: Yeah. Similar. Yeah, fixing both. So yeah, because that's a good point because you're still running the company you had, you're trying to transition to the new sort of company under the new system, and you're learning about it all at the same time. So it is not... There's no instant pudding, but I would say it's worth it at the end of the day.   0:30:14.3 Travis Timmons: I would say...   0:30:17.0 Mike Carr: I want to... Sorry. Go ahead.   0:30:18.7 Travis Timmons: And Mike, you can tell me if you would disagree with this, I'll just go observationally because you said, "I listened for two years, you complain about sales," and that's true. And then on the flip side of that, when you implemented Deming, it took about two years. I don't think it was that long, but it did take some time. What I think would maybe be interesting for the audience to wrap their head around, and Andrew, you probably could tease this out better than I can, but you've stuck with it. What would be the reason you stuck with it versus everything else you tried for a few months and then switched? And you kind of explained that with the system view, but I think that's the powerful thing is there is a lot to learn with Deming and it's a constant journey. It's a journey. I'm still well over a decade into this and I'm still learning. But what made you stick with this approach versus the whack-a-mole that you were doing prior, if that's a fair way to look at it?   0:31:21.4 Mike Carr: Yeah, I mean, it's really just the way it aligns with my worldview and my engineering background. The systems thinking just sort of makes sense to me. And so I said, it all just lines up so well, and it just seems like it ought to work. I just need to sort of figure it all out and get it in place. And I just didn't want to go back to sort of the high stress, rapid hiring and firing. I would rather put my effort toward bringing value to my customers than spending hours and hours debating how our compensation structure should balance base salary versus commission. I was spending so much of my week fiddling with the commission structure, and I wasn't doing the things that were bringing value to the customer at the end of the day. So now I feel a lot more productive, even if it takes some time to get it figured out. I feel like it's... My time is spent more productively in the things that I do now, figuring out the system.   0:32:34.0 Andrew Stotz: I'm curious because if you objectively look at it, people understand system. In biology, we learn about system. Doctors understand the human body and interactions. And yet we kind of blindly... If I think about it... I take care of my mother, she's gonna be 88 in a couple of weeks. And when you take care of someone that's fragile, everything has a secondary effect. And so it's easy, for instance, if she has to go to the hospital for something and then they see something and they think, "Oh, well, we should just give her medicine for that." Well, okay, have you thought about the fact that that medicine may help her with that, but she could fall because of the dizziness she's gonna get from that, and that fall could pretty much end her life? And also have you thought about the fact that what we're optimizing for is not necessarily what you're optimizing for? We're not optimizing for longevity. We're optimizing for today being the best day it can be. So when I look at, even in the case of my mom, for instance, with blood pressure, one of the things I use is I went out there and I found beetroot, and I basically make a beetroot drink, measure blood pressure before and after and throughout the day.   0:34:09.8 Andrew Stotz: It probably lowers blood pressure more than any pill. And I'm monitoring everything as an analyst, which is my background. And the side effect is good health of drinking... If you drank too much beetroot juice with carrot and other things I mix in with it, that's a side effect. But yet my mom is, "Just give me the pill." And I'm just curious, what kind of world are we in where we do know systems thinking, but it's like it's crushed out of us. It's not even crushed out of us. We know. And if we look at all the things that we do in society, whether it's disease or whatever, it's just constantly, we don't follow it. And I'm just curious, what are your thoughts on that? Or am I wrong? Many people just simply don't understand systems thinking.   0:35:08.8 Travis Timmons: Well, I think it's complicated. I think it's complicated, A, because to Mike's point earlier, we're not taught about this through a traditional structure, or if we are, we're taught about it... Like, I had a background with military training, and it doesn't get much more command and control than that. And that doesn't work in the real world, so to speak. So there's not a lot of training mechanisms out there that prepare you to deal with. I love the fact that Mike, as the engineer, said the most important thing to him was the psychology. I think that speaks volumes to how powerful, when you get the entire system working well, it gets back to the joy in work.   0:36:00.5 Travis Timmons: And Mike might correct me on this, but I think one of the reasons he continues to dive in, as do I, with Deming is it doesn't suck energy away. It just... You have more energy because you have a method and a system to work within that makes sense. Like if I do this over here, if I know that there's an entire system involved, to your point with the blood pressure medication, if I do this, it's gonna have a consequence. And if you have that worldview of your business, if I tamper with sales but I don't fix the product, it's gonna be hard for the salesperson to get sales because my product isn't good. Or that whole system view. But yeah, I think it's awesome that a PhD electrical engineer, super smart guy, the most important takeaway for him was the psychology and energy piece. I think that speaks volumes to what Dr. Deming does.   0:37:02.5 Andrew Stotz: I wrote it down and I wrote down intrinsic motivation. But also, this is another... When Deming tells the story about the girl who makes a Halloween costume with her mom and they don't have much, but it's something nice. And then they go to a Halloween party and then an adult comes up with the idea of having a competition. And of course she didn't win, but it was an amazing experience with her and her mom making this costume over time. And you just think, we understand intrinsic motivation very well, but yet very few people are optimizing for that and truly thinking about that. So both intrinsic motivation and systems thinking we know, but yet for some reason just isn't encouraged.   0:37:57.4 Mike Carr: That's because the first day of kindergarten you get the gold stars. And then it sort of goes downhill from there. But I have a business example of what you're talking about, Andrew, with the understanding systems thinking but not applying it. And I've brought this up with my team in the pre-Deming days. I used to ask, why do we pay the entire company a fixed salary except for these three people over here? What's different about those three people than everyone else? I don't pay developers per line of code written. I don't pay them based... I don't have a quota on how many bugs they're allowed to write per week. It's just not done that way. It's a fixed salary, and we give you some tools to work with and a system to work within. But for some reason, we have these three people over here that we have to treat completely differently from everyone else. Why is that? And the only reason that I could come up with is that's just how everybody else does it. So I think discovering Deming sort of answered that question for me, which was, you don't have to do it that way. You can just pay everyone in the same way because everyone basically is motivated intrinsically to do the job and feel like they're making a difference.   0:39:36.2 Andrew Stotz: One of the ways that we do it in our coffee business is we look at the results of the business every three months. And then I've developed a benchmarking system that looks at what I call profitable growth. Are we profitable and are we growing? And then I look at that relative to our global peers, and then I say, are we profitable and growing more than our peers? And it's a scorecard, but it's a scorecard for the whole company. And then what we do is every quarter we say, okay, we were profitable and growing better than our peers, and therefore we're going to allocate some of the profit that we make as a bonus. And then we do a compensation across the whole company split in a couple different ways. But our objective... And we've had different meetings and stuff, but there was something that triggered my business partner, Dale. I don't know what it was, Travis, but Dale just had his first kind of offsite and he listened to the podcast and he got a lot from that. And he even presented some of the Deming stuff because we've done lots of training, but he was like, many people in our business don't even really know it anymore because it was a while ago that we did a lot of that training and stuff like that.   0:41:16.3 Andrew Stotz: So I wouldn't say that we're implementing to a level that I would if I was running it, but that's also, you own companies and you run companies and you don't want to confuse those two things. But anyways, the point is that once we did that... And then we fly everybody in across Thailand, wherever they are, whether they're sales or technicians or whatever, and bring them together for a day to review the results. And that's the first kind of offsite where we had a very specific... And Dale and I had a meeting a couple of weeks before it, and I went through from what you talked about to help narrow it down, to help him think, "Okay, what do you want to get out of this?" Because I really started to understand that you were really focused and you were not overextending yourself as to everything that you wanted to accomplish. But the excitement that employees feel when they're all in it together, that's what we want more of. And like you said, it's the way we think, and that's the way we want to live. So, yeah, that's a little bit of my story there with what your influence was, Travis.   0:42:29.2 Travis Timmons: That's great. Yeah. And I think, I mean, you mentioned benchmarking and KPIs. And one thing I'd want to make sure listeners understand, because sometimes when we talk about Deming, they think, oh, you just rainbows and puppy dogs and everything's going to be fine. We do have, and I know you do too, Andrew, and I know Mike does, there's a lot of KPIs we look at. And we want to be industry leading. But when you have a different view, it's a long-view and it's a system view. And when everybody's working to optimize the system and understand if we do this well, we get to stay in business and maybe crush the competition along the way, that's kind of fun. But the KPI piece and the Deming system approach, it's a long-term view. So that's just something that came to mind. I've had people say this before, and I'm sure Mike's heard it, because, oh, you're just paying your salespeople a salary, how do you motivate them? How do you keep score? Mike has a KPI dashboard, I am certain. Fitness Matters has a KPI dashboard for sure. Andrew's coffee company has a KPI...   0:43:52.2 Andrew Stotz: No, we don't.   0:43:53.6 Travis Timmons: You have to track.   0:43:55.3 Andrew Stotz: What we don't use is, I just don't use.... We don't use that word KPI, because I hate the connotation of it. But we definitely track and use that for feedback, just like you guys are. But yes, I just it's just I have a pet peeve about that.   0:44:14.2 Travis Timmons: Yeah, yeah, no, I totally get it because it has all the negative connotations that go with how do you make those happen? But like for the common cause versus special cause and variation and all of that. But yeah, it's fun to see when you optimize your system and the entire team works. You have I've shared on the podcast here some of our data and it's just it's fun. It's work. It's work. Every day is hard. But you have a method by which to attack the work. And I think Mike could probably speak to that too with his experience. But that's why he's stuck with it all these years. Even though there was about a year into the process of Deming where he was still complaining about sales, he had a consistent process by which he was tackling it, and it got better along the way, I think.   0:45:08.6 Andrew Stotz: And the thing that I would like to wrap it up with is to just dig a little bit deeper into something that you said, which is it takes time to figure it out. And I would like you to talk about that little bit of learning and application journey because obviously if someone's able to go to a seminar, that's fantastic, but let's take someone in Europe, in Asia, wherever, that they may not have that access. Tell us a little bit about how you started that journey and what you've now seen and what you would recommend, which you already did give some recommendation. But maybe you can just talk a little bit about that because one of the things that's unique about this is that, number one, it's one guy, Dr. Deming. It's not a movement like Lean or something else that has certifications and these traditional things. And so it makes it harder to understand it. It makes it harder for it to spread. But maybe just tell us a little bit about your experience there.   0:46:19.1 Travis Timmons: I'll share my piece, and I'm sure Mike has great examples as well. But yeah, the down and dirty DemingNext is a tool that is available now that was not available when I started my journey. So you get bits and pieces through DemingNext. That's amazing. That was not around when Mike and I either one started our journey, I don't think. Second, if you could just have the concept of looking at your business as an entire system rather than pieces and parts. And then I always recommend people start in one of two small areas. It's either with the PDSAs, plan, do, study, act. That's a very easy, low-cost way to start somewhere in your business. Or operational definitions. Those are the two areas I think are very easy to implement, low cost. And when you apply that to a systems view, I think right there a lot of positive things can happen. And then the DemingNext that the institute has as a resource is one of the things that I think allows more people to get access to Deming and implement it.   0:47:34.3 Mike Carr: Yeah, I would reinforce all of that. The DemingNext program is really good. The two and a half day is really good. I would also recommend going to the two and a half day multiple times if you're able. And I would also recommend taking as many of your management team and C-suite as you possibly can and putting them through the two and a half day or whatever kind of training, DemingNext or whatever training you're using, because I've found that about 80% of Deming is having a shared vocabulary across the company so that you can have these meetings and you can say things like common cause variation and everyone knows sort of what you're talking about. If you don't have the shared vocabulary, it's kind of hard to make the improvements in the business. So whatever training you're using, and I would encourage people to just like sponge mode, just anything you can find, try to gather it all together from whatever place and share it across the company. But the number one thing that I would do if I were starting today is I would... This is one of the things where I think AI can really help you out because you can sit down with ChatGPT and you can just simply say, "Help me learn about W. Edwards Deming."   0:49:00.3 Mike Carr: And you can have a conversation and you can say just ask it, "How can I apply this to my company?" And that's probably going to start a really interesting back and forth. Of course, you need to make sure it's not hallucinating something along the way, but I think that could be a really interesting resource to help learn and relatively inexpensive, and you can get it for everyone in your team and use that as an onboard. You could even ask it, "What is something simple I could try tomorrow that I could see if it works in my company?" and see what it recommends. If I had to start over, that's probably where I would start.   0:49:35.6 Andrew Stotz: That's great advice. And I know also with like NotebookLM and things like that where you can upload the source documents and then have a discussion, AI is super critical now, and I think opens up a whole new opportunity for spreading the message. So that's a resource where you couldn't get it until you talk to Kelly Allen as an example, or others that know it, and here you have a huge resource. I want to wrap up there, but before we do, let's give you guys the last word. Travis, maybe you want to just wrap up your thinking on what we've just discussed and what you want the audience to take away. What do you want them to do? What's your call to action?   0:50:22.7 Travis Timmons: Yeah, call to action would be start learning one thing about the Deming approach and Dr. Deming. I think you'll be surprised how it looks at the business world differently. So I would just encourage people to, as Mike said, be a sponge, whether it's listening to these podcasts, taking a look at DemingNext, ChatGPT, there's all kinds of different routes. But just start to see why is this different. And then the podcast, DemingNext, just so many stories of businesses that were having a hard time and having kind of the life sucked out of the owner that found a different way. And yeah, just happy to have this opportunity to share. I think Mike and I are both passionate about getting the word out to as many business owners as we can because we know it's hard and we know it doesn't have to be. So I would just encourage people to start where they feel comfortable. There's no wrong or right place. You don't have to get a certification in Deming to do Deming.   0:51:06.3 Andrew Stotz: Right, Mike?   0:51:29.2 Mike Carr: I guess my call to action would be to take a step back from the things that you may have seen other companies doing. Maybe you didn't have that leadership training. Maybe you learned leadership and management skills by copying what you saw other people doing. And basically just ask yourself, is there a better way than what I'm seeing other people do? And just open that door for the learning that's going to come with learning Deming and give it a chance. Try something, give it a shot, see how it works for you with the understanding it's not going to work right off the bat. It's gonna take some doing and take some learning. But just try to see that maybe what other people are doing is maybe there's something better than what other people are doing and just allow for that opportunity.   0:52:25.3 Andrew Stotz: Yes. As one of the people in a 12-step self-help program said, you have nothing to lose but your misery.   0:52:38.0 Travis Timmons: Right. Right.   0:52:40.2 Andrew Stotz: So, Mike and Travis, I want to thank you on behalf of the Deming Institute for this discussion. Fascinating. And I really want to encourage listeners to take some action. Go to deming.org and jump on DemingNext. Get access. ChatGPT, NotebookLM, whatever's your tool, go for it. It's right there. And the results you get from it are enormous. Now, this is your host, Andrew Stotz, and I want to leave you with one of my favorite quotes from Dr. Deming, and really, it's what makes it all worthwhile, and that is, "people are entitled to joy in work."

How do you run an offsite that actually changes performance — not just conversations? In this episode, Travis Timmons and Kelly Allan share with Andrew Stotz what happened during the Fitness Matters off-site. They discuss how a Deming-inspired approach helped their team tackle a critical business aim, align around system improvement, and turn employee engagement into measurable competitive advantage. TRANSCRIPT 0:00:02.5 Andrew Stotz: My name is Andrew Stotz and I'll be your host as we dive deeper into the teachings of Dr. W. Edwards Deming. Today I'm continuing my discussion with Travis Timmons, who is the founder and owner of Fitness Matters, an Ohio based practice specializing in the integration of physical therapy and personalized wellness. For 13 years, he's built his business on Dr. Deming's teaching. His hope is simple. The more companies that bring joy to work through Deming's principles, the more likely his kids will one day work at one of those companies. And we also have a special guest, Kelly Allan, who is a long term practitioner of the teachings of Dr. Deming. And he's also been instrumental in bringing the teachings of Dr. Deming to Travis and Fitness Matters, and particularly to this offsite. So the topic for today is how a Deming style offsite can strengthen your company's competitive advantage. Travis, take it away.   0:01:01.4 Travis Timmons: Hey Andrew, thanks again for having us and super excited to share with Kelly and your audience how our offsite went a couple of weeks ago. The short answer, kind of the upfront, is it was amazing. We had fun, number one, which is always important, but engagement from the team was through the roof. For four and a half hours straight. We worked on the work together and had Kelly there to make sure we were appropriately following Dr. Deming's teachings. Had Kelly there to facilitate and a couple of fun things we did. One was the red bead experiment, which I'm sure we'll talk about as we go through the conversation here. The short answer is I know in the last podcast we talked about the preparation that Kelly worked with myself and our leadership team on in preparing for a Deming focused and led offsite. We did that and it was just amazing. What were your thoughts, Kelly?   0:02:06.4 Andrew Stotz: I'm curious, Kelly, as an outsider helping them, observing, what are your observations of how it went?   0:02:14.2 Kelly Allan: I think there was just incredible energy and interest in figuring out some of the challenges ahead for the company. People came in well prepared and it showed. The interactions in the breakout groups, interactions in the full groups. Often when you're in a full group of 60, 70 people, folks are often, especially new folks, and the company's been growing and adding new people, new folks are often somewhat hesitant to speak up. But the culture of the people in that room, the culture of the organization is bring it on, let's have a conversation, let's hear what people have to say. Let's share theories, let's get down and debate and wrestle with some of these things that are not easy. There's no low hanging fruit here. It's complex stuff in a complex and highly competitive industry.   0:03:28.9 Travis Timmons: Some of the feedback we received, I think I shared last time, Andrew. As Kelly said, we've hired several new team members and they've all shared with me just a breath of fresh air from where they came from before. The power of this offsite with it being focused on some of the core teachings of Dr. Deming allowed them to see how is this different? They know they like it, they know the culture is different. They know they can provide care the way they want to. They know they can have a voice, have an impact on the system. But they didn't really know why they just liked it. Having a Deming focused offsite to explain a little bit, you can't fully explain Dr. Deming in four and a half hours, but we covered quite a bit. Make the system visible, operational definitions. What are a couple other ones with the red bead, Kelly? We did some tampering.   0:04:28.8 Kelly Allan: Making sure that we're not being confused by visible numbers alone. That what's important is how we work on the system so that we're not doing special efforts all the time to get great results. It's built into how we do things.   0:04:43.8 Travis Timmons: To Kelly's point, part of why our team, for four and a half hours we had over 50 people all in, sharing thoughts without hesitation because one of the things we talk about in the very beginning of the meeting, one of Dr. Deming's core philosophies, if that's the right way to put it, Kelly, correct me if I'm off base here, but 96% of issues within an organization are system issues, not people issues. When you put that out there, we're here to talk about the system and improve it and make it visible. We're talking about problems with systems and processes, not people. Then the gloves are off and let's dive in and we're gonna say whatever's on our mind and there's no drama, there's no feeling of any backstabbing or throwing under the bus. We just get to work on making the system work better for everybody. That's where it's fun and fast.   0:05:41.9 Andrew Stotz: What I'm hearing is that Dr. Deming, my favorite quote is "people are entitled to joy in work." And part of the key to joy in work is contributing. People want to contribute in life. I love that word because I think everybody wants to feel like they're contributing to a mission, to an aim, to a goal, to a team. And one of the biggest problems we have these days is siloing off people and getting them focused on this little area and missing the whole bigger picture. And so to some extent, you've proven through what you've done that people really do want to contribute. Throughout this discussion, what we're gonna be talking about is this concept of Deming style offsite. And I'm gonna push back at times to try to make sure that we're clear on what's a Deming style offsite. Because it's not to say that Dr. Deming said this is how you do an offsite. But what we're talking about is your interpretations of how do we apply this thinking to this particular meeting style and offsite and ensure that we're true to that.   0:06:56.6 Andrew Stotz: One of the first questions I would discuss is just the idea that maybe you just had a really open, caring environment. And so is that Deming or was that just that? Or maybe you did a lot of prep. You guys have done a tremendous amount of prep. That's what I was impressed about in our prior discussions. Maybe you prepped, maybe you focused on the one thing. Those types of things is what could go through people's minds. Why is it that you're calling this a Deming styled offsite?   0:07:34.9 Kelly Allan: Well, I think in part it starts with Deming's teachings and continued Deming's teachings. I think it might be useful to start with the aim, to have Travis talk about the time that he spent researching and thinking and what's going on in the industry. And even though we can talk later about their industry leading statistics and data and recognition etc, it's off the charts. It starts with the aim. And Dr. Deming said let's be focused on the aim. And so there are a couple, Travis, you wanna just talk about the content aim and then we can talk about even a more cultural Deming cultural aim.   0:08:21.1 Travis Timmons: That was one of my early learnings years ago, Andrew, was the difference of an aim versus a goal. And so from the perspective of this offsite through the Dr. Deming lens, our aim as an organization is to maintain one to one care because we believe that results in optimal outcomes. And it's very rare in our industry to have one to one care. Part of how we do that is we have to be industry leading in everything we do. And the thing that we are industry leading in, but I feel it was the one thing that we could improve upon was our arrival rate. Patients get better if they show up, team members are happy, they don't want holes on their schedules. Referring physicians are happy. Everybody wins. So that aim of a higher arrival rate was our aim of this offsite and conversation.   0:09:17.6 Andrew Stotz: Can you back up just for a second and define arrival rate for those that didn't listen to prior discussions on it?   0:09:23.9 Travis Timmons: Sure. Arrival rate is a visit we have on the calendar. Do they show up or do they cancel? And part of what we worked on and a little bit of an aside here is operational definition of what's a cancellation on our schedule to make sure we're measuring what we want to measure. A funny aside, competitors, we hired several new team members came from other organizations and they tout an arrival rate that is high, like 92% arrival rate. Right.   0:09:55.9 Travis Timmons: And I asked them in the meeting and Kelly will remember this, I said, I know your institutions claim a 90 plus percent arrival rate. Did you have a 92% arrival rate? And they said, absolutely not. But they had people on their team, for example, the front desk might have been bonused based on arrival rate. So how they would take visits off of the calendar would not negatively impact arrival rate. So we talked a lot about operational definition and our aim is to study what we want to study, not to tamper or. Kelly, you share your favorite saying. There's only three ways to get better numbers, and those are   0:10:39.6 Kelly Allan: Manipulate the numbers which you were referring to from another company. Manipulate the system that gives you the numbers. So that also kind of fits with, well, we're not gonna call that a late arrival or a late cancel or a non arrival. We're gonna call that something else so we can manipulate the numbers. And then the third way, which was Deming's way, which is how do we figure out how to improve the system so that late arrivals go down. So that they're a natural part of what we do when people show up, the patients show up when they need to.   0:11:14.6 Travis Timmons: Yeah. And I think that's one of the things to your point earlier, Andrew, is was it just a happy go lucky meeting because Travis and Kelly have great personalities. Well, we know that's not true.   0:11:26.9 Kelly Allan: Speak for yourself.   0:11:29.3 Travis Timmons: But no, I think anymore people know when they're working on something meaningful that's gonna have an impact on their lives or where you're just there to drink coffee and have snacks. People don't suffer fools, right? They want to be there. To have a team of 50 plus people leaning in for almost five hours doesn't happen just because it's a fun environment. To your point, it's the right question to ask. I appreciate you asking that. It comes down to they understand that we're a Deming organization. They understand that what we're talking about is gonna be implemented in a Deming way. We'll talk about that more as we go on, but that, to Kelly's point, was starting with the aim. Our aim is improving arrival rate. How do we do that? That's where the Deming offsite comes into play. Kelly and I and our leadership team worked on, okay, how do we best convey this problem and this aim to our entire team rather than just five or six leadership people working with Kelly and just coming up with our own ideas and then spitting it out to the team at a monthly meeting?   0:12:47.8 Travis Timmons: The power of them owning and seeing the problem and then working on system improvement is the power of that is unmeasurable, as Dr. Deming would say.   0:13:03.1 Kelly Allan: Yeah. I think we talked about the aim to be able to continue to do the one-on-one care with patients because most companies are doing two patients, one physical therapist, three patients. Locally here in Columbus, Ohio, where Travis and I are at, we sometimes hear about classes of five patients with one physical therapist. Physicians and insurance companies, these people are not getting better. Right? These people are... Or if they get discharged, 'cause that's a way to get a better number. "Oh, we got them out." But they come back because they're not really healed. They don't really know how to take care of themselves the way they do when they come out of Fitness Matters. One of those overarching aims has to do with building the culture even further so everybody understands the why behind the what. We could say the what is how do we increase those arrival rates, and then the meeting was about the how we're gonna figure that out, how to do that. But the overarching piece had to do with the why. Why does this matter?   0:14:16.9 Kelly Allan: How do we see...If we see the organization as a system and we use a fishbone chart as a way to visualize some of that, everybody can see handoffs. Everybody can see how different parts of the system, of that patient journey, that patient story, intersect and how what happens upstream affects downstream and how the feedback loop from the discharge point of a physical therapist discharging the patient, how that can wrap back into the understanding of the customer care coordinators and how they can work with that at the very beginning of that relationship with the patient. It's all a part of a system, all a part of continuous flow. We wanted to make sure that everybody, especially the new people, really had a visual, a view of the organization as a system and how they interact. Part of those weeks of planning, it wasn't every day all day long. You start with some ideas, you refine them, you get some research, you refine them, you refine further. Travis spent a lot of time on that. Part of that value is time for reflection, time to have the others on the leadership team weigh in, give their points of view so that we're really seeing this from a fishbone perspective as well.   0:15:44.5 Kelly Allan: So now we can go into that meeting with everybody, and their homework was in part the fishbone with some instructions on how to do that and some examples of how to do that. And that was pre-work. So people came into the meeting already successful. They had already figured some things out. This just gave launch, just gave liftoff to the energy. They'd done this work, to your point, Andrew, they're making a difference, and it just fed on itself. The output was stunning.   0:16:21.0 Andrew Stotz: Travis, I'm gonna write your company aim as I heard it from you, and that is, or from both of you, is maintain one-to-one care. It's best, it's rare, it works. And the off-site aim was different from the company aim. It was the number one thing that we can do to improve that company aim is improve our arrival rates. Correct?   0:16:51.4 Travis Timmons: 100% correct. And you talk, I think you used the term silos earlier, Andrew. Part of the aha moments and making the system visible and working on this and building culture and teamwork, when everybody sees the complexity within your organization and understands that, there's a lot more willingness to support, like, "Hey, we need to change this process at the front desk," even though it may not be optimal for the physical therapist, as long as it achieves our overarching aim and improves joy in work for the front or less friction for a client coming in. Now the team starts to see and understand, all right, that's a system win rather than silos or turf wars. The amount of energy that is spent on that in organizations is... I couldn't do it.   0:17:52.9 Andrew Stotz: Another thing I think that would be difficult for many people with an off-site is you just had one aim. If we were doing prep in the companies that I know and I own and others, we're gonna list out 17 things we want to talk about in that four-and-a-half-hour off-site. From your perspective, why is it so important to get this one focus, one aim? And then I want you also to tell us more about how it went. We've set it up now, so just one last thing on the setup is this idea of focusing on one thing when you've got 17 different problems in our company and we got everybody together and you're telling me just one thing.   0:18:40.5 Travis Timmons: Well, and Kelly can chime in here because he was instrumental in getting us from pre-work to meeting day. But part of it, that's why it's two-and-a-half, three months of work leading up to this. We had the aim of arrival rate. All right, what are we gonna do? A lot of different ways we could have tackled that. We landed on fishbone and making the entire system visible. And that turned out to be the right move. I think Kelly can correct me if I'm wrong.   0:19:15.0 Kelly Allan: I would agree.   0:19:16.0 Travis Timmons: So we started with the aim and it's like, okay, how do we get 50 people to work on this together? Dr. Deming says make the system visible. And so we chose to do that via a couple different breakouts of a fishbone. And to your point, Andrew, when we did that, now there's understanding of complexity and then where are the biggest opportunities? Because we have seven things we're working on to achieve that aim. There's gonna be three or four large PDSAs. We're doing a software upgrade, which in and of itself... And a funny aside, so our organization's been doing the Deming approach for 13 years. Right, Kelly? We announced that we're changing softwares at this meeting. Right.   0:20:13.7 Travis Timmons: Everybody was like, "Okay, let's do it."   0:20:17.4 Kelly Allan: Unheard of. I see a lot of companies, that's usually panic time.   0:20:23.5 Travis Timmons: And it was announced at the beginning of the meeting. Any questions? "Nope, sounds like the right move for our aim."   0:20:32.3 Kelly Allan: Well, Travis, you provided the why behind the what. The what was that we have to change the software. You provided the rationale from all points of view, including from internal people who deal with the software to making it even less friction for customers and for physicians and for insurance companies, etc. People understood the why behind that what, and now they're ready to work on the how.   0:21:06.4 Travis Timmons: And I would even argue, because I agree with that, and because we've done Dr. Deming and have had success and accomplished so many things that people don't believe we've been able to accomplish as an independent organization, having lenses to look through and "by what method?" That's one of my favorite Kelly Allan-isms. By what method?   0:21:33.5 Kelly Allan: That's a quote from Dr. Deming.   0:21:36.0 Travis Timmons: Oh, okay. We're good.   0:21:38.9 Andrew Stotz: We stand on the shoulders of giants.   0:21:41.6 Travis Timmons: Yeah. There's a high level of trust in our organization that we can implement change. I think that...   0:21:51.3 Kelly Allan: I agree.   0:21:51.8 Travis Timmons: I don't want to undersell that in terms of how powerful that is that I announce we're changing our entire operating software in a few months and the entire team was... And we told them why, to Kelly's point. But to make that announcement and then just have everybody say, "Okay. Cool." I think that's crazy to me. I believe it because of everything else I've seen happen over 13 years. But to have a way, by what method, using Dr. Deming's principles, PDSAs, operational definitions, system view, we're gonna diagram it. Everybody left there confident that, "All right, we can do this and we're gonna do it." Anyway, what would you add to that, Kelly?   0:22:40.9 Kelly Allan: Yeah. I would say that fulfilling the promises that have been made at previous offsites just builds the credibility that this leadership team gets it, understands it, and is interested in engaging people and making things happen and getting things done in a way that doesn't disenfranchise people, it doesn't beat up on people, it doesn't cause harm, but people work together because they wanna figure it out. It's fun to figure it out. Yeah.   0:23:17.5 Kelly Allan: It can be at times a little too much fun, a little too exhausting to figure it out. But we're born wanting to make a difference and people can come to work there and know that they have a voice, they're heard.   0:23:33.1 Travis Timmons: And I think that's our superpower that I've learned from Dr. Deming is if I'm the only one figuring stuff out, we're in trouble. We're in trouble. So the team knows that we're gonna bring stuff, we're gonna talk about it, and we're gonna solve problems collectively through the Dr. Deming philosophy. That's something that just popped in my brain, Andrew, because it was such a non-event. But in most instances, that would have been the entire meeting would have been about that, the side conversations, people coming up to me...   0:24:15.0 Kelly Allan: And Travis, there would have been a lot of discussions at a non-Deming company about, "How do we get buy-in?"   0:24:22.4 Travis Timmons: Right.   0:24:22.8 Kelly Allan: "How do we manipulate people into saying this is okay?" We didn't have any...We didn't spend a minute on that.   0:24:30.5 Travis Timmons: Not one person asked me about the software the entire evening at dinner. It was just like, "We're gonna do it." It just struck me because it was a non-event in the meeting, but I think that would have been rare had we not had our history of Dr. Deming's approach and how we presented it in the meeting.   0:24:52.9 Andrew Stotz: Kelly, you said something that made me think of a book that I read in the past by Richard Feynman called The Pleasure of Finding Things Out. Great scientist. You talked about contribution and the desire for contribution and you talked about how people were figuring things out. And that's fun, that's exciting. That's what people want to get out of their management team and out of their employees. In some ways, I feel like you're talking about recess, a playground. Put all that stuff aside, let's go out and let's build this thing. All the joy that we did have when we were young. Think about, "Let's make a sandcastle! Yeah, you do that, I'll do this." That excitement...   0:25:45.0 Kelly Allan: That's what it was in the room that day. Different breakout groups working on different parts of the fishbone and then bringing them together and debriefing around it. It was very exciting. The energy was high. Andrew, you mentioned something, I think in part you were channeling Dr. Deming there because he also pointed out about how we're born wanting to make a difference, to make a contribution. Then we go to school and that gets beaten out of us with grades and command-and-control teaching, et cetera, et cetera. But to your earlier question about what makes this unique, special in regard to Deming, Travis mentioned the complexity. And so we go right back to the core of Deming: understanding variation and special cause, common cause, the important few things versus the trivial many, and how do you sort through those? That makes it very Deming. It makes it very Deming. The other thing that you won't see, and I've been in a lot of them through the years, in most offsites is those conversations about the why. It's usually, "Competitor's doing this," or, "We gotta make more money," or whatever.   0:27:01.0 Kelly Allan: No, the why for Fitness Matters is to achieve those aims. Right.   0:27:07.1 Andrew Stotz: Some of the things that you mentioned: have an aim, what makes this a Deming style, have an aim, think system, not individual focus, understand variation and how that can help you think system, not individual focus. You talked about pre-work, taking it seriously, and I would say that kind of responsibility for your employees and the environment. I was blown away with the amount of pre-work that we talked about previously. You talked about some tools like fishbone as an example. You've talked about the why. Travis, why don't you give us a very high level... We arrived at this time, this was then, we did this first, then we did that, then that. So we can just understand the structure of this meeting a little bit.   0:27:59.5 Travis Timmons: Sure. We've been big on operational definitions. So the operational definition of start time is Travis will start talking at 12:30 to start the meeting. Learned that one over the years. And I...   0:28:18.2 Travis Timmons: It was at a new location, so we had a couple people go to the wrong place. We put the map inside of the homework, swim upstream, try to make this as easy as possible. But to answer your question, we had an operational definition of the meeting starts at 12:30, and that means the meeting begins at 12:30. Operational definition, we had name tags. From an efficiency standpoint, we had six tables when we were going to do breakouts. People picked up their name tags, it had number one through six on it, so they know what table they would be going to at breakouts. We did a quick intro of every team member and what location they work at because we have had a lot of growth. Put names with faces, introduced Kelly so that everybody knew who he was. There's probably 11 people that didn't know who he was in person introduction and how that was going to be diving more into Dr. Deming. I made it very clear up front that this meeting, we're going to celebrate wins from 2025, but I made it very clear we're going to go through those quickly, not because they weren't huge wins, but because we had a lot of work to do to make sure we stay on that growth and excellence trajectory.   0:29:38.2 Travis Timmons: So we went through all of our wins for 2025. We reviewed our BHAGs, and then we got into the aim. In 30 minutes, we introduced everybody, we went over our wins for 2025, we reviewed our BHAGs, one of which is to be the best, leverage technology better than any physical therapy practice in the country was one of our BHAGs. Then I dovetailed that into, and we're switching softwares in a few months. Any questions? No. We go right into, here's what we're going to be working on today, referenced they're going to be using their homework, so they brought their homework booklets with them. We had PowerPoint slides so they knew what the directions were for the first breakout group. Kelly and I got there early and some of the leadership team got there early. We had the table set. We had the, I call it newsprint, up on tripods ready to go. You want to be prepared. They hit their tables because of the name tag. We had leaders assigned for each table.   0:30:50.1 Kelly Allan: And they were trained in advance. Yeah. Facilitators. Yeah.   0:30:53.5 Travis Timmons: We had leadership.   0:30:54.7 Andrew Stotz: So there was an intro period and then you said, "This is our aim and now go to your tables," or how did that... What were you telling them to do at the tables?   0:31:06.0 Travis Timmons: We told them the aim, reviewed the aim. To your point earlier, Andrew, overarching aim is maintaining our one-to-one care model.   0:31:14.0 Andrew Stotz: Yep.   0:31:14.7 Travis Timmons: Our aim of the meeting is how do we improve our arrival rate as an organization to greater than 85%? One of the ways we're going to accomplish that is making the entire system visible. We're going to go to our tables and we're going to work on... We had the fishbones drawn at each table, but we wanted them to fill in the fishbone as groups from their homework because everybody brought different ideas to the table. We wanted some conversation around that.   0:31:44.2 Andrew Stotz: That was a general fishbone. I think I remember later you talked about then breaking it down into separate fishbones, but that was just a general one to review what they'd done.   0:31:54.8 Travis Timmons: General one, work on the work together. To Kelly's point earlier, just the energy around working on ideas or, "Hey, I hadn't thought about that," or, "I didn't even know we did that in our system." Right.   0:32:07.0 Travis Timmons: Just understanding the complexity and really just getting the juices flowing on, here's what we're going to be working on because the next layer is going to be diving deeper into each one of those.   0:32:18.5 Andrew Stotz: How long was that period of going through the first fishbone and looking at their homework, discussing it together? How long did that last?   0:32:27.7 Travis Timmons: That one was a half hour because they'd already done the pre-work, so we assumed most of it was already going to be done. It was just kind of...   0:32:38.4 Andrew Stotz: Did you have them present any of that or that's just, "Go through that and that'll prep you for the next thing"?   0:32:46.0 Travis Timmons: We had them spend 25 minutes on that and then we saved room for five minutes for them to have kind of sharings or learnings or ahas. What did this experience teach you? Do you have anything to share?   0:33:01.9 Andrew Stotz: They're doing that within their group or they're doing that...   0:33:05.1 Travis Timmons: We went table by table and had them share with the entire team. Table by table, we had the team lead or anybody at the table, "Hey, what'd you think? What'd you learn?"   0:33:14.3 Andrew Stotz: Someone may say, "I didn't even realize that this impacts that and I just realized that now after seeing it." Okay.   0:33:24.0 Travis Timmons: Yeah. What are some of the things you heard, Kelly? I heard, "Oh, this is complex."   0:33:29.8 Kelly Allan: I also heard things like, "Well, I know how to handle this, but I need to define a process so that if I'm out, someone else can do it." Right? It's those kinds of little aha moments. Others were just, "Oh, is there a way for us to systematize that even further?" Again, it was that thinking about the system coming out in their comments. I think another part of the appreciation was really recognizing that a lot of people have to win. Deming talked about win-win being very stable and win-lose is not. They wanted to make sure the patients and the clients win, the physicians win, that the insurance companies are getting what they need, that the PTs and the Pilates people and the MAT people, etc., and the customer care coordinators are also having joy in their work. Because when you have a joyful staff, customers, clients really appreciate that. They just know there's something different. There's something different.   0:34:42.0 Andrew Stotz: And one question is, did you have any drift at that point where people started talking about other things that were unrelated but were key problems they're facing, or was setting your aim and doing the pre-work really kept them on track?   0:34:56.8 Kelly Allan: Great question. Yeah.   0:34:58.5 Travis Timmons: They were focused. They were focused the entire meeting. One of the things I learned it from Kelly or Ray, or maybe you taught Ray, I don't know, but we have a piece of paper we put up at every off-site, Andrew, we call it the parking lot. So that if somebody does have an idea that's outside of what we're there to tackle, we just have them go up and write it down so that they're heard, and it could be important, for sure, but we're not working on that today. We gotta stay laser-focused on what we're here for. So we have a parking lot, which has been super powerful, but nobody went to the parking lot the first half of the day at all.   0:35:39.2 Andrew Stotz: That's good. That's better than the woodshed. Excellent.   0:35:43.5 Travis Timmons: Speaking of the woodshed, this is one of my... I think this is one of the critical learnings, one of the many critical learnings I've had with Dr. Deming and the approach to leadership's responsibility. For me as the owner, at the end of the day, the buck stops with me, is to create joy in work, to create engaged teams where they can do fulfilling work. So you talked about the woodshed. It reminds me another one of my favorite quotes. A lot of owners or leaders talk about, "We have a lot of dead wood around here. Have a lot of dead wood on our team." The first Deming off-site I went to, Kelly said, "Well, there's only two ways that could have happened. Either one, you hired dead wood, and if you did, that's on you with your hiring process. Or number two, you hired live wood and you killed it. Either way, it's on the owner and leadership."   0:36:52.4 Kelly Allan: And I stole that from Peter Scholtes.   0:36:55.5 Andrew Stotz: Okay, got it.   0:36:57.0 Travis Timmons: But that struck me in terms of, okay, responsibility's on Travis to ensure we don't have that. Can't point fingers anywhere else. It's not people coming in with bad attitudes. So anyway.   0:37:15.8 Andrew Stotz: Okay, excellent. So now you've had the general fishbone discussion, you've had people present what were their key learnings from it. What happened next?   0:37:26.6 Travis Timmons: Just some quick aha's, anything from the homework, stuff like that. And then from there we did a couple-minute break and then we went right into the...   0:37:37.9 Andrew Stotz: It sounds like a HIIT, like a high-intensity interval training here. We did a couple-minute break.   0:37:44.6 Travis Timmons: We had work to do, man. People were there to get work done and get on to dinner. We had snacks and water in there they could grab real quick. Restrooms were close. And then agenda, we've gotta stay... And the team understands we have to do what we're doing, we have to be excellent in all categories. So the next thing we did, we came back together as a team, the entire team, and Kelly did the red bead experiment in preparation for the next breakout. Super powerful. For those that have seen the red bead experiment and how Dr. Deming used that to show how the willing worker shows up wanting to get all white beads, right? And the white bead, it's the white bead company, but there's red beads intermixed. No matter how hard they try, or Kelly offered a hundred-dollar bonus to somebody if they would just only bring out white beads the next time they put their paddle in, and it just had that visceral, in-the-moment realization that people show up wanting to do a good job. And issues, so the red beads were what we called cancellations impacting our arrival rate. Therapists want their patients to show up. Front desk wants, the client care coordinators want their patients to show up. Physicians want their patients to show up. So what do we need to do? It can't be bonus them if they show up or just try harder. What's not working? So that was a great...   0:39:23.4 Andrew Stotz: Why don't we go to that for a second. We're gonna have Kelly, maybe you can tell us a little bit about what you observed from that, and then we'll continue on with the rest of the structure.   0:39:36.2 Kelly Allan: Well, the way we set up the red bead experiment was very much focused on the real challenges and real issues that everybody at Fitness Matters faces in terms of this topic of increasing the arrival rate and how complex that is. I think the red bead experiment demonstrates for not only the people who are the willing workers and the people who are the inspectors and the person who is the scribe who keeps the spreadsheet, they realize that the numbers alone are not telling us what's going on. They realize that unless there's a system improvement, process improvement, and people working together to make those happen, you can bribe people, you can incent people, you can threaten people, you can send them home, you can give them a performance appraisal, you can do every kind of command-and-control management, but you haven't improved the system in which people work. There's still red beads. There's still red beads. We have to reduce the friction, we have to change the paddle. We have to figure out how it is we can help make it possible and easier for clients to want to show up so that they can get healthy and so that they can really appreciate what happens when they don't show up, how they are a part of the system. Once they become a patient, they're a part of the system of Fitness Matters.   0:41:18.3 Andrew Stotz: I'm just curious if there was also anything different. You've done the red bead experiment a lot of times with a lot of different types of companies. Were there any observations you had of the way they interpreted that that was either the same or different? What were some of your observations there?   0:41:37.7 Kelly Allan: Well, we planned it so that Travis and his leadership team could really do more of the debriefing so that they would have the context for the people in the audience as well as for the people on the stage, versus just a more generic, which is still powerful, to talk about how the system's in control and is this a common cause system or a special cause, what's really going on. Travis and his folks were able to then bring that context to the red beads, which I think made it especially powerful for this audience, for this group.   0:42:16.2 Andrew Stotz: Excellent. Travis, why don't you continue?   0:42:22.0 Travis Timmons: As Kelly shared, the leadership team debriefed after the red beads of the learnings and how that might be. The red beads were the cancellations that we currently have. Then we introduced, "Okay, now what we're gonna do is go do a deeper dive into the fishbones." There's five primary parts of our system, five bones. Each bone we're now gonna break out and work on the granular details. We did a fishbone for each of the larger bones.   0:43:01.8 Kelly Allan: Why don't you give a couple examples of the bones if you have it handy?   0:43:07.3 Travis Timmons: First bone is what we call initial contact. The first time a client has an interaction with Fitness Matters. Could be website, could be a physician referral, could be a neighbor talking to them, could be driving by. Initial contact, that's bone number one. How does that entire process work at Fitness Matters? Where's the friction point? Are there people that we don't even get into our door efficiently? They're not coming in set up for success, for example. Next bone would be setting them up for the evaluation. Third bone is evaluation day. Fourth bone is every subsequent visit up until discharge. And the fifth and final bone is discharge to ongoing wellness and how do we continue to stay connected? Those are the five bones as you flow through as a client at Fitness Matters, and the five major gates, if you will, is how we looked at it.   0:44:07.8 Kelly Allan: Every one of those is filled with complexity. There are a lot of little details to reduce the friction for the clients and for the system, for the patients in the system. I think that was an aha moment for people as well because a lot of them are in the quadrant four of unconscious competence. They've been doing this job well for a long time and they tend to forget the complexity. We have to identify the complexity so we can work on it and make it less complex, more streamlined, and so new people coming in can appreciate why Fitness Matters makes informed, thoughtful decisions about how they do things. It didn't just happen. These have been thoughtful things that have been worked on for years, but they can still be improved further and we can document them and make them more visible. When people saw all those little bones coming off the main bones, it's like, "Wow, there's a lot of little things that happen and we can impact almost all of those."   0:45:18.1 Travis Timmons: In some of the work we've already done on the bones to already have industry-leading arrival rate, but I think we can do better. We're one of the few, maybe one of the few medical appointments people have in their lives, not just physical therapy, but in general, that you go to do a medical appointment, do you know what it's gonna cost you out of pocket before you show up? Generally, you don't. We've swam upstream to make that visible to clients, so they already are coming in knowing what the cost is gonna be and are we providing that value? Just an example of, okay, can we swim further upstream with that and make it easier to pay and make it visible on their insurance deductible and all of that?   0:46:05.9 Kelly Allan: Well, and also, Travis, I think... I was just gonna say in terms of how many times have people been to a doctor's office, they've had to fill out a whole bunch of forms either online or in the office and then nobody ever looks at it. Something that Fitness Matters has been a leader on for a long time, which is how many of these questions are really required? How are we really gonna use that information? Let's not have seven pages. Can we get it down to four? Can we get it down to three? And increase... Because remember Deming's teachings are quality goes up as costs go down. Quality goes up as we have to commit less time. Quality goes up as joy in work goes up. Right? So that's that Deming structure of, no, quality does not have to cost more. In fact, Deming said if you're doing it this way, quality will cost less. And that's in part how Fitness Matters can compete against these big, big companies and win. I think, Travis, you've gotta share some of the statistics about what makes Fitness Matters an industry leader. What kinds of things are measured that you and others look at in the industry?   0:47:17.8 Travis Timmons: One of the big things in the physical therapy industry, Andrew, is what they call outcomes. They're measurable questionnaire by body part that you have a patient fill out at evaluation day and at discharge day, and it gives you a percentage of... In our industry, they call it functional ability. Are you 100% able with your shoulder or do you have a 60% disability with your shoulder? For example, across all body parts, we're 30 to 40% above national average on our outcomes. Not even close. Because of the efficiency, our patients show up. Again, the one-to-one care model is why it's our true north, and everything we do has to support that because of those industry-leading outcomes. Our no-show rate is one of the other things we define. Again, something we're working to improve upon, but we're already nation-leading. Our definition of a no-show is 24 hours notice up into a no-show. Most companies in our industry only call it a no-show if the patient just doesn't show up. With our definition of 24 hours notice or less, we're at 4% to 5%. National average of true no-shows, just not showing up, is 15%.   0:48:45.8 Andrew Stotz: Yeah, I can imagine even probably higher than that, but 15, yeah.   0:48:49.7 Travis Timmons: 15 to 20% depending on the research. Just two examples there. The Deming approach to system thinking, team engagement, getting rid of silos, operational definitions. To Kelly's point, we worked years ago on that initial client intake. I used an example several years ago around the time we were working on that project. My one son, got him an Apple iPad for Christmas. Other son got an Xbox 360. One product we got out of the box and turned it on, it was fully charged and ready to go in about 37 seconds. The other product took all kinds of unpacking, had to plug it in, and as soon as it came up, it said software upgrade required, and it proceeded to spend the entire day of Christmas downloading the update. We just use that as an example of how hard is this? We want that same experience for our clients. How do we make it an unbelievable healthcare experience for our clients?   0:50:10.1 Kelly Allan: Well, and Travis is being way too modest here, so I have to jump in. I don't know if I have the numbers exactly right, but Travis will correct me. Let's say you have an injury or you're recovering from surgery or whatever it happens to be, and the industry average is it's going to take 17 visits with a physical therapist for you to be at some level of functionality. At Fitness Matters, it might be 13 visits. Travis, is that too high?   0:50:42.3 Travis Timmons: 10.   0:50:43.1 Kelly Allan: 10 visits. 10 visits. So cut it in half. They're getting better in half the time. That's Deming.   0:50:52.9 Travis Timmons: Yeah.   0:50:53.3 Kelly Allan: Quality goes up, costs go down. Which is why Travis then can... Insurance companies also love them, right? It's like, wow, these people are getting better and they don't circle back just because they were... Operational definition is they're well. Discharged by somebody else, oh yeah, they had their 17, 18 visits, 19 visits, they're well. No, they're not. They come back or they go somewhere else and they're claiming insurance again. Fitness Matters, they learn how to stay well.   0:51:22.4 Travis Timmons: And that brings in another important thing that we've learned over the years, Andrew, with the Deming approach. Our data is industry leading, and we've worked hard at that. And we've got a great team that works within the construct that we've created through Deming. To get back to the unknown or unknowable quote that Dr. Deming would use, our marketing costs are low because patients go back to their physicians and say, "Hey, this is the best PT experience I've ever had." And after they hear that four or five times with us and they get complaints when they send them elsewhere, all of a sudden we start getting referrals from these doctors we've not even heard of before.   0:52:07.6 Kelly Allan: Yeah. Yep.   0:52:08.9 Travis Timmons: How do you measure that? What amount of marketing dollars would have to be spent to get in front of... Like, we doubled the number of physicians that referred to us in the last year.   0:52:23.6 Kelly Allan: Yes. That's a double, Andrew. Unheard of.   0:52:27.5 Andrew Stotz: Yeah.   0:52:28.1 Kelly Allan: Unheard of.   0:52:28.5 Andrew Stotz: Incredible. So you got amazing outcomes. Let's now wrap up about where did you get to at the end of this? What did you personally and the management team end up with?   0:52:45.9 Travis Timmons: So we had some do-outs. Our closing PowerPoint slide was within two weeks we would report back with one to two updated operational definitions and probably three PDSAs that we were going to tackle. That was kind of our promise back to the team, that we would look at all the work. We have paper everywhere. People got to vote. We had a one-page paper on potential PDSAs, and we gave them little stickers to vote on where they think we should put our time and energy and resources. Our takeaway, our product, if you will, three PDSAs. One that has two under it is the new software. We're gonna start doing online scheduling, automated waitlists. I won't get into all the details, but PDSA one has software change. PDSA two, there was a lot of feedback on, "Hey, it would be great if we had kind of a scripted conversation point for the client care coordinators for these four scenarios: first phone call, first in-visit, how we take payment and make their benefits visible to them, how do we take a phone call and handle a cancellation when they do happen to ensure that it's a positive experience."   0:54:12.4 Travis Timmons: And then how do we handle kind of a no-show? Another PDSA is we're gonna have those client care coordinators create their first version of what they think the best script would be, 'cause they're the ones that do it all day. Why would I try to come up with that? And then have them send it to us and do some feedback there. Then we updated our operational definition of canceled visits so that there was clarity across the system to make sure we're measuring what we want to measure, which is how many people show up to their visits each day. We reported that back to the team last Friday, actually, to make sure we hit the deadline we promised to them. And then we let them know we're also gonna be working on kind of a third or fourth PDSA—I kind of lost track there of how we're counting it under the software—but training the entire team on what does it mean to have client engagement and what is our operational definition of client connection and client engagement. So they know we're gonna be doing that on a location-by-location basis at the March monthly meeting.   0:55:26.4 Travis Timmons: That was our takeaway. A lot of product to come away with, and they're gonna have all of the context from the team off-site to understand what we're getting ready to tackle, especially with the software change.   0:55:40.1 Andrew Stotz: My first reaction to that is, oh, those seem like kind of things that you could have figured out some other way, or there's not that many things, or there wasn't some stunning breakthrough. Explain why you're happy with what you got versus you prepared, you did a lot of work, you got those things. Some of it may be that, hey, we need to go through a process. I may have known some of those conclusions, but if we don't have a process of going through that, first we have the risk of maybe I'm wrong in what I think. And the second thing we have is that we have the risk that it's just a business run by dictate rather than getting real buy-in. I'm just curious if you could explain a little bit about that.   0:56:30.7 Kelly Allan: You said the bad word. You said the B-word.   0:56:34.5 Andrew Stotz: Buy-in.   0:56:35.4 Travis Timmons: Understanding, Andrew. Not buy-in.   0:56:38.4 Andrew Stotz: We're looking for buy-in. No. Okay.   0:56:40.8 Kelly Allan: We change it. How do we get... The conversation changes when you say, "How do we get understanding?" Now it's about the why behind the what that leads to the how, versus buy-in, which means, "How are we gonna sell this to somebody?" Sorry, Travis, I couldn't resist.   0:57:02.8 Travis Timmons: No, it's 100% true. And to answer your question, Andrew, my first answer and probably the most powerful answer we already talked about earlier, but it's very important to reiterate and maybe close with, is because of our approach and the time and investment we spent preparing for the meeting, doing the meeting, the fact that there was zero concern or stress around us switching our software system. The amount of engagement that there's gonna be, 'cause there's gonna be work to be done by all team members in preparation for that software change. I am confident I'm not gonna have to do any motivational speeches leading up to that. I'm not gonna have to bribe people. They want this to work because they understand why we're doing it, they understand the value it's gonna provide, and they understand, now that they have deep understanding of our system, they understand why we need to do this to continue to excel.   0:58:13.9 Travis Timmons: I don't know what that's worth. That's unmeasurable. But I know had I just announced this and not had any process, not a Deming approach, just, "Hey, guys, Travis thinks we need to do a new software and we're gonna change how you document, how you schedule," I feel fairly confident how well that would've gone. That would be my answer, Andrew, is the power of being able to present that to a team. They're already asking me questions about, "Have you thought about this in our system?" We have a shared Word document across the team. What questions are coming up in your system thinking? "How are we gonna message this to all of our clients so that they know they're gonna get new emails for their home program?" Great question. I had not thought of that. That is unmeasurable, but I know we're gonna be successful when we switch softwares because of our approach via Deming. What would you add to that, Kelly?   0:59:14.7 Kelly Allan: I think that's the essential nature of what happens. When you set out with a clear, healthy, thoughtful aim, you have conversations around that with your leadership team and what they can do then to filter that and start to talk about that with their teams at their locations, and then you have time to reflect and continually improve that, you're really creating a racehorse. Most off-sites, and Andrew, you've been to these, I know, they start... It's the 17 things. I thought of this when you mentioned it earlier. We start out, we have a racetrack and we want to have a racehorse. But by the time most companies get to their off-site, they've put so much stuff on that horse that it's now a pack mule. It will eventually make it around the track, but if you're competing with Travis, his racehorse, that team's racehorse has been around that track past you many, many times. You may get there, but they're already onto another track by the time you get to the finish line. You're finished.   1:00:36.7 Andrew Stotz: Yeah. You may even be releasing kittens and he's got a horse.   1:00:42.0 Travis Timmons: Kelly brings up another great point there. The other thing that gives our team confidence, because of our system view, 96% of issues are due to systems and processes, not people, the Fitness Matters team is confident that there's gonna be hiccups with a software change. They're confident they're gonna be able to talk about it in a system view quickly, and they're confident we're gonna implement change to rectify that. That goes into one of the reasons why I got zero shocked looks or zero sidebar conversations the entire day. The only feedback I've gotten is, "Hey, we're excited about it. We think we need to do this. And have you considered this as part of our system change?" I don't know what else as a business you could want.   1:01:40.4 Andrew Stotz: Kelly, I was thinking about a good wrap-up from you is to help the listener and the viewer think about how can they apply this into their business. Let's step back a little bit from Travis and think about the work you do and give us some hope, give us some guidance about, can we do this? How?   1:02:04.6 Kelly Allan: Yeah. Several things come to mind. One is that when you first start to learn about the Deming lens, the System of Profound Knowledge, his approach, it seems, it's different. It is different and it can seem to be, oh my gosh, that's so different. We'll never be able to do that. But the point is, the Deming Institute offers a two-day seminar workshop and they can learn not to be incredibly proficient or masterful in two days of how to go back and do Deming, but they know how to get started and they do get started. And then it just becomes part of, again, the Deming magic is as you start to work on these things, your costs go down, your quality goes up, and sometimes you can raise your prices because of the quality and sometimes you just are more competitive at the existing price, but you're taking work and rework and waste out of the system through the Deming approach, which allows you the time. That's the big constraint in most companies. I don't have time to work on improvement. I gotta fix this.   1:03:29.9 Andrew Stotz: Yeah. Right.   1:03:30.9 Kelly Allan: So that's a fix that's gonna fail. That's a fix that's gonna fail. So I think the message is you just want to read The New Economics. If you get the third edition, start with the new chapter. It's like 40 pages and it sums up a whole lot of what we've been talking about. Then there's DemingNext videos through the Deming Institute. You can get your feet wet there. You can then, if you want, attend a seminar or read more things or reach out and have conversations with people. But you just have to try it so that you can see that the payback is there, that the joy in work is there. And in a war for talent, they wanna work for Deming. People wanna work for Deming-based companies because they're not about manipulating people. They're about joy in work. They're about reducing the friction. So you just gotta get started and don't be just because it's so different doesn't mean you can't learn it quickly. You can.   1:04:36.7 Andrew Stotz: Yep. And Travis is a great example of that. In our prior episodes, he talked about the journey, about the pain and all that. I think that's exciting. I'm gonna wrap it up. I just have to laugh because I've been out of the corporate world for a while, just doing my own thing. But I was thinking, you mentioned about buy-in and then you said it means you're selling something. And I thought that's funny. I remember my father used to say, he used to get so annoyed because he'd say, "Yeah, let's talk around this," which was a common thing back in those days. But then I was also thinking another thing that we were saying was onboard. Let's get people onboard with this. What if you're onboard? It pretty much means you're drowning. And I just thought about those types of things that when we talk about fear and work or fear in what we're trying to remove fear and stuff, part of it is the way we speak and the way we communicate.   1:05:41.1 Andrew Stotz: Travis, I feel like I want to leave you with the last word. So why don't you bring us home?   1:05:48.0 Travis Timmons: Yeah, I think I would follow on what Kelly said is I would just the amount of joy, the amount of stress this took off of me as a business owner and as a parent thinking about things differently. And the first time you start learning about Deming's teachings and the System of Profound Knowledge, it seems a little off. Seems a little like this just doesn't seem possible. I've had several people I've talked to about that. It just doesn't work that way. To Kelly's point, I would encourage just try a couple things, whether it be do you have clear operational definitions? Have you done a PDSA? Do you know how to do a PDSA? But the two-day seminars is where you kind of do the deep dive into like, oh, okay, I need to think about things differently. So anyone struggling with a business trying the latest and greatest book that's been out or the latest and greatest compensation model to create ownership thinking within your organization or whatever the buzzwords are, this is a long-term path to clarity and to just an understanding of how you can make your organization a place that has a positive impact on the lives of your employees and your clients.   1:07:17.7 Travis Timmons: And man, if you get that right, everything else follows. Sales, profit, all the stuff that a lot of metrics look at. If you get the point of your job is to have a positive place for your team to work and how do you do that? Deming is the way to do that. Everything else follows after that, in my opinion.   1:07:38.6 Andrew Stotz: And on that note, Travis and Kelly, on behalf of everyone at the Deming Institute, I want to thank you again for this discussion. For listeners, remember, as Kelly and Travis have both said, go to deming.org, go to DemingNEXT. There's resources there so you can continue your journey. This is your host, Andrew Stotz, and I'll leave you with one of my favorite quotes from Dr. Deming. I constantly repeat it because I love it, and that is: "People are entitled to joy in work."

What do you do when a new data point drops—and all eyes turn to you? In this episode, John Dues and Andrew Stotz explore the leadership discipline required when performance data changes. Instead of reacting to a single data point, they unpack how Deming thinking (understanding variation, avoiding tampering, and pausing to interpret patterns) can protect trust, stability, and improvement. A practical conversation for leaders who want wisdom—not speed—to guide their decisions. TRANSCRIPT 0:00:02.3 Andrew Stotz: My name is Andrew Stotz, and I'll be your host as we dive deeper into the teachings of Dr. W. Edwards Deming. Today, I'm continuing my discussion with John Dues, who is part of the new generation of educators striving to apply Dr. Deming's principles to unleash student joy in learning. The topic for today is when the numbers change and everyone looks at you. John, take it away.   0:00:28.4 John Dues: Yeah, it's good to be back, Andrew. I think this is sort of an interesting topic. Many of us that have been in leadership roles have been in this position where the numbers change, whatever they may be. For me, they're dips in attendance, they're assessment results changing, something like that, a subgroup's results changes from the previous year. Sometimes the changes are small, sometimes they're big. But I'm thinking about times when they're just large enough to draw attention in a meeting. And it's not even really so much the size of the change that's important, it's what happens next.   0:01:12.9 John Dues: So you can kind of put yourself in one of these meetings where you're looking at data and maybe you didn't even expect it, but people kind of notice. Then someone asks what went wrong? And then the next thing that comes is someone suggests some type of fix or solution, and then this pressure starts to build. Especially if they're all sort of looking at you, the silence can feel irresponsible. And so what do we do? We react in some way. We call another... For explanations, maybe from others. We adjust a plan that's already in place. We launch a new initiative or tighten expectations on people, whatever it may be. None of it's out of malice. It's done out of care, most typically, or at least in the settings I've observed this sort of phenomenon.   0:02:13.1 Andrew Stotz: Don't just stand there, do something.   0:02:15.2 John Dues: Don't just stand there, do something. But the thing is, very often it just makes things worse. Right?   0:02:21.0 Andrew Stotz: Don't just do something. Stand there.   0:02:23.8 John Dues: Right, right. The opposite. But even if you know that, it's very, very difficult in the moment to...   0:02:32.5 Andrew Stotz: The pressures.   0:02:33.6 John Dues: Yeah.   0:02:34.9 Andrew Stotz: Well, I have a little... Little thing happened last night when a friend of mine came to see my mom and me, and we went out for there's a restaurant nearby, so we got the walker and got mom going. And her natural inclination was to help mom in getting up and that type of thing. And I was explaining to her the difference between what I call a caregiver and a caretaker. And I was saying that most people are caretakers where they're just taking care and they want to just help. And she's like, "It's irresistible. I mean, in my bones, I want to help." And I said, "It's very hard to see that sometimes the best help is to let her struggle and use her legs to get up, not to help her on that." And that was like a revelation for her last night, it just made me think about that.   0:03:33.8 John Dues: No, that's actually a perfect analogy because her health is sort of a high stakes environment. Just like schools are high stakes environments or many of the businesses that people run that listen to this podcast have high stakes. In our cases, it's students and families matter, outcomes matter. There's a lot of different stakeholders that are interested in what's going on in schools. And when those numbers do change, it can feel like neglect if you don't do anything. We're expected to notice. We're expected to... Good leaders are supposed to respond. They're supposed to act decisively, right?   0:04:12.0 Andrew Stotz: Yeah, because there's another aspect to it too. Let's just say that you have a boss that understands it and you're like, "Yeah, it's just noise. It's not signal." But how many times can you say that? Right?   0:04:27.8 John Dues: Yeah, that's right.   0:04:28.5 Andrew Stotz: That's another kind of pressure in that situation.   0:04:31.6 John Dues: Yeah, that's like the second-in-command type person, right? So they have their own pressure. And what you can see happening, this like visible action is sort of like evidence of competence because you can see it. And so the reaction becomes the default. So just like in this example you're giving with your mom, that action to help is very hard to resist. Even though by doing so, like you were saying, she doesn't get the physical exercise and actually makes things worse in the long term for your mom's health.   0:05:10.4 Andrew Stotz: "Boss, why did Kevin get a promotion and not me?" "Well, Kevin's a man of action."   0:05:14.8 John Dues: Man of action, right. Exactly. Exactly. And there's all these risks for a leader that doesn't react right away. Are they disengaged? If they're asking questions instead of acting right away, are they just uncertain? They lack certainty? Are you ignoring the data if you are pausing or waiting? Again, under these conditions, which I think are prevalent just about everywhere that I've been, at least, reacting quickly feels like the safest move. But I think the conflation is speed and wisdom. But speed is not, definitely not the same thing as wisdom, right?   0:06:02.1 John Dues: In all of our organizations, the data fluctuates naturally over time. No different in schools, like we've talked about. Attendance rises and falls, assessment results bounce up and down, behavior incidents they spike and they dip. And it's not necessarily a sign that something's broken. It's often just how systems typically behave, the systems that we're paying attention to. I think the main mistake leaders typically make in that moment when they see that movement is that they think that automatically means something changed. And so you get these concerns if it's a bad move in the data. If it's a short-term increase, maybe we trigger some type of celebration. So this works both ways, actually. But the main point is that one data point becomes a story. It becomes the story of what's... We try to attach an explanation to this dip or this increase that's actually not grounded in any kind of reality. We would say they're just reacting to noise, kind of like what you just said. And the problem, though, is that there's a number of then very predictable things that happen. First, educators, and I felt this as a teacher. I taught in Atlanta Public Schools, a big district that was trying lots of new things in the early 2000s. You feel this whiplash. So priority shifts, guidance changes. Yesterday's focus is replaced by today's concern.   0:07:44.5 John Dues: And what happens in a setting like that, that I found, is that people start explaining instead of learning. Especially when there's a strong accountability system like there is in education systems, results are questioned immediately, often. And so the safest response at almost all levels of the organization is just to justify what's already happened, not to explore what might be improved. Very, very, very difficult. And that then leads to trust eroding. And over time, what I've seen is that educators learn that any fluctuation brings scrutiny. They become cautious, defensive, quiet. And obviously none of that improves outcomes. And again, just like in the example with your mom, it actually makes things harder to improve in the long term. So this overreacting to this routine variation then often increases variation, and so the system actually becomes noisier and not more capable. You get this vicious cycle. What's that?   0:09:00.5 Andrew Stotz: Tampering.   0:09:01.8 John Dues: Yeah, tampering. Exactly. That's what Deming would call it, tampering. When you intervene in a stable system.   0:09:07.3 Andrew Stotz: It's interesting. The one data point becomes a story is a great, great line. In the world of finance, everybody's trying to get the next wave. As a financial analyst, you're trying to think, okay. And all we do constantly is look at the next data point and say, "Does this confirm or not my view that gold's going to crash now, or gold's going to rise, or US stocks are going to X, or the dollar is going to... " And most of the time, we're just making one data point become a story, and then the next data point comes out and it's like, "Okay, so there's a different story here." And then...   0:09:51.3 John Dues: Yeah. That explanation there it's sort of... The key idea is reaction. It's literally seductive. It is seductive because it feels productive.   0:10:04.3 Andrew Stotz: In my finance work, when I help people with their money, what I do introduce what I've learned from Dr. Deming to say it really helps me separate the signal from the noise in the stock market, and therefore, I will never react. And I even set parameters where I rebalance my portfolio every three months. So when they go, "What are you going to do about such and such?" it's like, "Everything's set. I'm going to wait until the results are in, and I'm going to reevaluate on a framework, on a systematic way," which just helps me from getting whipsawed this way or whiplash this way or that way. And it's proven to be not only great for helping people feel like I have a deeper understanding and follow what I'm doing, but it also improves performance.   0:11:07.7 John Dues: Yeah. And you know, I'm definitely no financial expert by any means, but it makes me think of The Big Short, the movie, when I don't know how true to reality it is, but when the character played by Christian Bale, Michael Burry, is sticking to his guns with his shorting of the housing market and people are coming into his office and screaming at him. He's getting emails that are coming in one after another calling him an idiot, threatening him with lawsuits, and he holds. So that's like an extreme example of not reacting to noise. And you can see what it does to him in the movie, the intestinal fortitude, before sort of it comes to the conclusion. He got less and less certain even though he stuck to his guns, that he was doing the right thing. Right.   0:12:00.3 Andrew Stotz: I got to get that clip because I want to combine that with Mel Gibson in that movie, I can't remember, the Celtic battles in England where he's saying, "Hold the line! Hold the line!" What is it?   0:12:13.6 John Dues: Braveheart, probably.   0:12:16.3 Andrew Stotz: Braveheart. Yeah.   0:12:17.9 John Dues: Braveheart. Yeah. That's because when you're having a conversation like this and you talk about this leadership concept, just about everybody's going to nod along with you. But when you are actually in the moment, very few people hold the line, very few people hold the line. But at least if you have this grounding, at least you'll be more likely to hold the line because you have some techniques and some ways to sort of paint this picture that there's a firm logic. There's never certainty, but at least there's a firm logic for why you're holding the line in a particular situation. But it's very, very hard. Very hard.   0:12:58.2 Andrew Stotz: One question is, could there be such a thing like a mantra that the management team could have? Something like, "One point is not the full story," or something that they talk about in non-emotional times so that they've got it set. So when all of these numbers change and everyone looks at you, it's like, "Guys, remember, one point is not the story."   0:13:28.1 John Dues: Yeah, no, that's a really good idea. That would be a good sort of internal value or something marketing-wise that you could sort of, something sticky that would remind people of this, especially in those moments of anxiety or even panic, depending on the particular situation and the type of data that you're talking about. That's a good idea. I think the key thing is that activity is not the same as improvement. It feels good. It feels good to change something, introduce something new, new rules, new expectations, even though the system itself hasn't changed. And like you said, that's tampering. You make adjustments to a stable system based on something that's just routine ups and downs and it degrades performance. I think a lot of people are familiar with Deming's Red Bead Experiment. Less of them are familiar with the Funnel Experiment. He basically talks about when you are trying to hit a target through a funnel and you move it each time to sort of adjust for the variation from the mark. You actually, he called it going off into the Milky Way in terms of where you end up when you make these adjustments every single time.   0:14:46.1 Andrew Stotz: I thought that demonstration was so... I don't remember that he did it in the seminars that I attended. I remember the Red Bead Experiment. But that tampering is so powerful to understand the mess you can end up in.   0:15:05.7 John Dues: Yeah. And that was in The New Economics. I don't think he ever did it in a four-day seminar that I remember. But the interesting thing is generally the best choice is just to keep the funnel in the same place and keep going. But again, that's very hard. Especially let's say you're doing this as a group activity and group two, three, four, and five, you're looking over and they're making these adjustments every time, and you're just sitting there. And you're like, "Maybe they're onto something," or "Maybe I do need to move." But at the end of it, they're much farther away than you are.   0:15:43.4 Andrew Stotz: And I feel like the title you talked about, "When the Numbers Change and Everyone Looks at You," is evoking that emotion of, "Am I doing something wrong? Other people would do it a different way. Oh, they're making progress. I'm just sitting here." Those kind of emotions are the types of things that cause that tampering.   0:16:02.7 John Dues: Yeah. And then that shows up as initiative overload. You get these contradictory messages, constant course correction like in the Funnel Experiment. And the irony is you typically have a leader who cares deeply and they don't realize they're creating the very instability that makes improvement impossible. It's a tough realization. So what I would say is that when the data does change, the most important leadership move is not action, but it's interpretation. So instead of asking, "What should we do?" maybe a good first question is, "Is this shift within the range of what we should expect?" So just that question kind of slows the moment down. It shifts attention from reaction to understanding and it invites the group to look at data over time rather than point to point. It opens up this possibility that nothing is wrong even if the results aren't yet acceptable.   0:17:15.4 Andrew Stotz: Love that. Love that.   0:17:16.8 John Dues: Yeah, I think it's a really important...   0:17:17.5 Andrew Stotz: Is this shift within the range of what we would expect?   0:17:20.6 John Dues: Yeah.   0:17:21.1 Andrew Stotz: Answer's going to be "Yes, this is in the range." So next topic in a meeting.   0:17:28.5 John Dues: Right. And we've talked about this before. And it's possible when you've asked that question that the system itself looks stable, but it also may be producing outcomes we don't like. And so the key is even in those cases, reacting to an individual data point is not going to help. In that case, if you have stability but outcomes you don't like, you need thoughtful system redesign. But these sort of urgency-driven immediate fixes, overreaction, that's not going to help. That's not going to help.   0:18:06.9 John Dues: So the big thing is pausing before reacting. But that's often misunderstood. We talked about is he or she ignoring the data? Are they lowering expectations? Is that leader just indecisive? I don't think so. I think that's really what discipline is. And pausing, being that person that says, "Let's take a breath and pause here," it creates the space to study patterns rather than focusing on those individual data points. It allows leaders to separate stability from acceptability. It prevents unnecessary pressure then cascading through the system, which is what often happens. And so what I think is when you actually pause, what you're doing is protecting the people in your organization. When you do that, I think in an education system it protects teachers from being judged on noise they can't control. I think it protects leaders from... They are often then turning around and making promises that the system can't actually keep. It's sort of like a short-term thing, but you're hurting the long term. And then it protects students because they don't then undergo all these constant changes that disrupt their learning.   0:19:43.1 John Dues: So I think what a leader, a strong leader does that's different is they ask questions. What does this look like over time? Is this a meaningful signal from what we've seen before? What should we expect if nothing changes? Just some basic questions. I think resisting the urge to explain every up and down movement. And it's really at the end of the day what it comes down to is you're not trying to assign meaning to every data point, but what you're trying to do is understand the underlying system behavior. Now sometimes action is warranted, and in those cases, you're going to act in a deliberate way. When it's not, they're going to communicate that and communicate why we're going to wait in this particular scenario and why that's the responsible choice. So there's got to be this underlying logic whichever direction you're going to go. And I think if you've ever been around a leader like this, it feels calm. It just feels calm. It feels steady. And over time, the key thing is it creates this system that's trusting and then as a result, it's far more capable of improvement. It's far more likely that improvement's going to happen.   0:21:13.4 Andrew Stotz: That's amazing. And I was just taking lots of notes, but I wrote down pause, have discipline, protect employees, protect students. But I wrote down protect the aim.   0:21:27.0 John Dues: Yeah, protect the aim. That's good.   0:21:28.7 Andrew Stotz: Protect the aim of the system. Why are we here? And if we can't do that pause and look at it carefully, there's just no way we're going to achieve that.   0:21:43.3 John Dues: Yeah, no, I agree. And I think the thing is with these situations is that the most damaging decisions in schools are often made after the numbers change, but not because of the numbers themselves. Like even if they've declined, typically it's not to the point that it's catastrophic, but what's catastrophic is the series of decisions that are made as a result of the decline. And so in those situations again, this reaction feels responsible. But really what happens when you react without understanding is it creates more noise, more stress, more instability, and you still don't have the improvement at the end of all that consternation.   0:22:30.1 Andrew Stotz: Yeah, I would sum up my sum of this is the bad manager says, "That's a terrible result. Let's make it worse."   0:22:42.0 John Dues: And that's really what's happening. They're obviously not saying it, but that's exactly what's happening. Exactly. That's a really good summary. And I would kind of sum it up with three big ideas that would be helpful for listeners. I think the first one is that not all variation is meaningful. Most fluctuations actually are just routine, should not trigger action. The second one we've talked about, that overreaction creates instability. Acting on noise makes systems worse, not better. And then the third thing I would say is that pausing is a leadership skill and understanding must come before action.   0:23:30.2 John Dues: And I say it's a skill 'cause you actually have to practice it. I think you have to prepare yourself for what you're going to do when you get in front of a group and you're going to talk about results and those results maybe aren't exactly where you want them to be. You have to practice that, rehearse it. What are you going to say? How are you going to back that up? What's the logic? But I think when leaders learn to have that pause before reacting, they actually protect learning, they protect trust, and then they actually create the conditions for improvement. And I think that's the work that matters most when everyone's looking at you to make a key decision. Not easy, but certainly important work.   0:24:08.6 Andrew Stotz: That's a great wrap. I'm not going to add anything to it. John, on behalf of everyone at the Deming Institute, I want to thank you again for this discussion. And for listeners, remember to go to deming.org to continue your journey. You can find John's book, Win-Win: W. Edwards Deming, the System of Profound Knowledge, and the Science of Improving Schools on amazon.com. This is your host, Andrew Stotz, and I'll leave you with one of my favorite quotes from Dr. Deming, "People are entitled to joy in work."      

How do you design a team off-site that actually improves your organization? In this episode, Travis Timmons breaks down the mechanics of a Deming-styled off-site team meeting—from starting months early and setting a clear aim to using pre-work, fishbone diagrams, and PDSAs to drive real change. If you want a real-world example of how Deming leaders create focus, collaboration, and joy in work, this conversation is a practical place to start. TRANSCRIPT 0:00:02.3 Andrew Stotz: My name is Andrew Stotz and I'll be your host as we dive deeper into the teachings of Dr. W. Edwards Deming. Today I'm continuing my discussions with Travis Timmons, who is the founder and owner of Fitness Matters, an Ohio-based practice specializing in the integration of physical therapy and personalized wellness. For 13 years, he's built his business on Dr. Deming's teachings. His hope is simple; the more companies that bring joy to work through Deming's principles, the more likely his kids will one day work at one of those darn companies. Travis, how are you doing?   0:00:35.2 Travis Timmons: Hey, Andrew. Doing well, how are you?   0:00:37.1 Andrew Stotz: I'm really excited. We were just talking about the structure of today's discussion, and the topic for today is the mechanics of a Deming-styled offsite, which I... In today's session, we're going to be talking about the importance of starting early, setting an aim, figuring out and developing an agenda. Also homework, huh?   0:01:05.1 Travis Timmons: Right.   0:01:05.4 Andrew Stotz: Pre-work for attendees. I thought that's interesting as we were going through it. And then you talk about your activities, your outcomes and all of that. So why don't you get into it and walk us through the mechanics of a Deming-styled offsite. And by the way, one last thing. When we say Deming-styled, well, you're certainly getting a lot of support from a true Deming advocate, Kelly Allen, and your understanding of the teachings of Dr. Deming. And so you're doing your best to apply those things in this. Is it a perfect Deming offsite? Well, that's why we say Deming-styled offsite. Maybe the listener or the viewer would add in or subtract some things, but at least we've got the general structures. So why don't you take it away, Travis?   0:01:47.3 Travis Timmons: Yeah, no, happy to, Andrew. So yeah, we have our team offsite. It'll actually be 10 days from now. So from a big picture standpoint, one of the things I've learned is systems, process, organization, and none of that happens quickly. So every time we do an annual team offsite, it's about a three-month work-ahead process for myself and the leadership team. So we start a good three months before the meeting date just to start percolating on what do we need to talk about at this meeting? What's the aim? What do we want the outcome to be? And that doesn't happen with a week of preparation. So we've had to spend some time looking at our KPIs, where do we have an opportunity to have a positive impact on our system? So we have to study our current system, see where there might be opportunities for improvement, understand how do we want the team to engage with that. And for this year's offsite, our big aim... We have two aims for the offsite. One is to make the system visible. Everybody on the team. I've had some learnings through some newer leaders on our team that have been through the DemingNEXT and they've been on our team for a few years.   0:03:04.1 Travis Timmons: But they until going through the DemingNEXT, they didn't fully understand what system view meant. And that kind of hit me over the head like a ton of bricks. It's like, well, maybe that would be a good thing to spend part of our offsite making sure the entire team can visualize and see our organization as a system. And then the second aim from a mechanics, from a KPI standpoint, if you will, is we want to improve arrival rate for our visits. So basically, how many scheduled appointments show up is what we call arrival rate. To have a better impact on patient outcomes, joy in work for our team members, joy in the referral sources that send to us. So yeah, it was about a three-month process.   0:03:49.3 Andrew Stotz: And if I... Just curious, sometimes when I've done offsites or I've attended offsites, it's more general. Here you have a very specific thing, improve arrival rates. Why is it so specific and how do you come to that decision that this isn't going to be just an open discussion about things in our company?   0:04:14.4 Travis Timmons: Yeah. That's a great question. Some years they are a little more general. Like last year we spent quite a bit of time setting a new round of BHAGs, Big Hairy Audacious Goals. This year, looking at KPIs, looking at where the opportunities were to improve, where there were the most breakdowns and frustrations happening in our system that we were hearing consistently across our team. It's like, what's the one thing we can have an impact on that will, if we improve that, everything else will get better. And that was arrival rate. So then we started looking at, all right, how do we dissect that? How do we make it visible to the team so the entire team can work on it together? So that's how we came to that. And it's like, all right, this is a consistent issue. So if you do the control chart, it's like I can almost set my watch to what's arrival rate going to be every week. And until we change something in our system, that's going to be what's going to continue to happen and we need to have an impact on that this year. So that's how we came down to it. It's the one thing we can do that'll have the most impact positively across the entire organization.   0:05:23.1 Andrew Stotz: I often talk about a big company in Thailand that was a Deming-focused company for many, many years, and then a new CEO came in and he made it a different focus company. And the company struggled for years. Whether it's from that or not is a secondary item. But two weeks ago I was giving a lecture and a guy from that company, who is an older guy, was at the lecture. And afterwards we were talking and I said, "What's the difference between the prior guy and the new guy?" He said, "The prior guy set the direction and we all knew it. The new guy kind of has us set it or we go in a lot of different directions. It's not as clear." And so what I was thinking when you were talking about improve arrival rates, I was thinking, yeah, that's leadership. You've identified what you believe is the most critical element at this stage of the business right now, and there's a lot of knock-on effects of fixing that. Whereas if you went into that room and you say, "What's the biggest problem we have right now?"   0:06:35.6 Travis Timmons: Right.   0:06:36.3 Andrew Stotz: Yeah, you're going to get a long list, but as a leader you have to set the direction.   0:06:41.1 Travis Timmons: Yeah. Yeah, and with the leadership team as well. And yeah, where do we... The KPIs and the system, if you study it and look at the outputs through the Deming lenses, it becomes... It's not easy. You got to spend the work and have the tools in place and the discipline to track it all consistently so that you know what your true arrival rate is. I can get in... It's a whole probably different conversation, but tampering and all that kind of stuff. So we know what our data is because of how we've made very clear definitions on our arrival rate and how we don't tamper to get better numbers. But yeah, it's exciting. The team, as crazy as this might sound, we've done these for many years now, over a decade, and the team looks forward to them. And part of that is because we spend the time. I take this very seriously. If I'm going to ask people to come to a meeting for five hours, it better be good. And we better bring... We better have something we can work on as a team to come out of it. And if we don't, that's nobody's fault but mine. So that ownership of the system I take very seriously.   0:07:58.1 Andrew Stotz: A great song, by the way, by Led Zeppelin, Nobody's Fault But Mine. But I would also say that's why I think it's fascinating to continue to go through the structure that you've got, because I think it can guide all of us. So we've learned about starting three months early. I was also thinking about my Crock-Pot. I like to cook slow-cooking food and I put all these different tastes of an onion and a piece of meat, which doesn't really have taste in some ways. And I put them all in a pot and it's eight hours. And if I interrupt it at one hour, there's just, there's not much value there. It needs time to extract the tastes and also bring those tastes into each other until you end up at the end of eight hours. Like, whoa, that's amazing. So...   0:08:51.4 Travis Timmons: Right. Right. Yeah, as you're pointing to, that's kind of how the agenda evolves. So we have an aim of system visibility and arrival rate. Well, how do we put an agenda around that together? So myself, the leadership team, Kelly, we've been working back and forth quite a bit, several iterations of that. So that's part of why you need that three months. You work on it. That sounds great in your head. You put it on some PowerPoint slides and then you share it with folks and they're like, "I don't know really what you're trying to say there, Travis." So there's...   0:09:25.0 Andrew Stotz: It seems like an onion and a carrot.   0:09:27.0 Travis Timmons: Right. Right.   0:09:27.3 Andrew Stotz: But I don't get the taste of it.   0:09:29.6 Travis Timmons: Yeah, so it's just working through those iterations. So miniature, little PDSAs, if you will, of the agenda. But yeah, once we get it to a point where we feel like, okay, we know what we want to work on, then the next big thing becomes how do we get the team involved ahead of the meeting? Because if you... I found very clearly over the years, if the team's not understanding what they're going to be working on coming into the meeting, that you've lost so much opportunity to learn from the entire organization. Because that's where the real learning happens when we do these is stuff that's happening that I don't have visibility of or little workarounds or somebody has a great idea, but maybe didn't feel like it was the right place to bring it up. So just have another opportunity for people to feel very comfortable sharing what breakdowns are happening. But we have homework, right? So that's one of the other big pieces of, if we're going to work on the system, we better know what we're working on that day. And if I don't tell anybody what we're working on until the day of the meeting, we could spend two hours just defining a fishbone chart, which we can talk about later perhaps.   0:11:15.7 Travis Timmons: But the point of the homework is we spend a lot of time, hours preparing the homework booklet that we give to the team about two-and-a-half weeks before the meeting. And it informs them, here's where we're going to be diving deep. We need you to come with the ideas and questions and thoughts already in your head so that we can all just dive in aggressively. Because it's so powerful when they're just bringing the ideas, referencing their homework. You can get so much more done in five hours than if we weren't doing that. So that homework becomes critical and has to match the agenda. If it's disjointed, then you've already lost some trust with your team because they're like, "You had me do all that homework and then we just didn't talk about any of it at the offsite. Like, what are we doing here." So it all has to tie together from a system view, as Dr. Deming would want, hopefully.   0:11:43.5 Andrew Stotz: Yeah. And I don't know, for the listeners and the viewers out there, you probably feel the same way I do, which is kind of like, "Oh, gosh, I should have done more preparing for that last offsite." And also feeling that excitement like, "Oh my gosh, I can unleash a lot from my leadership team, from the company employees through this pre-work and all of a sudden all the mess I have sometimes in offsites of, I don't understand what you're saying by this and what do you mean by that? It could be this." And all of that's gone. And so it makes me... I'm literally thinking about my next offsite and thinking, okay, how am I going to incorporate what you're teaching? So keep going. [laughter]   0:12:26.5 Travis Timmons: Yeah. Yeah, no, it's... And I've learned from some of the best over the years, so it's... I've been very fortunate to learn some of these tools. But yeah, from the homework perspective, it'll accomplish one of our other aims, which is always an aim, but more pointed in this meeting is they start to see the entire system and the complexity that's within it and just start appreciating. "All right, here's everything that has to happen." And, man, we're doing a lot of things really well. And they understand at a deeper level, every piece on our team is critical. There's no silos, no one piece of the equation is more important than the other. If any piece of the equation doesn't happen well, then we're not successful. So that's what with the homework, it just starts making sure from a cultural standpoint and an understanding from the Deming lens, we're all on this together. We have to work on the work together. And the system visibility helps with that, with the homework. And the engagement is so high.   0:13:32.3 Andrew Stotz: Yeah, I'm sure. And that's part of what makes it exciting when I was listening you talk. And I think we're going to need to do a little pre-work on the concept of fishbone, because there are some people that are listening or viewing that may have never even heard of fishbone and fishbone analysis and all that. So maybe as we move into this next part, make sure that you do that pre-work so that we all can figure out exactly what it means, fishbone. And I think you may even have some diagram of that you can share.   0:14:03.4 Travis Timmons: Yeah, I could pull up. If you'd like, I could pull one up to share here. So did that come through for you there?   0:14:12.9 Andrew Stotz: We see it now.   0:14:14.8 Travis Timmons: So this will be... This is part of the homework booklet that we created. So we filled in what we call the main bones. And this is just the patient journey from first contact with Fitness Matters all the way through to a successful discharge. So we have the main bones, I'll call it. If you envision this being, there'd be a fish head at the far right, and then the tail would be at the left. But we just want people to start working on, okay, how does somebody first hear about us at initial contact? Well, they'll write in underneath initial contact, could be website, Google search, could be physician referral, could be my neighbor. So we start penciling in what's all of the ways people first come in contact with Fitness Matters? So we have an understanding of what that looks like. And is it a good first impression? Do we knock that out of the park? And then it just goes through all the major... We look at it as five major bones from first contact to discharge. Second is that initial contact with us to them, scheduling the evaluation. So how many times have they had to call us and leave a voicemail, or can they schedule online, or can they stop in the clinic and schedule, or how did the script come to us, do we capture their insurance data correctly? It just goes how quickly a lot of researching...   0:15:37.0 Andrew Stotz: So many ways to drop the ball?   0:15:39.6 Travis Timmons: Yeah, a lot of research to show if you don't schedule that patient within the first 48 hours of initial contact, the likelihood of them scheduling just plummets.   0:15:49.3 Andrew Stotz: Yeah.   0:15:50.0 Travis Timmons: So a lot of things we have to consider in technology and systems, process, tracking. We have a whole system of how we track how many times we've reached out. We have templates created on how we text message versus voicemail, because some people don't listen to voicemails anymore. Anyway, I could spend an hour just on this fishbone. And then it goes to evaluation day. So when they show up in the clinic, do we have their benefits ready to explain to them? Is the therapist ready for them? Have they looked at their medical history? Do they understand how much they're going to pay? How do they pay? Is it easy to pay? And then the next bone is the plan of care. So all the visits they do, how good are we at scheduling them? How good is the therapist at predicting how many visits they'll need? Is it clear? Do they understand what they owe every visit? So there's not a great experience and then they get this big surprise bill at the end and just ruins everything, right? So we work very hard to be transparent. And then a successful discharge into home exercise and our wellness services.   0:16:52.5 Travis Timmons: So that's what we want everybody to spend some time on with homework. And then at the offsite, this isn't easy to make a patient happy and have a successful outcome. And I think a lot of times in organizations, people don't fully appreciate or see the entire system and understand why this part up here. So if we don't fill out their insurance demographic correctly at the front desk and we rush them back to the evaluation because the therapist is in a hurry, well, now all of those claims aren't going to get paid.   0:17:27.9 Andrew Stotz: Yeah.   0:17:29.1 Travis Timmons: And now we've had a bad outcome for the company. So anyway, that's the fishbone chart. It really helps you diagram at a big level. And then you can dive deep on each one of these bones and turn each of the bone into its own miniature fish, we'll call it, and really dive deeper and deeper, which we'll be doing at our offsite.   0:17:46.8 Andrew Stotz: Yeah. And for the listener out there, think of your own business, what's the chronology of from first contact to delivering this successful experience? Delivering that experience that you're trying to deliver in your business or your school, wherever you are. And this breaks it down into kind of the stages or the phases of that on kind of a chronological order. And that helps you to visualize. And that's part of what you've talked about is the idea of trying to, one of the big goals is visualizing. So that's a great visual of it. Maybe, I think you can probably stop sharing that now. And then also that's, I believe, activity, what I would call activity part one is working on that. Maybe talk a little bit about the mechanics of, now that we understand the fishbone and all of that, what are you asking them to do and then how are they using that?   0:18:51.2 Travis Timmons: Yeah, so the first breakout, we're going to have six tables where they'll use their homework to start filling that in. It's conversation, it's collaboration. It's like, "Oh, this person over here had that on their homework. I didn't even think about that." So that's the goal is that 10,000-foot view, here's the entire system.   0:19:09.6 Andrew Stotz: And are they doing that on a wall together or something like that? Or how is it happening?   0:19:13.4 Travis Timmons: Yeah, we're going to have big newsprint, so it'll be up and big newsprint so everybody can see what's going on. And at the end of the day, we have a very large fish that we're going to have posted and we're going to fill it in with the final product, if you will. That's the entire fishbone. So that's the aim of the first one, is the big picture. Some collaboration, some understanding of the entire system of Fitness Matters and what the complexity looks like. It also allows, one of the things we try to do with this offsite and really in culture in general, Dr. Deming talks about is driving out fear. So newer team members, especially when they start seeing, hey, let's just start talking about stuff, they really start to have a deeper understanding of our culture. And yeah, we do want to talk about stuff. We do want to talk about ways to improve. And then a follow on to that, we're going to do another breakout later in the day. And by table, each table is going to be assigned one of the main bones we just reviewed there.   0:20:20.4 Andrew Stotz: Right.   0:20:21.2 Travis Timmons: And they're going to turn that into a fish itself and do a really deep dive. And what are all the pieces and parts of initial contact? What are all the pieces and parts of eval? So on and so forth. And the aim of that piece is then with that deeper dive into the complexity, the aim is to come away with probably three PDSAs of where do we need to improve our system? Based on that work, we'll have three, maybe four really clear ideas on, okay, we're seeing this as a sticking point. The team's talked a lot about it. How do we improve that? So that's where the PDSAs come from.   [overlapping conversation]   0:20:58.5 Andrew Stotz: So how do you end up figuring out? I mean, everybody's going to talk about, "We need to fix this area, we need to fix this area," or something like that. How do you then... Is it a collaboration, a discussion, is it a voting to say these are the three PDSAs we're going to work on?   0:21:16.7 Travis Timmons: Yeah, so we want it to be collaborative. There's little... Everybody will have little sticker dots. And on one of the breaks, once all these fish charts are filled out, we're going to ask team members to go around and put a sticker by the one that they think would be the highest and best use of our time and resources. So that's kind of an internal, quick, on-the-fly voting just to see where the team's heads at. And they can also have an understanding of how this is hard to... It's hard to choose. We can't work on 20 things. So where do you guys think we need to put the effort? And then at the end of the day, at the very end of the day, I have to decide based on all the feedback from the team and what our resources and capabilities are, then we have to pick three or four. But it's super powerful to have the team involved in that.   0:22:08.4 Andrew Stotz: Yeah, and one of the things about that type of voting is that sometimes people are voting on things that they think they understand what they're voting on and then you find out, actually, maybe not. So one of the fun ones to do in that case is say, okay, if you have one of your ideas up there that wasn't voted for, it could be, and you think it should be, it could be, maybe they didn't understand how you described it or how it's up there. And anybody that wants to make a pitch for that, go ahead.   0:22:37.0 Travis Timmons: Right. I like that.   0:22:37.4 Andrew Stotz: And you'll get a couple zealots saying, "I really think that this one should be up there in a higher priority." And then after that and say, "Okay, anybody want to move one of their dots?" And then that's a fun way.   0:22:52.5 Travis Timmons: I might steal that one. I like that.   0:22:55.6 Andrew Stotz: That's a fun way to say, there's always a second chance, but you got to make your pitch and it's got to convince people to move their dots. So, yep.   0:23:03.4 Travis Timmons: Yeah. I like that. Yeah, so that's how we work on the PDSAs. And it just really at the end of our meeting, I feel like the work we will have done with the homework and the how the agenda is laid out, because we spend a lot of time on the agenda and making some... So we have a timetable on each part of the agenda because my experience has been if you don't plan then things are going to go sideways. Like if you don't have a time commitment to it. And it also gives you a hard break on like, "Okay, guys, there's a couple other things we have to tackle today. This is extremely helpful, but we got to move on to the next thing." But at the end of the meeting, I have the agenda structured in a way that I feel like, I hope I'm not wrong, we'll find out next Friday. I feel like we'll have enough data, enough of the voting, enough of the conversation where I'll be able to report back to the team on like, "Hey this kind of aligns with where I think we need to put our energy and resources. Here's the top three PDSAs we're going to do." And if there was something that had a ton of votes, but we're not going to do that. I also want to be able to share with them why. "Hey, I understand that's big, but we don't have the money to do that one this year," or something like that. Because you don't want to do all this work and then just pick totally something different. And then because then you've lost total trust in your team and that's not good.   0:24:35.6 Andrew Stotz: Yeah. And also, one of the things that I learned after working at investment banks over the years and teaching ethics in finance is that there's firewalls between different parts of an investment bank because they don't want the employees communicating because they're kind of doing conflicting businesses. And so a person working in one area, as I was working in research, is different from a person that's working in investment banking. I may be doing research on a company and saying, "This company is a sell." And that that guy may be doing investment banking and say, "I'm going to help this company raise capital." And we have different objectives. And and they're both legitimate activities that are happening. And we're serving different clients. I'm serving the fund manager who's considering investing. And that person's serving in the investment banking, the CEO of the company and the ownerships and the shareholders of the company. We're serving different clients, but the important thing is that we're not really supposed to know, and we generally didn't, throughout my career, know what the other was doing. But as you go up to the next level of management, they are on both sides of that wall.   0:25:49.0 Andrew Stotz: They must be able to understand what's happening on both sides for various reasons, but most importantly, they have to make decisions about the overall organization based upon a level of knowledge that maybe the people at the lower parts of the organization may be extremely excited and confident and happy about what they're doing, but they can't necessarily connect all those dots. So that's the reason why I would explain in your case that you may have to override something and say, "Look, I've listened, but I do think this is a higher priority because what you guys aren't seeing is how this connects to the implementation of the software."   0:26:25.8 Travis Timmons: Right.   0:26:26.1 Andrew Stotz: "And you're not seeing it because you haven't been doing all of this stuff that I've been doing. And so I'm going to override that one and raise that one. But the other two, let's do those," type of thing.   0:26:36.2 Travis Timmons: Yeah. And that's kind of from a... Totally agree. And that's from a Deming, make the system visible. You also have to explain from a transparency standpoint, in my opinion, anyway, if you're going to go through all this work to your point, everybody doesn't fully understand what our budget is to spend on software next year, for example, and don't expect them to, but I need to know that. So just explaining to them why we're choosing the ones we're choosing, explaining that we can't boil the ocean, and then create the PDSA and we'll give them a promise that we'll report back within... Usually, I report back within a month at the end of the meeting, of the PDSAs build out, you know, what's the aim?   [overlapping conversation]   0:27:22.5 Andrew Stotz: That was my next question. How do you make sure that those PDSAs get done? Because I've left a lot of offsites. I've left them and thought, "Yep, that was interesting. Nothing's going to happen."   0:27:35.8 Travis Timmons: Yeah, no, that's where you start to lose trust from your team as well. It's like if, you know... So we revisit our meetings from last year. Like that'll be part of our recap. Okay, here's what we set out to do last year. So the beginning of the meeting is like, here's the things we talked about we wanted to do and here's what we did. Here's what we still have left to do. But yeah, with a deliverable like this, man, it would be a huge miss on my part if we didn't follow through with PDSAs.   0:28:05.5 Andrew Stotz: And are you managing those or you have one person in-charge of each one of those and then you work with them or what are the mechanics of that?   0:28:15.4 Travis Timmons: Yeah, I think the two larger ones, one of ours is going to include a software change. So that one will be in my wheelhouse for sure.   0:28:22.9 Andrew Stotz: Yeah.   0:28:24.0 Travis Timmons: But yeah, I could envision assigning a champion for two or three of the smaller ones and they won't really be small, they'll be company-wide. The software is a pretty heavy lift.   0:28:36.8 Andrew Stotz: It's interesting because now I can see you've talked about this driving out fear and sharing all information and all of that. And I think that now that I understand your process, I can see that when you get into the hard work of the PDSA, that's going to challenge assumptions, it's going to push the limits, it's going to be testing things that when you get there, everybody knows exactly why that's happening and where that came from. Maybe you can talk a little bit about this concept of one of your goals being driving out fear and using this event as one of the ways to do that.   0:29:17.0 Travis Timmons: Yeah, no, yeah, that's a big piece that I learned from Deming years ago is, people have a lot of fear. What's going on? We don't know. The transparency of this event in and of itself, my experience has been, like, "Oh, I guess we're just talking about everything here, huh?" Putting it out there just makes people comfortable knowing what's going on, what we're working on, what we're not doing as well as we could be and we're aware of it and where it's at in the priority stack. And then also, for five hours they're going to be seeing people speak up. And we call it, "Celebrate the Breakdowns." So from a Dr. Deming perspective, 96, some percent of issues within an organization are due to system issues, not people issues. So they'll start to see, like, hey, when you talk about systems and processes, you can really talk pretty intensely. Very hard to do if you're complaining about how people do things. Right? Because you're... So that system breakdown, we call it Celebrate the Breakdowns, just allows people to be more free and also understand, hey, everybody does show up wanting to do a good job.   0:30:30.7 Travis Timmons: And Travis probably assumes I show up wanting to do a good job. Let's talk about how to make this place better. So that drives out the fear just by making the system visible. And then with the PDSAs, I think it drives out fear from a standpoint of they know when we're going to make a change. This isn't just us shooting from the hip. It's a very organized, methodical, visible way that we know we need to change something. Here's how we're going to do it, and if we're wrong, we'll change it. So that's another way that the PDSA process, my experience has been it also drives out fears because they have a deep understanding of just seeing this entire process. They have confidence, like, "Okay, this isn't just flavor of the month. I'm just going to throw stuff at the wall and see what sticks. This is a big deal. We're going to work on it together. We're going to try it and if it's not going well, we'll try something different collaboratively."   0:31:29.5 Andrew Stotz: I want to wrap it up there and I think... Do you have anything final that you want to add to the process that we've talked about? Is there anything else that people need to know about as they're planning their offsite?   0:31:40.5 Travis Timmons: No, I think we covered quite a bit. I think the big takeaway is it's more work than I think I realized until I had exposure to Deming and some mentors in my life. And it's been a game changer on how much we can accomplish. So the time investment is worth it.   0:31:57.2 Andrew Stotz: And I think we're going to meet again later and talk, and I think we can get an update from you what went well, what do you need to improve, and guide us also as we think about our next offsite, which is pretty exciting.   0:32:11.5 Travis Timmons: Yeah, I look forward to sharing how it went. My hope is I'll report back on at least three PDSAs that we have ready to engage for 2026.   0:32:21.2 Andrew Stotz: I can't wait. Well, Travis, on behalf of everyone at the Deming Institute, I want to thank you again for this discussion. And for listeners, remember to go to deming.org to continue your journey. This is your host, Andrew Stotz, and I'll leave you with one of my favorite quotes from Dr. Deming, "People are entitled to joy in work."

In this episode, Bill Scherkenbach, one of W. Edwards Deming's closest protégés, and host Andrew Stotz discuss why leadership decisions shape outcomes far more than frontline effort. Bill draws on decades of firsthand experience with Deming and with businesses across industries. Through vivid stories and practical insights, the conversation challenges leaders and learners alike to rethink responsibility, decision-making, and what it truly takes to build lasting quality. Bill's powerpoint is available here. TRANSCRIPT 0:00:02.2 Andrew Stotz: My name is Andrew Stotz, and I'll be your host as we dive deeper into the teachings of Dr. W. Edwards Deming. Today, I'm continuing my discussions with Bill Scherkenbach, a dedicated protégé of Dr. Deming since 1972. Bill met with Dr. Deming more than a thousand times and later led statistical methods and process improvement at Ford and GM at Dr. Deming's recommendation. He authored the Deming Route to Quality and Productivity at Deming's behest and at 79, still champions his mentor's message: Learn, have fun, and make a difference. The discussion for today is, I think we're going to get an answer to this question. And the question is: Where is quality made? Bill, take it away.   0:00:44.9 Bill Scherkenbach: Where is quality made? I can hear the mellifluous doctor saying that. And the answer is: In the boardroom, not on the factory floor. And over and over again, he would say that it's the quality of the decisions that the management make that can far outweigh anything that happens on the shop floor. And when he would speak about that, he would first of all, because he was talking to the auto industry, he would talk about who's making carburetors anymore. "Nobody's making carburetors because it's all fuel injectors," he would say. And anyone who has been following this, another classic one is: Do you ever hear of a bank that failed? Do you think that failed because of mistakes in tellers' windows or calculations of interest? Heck no. But there are a whole bunch of other examples that are even more current, if you will. I mean, although this isn't that current, but Blockbuster had fantastic movies, a whole array of them, the highest quality resolutions, and they completely missed the transition to streaming. And Netflix and others took it completely away from them because of mistakes made in the boardroom. You got more recently Bed Bath & Beyond having a great product, a great inventory.   0:02:51.4 Bill Scherkenbach: But management took their eyes off of it and looked at, they were concerned about stock buybacks and completely lost the picture of what was happening. It was perfect. It was a great product, but it was a management decision. WeWork, another company supplying office places. It was great in COVID and in other areas, but through financial mismanagement, they also ended up going bust. And so there are, I mean, these are examples of failures, but as Dr. Deming also said, don't confuse success with success. If you think you're making good decisions, you got to ask yourself how much better could it have been if you tried something else. So, quality is made in the boardroom, not on the factory floor.   0:04:07.9 Andrew Stotz: I had an interesting encounter this week and I was teaching a class, and there was a guy that came up and talked to me about his company. His company was a Deming Prize from Japan winner. And that was maybe 20, 25 years ago. They won their first Deming Prize, and then subsidiaries within the company won it. So the actual overall company had won something like nine or 10 Deming Prizes over a couple decades. And the president became...   0:04:43.5 Bill Scherkenbach: What business are they in?   0:04:45.5 Andrew Stotz: Well, they're in...   0:04:47.0 Bill Scherkenbach: Of winning prizes?   0:04:48.7 Andrew Stotz: Yeah, I mean, they definitely, the CEO got the distinguished individual prize because he was so dedicated to the teachings of Dr. Deming. And he really, really expanded the business well, the business did well. A new CEO took over 15 years ago, 10 years ago, and took it in another direction. And right now the company is suffering losses and many other problems that they're facing. And I asked the guy without talking about Deming, I just asked him what was the difference between the prior CEO and the current one or the current regimes that have come in. And he said that the prior CEO, it was so clear what the direction was. Like, he set the direction and we all knew what we were doing. And I just thought now as you talk about, the quality is made at the boardroom, it just made me really think back to that conversation and that was what he noticed more than anything. Yeah well, we were really serious about keeping the factory clean or we used statistics or run charts, that was just what he said, I thought that was pretty interesting.   0:06:06.7 Bill Scherkenbach: Absolutely. And that reminds me of another comment that Dr. Deming was vehement about, and that was was the management turnover. Turnovers in boardrooms every 18 months or so, except maybe in family businesses. But that's based on the quality of decisions made in the boardroom. How fast do you want to turn over the CEOs and that C-suite? So it's going to go back to the quality is made in the boardroom.   0:06:50.0 Andrew Stotz: Yeah, and I think maybe it's a good chance for me to share the slide that you have. And let's maybe look at that graphic. Does that makes sense now?   0:07:00.9 Bill Scherkenbach: Sure, for sure.   0:07:02.2 Andrew Stotz: Let's do that. Let's do that. Hold on. All right.   0:07:15.8 Bill Scherkenbach: Okay, okay, okay. You can see on the top left, we'll start the story. I've got to give you a background. This was generated based on my series of inputs and prompts, but this was generated by Notebook LM and based on the information I put in, this is what they came up with.   0:07:48.6 Andrew Stotz: Interesting.   0:07:50.1 Bill Scherkenbach: Based on various information, which I think did a fairly decent job. In any event, we're going to talk about all of these areas, except maybe the one where it says principles for active leadership, because that was the subject of a couple of our vlogs a while ago, and that is the three foundational obligations. And so the thing is that quality, even though Dr. Deming said it was made in the boardroom, one of the problems is that management did not know what questions to ask, and they would go, and Dr. Deming railed against MBWA, management by walking around, primarily because management hadn't made the transition to really take on board what Dr. Deming was talking about in profound knowledge. And that is, as you've mentioned, setting that vision, continually improving around it, and pretty much absolutely essential was to reduce fear within the organization.   0:09:25.9 Bill Scherkenbach: And so management by walking around without profound knowledge, which we've covered in previous talks, only gets you dog and pony shows. And with the fear in the organization, you're going to be carefully guided throughout a wonderful story. I mentioned I was in Disney with some of my granddaughters over the holidays, and they tell a wonderful story, but you don't ever see what's behind the scenery. And management never gets the chance because they really haven't had the opportunity to attain profound knowledge. So that's one of the things. I want to back up a little bit because Dr. Deming would... When Dr. Deming said quality is made at the top, he only agreed to help companies where the top management invited him, he wasn't out there marketing. If they invited him to come in, he would first meet with them and they had to convince him they were serious about participating, if not leading their improvement. And given that, that litmus test, he then agreed to work with them. Very few companies did he agree to on that. And again as we said, the quality of the decisions and questions and passion that determine the successfulness of the company. And so.   0:11:40.0 Andrew Stotz: It made me think about that letter you shared that he was saying about that there was, I think it was within the government and government department that just wasn't ready for change and so he wasn't going to work with it. I'm just curious, like what do you think was his... How did he make that judgment?   0:12:00.0 Bill Scherkenbach: Well, it wasn't high enough. And again, I don't know how high you'd have to go in there. But quite honestly, what we spoke about privately was in politics and in the federal government, at least in the US, things change every four years. And so you have management turnover. And so what one manager, as you described, one CEO is in there and another one comes in and wants to do it their way, they're singing Frank Sinatra's My Way. But that's life….   0:12:49.3 Andrew Stotz: Another great song.   0:12:50.7 Bill Scherkenbach: Another, yes.   0:12:52.1 Andrew Stotz: And it's not like he was an amateur with the government.   0:12:57.5 Bill Scherkenbach: No.   0:13:00.3 Andrew Stotz: He had a lot of experience from a young age, really working closely with the government. Do you think that he saw there was some areas that were worth working or did he just kind of say it's just not worth the effort there or what was his conclusions as he got older?   0:13:16.9 Bill Scherkenbach: Well, as he got older, it might, it was the turnover in management. When he worked for Agriculture, although agriculture is political, and he worked for Census Bureau back when he worked there, it wasn't that political, it's very political now. But there was more a chance for constancy and more of a, their aim was to do the best survey or census that they could do. And so the focus was on setting up systems that would deliver that. But that's what his work with the government was prior to when things really broke loose when he started with Ford and GM and got all the people wanting him in.   0:14:27.0 Andrew Stotz: I've always had questions about this at the top concept and the concept of constancy of purpose. And I'm just pulling out your Deming Route to Quality and Productivity, which, it's a lot of dog ears, but let's just go to chapter one just to remind ourselves. And that you started out with point number one, which was create constancy of purpose towards improvement of product and service with the aim to become competitive, stay in business and provide jobs. One of my questions I always kind of thought about that one was that at first I just thought he was saying just have a constancy of purpose. But the constancy of purpose is improvement of product and service.   0:15:13.6 Bill Scherkenbach: Well, yes and no. I mean, that's what he said. I believe I was quoting what his point number one was. And as it developed, it was very important to add, I believe, point number five on continual improvement. But constancy of purpose is setting the stage, setting the vision if you will, of where you want to take the company. And in Western management, and this is an area where there really is and was a dichotomy between Western and Eastern management. But in Western management, our concept of time was short-term. Boom, boom, boom, boom. And he had a definite problem with that. And that's how you could come up with, well, we're going to go with this fad and that fad or this CEO and that CEO. There was no thinking through the longer term of, as some folks ask, "what is your aim? Who do you think your customer base is now?" don't get suckered into thinking that carburetors are always going to be marketable to that market base. And so that's where he was going with that constancy of purpose. And in the beginning, I think that was my first book you're quoting, but also, in some of his earlier works, he also spoke of consistency of purpose, that is reducing the variation around that aim, that long-term vision, that aim.   0:17:19.2 Bill Scherkenbach: Now, in my second book, I got at least my learning said that you've got to go beyond the logical understanding and your constancy of purpose needs to be a mission, a values and questions. And those people who have who have listened to the the previous vlogs that we've had, those are the physiological and emotional. And I had mentioned, I think, that when when I went to GM, one of the things I did was looked up all the policy letters and the ones that Alfred Sloan wrote had pretty much consistency of three main points. One, make no mistake about it, this is what we're going to do. Two, this is why we're going to do it, logical folks who need to understand that. And to give a little bit of insight on on how he was feeling about it. Sometimes it was value, but those weren't spoken about too much back then. But it gave you an insider view, if you will. And so I looked at that, maybe I was overlooking. But I saw a physiological and emotional in his policy letters.   0:19:00.7 Bill Scherkenbach: And so that's got to be key when you are establishing your vision, but that's only the beginning of it. You have to operationalize it, and this is where management has to get out of the boardroom to see what's going on. Now, that's going to be the predictable, and some of your clients, and certainly the ones over in Asia, are speaking about Lean and Toyota Production System and going to the Gemba and all of those terms. But I see a need to do a reverse Gemba and we'll talk about that.   0:19:49.6 Andrew Stotz: So, I just want to dig deeper into this a little bit just for my own selfish understanding, which I think will help the audience also. Let's go back in time and say that the, Toyota, let's take Toyota as an example because we can say maybe in the 60s or so, they started to really understand that the improvement of product quality, products and service quality and all that was a key thing that was important to them. But they also had a goal of expanding worldwide. And their first step with that maybe was, let's just say, the big step was expanding to the US. Now, in order to expand to the US successfully, it's going to take 10, maybe 20 years. In the beginning, the cars aren't going to fit the market, you're going to have to adapt and all that. So I can understand first, let's imagine that somebody says our constancy of purpose is to continuously improve or let's say, not continuously, but let's just go back to that statement just to keep it clear. Let's say, create constancy of purpose towards improvement of product and service with the aim to become competitive, stay in business and provide jobs.   0:21:07.2 Andrew Stotz: So the core constancy in that statement to me sounds like the improvement. And then if we say, okay, also our vision of where we want to be with this company is we want to capture, let's say, 5% of the US market share within the next 15 years or five or 10 years. So you've got to have constancy of that vision, repeating it, not backing down from it, knowing that you're going to have to modify it. But what's the difference between a management or a leadership team in the boardroom setting a commitment to improvement versus a commitment to a goal of let's say, expanding the market into the US. How do we think about those two.   0:21:53.6 Bill Scherkenbach: Well as you reread what I wrote there, which is Dr. Deming's words and they led into the, I forget what he called it, but he led into the progression of as you improve quality, you improve productivity, you reduce costs.   0:22:33.6 Andrew Stotz: Chain reaction.   0:22:34.5 Bill Scherkenbach: Yeah, the chain reaction. That's a mini version of the chain reaction there. And at the time, that's what people should be signing up for. Now the thing is that doesn't, or at least the interpretations haven't really gone to the improvement of the board's decision-making process. I mean, where he was going for was you want to be able to do your market research because his sampling and doing the market research was able to close the loop to make that production view a system, a closed-loop system. And so you wanted to make sure that you're looking far enough out to be able to have a viable product or service and not get caught up in short-term thinking. Now, but again, short-term is relative. In the US, you had mentioned 10 or 20 years, Toyota, I would imagine they still are looking 100 years out. They didn't get suckered into the over-committing anyway to the electric vehicles. Plug-in hybrids, yes, hybrids yes, very efficient gas motors, yes. But their constancy of purpose is a longer time frame than the Western time frame.   0:24:27.1 Andrew Stotz: Yeah, that was a real attack on the structure that they had built to say when they were being told by the market and by everybody, investors, you've got to shift now, you've got to make a commitment to 100% EVs. I remember watching one of the boardroom, sorry, one of the shareholder meetings, and it's just exhausting, the pressure that they were under.   0:24:55.2 Bill Scherkenbach: Yep, yep. But there... Yeah.   0:25:00.0 Andrew Stotz: If we take a kid, a young kid growing up and we just say, look, your main objective, and my main objective with you is to every day improve. Whatever that is, let's say we're learning science.   0:25:17.3 Bill Scherkenbach: You're improving around your aim. What is your vision? What are you trying to accomplish? And that obviously, if you're you're saying a kid that could change otherwise there'd be an oversupply of firemen.   0:25:38.5 Andrew Stotz: So let's say that the aim was related to science. Let's say that the kid shows a really great interest in science and you're kind of coaching them along and they're like, "Help me, I want to learn everything I can in science." The aim may be a bit vague for the kid, but let's say that we narrow down that aim to say, we want to get through the main topics of science from physics to chemistry and set a foundation of science, which we think's going to take us a year to do that, let's just say. Or whatever. Whatever time frame we come up with, then every day the idea is, how do we number one improve around that aim? Are we teaching the right topics? Also, is there better ways of teaching? Like, this kid maybe learns better in the afternoon and in the morning, whereas another kid I may work with works better in another... And this kid likes five-minute modules and then some practical discussion, this kid likes, an hour of going deep into something and then having an experiment is when we're talking about improvement, is the idea that we're just always trying to improve around that aim until we reach a really optimized system? Is that what we're talking about when we're talking about constancy of purpose when it comes to improving product and service?   0:27:14.4 Bill Scherkenbach: Well there's a whole process that I take my clients through in coming up with their constancy of purpose statement. And the board should be looking at what the community is doing in the next five years, 10 years, where the market is going, where politics is going, all sorts of things. And some of it. I mean, specifically in the science area, it's fairly well recognized that the time of going generation to generation to generation has gone from years to maybe weeks where you have different iterations of technology. And so that's going to complicate stuff quite honestly, because what was good today can be, as Dr. Deming said, the world could change. And that's what you've got to deal with or you're out of business. Or you're out of relevance in what you're studying. And so you have to... If you if you have certain interests, and the interests are driven... It's all going to be internal. Some interests are driven because that's where I hear you can make the most money or that's where I hear you can make the most impact to society or whatever your internal interests are saying that those are key to establishing what your aim is.   0:29:25.7 Andrew Stotz: Okay. You've got some PowerPoints and we've been talking about some of it. But I just want to pull it up and make sure we don't miss anything. I think this is the first text page, maybe just see if there's anything you want to highlight from that. Otherwise we'll move to the next.   0:29:43.0 Bill Scherkenbach: No I think we've we've covered that. Yeah, yeah. And the second page. Yeah, I wanted to talk and I only mentioned it when the Lean folks and the Agile folks talk about Gemba, they're pretty much talking about getting the board out. It's the traditional management by walking around, seeing what happens. Hugely, hugely important. But one of the things, I had one of my clients. Okay, okay. No, that's in the the next one.   0:30:29.4 Andrew Stotz: There you go.   0:30:30.7 Bill Scherkenbach: Okay, yeah. I had one of one of my clients do a reverse Gemba. And that is, that the strategy committee would be coming up with strategies and then handing it off to the operators to execute. And that's pretty much the way stuff was done in this industry and perhaps in many of them. But what we did was we had the operators, the operating committee, the operations committee, sit in as a peanut gallery or a, oh good grief. Well, you couldn't say a thing, you could only observe what they were doing. But it helped the operators better understand and see and feel what the arguments were, what the discussions were in the strategy, so that they as operators were better able to execute the strategy. And so not the board going out and down, but the folks that are below going up if it helps them better execute what's going on. But vice versa, management can't manage the 94%, and Dr. Deming was purposely giving people marbles, sometimes he'd say 93.4%. You know the marble story?   0:32:37.5 Andrew Stotz: I remember that [laughter]. Maybe you should tell that again just because that was a fun one when he was saying to, give them marbles, and they gave me marbles back.   0:32:45.7 Bill Scherkenbach: Yeah, yeah, yeah. Well, he said there was this professor in oral surgery that said there was a an Asian mouse or cricket, whatever, that would... You put in your mouth and they would eat all of the... Be able to clean the gums of all the bacteria better than anything. And described it in detail. And that question was on the test. Okay, please describe this mouse procedure. And he said all of the people, or a whole bunch of people except one, gave him back exactly step by step that he had taught. And one said, Professor, I've talked to other professors, I've looked around, I think you're loading us, that's what Deming said. And so he made the point that teaching should not be teachers handing out marbles and collecting the same marbles they they handed out. And so to some extent, he was testing, being overly precise.   0:34:12.8 Bill Scherkenbach: He wanted people to look into it, to see, go beyond as you were speaking of earlier, going beyond this shocking statement that there perhaps is some way that that really makes sense. So he wants you to study. Very Socratic in his approach to teaching in my opinion. And any event, management can't understand or make inputs on changing what the various levels of willing workers, and you don't have to be on the shop floor, you can be in the C-suite and be willing workers depending on how your company is operating. Go ahead.   0:35:12.0 Andrew Stotz: So let me... Maybe I can, just for people that don't know, Gemba is a Japanese word that means "the actual place," right? The place where the value is created.   0:35:23.8 Bill Scherkenbach: Sure.   0:35:26.2 Andrew Stotz: And the whole concept of this was that it's kind of almost nonsense to think that you could sit up in an office and run something and never see the location of where the problem's happening or what's going on. And all of a sudden many things become clear when you go to the location and try to dig down into it. However, from Dr. Deming context, I think what you're telling us is that if the leader doesn't have profound knowledge, all they're going to do is go to the location and chase symptoms and disrupt work, ultimately...   0:36:02.0 Bill Scherkenbach: Get the dog and pony shows and all of that stuff. And they still won't have a clue. The thing is...   0:36:08.6 Andrew Stotz: So the objective at the board level, if they were to actually go to the place, the objective is observation of the system, of how management decisions have affected this. What is the system able to produce? And that gives them a deeper understanding to think about what's their next decision that they've got to make in relation to this. Am I capturing it right or?   0:36:40.2 Bill Scherkenbach: Well there's a lot more to it, I think, because top management, the board level, are the ones that set the vision, the mission, the values, the guiding principle, and the questions. And I think it's incumbent on the board to be able to go through the ranks and see how their constancy of purpose, the intended, where they want to take the place is being interpreted throughout the organization because, and I know it's an oversimplification and maybe a broad generalization, but middle management... Well, there are layers of management everywhere based on their aim to get ahead, will effectively stop communication upstream and downstream in order to fill their particular aim of what they want to get out of it. And so this is a chance for the top management to see, because they're doing their work, establishing the vision of the company, which is the mission, values and questions, they really should be able to go layer by layer as they're walking around seeing how those, their constancy, their intended constancy is being interpreted and executed. And so that's where beyond understanding how someone is operating a lathe or an accountant is doing a particular calculation, return on invested capital, whatever.   0:38:47.5 Bill Scherkenbach: Beyond that, I think it's important for management to be able to absolutely see what is happening. But the Gemba that I originally spoke about is just the other way. You've got the strategy people that are higher up, and you have the operations people that are typically, well, they might be the same level, but typically lower. You want the lower people to sit in on some higher meetings so they have a better idea of the intent, management's intent in this constancy of purpose. And that will help them execute, operationalize what management has put on paper or however they've got it and are communicating it. It just helps. So when I talk about Gemba, I'm talking the place where the quality is made or the action is. As the boardroom, you need to be able to have people understand and be able to see what's going on there, and all the way up the chain and all the way down the chain.   0:40:14.4 Andrew Stotz: That's great one. I'm just visualizing people in the operations side thinking, we've got some real problems here and we don't really understand it. We've got to go to the actual place, and that's the boardroom[laughter]. It's not the factory line.   0:40:31.7 Bill Scherkenbach: Yes. Absolutely. And if the boardroom says you're not qualified, then shame on you, the boardroom, are those the people you're hiring? So no, it goes both ways, both ways.   0:40:46.8 Andrew Stotz: Now, you had a final slide here. Maybe you want to talk a little bit about some of the things you've identified here.   0:40:53.4 Bill Scherkenbach: Okay, that's getting back to, in the logical area of this TDQA is my cycle: Theory, question, data, action. And it's based on Dr. Deming and Shewhart and Lewis saying, where do questions come from? They're based on theory. What do you do with questions? Well, the answers to questions are your data. And you're just not going to do nothing with data, you're supposed to take action. What are you going to do with it? And so the theory I'm going to address, the various questions I've found helpful in order to, to some extent, make the decisions better, the ability to operationalize them better and perhaps even be more creative, if you will. And so one of the questions I ask any team is, have you asked outside experts their opinion? Have you included them? Have you included someone to consistently, not consistently, but to take a contrarian viewpoint that their job in this meeting is to play the devil's advocate? And the theory is you're looking for a different perspective as Pete Jessup at Ford came up with that brilliant view of Escher's.   0:42:47.1 Bill Scherkenbach: Different perspectives are going to help you make a better decision. And so you want to get out of the echo chamber and you want to be challenged. Every team should be able to have some of these on there. What's going to get delayed? The underlying theory or mental model is, okay, you don't have people sitting around waiting for this executive committee to come up with new things, time is a zero-sum game. What's going to get delayed and what are they willing to get delayed if this is so darn important to get done? Decision criteria. I've seen many teams where they thought that the decision would be a majority rule. They discuss and when it came down to submit it, they said, "no, no, this VP is going to make the decision." And so that completely sours the next team to do that. And so you have to be, if you're saying trust, what's your definition of trust? If the people know that someone is going to make the decision with your advice or the executive's going to get two votes and everyone else gets one, or it's just simple voting.   0:44:35.3 Bill Scherkenbach: The point is that making the decision and taking it to the next level, the theory is you've got to be specific and relied on. Team turnover, fairly simple. We spoke about executive turnover, which was a huge concern that Dr. Deming had about Western management. But at one major auto company, we would have product teams and someone might be in charge of, be a product manager for a particular model car. Well, if that person was a hard charger and it took product development at the time was three and a half years, you're going to get promoted from a director level to a VP halfway through and you're going to screw up the team, other team members will be leaving as well because they have careers. You need to change the policy just to be able to say, if you agree that you're going to lead this team, you're going to lead it from start to finish and to minimize the hassle and the problems and the cost of turnover, team turnover. And this is a short list of stuff, but it's very useful to have a specific "no-fault policy."   0:46:20.6 Bill Scherkenbach: And this is where Dr. Deming speaks about reducing fear. I've seen teams who know they can really, once management turns on the spigot and says, let's really do this, this is important, the team is still hesitant to really let it go because that management might interpret that as saying, "well, what are you doing, slacking off the past year?" As Deming said, "why couldn't you do that if you could do it with no method, why didn't you do it last year?" but the fear in the organization, well, we're going to milk it. And so all of these things, it helps to be visible to everyone.   0:47:23.0 Andrew Stotz: So, I guess we should probably wrap up and I want to go back to where we started. And first, we talked about, where is quality made? And we talked about the boardroom. Why is this such an important topic from your perspective? Why did you want to talk about it? And what would you say is the key message you want to get across from it?   0:47:47.1 Bill Scherkenbach: The key message is that management thinks quality's made in operations. And it's the quality of the... I wanted to put a little bit more meat, although there's a lot more meat, we do put on it. But the quality of the organization, I wanted to make the point depends on the quality of the decisions, that's their output that top leaders make, whether it's the board or the C-suite or any place making decisions. The quality of your decisions.   0:48:28.9 Andrew Stotz: Excellent. And I remember, this reminds me of when I went to my first Deming seminar back in 1990, roughly '89, maybe '90. And I was a young guy just starting as a supervisor at a warehouse in our Torrance plant at Pepsi, and Pepsi sent me there. And I sat in the front row, so I didn't pay attention to all the people behind me, but there was many people behind me and there was a lot of older guys. Everybody technically was pretty much older than me because when I was just starting my career. And it was almost like these javelins were being thrown from the stage to the older men in the back who were trying to deal with this, and figure out what's coming at them, and that's where I kind of really started to understand that this was a man, Dr. Deming, who wasn't afraid to direct blame at senior management to say, you've got to take responsibility for this. And as a young guy seeing all kinds of mess-ups in the factory every day that I could see, that we couldn't really solve. We didn't have the tools and we couldn't get the resources to get those tools.   0:49:47.9 Andrew Stotz: It just really made sense to me. And I think the reiteration of that today is the idea, as I'm older now and I look at what my obligation is in the organizations I'm working at, it's to set that constancy of purpose, to set the quality at the highest level that I can. And the discussion today just reinforced it, so I really enjoyed it.   0:50:11.2 Bill Scherkenbach: Well, that's great. I mean, based on that observation, Dr. Deming many times said that the master chef is the person who knows no fear, and he was a master chef putting stuff together. And we would talk about fairly common knowledge that the great artists, the great thinkers, the great producers were doing it for themselves, it just happened that they had an audience. The music caught on, the poetry caught on, the painting caught on, the management system caught on. But we're doing it for ourselves with no fear. And that's the lesson.   0:51:11.8 Andrew Stotz: Yeah. Well, I hope that there's a 24-year-old out there right now listening to this just like I was, or think about back in 1972 when you were sitting there listening to his message. And they've caught that message from you today. So I appreciate it, and I want to say on behalf of everyone at the Deming Institute, of course, thank you so much for this discussion and for people who are listening and interested, remember to go to deming.org to continue your journey. And of course, you can reach Bill on LinkedIn, very simple. He's out there posting and he's responding. So feel free if you've got a question or comment or something, reach out to him on LinkedIn and have a discussion. This is your host, Andrew Stotz, and I'm going to leave you with one of my favorite quotes from Dr. Deming, and it doesn't change. It is, "people are entitled to joy in work."